Supreme Court Rules on Intervening Claims Arising During Arbitration Proceedings

[Raghav Bhatia is an Advocate practicing at the Supreme Court of India and Devanshi Gupta is a IV year law student at Jindal Global Law School]

Recently, in State of Haryana v M/s Shiv Shankar Construction (14 December 2021), the Supreme Court of India had the opportunity to answer, inter alia, whether a claim raised after the filing of a Statement of Claim (‘SOC’) could be awarded or not.

Background

In the contract between the parties, M/s Shiv Shankar Construction (‘Contractor’) was required to strengthen, up-grade and maintain the road from Palwal to Hasanpur, Haryana ‘P-H Road’. The design of this road allowed for 3364 passengers car unit ‘PCU’ per day. However, due to the closing of another route, heavy traffic of 24,418 PCU was diverted to the P-H Road. This resulted in a significant damage to this route and the Contractor had to incur additional heavy expenditure to repair this route. Accordingly, the Contractor invoked the arbitration clause in the contract and approached the High Court for appointment of an arbitrator, resulting in the appointment of R.S Jindal in that role on 23 April 2007. The arbitrator awarded a sum of Rs.1,51,95,400/­ in favour of the Contractor.

The State of Haryana’s challenge to the award was dismissed under sections 34 and 37 of the Arbitration and Conciliation Act, 1996 by the District Court and the High Court of Punjab and Haryana respectively.

Issues

The issues before the Supreme Court were:

  1. Given that the amount claimed in the SOC was Rs. 1,03,50,263/- and the arbitrator awarded an amount of Rs. 1,51,95,400/-, has the arbitrator given an award in excess to the claim pursued by the Contractor?
  2. Whether the arbitrator exceeded the scope of reference when awarding amount beyond 19 May 2007, being the date of his reference?
  3. Whether the arbitrator has “re-written” the contract by awarding Rs. 45,000/- per month as compensation when the mutually agreed contractual rate was Rs. 1,000/- per month?

Analysis

The first issue before the Supreme Court was whether the amount awarded was in excess of the amount claimed in the SOC. The amount claimed in the SOC was Rs. 1,03,50,263/- but the arbitrator awarded an amount of Rs. 1,51,95,400/-. The Court observed that the amount awarded by the arbitrator cannot be said to be in excess of the amount claimed by the Contractor. When the SOC was submitted by the Contractor, it had specifically stated that the amount as claimed has been calculated till May 2007, and that the details of expenditure beyond May 2007 will be submitted during the course of hearing. Therefore, the amount awarded by the arbitrator, in the opinion of the Court, was not in excess of the amount as claimed by the Contractor.

The second issue before the Court was whether the arbitrator exceeded the scope of reference while awarding an amount beyond 19 May 2007, being the date on which the arbitrator entered reference. The State of Haryana had argued that the arbitrator ought to have restricted the claim either up to 6 March 2006, i.e., the date on which the contractor invoked the arbitration clause, or 23 April 2007, i.e., the date on which the High Court appointed the sole arbitrator, or up to 19 May 2007, i.e., the date on which the arbitrator entered reference. The Court observed that the arbitrator was justified in awarding an amount beyond the period of his reference and until the time the Contractor was suffering losses due to diversion of additional traffic. Even after the date of the arbitrator’s reference, the Contractor was incurring additional expenditure until January 2008. Therefore, the arbitrator was justified in awarding an amount beyond the date on which he entered reference and up to January 2008. 

The State of Haryana had argued that by awarding compensation at Rs. 45,000/- per month, the arbitrator has rewritten the contract with respect to the amount payable than what was specified in the contract i.e., Rs. 1,000/- per month. The Court, however, rejected this argument by stating that Rs. 1000/- per month was contractually agreed at the time when estimated traffic was 3364 PCUS per day. However, due to diversion, there was additional traffic on the road due to which the Contractor was required to incur additional expenditure for maintenance on the road. Accordingly, it was held that in the present facts of the case, it cannot be said that the arbitrator has rewritten the terms of the Contract by awarding compensation at Rs. 45,000/-.  

Conclusion

While the Supreme Court had the opportunity to answer the issues before it in greater detail, this judgement is in the right direction. Firstly, if a party is suffering from losses even after it has submitted its SOC, an arbitral tribunal must be empowered to award such claims arising after the filing of the SOC. This will not only save costs and time, but also prevent litigation. Moreover, if an arbitral tribunal refuses to take cognisance of claims which have arisen after the filing of SOC, even though they arise from the same contract or transaction, such claims will have be referred to another arbitration. This will result in a situation where there will be two arbitration awards arising out of the same transaction or dispute.

Secondly, it cannot be logically said that an arbitral tribunal cannot award a claim which has accrued following the reference to arbitrator. In commercial disputes, parties to an arbitration are still engaged with their contractual obligations even after the reference of their disputes for arbitration. Accordingly, new claims might accrue post the reference. However, if the arbitral tribunal declines to take jurisdiction of such claims which have arisen post its reference, then there will be multiple arbitrations in respect of the same dispute.

Having said that, the Court in this case had the opportunity to go more into detail with regards to the first issue. In the present situation, the Contractor had specifically stated while submitting its SOC that any subsequent claims would be raised during the course of arbitration proceedings. However, what if the Contractor had not specifically stated this? Should the Court’s answer still have been the same? In the opinion of the authors, notwithstanding whether a party makes a statement to the similar effect, an arbitral tribunal must have the jurisdiction to allow a claim which has arisen post the filing of SOC.

Raghav Bhatia & Devanshi Gupta

About the author

Add comment

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Top Posts & Pages

Topics

Recent Comments

Archives

web analytics

Social Media