2026 INSC 4 Page 1 of 41

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 39 OF 2026

(@ SPECIAL LEAVE PETITION (CIVIL) NO. 7338 OF 2025)

M/s Bhagheeratha Engineering Ltd. …Appellant(s)

VERSUS

State of Kerala …Respondent(s)

J U D G M E N T

K.V. Viswanathan, J.

1. Leave granted.

2. The present appeal calls in question the correctness of

the judgment dated 07.01.2025 passed by the Division Bench

of the High Court of Kerala at Ernakulam in Arbitration Appeal

No. 56/2012. By the said judgment, the Division Bench of the

High Court upheld the order of the District Judge ,

Thiruvananthapuram, dated 22.06.2010 in O.P. (Arb.) No.238

of 2006, al beit, on different grounds. The District Judge had

Page 2 of 41

set aside the award of the Arbitrator as being beyond the

scope of reference and against the terms and conditions of the

contract and restored the decision of the Adjudicator. The

Adjudicator had, by his order of 14.08.2004, decided four

disputes and held in favour of the appellant insofar as dispute

Nos. 1 and 3 were concerned and against the appellant in

relation to dispute Nos. 2 and 4.

3. The principal reason assigned by the High Court was that

the Arbitral Tribunal was appointed at the request of the

respondent-State to adjudicate on dispute no. (1) alone and

the appellant never intended to raise any dispute regarding

dispute nos. (2) to (4) by issuing a separate notice under

Section 21 of the Arbitration and Conciliation Act, 1996 [for

short “the A&C Act”]. The reasoning of the High Court is set

out hereinbelow:-

25. We must bear in our mind that the arbitral tribunal was

appointed at the request of the State to adjudicate on

dispute no. (1) alone. The appellant never intended to

raise any dispute regarding point Nos. (2) to (4) by issuing

a separate notice under Section 21 of the Act. The

assumption that where one-party files an application and

gets an arbitrator appointed, the other party can raise all

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such disputes under the contract before the arbitrator is

baseless, especially when the law governing the

arbitration specifically provides that the arbitrator can

decide only such dispute referred before him and not

otherwise. To hold otherwise will certainly do violence to

the statute. Hence, we find that the arbitral tribunal had

clearly exceeded the jurisdiction in deciding the entire

disputes. Perhaps the appellant was under a mistaken

impression with regard to its right to have the entire

disputes opened for arbitration. We must also note that

the State was never put on notice regarding the intention

of the appellant to go for arbitration. Even assuming that

the contention of the appellant that the State had

unequivocally agreed to arbitrate on the entire disputes,

the tribunal ought to have framed an issue or given its

finding on the jurisdiction as envisaged under Section 16.

In the absence of any finding in this regard by the tribunal,

we are afraid that the award in question clearly crossed

the contours of the law and thus rendering itself to be

inexecutable and falling within the mischief of Section 34

of the Arbitration and Reconciliation [sic] Act, 1996.”

4. It is the correctness of this decision, which the appellant

has questioned before us in this appeal by way of special

leave.

5. The facts lie in a very narrow compass:-

5.1 Four packages of Road Maintenance Contract were

awarded to the appellant as part of the Kerala State Transport

Project (KSTP) for development of roads in Kerala in

collaboration with the World Bank. The work was awarded

through competitive bidding.

Page 4 of 41

5.2 The four projects awarded to the appellant were the

following:-

“1. RMC 01” Thiruvananthapuram – Kottarakkara

Road (5.70 to 25 KM)

2. RMC 03: Thodupuzha – Kalur – Ounukal Road (0.00

to 20 KM)

3. RMC 08: Kozikode – Mavoor Road (0.00 to 10.50

KM)

4. RMC 12: Quilandy – Thamarassery Road (0.00 to

29.30 KM)”

5.3 Under the General Conditions of Contract [for short

“GCC”], the following mechanism was provided for

adjudication of disputes:-

“24. Disputes

24.1 If the Contractor believes that a decision taken

by the Engineer was either outside the authority

given to the Engineer by the Contract or that the

decision was wrongly taken, the decision shall be

referred to the Adjudicator within 14 days of the

notification of the Engineer's decision.

25. Procedure for Disputes

25.1 The Adjudicator shall give a decision in writing

within 28 days of receipt of a notification of a dispute.

25.2 The Adjudicator shall be paid daily at the rate

specified in the Contract Data together with

reimbursable expenses of the types specified in the

Contract Data and the cost shall be divided equally

between the Employer and the Contractor, whatever

decision is reached by the Adjudicator. Either party

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may refer a decision of the Adjudicator to an

Arbitrator within 28 days of the Adjudicator's written

decision. If neither party refers the dispute to

arbitration within the above 28 days, the

Adjudicator's decision will be final and binding.

25.3 The arbitration shall be conducted in

accordance with the arbitration procedure stated in

the Special Conditions of Contract.”

Special Conditions of Contract

“4. ARBITRATION (GCC Clause 25.3)

The procedure for arbitration will be as follows:

25.3. (a) In case of Dispute or difference arising

between the Employer and a domestic contractor

relating to any matter arising out of or connected with

this agreement, such disputes or difference shall be

settled in accordance with the Arbitration and

Conciliation Act, 1996. The arbitral tribunal shall

consist of 3 Arbitrators one each to be appointed by

the Employer and the contractor. The third Arbitrator

shall be chosen by the two arbitrators so appointed

by the Parties and shall act as presiding arbitrator. In

case of failure of the two arbitrators appointed by the

parties to reach upon a consensus within a period of

30 days from the appointment of the arbitrator

appointed subsequently, the Presiding arbitrator

shall be appointed by the Chairman of Executive

Committee, Indian Roads Congress, New Delhi.”

5.4 Clause 24.1 states that if the contractor believes that a

decision taken by the Engineer was either outside the

authority given to the Engineer by the contract or that the

decision was wrongly taken, the decision shall be referred to

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the Adjudicator within 14 days of the notification of the

Engineer’s decision. Hence, it is clear that what is

contemplated is that disputes may be referred to the

Adjudicator, where the issue involves decisions beyond the

authority of the Engineer, or where decision of the Engineer

is erroneous.

5.5 Further, under Clause 25.1, the Adjudicator was to give a

decision within 28 days of the receipt of the notification of a

dispute and under Clause 25.2, either party may refer the

decision of the Adjudicator to an Arbitrator within 28 days of

the Adjudicator’s written decision and if neither party refers

the dispute to the arbitration within 28 days, the Adjudicator’s

decision will be final and binding.

5.6 In the present case, the appellant, by letters of 02.03.2004

and 24.03.2004 quantified the amounts due and submitted the

same for decision by the Executive Engineer. According to

the appellant, since the Executive Engineer/Superintending

Engineer failed to take any decision, the appellant, by a letter

dated 15.04.2004, approached the Adjudicator under Clause

Page 7 of 41

25.1 of the GCC for decision on pending payments classifying

the disputes as dispute Nos.1 to 4 under the following heads:-

“The disputes before the Adjudicator were:

1. Value of work to be considered for calculating the price

adjustment for bitumen and POL.

2. Decision for releasing the escalation during the

extended periods.

3. Price of bitumen to be considered for calculation of

price adjustment of the bitumen.

4. Release of interest payable at 12% per annum for the

delay in releasing the eligible payments beyond 42

hours from the date of submission of the monthly

statement of the value of work done during the period

as per Clause 42.2 and 43.1 of General Conditions of

Contract.”

5.7 The Adjudicator, by his decision of 14.08.2004, ruled in

favour of the appellant on dispute Nos.1 and 3 and ruled

against the appellant on dispute Nos. 2 and 4.

5.8 Notwithstanding the decision of the Adjudicator and the

submission of the final bill by the appellant, the respondent

did not settle the bill on the ground that the finding of the

Adjudicator qua dispute No.1 was unacceptable to the

respondent.

5.9 On 01.10.2004, the respondent addressed the following

letter to the appellant.

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“Sub: RMC-Contractors—RMC-01,03,08,12—

Adjudication-reg.

Ref: Award of Adjudicator dated 14.8.2004

Further to the letter cited under reference above, we write

to inform you that the award of the Adjudication for

Dispute No. 1 is not acceptable and we intent to refer the

matter for an arbitration. We have appointed Mr. Subash

Chandra Bose, as our arbitrator. Therefore, you may

propose your arbitrator as per clause 25.3 of General

Conditions of contract and intimate for further action.”

5.10 It will be seen that the reference was under Clause

25.3 which is the arbitration clause. The letter was issued by

the respondent and, according to the respondent, it was

confined to dispute No.1, namely, “value of work to be

considered for calculating the price adjustment for bitumen

and POL.

5.11 In response to the letter dated 01.10.2004, the appellant

sent a letter on 14.10.2004 to the respondent. The appellant

stated that the adjudicator’s decision was issued on 14.08.2004

and the time limit for reference to arbitration was till

11.09.2004, (on the expiry of 28 days) and as such the letter

dated 01.10.2004 was beyond the stipulated time. The

appellant stated that the decision of the adjudicator has

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become final and binding upon both the parties. The stand of

the appellant was that, in view of the same, the Arbitral

Tribunal has no jurisdiction to enter into the reference. The

appellnt also stated that they have not received any payment

and that compound interest would be charged.

5.12 The respondent addressed a letter dated 30.10.2004

to the appellant in response to the appellant’s letter dated

14.10.2004. The respondent stated that by their letter dated

01.10.2004, they had conveyed their intention to refer dispute

No.1 to the arbitrator. They further added that they disagreed

with the “recommendations of the adjudicator”. It was further

averred that under Clause 25.2 of the GCC the issue of delay

in referring the matter to arbitration can also be referred and

the appellant can take up the issue before the arbitrator. The

crucial contents of the letter reads as follows:-

“…… Moreover as per clause 24.1 of the agreement

within 14 days you have to refer to the adjudicator any

decision not acceptable to you. Whereas all the

disputes referred are after the stipulated time for

referring the decision of Engineer to Adjudicator.

Hence your argument [sic] with regard to dates will cut

at the root of petition considered by the adjudicator.

Page 10 of 41

Hence you are here by called upon to forward the

name of the Co-arbitrator to constitute the tribunal. You are

contractually bound to forward the name of the Co-

arbitrator and question regarding dates and whether

decision is binding on KSTP can be referred to the

arbitrator.

As stated earlier your claims before the adjudicator

are delayed for several months and refused to nominate

the name of co-arbitrator will be viewed were serious and

we hope you can understand the implications of

disobedience of request of the employer. Moreover the

employer is entitled proceed further to set aside the

recommendation of adjudicator in accordance with

agreement. Hence you are required to forward the name of

co-arbitrator to our office and to Mr. Subash Chandra Bose

to proceed further. It is true that if the decision of the

Adjudicator is not acceptable to either party, may refer

within 28 days to the Arbitrator. But there is no existing

Arbitrator. This body has to be constituted and then

only refer the matter to the Arbitrator. We have taken

action to constitute the Arbitration Panel.

Since this is a matter of dispute we are not in a

position to release the payment. Which shall be subject

to Arbitrations decision.”

(Emphasis supplied)

5.13 The respondent also stated that any refusal to

nominate the co-arbitrator would be viewed seriously and

hoped that the appellant will understand the implications of

disobedience of request of the employer. It was also stated

that since it is a matter of dispute, they were not in a position

Page 11 of 41

to release payment which shall be subject to the decision in

arbitration.

5.14 In response to the letter dated 30.10.2004 of the

respondent, the appellant wrote to the respondent on

29.11.2004. After disagreeing with the interpretation of the

respondent on Clause 25.2, the appellant agreed to nominate

the co-arbitrator. The letter further stated as follows:-

“We reiterate that the decision of the Adjudicator's

decision dated 14.08.2004 is final and binding on both the

parties as per clause 25,2 of the GCC. Since your grievance

against the decision of adjudicator and no notice to go for

arbitration was given within the stipulated period of GGC

25.2, the said decision is final and binding upon KSTP.

Therefore, please take notice that we reserve the dispute that

exists as on date for an adjudication by the Arbitral Tribunal

is confined to the following.

Whether the parties have agreed under the contract to

accept the decision of the adjudicator as final and binding on

both the parties if notice to refer the decision to arbitration is

not given within 28 days of the decision of the adjudicator?

If it is so agreed, whether the decision given by the

adjudicator on 14.08.2004 is final and binding on both the

parties as per clause 25.2 of the GCC?

Since the amount payable as per the decision of the

adjudicator is delayed, whether the contractor is entitled for

monthly compound interest quarterly on the principle sum so

adjudicated as demanded by the contractor vide letter dated

Page 12 of 41

14-10-04? If so, what is the reasonable rate of interest

payable?

Without prejudice to the above, we would like record

herein that if the Arbitral Tribunal ultimately decides that the

adjudicator's decision is not final and binding and can be

reopened in arbitration, we would be raising the following

issues for reference to the Arbitral Tribunal by way of

counter claim.

Whether the reason for delay in execution of work and

the resultant extension of time of completion of the work

is attributable to the contractor or to KSTP?

If so, whether the contractor is entitled to escalation

during the approved extended period of contract?

Whether the liquidated damages imp osed on the

contractor during the extended period of contract is

sustainable?

Whether the contractor is eligible for interest on all

delayed payments beyond 42 days after submission of the bill

to the Engineer?

We have already submitted the final bill for all the above

projects and the payment is still pending for payment. Payment

for RMC 8 & 12 are due for payment since 08-05-04 and 10.01.04

respectively. We would request you to kindly release the

payment against the work done for which there is no dispute for

the item rates at an early date so that accumulation of interest

charges for the late payment can be avoided.”

(Emphasis supplied)

5.15 On 11.01.2005, the Arbitral Tribunal was

constituted. Initially, the appellant did file the application to

consider the Adjudicator’s decision as final and binding which

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the respondent opposed. However, the appellant did not

press the application and agreed to file its claim before the

Arbitrator. The respondent filed an application to treat the

entire decision of the Adjudicator as null and void on the

ground that it was contrary to Clause 24.1 of the GCC. The

respondent also objected to the appellant being allowed to

file the claim petition with regard to all the issues which,

according to the respondent, led to enlargement of the

jurisdiction.

5.16 Respondent in the statement filed on 09.03.2005

sought a declaration that the decision of the adjudicator be

declared null and void and contended that the appellant’s

reference to the adjudicator itself was out of time and that the

acceptance of the dispute by the adjudicator was not as per

Clause 24.1. The relevant para in the statement is as follows:-

“If the contractor had any protest or dispute in calculating

the 'R' value and price of Bitumen. The contractor should

have referred the matter to the Adjudicator within 14 days

of notification. The notification is the date of payment as per

clause 24.1.

Page 14 of 41

The last date for referring the matter to the Adjudicator

shall be as follows:

Contract Date of

payment

(Decision)

To be

reported to

the

Adjudicator

Date of

report by

contractor

Total

delays

RMC-01 - 6.9.03 - 20.09.03 - 15.4.04 209 days

RMC-03 - 15.3.03 - 29.3.03 - 15.4.04 383 days

RMC-08 - 8.7.03 - 22.7.03 - 15.4.04 267 days

RMC-12 - 5.6.03 - 19.6.03 - 15.4.04 299 days

From the above it was noticed that the matter on

dispute was referred to the Adjudicator was delayed.

Hence the acceptance of dispute by the Adjudicator was

not as per clause 24.1 and the Recommendation of the

Adjudicator to be set aside.

As explained in the para 7.2. Our main contention is that the

contractor is the defaulter, who refers the decision of the

employer in calculation of ‘R’ value and the Bitumen price

for price escalation as a dispute after a huge delay as

tabulated in para 7.2. The adjudicator not considered the

delay made by the contractor in referring the dispute to the

Adjudication.

Since the contractors action for referring the disputes

to the Adjudicator after expiring the time frame as per

contract clause 24.1. The acceptance of dispute and

award by the Adjudicators is considered to be null and

void.”

(Emphasis supplied)

5.17 By its ruling of 16.12.2005 under Section 16 of the

A&C Act, the Arbitral Tribunal held that the claims of the

appellant still remained unsettled. It further held that the

Page 15 of 41

arbitration clause was comprehensive enough to include any

matter arising out of or connected with the Agreement. It

further held that the prayer of the respondent to declare the

Adjudicator’s decision as null and void indicated their

intention to reopen the four disputes originally brought for

consideration before the Adjudicator. The Tribunal, however,

disallowed the claims of the appellant insofar as they were

beyond the claims raised before the Adjudicator. Pursuant to

the decision under Section 16, the appellant revised its claims

and confined the claims to four issues permitted by the order

of 16.12.2005. In view of this, we are not called upon to decide

whether the Arbitral Tribunal was justified in confining the

appellant to the four issues raised before the Adjudicator.

5.18 By its award of 29.06.2006, the Arbitral Tribunal

answered all four issues in favour of the appellant. In all, the

appellant was awarded a total sum of Rs.1,99,90,777/- along

with post award interest @ 18% p.a. Inter alia, the award of

the arbitrator recorded that:-

Page 16 of 41

A) several claims were first raised by the Appellant and

they still remained as unsettled claims;

B) Arbitration agreement is comprehensive enough to

cover any dispute arising out of or in connection with the

agreement;

C) The prayer of the respondent to declare the decision of

the adjudicator null and void virtually indicated their

intention to open the 4 disputes that are brought before the

Arbitral Tribunal;

D) Both parties have rejected the decision of the

Adjudicator which has now become infructuous.

5.19 The respondent challenged the Award under Section 34

before the District Judge, Thiruvananthapuram in

O.P.(Arbitration) No. 238 of 2006. The respondent also

challenged the decision under Section 16 dated 16.10.2005 in

its Section 34 petition. By judgment dated 26.06.2010, the

District Judge allowed respondent’s Section 34 petition and

set aside the award and restored the decision of the

Adjudicator on the following two grounds:-

Page 17 of 41

(i) there was no provision in the contract for extending

the time for referring the issue beyond the period of 28

days; and

(ii) hence there cannot be any question of there being

any consensus between the parties for referring all the

disputes.

5.20 In spite of so holding, the District Judge, for reasons best

known to him, restored the recommendations of the

Adjudicator. Aggrieved, the appellant filed an appeal under

Section 37 of the A&C Act. The Division Bench, by the order

impugned, clearly found that imposition of 28 days time-limit

in Clause 25.2 was contrary to Section 28(b) of the Contract

Act. However, on the ground that the appellant never sought

reference of the dispute by issuing any notice under Section

21 of the A&C Act and only the respondent had issued such a

notice on one issue, it found the award to be invalid. However,

the order restoring the decision of the Adjudicator was not

disturbed.

Page 18 of 41

6. We have heard Mr. Rajiv Shakdher, learned Senior

Advocate, for the appellant and Mr. Naveen R. Nath, learned

Senior Advocate for the respondent. We have gone through

the records, including the written submissions filed by the

respective parties.

SUBMISSIONS OF THE APPELLANT : -

7. The learned senior counsel for the appellant submits that

the arbitration clause is exhaustive and covers any dispute or

difference arising between the parties relating to any matter

arising out of or connected with the agreement. According to

the learned senior counsel, the agreement was not limited to

the reference of disputes decided by the adjudicator. It is

further contended by the learned senior counsel that the

Division Bench has set aside the award on a ground not taken

by the respondent before the Arbitral Tribunal or in Court.

According to the learned senior counsel, such a course of

action was beyond the scope of Section 37 appeal.

Page 19 of 41

8. Learned senior counsel further contends that there is a

clear waiver under Section 4 of the A&C Act. Learned senior

counsel for the appellant contends that notice is not envisaged

at the stage of invocation under Clause 25.3 of the GCC and

Clause 4 of the Special Conditions of Contract. Learned senior

counsel contends that Section 21 of the A&C Act opens with

the phrase “Unless otherwise agreed by the parties”, and

contends that, in the present case, it was otherwise agreed in

the contract that if a party wishes to settle the dispute, it may

first notify claims to the other party and refer it for settlement

with the engineer and, thereafter, refer it to the adjudicator.

According to the learned senior counsel, the dispute has

already been referred through two stages before referring it

to arbitration.

9. Learned senior counsel further contends that the purpose

of Section 21 was to primarily determine whether the claims

are within limitation, and no award can be set aside for want

of a Section 21 notice. In any event, learned senior counsel

contends that the letter dated 29.11.2004 issued by the

Page 20 of 41

appellant should be construed as the Section 21 notice.

Assuming everything against the appellant, the learned senior

counsel contends, that there is no requirement of issuance of

notice under Section 21 by both parties. According to the

learned senior counsel, if one party take steps to constitute an

Arbitral Tribunal, the other party can raise all claims and

counterclaims. Any other interpretation would result in

multiple arbitration and conflicting awards. In conclusion, it

was submitted that the Arbitral Tribunal is a final adjudicator

regarding the arbitral procedure. So contending, it was

prayed that the impugned order deserves to be set aside and

the award of the arbitrator be upheld in entirety.

SUBMISSIONS OF THE RESPONDENT : -

10. Learned senior counsel for the respondent contends that

the dispute resolution mechanism comprises escalatory

measures which would mean that the dispute needs to be first

resolved by the engineer and, in case the decision was not

acceptable, it was to be referred to the adjudicator within 14

Page 21 of 41

days. According to the learned senior counsel, the

adjudicator’s decision is required to be in writing within 28

days of the receipt of the notification of dispute. Further what

is referred to the arbitrator is the adjudicator’s decision and

not the original dispute before the engineer.

11. Learned senior counsel submits that this is the agreed

procedure for the appointment of the arbitrators as

contemplated under Section 11(2); that these escalatory

measures have statutory significance since they are intended

to narrow the dispute referable to the Arbitral Tribunal. In

view of that, it is submitted that for a party to invoke arbitration

it must clearly and categorically be signified, by issuance of

notice that it disputes the adjudicator’s decisions either in

entirety or on specified issues.

12. Learned senior counsel submits that the procedure for

appointment of an arbitrator must be strictly complied and

even under Section 28(3) of the A&C Act, the Arbitral Tribunal

is required to take into account the terms of the contract.

Learned senior counsel submits that issuance of notice under

Page 22 of 41

Section 21 is a mandatory requirement and both the parties to

an arbitration agreement have the right to be informed of the

arbitral dispute before the constitution of the Arbitral

Tribunal. According to the learned senior counsel, the

appellant could never be the claimant and the expression

claimant can only be attributed to that party who initiates the

arbitration proceedings by issuance of notice under Section

21. Learned senior counsel disputes the fact that the letter

dated 14.10.2004 or 29.11.2004 of the appellant could be

treated as Section 21 notice. Learned senior counsel submits

that the case of the respondent was covered by para 41(c) of

the decision of this Court in State of Goa v. Praveen

Enterprises

1.

QUESTIONS FOR CONSIDERATION : -

13. In the above background, the questions that arises for

consideration are (a) whether the High Court by the

impugned order was justified in holding that the Arbitral

1

(2012) 12 SCC 581

Page 23 of 41

Tribunal was appointed at the request of the State to

adjudicate dispute No. 1 only? (b) Was the non-issuance of a

notice under Section 21 of the A&C Act by the appellant fatal

for it to pursue its claim before the Arbitrator?

ANALYSIS AND REASONING : -

14. In our opinion, the High Court totally erred in setting

aside the award on the basis that the appointment of the

Tribunal was only to adjudicate dispute No.1. The High Court

also erred in holding that the non-issuance of notice under

Section 21 of the A&C Act by the appellant with regard to

dispute no. 2 to 4 was fatal for it to pursue its claim before the

arbitrator. The High Court erred in holding that the Arbitral

Tribunal exceeded its jurisdiction in deciding the entire

dispute. We say so for the following reasons.

CONDUCT OF THE RESPONDENT: -

15. Firstly, the sequence of events clearly demonstrates that

the present was a case where conduct of the respondent

clearly precluded it from relying on the mandate of clause 24,

Page 24 of 41

24.1 and 25 to contend that the appellant was foreclosed from

raising the entire dispute before the Arbitrator. This is

because: -

a) Clause 24.1 stipulated a time limit of 14 days to refer

the decision of the Engineer to the adjudicator. While

the appellant contends that the Engineer never

decided on any issue after the appellant quantified the

amounts and submitted the same on 02.03.2024 and

24.03.2024, the respondent has a different story to tell.

According to the respondent, the payment dates of

06.09.2023, 15.03.2003, 08.07.2003 and 05.06.2003 for

the four different contracts respectively, itself were the

dates of the decision of the Engineer and the appellant

delayed the reference to the adjudicator by 209 days,

383 days, 267 days and 299 days respectively. Even the

adjudicator proceeded on the basis that the date of

payments was the date of decision of the Engineer.

Before the adjudicator no objection was taken by the

respondent about the reference to the adjudicator itself

Page 25 of 41

being barred by time and beyond the scope of clause

24.1. The adjudicator went ahead and decided dispute

Nos.1 and 3 in favour of the appellant and dispute Nos.2

and 4 in favour of the respondent. The Adjudicator

gave his decision on 14 August 2004. Under Clause

25.1, the adjudicator was approached on 15.04.2004

and going by clause 25.1 the adjudicator ought to have

given his decision within 28 days from 15.04.2004, that

is on or before 13.05.2004. This is the second instance

of parties including adjudicator not following the drill

of clause 25.1, in its true letter and spirit.

b) Under Clause 25.2, either party can refer the decision

of the adjudicator to the Arbitrator within 28 days of the

adjudicator’s written decision and if neither party

refers the dispute to the adjudicator within 28 days, the

adjudicator’s decision will be final and binding. In this

case, it was on 01.10.2004 i.e. after the expiry of 56 days

that the respondent issued the letter which they

claimed was the reference of the decision in dispute

Page 26 of 41

No.1 of the adjudicator. The High Court in the

impugned order has in any event found that the 28 days

time limit offends Section 28(b) of the Contract Act.

Further, when the appellant wrote back objecting to the

breach of time limit of 28 days, the respondent wrote

back saying that the issue of delay in referring can itself

be referred to the Arbitrator and that they disagreed

with the recommendation of the adjudicator. This itself

indicates that notwithstanding clause 25.2 specifying

that on the expiry of 28 days the decision of the

adjudicator was final and binding, the respondent

never treated the decision of the adjudicator as final

and binding.

c) Further, the appellant had not received any payments

under any of the heads and the respondent asserted

that since the matter is in dispute, they were not in a

position to release the payment which, according to

them, is subject to the decision of the Arbitrator.

Page 27 of 41

d) The appellant also wrote to the respondent stating that

they disagreed with the interpretation of the

respondent of clause 24.2 and that they will be raising

all issues before the Arbitrator to which there was no

response from the respondent.

e) To make the matters worse for the respondent before

the Arbitral Tribunal they filed an application to treat

the entire decision of the adjudicator as null and void

on the ground that clause 24.1 had been violated.

f) The Arbitral Tribunal adjudicating on the Section 16

objection of the respondent under Section 16 of A&C

rightly held that the claims of the appellant remained

unsettled and further that the arbitration clause was

comprehensive enough to include any matter arising

out of or connected with the agreement. The Tribunal

further held that the prayer of the respondent to

declare the adjudicator’s decision as null and void

Page 28 of 41

indicated their intention to reopen the four disputes

originally brought for consideration.

This Court in M.K. Shah Engineers & Contractors vs. State of

M.P.

2, a case similar to the present where the employer was

trying to take advantage of its own wrong, rejected the

contention of the employer and held as follows: -

“14. In Halsbury's Laws of England (4th Edn.) Vol. 2, vide

paras 652, 654, at pp. 363, 365, the law is so stated. The

arbitration agreements may contain a clause which requires

a certain act to be completed within a specified period and

which provides that if that act is not done, either the claim or

the ability to commence an arbitration will be barred. Such

clauses are sometimes known as “Atlantic Shipping” clauses.

The consequences of the expiry of a contractual limitation

period before the completion of the specific act may however

be avoided in three circumstances:

(i) if the court exercises its discretion statutorily conferred on

it, to extend the period to avoid undue hardship;

(ii) if the arbitration clause confers a discretion on the

arbitrator to extend the period and he exercises it;

(iii) if the conduct of either party precludes his relying on the

time-bar against the claimant.

17. No one can be permitted to take advantage of one's own

wrong. The respondent-State of M.P. cannot and could not

have been heard to plead denial of the two appellants' right

2

(1999) 2 SCC 594

Page 29 of 41

to seek reference to arbitration for non-compliance with the

earlier part of clause 3.3.29. In the case of M/s Chabaldas &

Sons, the clause was complied with. Alternatively, even if it

was not complied with in the case of M/s Chabaldas & Sons,

but certainly in the case of M/s M.K. Shaw, the fault for non-

compliance lies with the respondent-State of M.P. through its

officials. The plea of bar, if any, created by the earlier part of

clause 3.3.29 cannot be permitted to be set up by a party

which itself has been responsible for frustrating the

operation thereof. It will be a travesty of justice if the

appellants for the fault of the respondents are denied the

right to have recourse to the remedy of arbitration. A closer

scrutiny of clause 3.3.29 clearly suggests that the parties

intended to enter into an arbitration agreement for

deciding all the questions and disputes arising between

them through arbitration and thereby excluding the

jurisdiction of ordinary civil courts. Such reference to

arbitration is required to be preceded by a decision of the

Superintending Engineer and a challenge to such

decision within 28 days by the party feeling aggrieved

therewith. The steps preceding the coming into operation

of the arbitration clause though essential are capable of

being waived and if one party has by its own conduct or

the conduct of its officials, disabled such preceding steps

being taken, it will be deemed that the procedural

prerequisites were waived. The party at fault cannot be

permitted to set up the bar of n on-performance of

prerequisite obligation so as to exclude the applicability

and operation of the arbitration clause.”

(Emphasis supplied)

We draw considerable support from the ratio of M.K. Shah

(supra) on the aspect of conduct of the respondent and the

holding therein, that the party at fault cannot be permitted to

Page 30 of 41

take advantage of the same. Further, like in M.K. Shah (supra)

the Arbitration clause here also is of wide amplitude. In view

of the above, we reject the contention of the respondent that

the procedure for appointment of an arbitrator has not been

complied with in this case and, as such, the award has to be

set aside. We find absolutely no merit in the same.

OBJECT OF SECTION 21 OF A&C ACT: -

16. Secondly, the object of Section 21 of A&C Act, is only for

the purpose of commencement of arbitral proceedings is also

well settled. Section 21 is concerned only with determining

the commencement of the dispute for the purpose of

reckoning limitation. There is no mandatory prerequisite for

issuance of a Section 21 notice prior to the commencement of

Arbitration. Issuance of a Section 21 notice may come to the

aid of parties and the arbitrator in determining the limitation

for the claim. Failure to issue a Section 21 notice would not be

fatal to a party in Arbitration if the claim is otherwise valid and

the disputes arbitrable. In ASF Buildtech Private Limited vs.

Page 31 of 41

Shapoorji Pallonji & Company Private Limited

3, one of us,

J.B. Pardiwala J., felicitously put the principle thus: -

163. The marginal note appended to Section 21 of the 1996

Act makes it abundantly clear that the notice to be issued

thereunder is for the purpose of "commencement of

arbitration proceedings". The substantive provision

further makes it clear that the date on which a

request/notice of invocation for referring a dispute is

received by the respondent, would the date on which the

arbitral proceedings in respect of a particular dispute

commences. The words "particular dispute" assume

significance in the interpretation of this provision and its

underlying object. It indicates that the provision is

concerned only with determining when arbitration is

deemed to have commenced for the specific dispute

mentioned in the notice. The language in which the

said provision is couched is neither prohibitive or

exhaustive insofar as reference of any other disputes

which although not specified in the notice of

invocation yet, nonetheless falls within the scope of

the arbitration agreement. The term "particular

dispute", does not mean all disputes, nor does it

confine the jurisdiction of the Arbitral Tribunal which

is said to be one emanating from the "arbitration

agreement" to only those disputes mentioned in the

notice of invocation, as it would tantamount to reading

a restriction into the jurisdiction of the Arbitral

Tribunal to the bounds of the notice of invocation

instead of the arbitration agreement. Thus, there is no

inhibition under Section 21 of the 1996 Act for raising

any other dispute or claim which is covered under the

arbitration agreement in the absence of any such

notice. Section 21 is procedural rather than

3

(2025) 9 SCC 76

Page 32 of 41

jurisdictional it does not serve to create or validate the

arbitration agreement itself, nor is it a precondition

for the existence of the Tribunal's jurisdiction, but

merely operates as a statutory mechanism to

ascertain the date of initiation for reckoni ng

limitation.

165. Section 23 sub-section (1) places an obligation upon the

claimant to state the facts supporting his "claim", the points

at issue and the relief or remedy sought by way of its

statement of claim, before the Arbitral Tribunal. Notably, the

legislature, in the first part of the said sub-section, has

deliberately and consciously used the term "claim" as

opposed to "particular dispute" employed in Section 21 of

the 1996 Act. Although, it could be said that the term

"particular dispute" under Section 21 connotes a larger

umbrella within which the term "claim" under Section 23

would be subsumed, thereby suggesting that there is no

scope to deviate from what was sought to be referred by the

notice of invocation, we do not think so. We say so because,

the requirement for providing the points at issue and the

relief or remedy sought that exists in sub-section (1) of

Section 23 of the 1996 Act is patently absent in Section 21 of

the 1996 Act, which clearly shows that the scope and object

of these two provisions are at variance to each other.

Further, this sub-section does not stipulate either explicitly

or implicitly, that such "claim" must be the same or in

tandem with the "particular dispute" in respect of which the

notice of invocation was issued under Section 21 of the 1996

Act. This distinction in terminology is neither incidental nor

redundant; rather, it reflects a conscious legislative design

to demarcate the procedural objective of Section 21 from the

substantive function sought or the framing of issues served

by Section 23. Unlike Section 23, Section 21 does not require

any articulation of the relief its sole purpose is to indicate

when arbitration is deemed to have commenced, for the

limited purpose of computing the limitation period.

Page 33 of 41

169. Any restriction on the nature or content of claims,

counterclaims, or set-offs in arbitration must be sourced

solely from the express language of Section 23 and not

from Section 21. Section(s) 21 and 23 of the 1996 Act

although overlap in some aspects with each other in

terms of the claims that would ordinarily be referred to

the Tribunal more often than not tend to coincide, yet

they are by no means tethered together in such a manner

that neither of them can survive without one another.

The latter serves only a procedural function and does not

condition or limit the Tribunal's jurisdiction to

adjudicate claims that may not have been specifically

invoked at the threshold stage. To read such a limitation

into the statutory scheme would run contrary to both the

text and the object of the Act.”

(Emphasis supplied)

More recently in Adavya Projects Private Limited v. Vishal

Structurals Private Limited and others

4, this Court reiterating

the purpose and significance of a notice under Section 21 had

the following to observe: -

“24. At this point, it is important to note this Court's decision

in State of Goa v. Praveen Enterprises [State of Goa v.

Praveen Enterprises, (2012) 12 SCC 581] wherein it was held

that the claims and disputes raised in the notice under Section

21 do not restrict and limit the claims that can be raised

before the Arbitral Tribunal. The consequence of not raising

a claim in the notice is only that the limitation period for such

claim that is raised before the Arbitral Tribunal for the first

time will be calculated differently vis-à-vis claims raised in

4

(2025) 9 SCC 686

Page 34 of 41

the notice. However, non-inclusion of certain disputes in the

Section 21 notice does not preclude a claimant from raising

them during the arbitration, as long as they are covered

under the arbitration agreement. Further, merely because

a respondent did not issue a notice raising

counterclaims, he is not precluded from raising the same

before the Arbitral Tribunal, as long as such

counterclaims fall within the scope of the arbitration

agreement.”

[Emphasis supplied]

17. At this stage, it is appropriate to refer to the following

passage from the decision of this Court in Indian Oil

Corporation Ltd. v. Amritsar Gas Service and Others

5

which

reinforces our holding:-

“15. The appellant's grievance regarding non -

consideration of its counter-claim for the reason given in

the award does appear to have some merit. In view of the

fact that reference to arbitrator was made by this Court in

an appeal arising out of refusal to stay the suit under

Section 34 of the Arbitration Act and the reference was

made of all disputes between the parties in the suit, the

occasion to make a counter-claim in the written statement

could arise only after the order of reference. The pleadings

of the parties were filed before the arbitrator, and the

reference covered all disputes between the parties in the

suit. Accordingly, the counter-claim could not be made at

any earlier stage. Refusal to consider the counter-claim for

the only reason given in the award does, therefore,

disclose an error of law apparent on the face of the award.

However, in the present case, the counter-claim not being

5

(1991) 1 SCC 533

Page 35 of 41

pressed at this stage by learned counsel for the appellant,

it is unnecessary to examine this matter any further.”

ARBITRATION CLAUSE – WIDELY WORDED: -

18. Thirdly, Clause 25.3 is widely worded and any dispute or

difference arising between the parties relating to any matter

arising out of or concerned with the agreement are to be

settled in accordance with the A&C Act by the Arbitral

Tribunal. As held in State of Goa vs. Praveen Enterprises

6 if

an arbitration agreement provides that all disputes between

the parties relating to the contract shall be referred to

arbitration, the reference contemplated is the act of parties to

the arbitration agreement. In Praveen Enterprises (supra) it

has been further held as follows:-

“19. There can be claims by a claimant even without a

notice seeking reference. Let us take an example

where a notice is issued by a claimant raising disputes

regarding Claims A and B and seeking reference

thereof to arbitration. On appointment of the arbitrator,

the claimant files a claim statement in regard to the

said Claims A and B. Subsequently if the claimant

amends the claim statement by adding Claim C [which

is permitted under Section 23(3) of the Act] the

additional Claim C would not be preceded by a notice

6

(2012) 12 SCC 581

Page 36 of 41

seeking arbitration. The date of amendment by which

Claim C was introduced, will become the relevant date

for determining the limitation in regard to the said

Claim C, whereas the date on which the notice seeking

arbitration was served on the other party, will be the

relevant date for deciding the limitation in regard to

Claims A and B. Be that as it may.

26. Section 23 of the Act makes it clear that when the

arbitrator is appointed, the claimant is required to file

the statement and the respondent has to file his defence

statement before the arbitrator. The claimant is not

bound to restrict his statement of claim to the claims

already raised by him by notice, “unless the parties

have otherwise agreed as to the required elements” of

such claim statement. It is also made clear that “unless

otherwise agreed by the parties” the claimant can also

subsequently amend or supplement the claims in the

claim statement. That is, unless the arbitration

agreement requires the arbitrator to decide only the

specifically referred disputes, the claimant can while

filing the statement of claim or thereafter, amend or

add to the claims already made.

27. Similarly, Section 23 read with Section 2(9) makes it

clear that a respondent is entitled to raise a

counterclaim “unless the parties have otherwise

agreed” and also add to or amend the counterclaim,

“unless otherwise agreed”. In short, unless the

arbitration agreement requires the arbitrator to decide

only the specifically referred disputes, the respondent

can file counterclaims and amend or add to the same,

except where the arbitration agreement restricts the

arbitration to only those disputes which are specifically

referred to arbitration, both the claimant and the

respondent are entitled to make any claims or

counterclaims and further entitled to add to or amend

Page 37 of 41

such claims and counterclaims provided they are

arbitrable and within limitation.

41. The position emerging from the above discussion

may be summed up as follows:

(a) Section 11 of the Act requires the Chief Justice

or his designate to either appoint the arbitrator(s) or

take necessary measures in accordance with the

appointment procedure contained in the arbitration

agreement. The Chief Justice or the designate is not

required to draw up the list of disputes and refer them

to arbitration. The appointment of the Arbitral Tribunal

is an implied reference in terms of the arbitration

agreement.

(b) Where the arbitration agreement provides for

referring all disputes between the parties (whether

without any exceptions or subject to exceptions), the

arbitrator will have jurisdiction to entertain any

counterclaim, even though it was not raised at a stage

earlier to the stage of pleadings before the arbitrator.

(c) Where however the arbitration agreement

requires specific disputes to be referred to arbitration

and provides that the arbitrator will have the

jurisdiction to decide only the disputes so referred, the

arbitrator's jurisdiction is controlled by the specific

reference and he cannot travel beyond the reference,

nor entertain any additional claims or counterclaims

which are not part of the disputes specifically referred

to arbitration.”

It will be seen that when the Arbitral Tribunal is constituted,

the claimant is required to file the statement and the

Page 38 of 41

respondent to file his defence statement with counter claim, if

any, before the arbitrator. The claimant is not bound to restrict

his statement of claim to the claims raised by him in the notice

issued, if any, before. The claimant can also amend or

supplement the claims in the claim statement unless the

arbitration agreement requires the arbitrator to decide only

the specifically referred disputes. Equally, counter claims can

also be filed and amended. In the present case, we have

already held that the rigors of clause 24, 24.1 and 25 have not

been followed by the parties and by their conduct the entire

dispute have been thrown at large before the Arbitral

Tribunal. Hence, the contention of the respondent that the

case of the parties is governed by para 41(c) of Praveen

Enterprises (supra) is rejected.

RELEVANT STATUTORY PROVISIONS: -

19. Section 2(9) of the A&C Act reads as under:-

“2(9) Where this Part, other than clause (a) of section 25 or

clause (a) of sub-section (2) of section 32, refers to a claim,

it shall also apply to a counter-claim, and where it refers to

a defence, it shall also apply to a defence to that counter-

claim.”

Page 39 of 41

20. Section 23 of the A&C Act as is relevant is also setout

hereinbelow:-

“23. Statement of claim and defence.—(1) Within the

period of time agreed upon by the parties or determined

by the arbitral tribunal, the claimant shall state the facts

supporting his claim, the points at issue and the relief or

remedy sought, and the respondent shall state his defence

in respect of these particulars, unless the parties have

otherwise agreed as to the required elements of those

statements.

(2) The parties may submit with their statements all

documents they consider to be relevant or may add a

reference to the documents or other evidence they will

submit.

(2A) The respondent, in support of his case, may also

submit a counter-claim or plead a set-off, which shall be

adjudicated upon by the arbitral tribunal, if such counter-

claim or set-off falls within the scope of the arbitration

agreement.

(3) Unless otherwise agreed by the parties, either party

may amend or supplement his claim or defence during the

course of the arbitral proceedings, unless the arbitral

tribunal considers it inappropriate to allow the amendment

or supplement having regard to the delay in making it.”

It will be noticed that once the Arbitral Tribunal is constituted

claims, defence and, counter claims are filed. Party which

normally files the claim first is, for convenience, referred to as

the ‘claimant’ and the party which responds is called the

Page 40 of 41

‘respondent’. The said respondent is also along with the

defence statement entitled to file its counter claim. Hence, to

contend that the appellant cannot be referred to as a claimant

because no notice under Section 21 has been issued is

completely untenable. To illustrate the point, the rules from

the DIAC rules are set out: -

“DIAC Arbitration Proceedings Rules, 2018

2.1(g) “Claimant”, notwithstanding any nomenclature

given to the parties in any Court in any proceeding

between them, means the party which files the Statement

of Claim first in point of time. The other party(ies) shall be

referred to as “Respondent(s)”. The party filing Counter-

Claim(s) shall be referred as “Counter-Claimant”.

21. The judgment cited by the respondent namely Iron &

Steel Co. Ltd. v. Tiwari Road Lines

7, and MSK Projects

India (JV) Limited vs. State of Rajasthan and Another

8

,

have no application to the facts of the case, as not only is

there no breach of procedure in the appointment of

Arbitral Tribunal, the Arbitral Tribunal has also not

travelled beyond the scope of the reference. No other

7

(2007) 5 SCC 703

8

(2011) 10 SCC 573

Page 41 of 41

argument touching upon the merits of the award have

been canvassed before us.

22. For the reasons stated above, we set aside the

judgment of the High Court of Kerala at Ernakulam dated

07.01.2025 in Arbitration Appeal No. 56/2012. The

consequence will be that the award of the arbitrator dated

29.06.2006 is upheld in its entirety. The appeal is allowed.

No order as to costs.

……….........................J.

[J. B. PARDIWALA]

……….........................J.

[K. V. VISWANATHAN]

New Delhi;

5

th

January, 2026