Counterclaim In Arbitration Cannot Be Allowed After Commencement Of Claimant's Evidence: Calcutta High Court

The Calcutta High Court bench of Justice Hiranmay Bhattacharyya has held that a counterclaim in arbitration proceedings cannot be allowed after the commencement of the claimant's evidence, as doing so would cause serious injustice to the other party. The present petition has been filed under Article 227 of the Indian Constitution against an order passed by Arbitrator by which an application seeking amendment in the Statement of Defence (SoD) to include a counterclaim was rejected. The Petitioners submitted that the necessary documents have been filed along with affidavit in chief but through inadvertence the petitioners have not lodged any counter claim along with SoD. The petitioners are only seeking to introduce the counter claim as the documentary evidence in support of such counter claim has already been on record. It was further contended that there is no embargo upon the learned Arbitrator to allow the application for amendment after the commencement of trial as Section 23(3) of the Arbitration Act does not put any embargo upon the learned Arbitrator to allow an amendment after commencement of trial. Per contra, the Respondent submitted that Section 5 of Arbitration Act expressly bars intervention of the courts except in matters expressly provided for in the Act. He further contended that Section 37 of the Arbitration Act only provides for a remedy of appeal against certain orders which have been mentioned therein. The court observed that upon a reading of Section 23 as a whole and more particularly Subsection 2A, it is evident that no time limit has been prescribed within which the respondent may submit a counter claim. The only limitation for submitting a counter claim as provided in sub-section (2A) is that the same shall have to fall within the scope of arbitration agreement. It further observed that a counter claim can be raised with the written statement, through its amendment and by subsequent pleadings. However, the cause of action for filing the counter claim must arise either before or after filing of the suit but in any case it must not arise after the defendant has delivered his written statement or the time period for filing the written statement has expired. It held that “Neither in Order 8 Rule 6A of the Code of Civil Procedure nor in Section 23 of the 1996 Act any time limit within which a counter claim may be set up in a suit or for submission of a counter claim in an arbitration proceedings has been provided.” The Supreme Court in Ashok Kumar Kalra v. Wing CDR. Surendra Agnihotri held that the counter claim cannot be allowed to be set up after framing of issues. The court held that section 23(2A) of the Arbitration Act must be interpreted in such a manner so that a balance between the right to speedy trial with the right to file a counterclaim is ensured. The timeline laid down by the Supreme Court in the above case while interpreting Order VIII Rule 6A is equally applicable to the Arbitration proceedings. Therefore, the counterclaim cannot be filed after framing of issues and in exceptional circumstances after the commencement of the claimant's evidence as no substantial progress occurs between framing of issues and witness examination. It held that “the delay in filing the application of amendment has not been satisfactorily explained. That apart an application for amendment of SoD to set up a counter claim cannot be allowed after commencement of the evidence of claimant. For all the reasons as aforesaid this Court holds that the learned Arbitrator was right in rejecting the application for amendment of SoD.” Accordingly, the present petition was dismissed. Case Title: Gayatri Granites & Ors. VS. Srei Equipment Finance Ltd. Case Number: C.O. 2449 of 2025 Judgment Date: 01/09/2025 Click Here To Read/Download The Order

Counterclaim In Arbitration Cannot Be Allowed After Commencement Of Claimant's Evidence: Calcutta High Court

Mohd Malik Chauhan

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