A Counter Claim is an independent proceeding and cannot be dismissed merely for the reason that the arbitration proceedings are dismissed by the Arbitrator

The Delhi High Court held in a judgment that where an arbitration proceeding was dismissed for non-prosecution, the Counter Claim being a separate and independent claim is still maintainable and is bound to be decided by the tribunal on its own merits.

The decision was delivered by the Delhi High Court in the matter of Union of India. Vs. Arun Kumar Gupta, O.M.P. (COMM) 319/2016, decided on 06.04.2018

Challenge:

The Delhi High Court was faced with the following facts when a petition under Section 34 of the Arbitration and Conciliation Act, 1996 was filed by the petitioners challenging an Arbitral Award passed by a Sole Arbitrator to the extent that by the Impugned Award the Arbitrator had terminated not only the arbitration proceedings but also the proceedings with respect to the Counter Claim filed by the petitioners.

Held:

The Delhi High Court noted that unlike section 20 of the Arbitration Act, 1940, under Section 11 of the Arbitration and Conciliation Act, 1996 the Chief Justice (now the High Court) only appoints an Arbitrator upon failure of the parties to act in accordance with the appointment procedure. There is no provision of making reference of the disputes to the Arbitrator.

The Court also discussed the ratio of State of Goa vs. Praveen Enterprises (2012) 12 SCC 581 wherein the Supreme Court held that the respondent in an arbitration proceeding can file a Counter Claim and once such Counter Claim is filed before the Arbitrator, the Arbitrator has to decide the same, including the question whether such Counter Claim falls within the scope of the Arbitration Agreement and whether he has jurisdiction to adjudicate all those disputes and if the answer is in the affirmative, proceed to adjudicate upon the same.

The Supreme Court further held that a Counter Claim by a respondent presupposes the pendency of the proceedings relating to the disputes raised by the Claimant. The object for providing of Counter Claim is to avoid multiplicity of proceedings and to avoid divergent findings. It was held that a respondent in the arbitration proceedings has a choice of raising the disputes by issuing a notice to the Claimant calling upon him to agree for reference of his disputes to arbitration and then resort to an independent arbitration proceeding or raise his disputes by way of a Counter Claim, in the pending arbitration proceedings.

It was also observed that a Counter Claim by its very nature is an independent claim raised by the respondent in the arbitration proceedings and even where the claim is to be dismissed for non-prosecution, the proceedings must continue with respect to the Counter Claim.

Therefore, in the present the Delhi High Court held that the Arbitrator had erred in terminating the arbitration proceedings with respect to the Counter Claim filed by the petitioners.