Change in the Game: Plea for Counter Claims

Amit Meharia | October 2017

INTRODUCTION

In the past ten years there have been concentrated efforts and attempts made by the Indian legislature and judiciary to promote alternative dispute resolution in India. These efforts did take a remarkable development when the President of India on 23rd October 2015 promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015 amending the Arbitration and Conciliation Act, 1996 (for short “1996 Act”).

The Arbitration and Conciliation (Amendment) Act, 2015 (for short “2015 Amendment”) is a change welcomed by all. The 2015 Amendment has addressed augmented number and complexity of commercial disputes which grew rapidly over the last five-six years. Since year 2010, India has seen a growth of approximately 200 percent in the number of disputes referred to arbitration. This is in part because of the challenges inherent in the Indian judicial system with regards to enforcing arbitral awards, prevalent delays contributed by litigants, parties resort to dilatory tactics by filing frivolous counter claims and merit less appeal to delay the due process of law. One of the reasons behind arbitration having emerged as a bypass alternative was also due to prevailing certainty of no burden cost imposed on unsuccessful parties. But if the amendments to the 1996 Act are seen closely with respect to counter claims, such attitude may not last.

HOW PLEA FOR COUNTER CLAIMS IS POSITIONED PRE AND POST 2015 AMENDMENT

Prior to the Amendment

Section 25 (c): The bare section of 25 (c) reads as: ‘Unless otherwise agreed by the parties, where, without showing sufficient cause, a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.’ A counter claim thus not presented with sufficient documentary evidence or where respondent fails to appear without showing sufficient reason may lead to rejection of counter claims and at times disposal with cost.
General rule on tenability of Counter Claims in pleadings was discussed in the case of Voltas Limited vs. Rolta India Limited, (2014) 4 SCC 516 and State of Goa vs. Praveen Enterprise, (2012) 12 SCC 581.

In the Voltas case, it was held that a counter claim in arbitral proceedings could be considered in regard to a dispute only when a notice has been served by claimant upon the other party, meaning thereby that a counter claim can be entertained by Arbitrator only if it has been referred to him, after a notice seeking arbitration in view of such Counter claim within the limitation period. General rule so reiterated is that the date on which counter claim is made by Respondent before Arbitrator will be its ‘date of institution’.

The Apex Court observed that the limitation for counter claim has to be strictly in accordance with Section 43 (1) of the 1996 Act read with Section 3 (2) (b) of the Limitation Act, 1963 and any deviation there from is required to be authorized by any other provision of law. However, Section 21 opened a window of exception to the general rule. It can be therefore be well inferred that the notice under section 21 saves limitation for filing a counter claim, if, a Respondent against whom a claim has been made satisfies the test that he had made a claim against the claimant and sought arbitration by serving a notice to the claimant.

In Praveen Enterprise case (Supra), it was laid down that any claims raised or enhanced after the expiry of limitation period will not be granted. Both claimant and respondent are allowed to raise/make claims and are also entitled to add, amend their claims and counterclaims provided they are arbitrable within the limitation.

After the 2015 Amendment

The 2015 Amendment introduced the following amendments to the 1996 Act:

Amendment to Section 23[2(A)]: It states that the respondent, in support of his case, may submit a counterclaim or a set-off, within the scope of the arbitration agreement. The 2015 Amendment by introducing such specific amendment has empowered the Respondents to file counter claim by adding sub section 2(A) to Section 23.
Insertion of Fourth Schedule: In respect of fees there has been insertion of new Fourth Schedule where the fees of the arbitrator has been linked with the amount of claims involved, higher the claim amount, higher shall be the fees. This has been introduced in order to curb the extended delays caused by whimsical counter claims raised by the parties.
Insertion of regime of costs: Section 31A seeks to make the conduct of parties a relevant factor while deciding on the issue of costs and the tribunal has been specifically empowered to impose costs if the party makes a frivolous counterclaim leading to delay in the disposal of the arbitral proceedings.

ATTITUDE OF RESPONDENTS

In order to render full defense to the claims raised by the Claimants, the Respondents sometime go over the board and raise huge amount of counter claims. Some of such claims are not even quantifiable such as those raised on account of loss of credibility, reputation or interest imposed thereby. It has been generally seen that the quantification arrived at are often whimsical and unfair.

Raising of frivolous claims sometimes overshadows the genuine claims and makes the defense weak making the arbitrator believe that a sense of malice is involved on the side of the Respondent.

In the hurry to claim back amounts the Respondents raise counter claims without supporting necessary documentation. Section 25 (c) is of immense importance in this regard that provides for provision of necessary documentation as evidence in absence of which the tribunal may proceed with the available evidence before it. It is imperative that the counter claim should stand on its own legs.

The practice of raising false and frivolous claims makes the proceedings before the tribunal become very expensive in long run more so, after the introduction of the fee schedule.

The parties need to come out of the mindset that raising huge claims makes a belief that the other is at fault. The counsels need to engage in the task of fetching relevant documents to substantiate each and every counter claim made which not only fortifies the defense, but makes the realization of counter claim possible

About Author

Amit Meharia

Amit Mohaan Meharia is a Law Graduate from King’s College (London) and holds a Post Graduate Diploma in Law from School of Law (Store Street). He is a Solicitor and is on the Roles of the Law Society of England and Wales. He is the Managing Partner of MCO Legals. He has been the primary think-tank in designing the idea of ‘Paperless’ office where all the workings happen in cloud and transparency is guaranteed to all clients. He has more than 20 years’ experience in Corporate Law, Commercial Arbitration and Transactional Work.