When Counter-Claim Is Related To Primary Dispute, It Can Be Filed Before Tribunal U/S 23 Of Arbitration Act: Delhi High Court

The Delhi High Court bench of Justice Manoj Jain has held that while any counter-claim may relate to a different cause of action, it can still stem from a primary dispute between the parties. Thus, the court held that the governing factor would be to see whether it has any connection with the original dispute or is isolated and separable. For all purposes, the court observed that the counter-claim in this case was, directly or indirectly, related to the primary dispute between the parties and the claim in question. Additionally, the court held that if there is a strong interconnectivity or linkage between the two i.e. claim and counter-claim, these can be assumed to be a part of the same transaction. Brief facts of the Case: AKN Developers (“claimant”) and Premsons Southend (“counter-claimant”) executed a lease and inducted counter-claimant as its lessee on the first floor of its property for a fixed period of three years. After some time, disputes arose between the parties with respect to default in payment of monthly rent. To resolve the dispute, the claimant invoked arbitration and filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator. The court appointed a sole arbitrator and then the claimant filed its statement of claim before the arbitrator and the counter-claimant filed Statement of Defence (“SOD”). After the counter-claim was lodged, the claimant filed an application under Section 16 of the Act seeking rejection of the counter-claim. The Sole Arbitrator dismissed the application and held that the counter-claim is within the jurisdiction of the Arbitral Tribunal. Aggrieved by this, the claimant challenged the order passed by the Arbitral Tribunal before the High Court. Observation of the Court: The court held that if there is a strong interconnectivity or linkage between the two i.e. claim and counter-claim, these can be assumed to be a part of the same transaction. Moreover, the court held that the respondent has a right to file counter-claim in terms of Section 23 of the Arbitration Act and keeping in mind the averments made by the counter-claimant in his SoD as well as in the counter-claim, such counter-claim is maintainable and falls within the scope of Clause 6 of the lease agreement, being in relation to such agreement. Thereafter the court held that “Moreover, as rightly observed by the learned Sole Arbitrator, it would unnecessarily lead to the multiplicity of the proceedings. Admittedly, agreement-to-sell and lease agreement are two separate transactions but in the present case, even before the execution of lease deed, counter-claimant was in possession of the first floor and had made substantial payment towards sale of the same floor and such aspect cannot be overlooked at such initial juncture of the case. Moreover, this is not the stage either to label the lease-agreement as a fictitious and sham document or for that matter, the agreement-to-sell as inadmissible one or non-existent. These are subject matters of trial. The only aspect which needs to be evaluated at this stage is whether the counter-claim is within the competence of the learned Sole Arbitrator seized with the dispute in question and I have no hesitation in holding that counter-claim needs to be considered in order to reach just and fair resolution to the existing disputes between the parties.” Finally, the court dismissed the petition and held that it would be a travesty of justice if the counter-claim is not entertained and the counter-claimant is rather asked to knock on the doors of a civil court. Case Title: M/S. Akn Developers Private Limited Versus M/S. Premsons SouthendCitation: 2025 LiveLaw (Del) 96 Case Number: CM(M) 131/2024 & CM APPL. 4130/2024 Advocate for the Petitioner: Mr. Ravi Gupta, Senior Advocate with Mr. Akhil Sachar, Mr. Rajeev Bansal, Ms. Muskaan Mehra, Ms. Kashish and Sunanda, Advocates Advocate for the Respondent: Mr. Tanmay Mehta and Mr. Nikhil Palli, Advocates Date of Judgment: 21.08.2024 Click Here To Read/Download The Order

When Counter-Claim Is Related To Primary Dispute, It Can Be Filed Before Tribunal U/S 23 Of Arbitration Act: Delhi High Court

Soumya Chakrabarti

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