Bharat Petroleum Corp. Ltd. vs Go Airlines(India) Ltd.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8227 2019 (Arising out of SLP(C) No.5563 of 2012)

BHARAT PETROLEUM CORPORATION LIMITED ...Appellant VERSUS GO AIRLINES (INDIA) LIMITED …Respondent

JUDGMENT

R. BANUMATHI, J.

Leave granted.

2. This appeal arises out of the judgment dated 07.12.2011

passed by the High Court of Bombay in Arbitration Appeal (Lodging)

No.14228 of 2011 in and by which the High Court allowed the

appeal filed by the respondent-Go Airlines by holding that the

Arbitrator has the jurisdiction to consider the counter claim relating

to CENVAT credit thereby setting aside the order passed by the

Arbitrator.

3. Brief facts which led to filing of this appeal are as under:-

An Agreement for Aviation Fuel Supply dated 01.01.2007 was Signature Not Verified Digitally signed by MAHABIR SINGH Date: 2019.10.23 entered into between the parties under which the appellant-Bharat 17:37:14 IST Reason:

Petroleum Corporation Limited (BPCL) was to supply and sale of

1 Aviation fuel to the respondent-Go Airlines (India) Limited. Initially,

the agreement was entered into for the period from 01.01.2007 to

31.03.2009. By virtue of the second agreement dated 01.04.2009,

another Aviation Fuel Supply Agreement was entered into between

the appellant and the respondent for the period from 01.04.2009 to

31.03.2011. On 06.07.2009, the appellant issued letter to the

respondent along with the statement giving details of invoices and

requesting inter alia that the payment of outstanding dues as well as

the interest amount of Rs.1.45 crores be released immediately. In

reply to the said letter, the respondent by its e-mail dated

06.07.2009 stated inter alia that the outstanding interest was

Rs.1.41 crores and not Rs.1.45 crores as mentioned in the said

letter dated 06.07.2009. As the payments were not made, the

appellant-BPCL put the respondent-Airlines on “Cash and Carry”

terms on account of default in making payment for supply of fuel

and interest on delayed payment.

4. Dispute arose between the parties when the appellant raised

a claim for interest for the delayed payments of the fuel supplied

during the period from 01.04.2009 to 31.03.2011. The respondent

did not accept any amount payable towards interest. Since the

dispute in respect of the liability and payment of interest on delayed

2 payment could not be resolved through mutual correspondence

between the parties, the appellant vide its notice dated 25.03.2010

invoked arbitration clause i.e. Clause No.12 of the agreement dated

01.01.2007 suggesting the name of Mrs. Justice (Retd.) Sujatha

Manohar as the sole Arbitrator. The respondent vide its letter dated

27.04.2010 agreed to the dispute being referred for arbitration and

accepted Mrs. Justice (Retd.) Sujatha Manohar as the Arbitrator. In

the said letter, respondent stated that they are sure that the learned

Arbitrator would be able to adjudicate the issues appropriately

considering the respondent’s various claims against appellant-

BPCL. The appellant raised a claim for an aggregate sum of

Rs.1,95,21,032/- with interest at the rate of 18% per annum from the

date of presentation of the said claim till payment and/or realization.

5. The respondent filed its statement of defence denying the

claims made by the appellant and it also raised two counter claims

before the Arbitrator seeking an award directing the appellant to

issue CENVAT invoices in favour of the respondent in respect of the

Aviation fuel supplied under the agreement; in the alternative

prayed for an award for a sum of Rs.11,60,44,466/- plus

Rs.4,31,45,967/- being interest, as well as further interest on the

principal amount computed at the rate of 15% per annum with effect

3 from 01.10.2009 till payment. In its second claim, the respondent

demanded damages for alleged imposition of “Cash and Credit”

terms by the appellant with effect from 04.07.2009 when the

appellant refused to supply the Aviation fuel to the respondent

except on “Cash and Credit” terms.

6. The appellant filed its reply to the respondent’s counter claim

denying the claim of the respondent and inter alia stated that the

counter claim filed by the respondent was beyond the scope and

jurisdiction of the Arbitrator. It was stated that there was no dispute

existing between the parties in respect of the alleged obligation to

supply CENVAT invoices prior to commencement of the arbitration

as it was never asked for by the respondent-Go Airlines. The

appellant averred that the respondent had demanded CENVAT

invoices from the appellant for the supplies made from the year

2005 onwards for the first time by its letter only on 05.05.2010 i.e.

after the commencement of the present arbitration. The appellant

averred that the respondent never asked for CENVAT invoices

during the subsistence of the said agreement and that the counter

claim raised by the respondent was an afterthought.

7. The appellant also filed an application under Section 16 of the

Arbitration and Conciliation Act, 1996 inter alia submitting that the

4 counter claim filed by the respondent was beyond the scope and

jurisdiction of the Arbitrator and that the respondent demanded the

CENVAT invoices from the appellant for the supplies made from the

year 2005 onwards for the first time only by letter dated 05.05.2010

i.e. after the commencement of the arbitration. The respondent filed

its reply to the said application filed under Section 16 of the Act inter

alia stating that the counter claim filed by the respondent was well

within the scope and jurisdiction of the Arbitrator.

8. The learned Arbitrator vide order dated 18.04.2011 allowed

the application filed by the appellant under Section 16 of the Act

inter alia holding that the counter claim relating to CENVAT invoices

is beyond the scope and jurisdiction of the Arbitrator and rejected

that part of the counter claim. Insofar as the counter claim of the

respondent praying for damages for the alleged imposition of “Cash

and Credit”, the learned Arbitrator held that the same is

maintainable before the Arbitrator.

9. Being aggrieved by the order of the Arbitrator dated

18.04.2011, the respondent filed appeal before the High Court of

Bombay under Section 37 of the Act. The High Court vide

impugned judgment dated 07.02.2011 allowed the appeal preferred

by the respondent and set aside the order of the Arbitrator dated

5 18.04.2011 by holding that the Arbitrator has jurisdiction to entertain

the counter claim filed by the respondent relating to non-furnishing

of invoices for CENVAT credit. Insofar as the observations of the

Arbitrator, the High Court held that the learned Arbitrator may be

well within the rights to reject the counter claim on merits after the

parties put forth their case. The High Court however held that the

rejection of the counter claim at the threshold, was not justified in

view of the arbitration agreement between the parties. Being

aggrieved, the appellant-BPCL has filed this appeal.

10. Mr. S. Guru Krishnakumar, learned Senior counsel appearing

for the appellant has submitted that as per the arbitration clause in

the agreement dated 01.01.2007, the Arbitrator could adjudicate

disputes arising out of the terms and conditions of the agreement

and the counter claim raised by the respondent in an arbitration

proceeding does not arise from the terms and conditions of the

contract/agreement under which the Arbitrator has been appointed.

It was submitted that under Section 16 of the Act, the Arbitrator can

refuse to entertain the said counter claim even at the time of filing of

such counter claim on the ground that the same is beyond the

jurisdiction and the findings arrived at by the learned Arbitrator is a

possible view and the High Court ought not to have substituted its

6 own view in the place of the finding arrived at by the Arbitrator. The

learned Senior counsel further submitted that the levy of service tax

on domestic air travel was introduced by the Finance Act, 2010

(w.e.f. 01.04.2010) and on economy class from 01.07.2010 and in

any event, the need for issuance of CENVAT credit invoices arises

only after 01.04.2010 and as such, the said counter claim could not

be considered under Clause 7(ii) of the said agreement which

expired on 31.03.2009. The learned Senior counsel further

submitted that since the respondent was not liable to pay service

tax on domestic air travel prior to 01.04.2010, there was no

requirement for issuance of CENVAT credit invoices. It was

submitted that at no point of time before the commencement of the

arbitration proceeding, the respondent ever claimed furnishing of

CENVAT invoices and the learned Arbitrator rightly held that the

counter claim is beyond the specific reference to the Arbitral

Tribunal and the High Court erred in substituting its view with the

findings of the learned Arbitrator which is in contravention of the

settled position.

11. Per contra, Mr. Ritin Rai, learned Senior counsel appearing for

the respondent submitted that the counter claim raised by the

respondent in respect to issuance of CENVAT invoices by the

7 appellant falls within the terms of the agreement dated 01.01.2007

and the second agreement dated 01.04.2009 entered into between

the appellant and the respondent for supply of Aviation fuel. Taking

us through the clauses of the agreement, the learned Senior

counsel submitted that as per Clause 7(ii) of the agreement dated

01.01.2007, the appellant-BPCL was duty bound to provide invoices

to the respondent-Company including those for taxes and duties as

applicable on the date of supply of Aviation fuel. The learned Senior

counsel further submitted that even assuming, though not admitting,

that such liability to issue CENVAT invoices does not directly arise

out of the Clause 7(ii) of the agreement dated 01.01.2007,

considering the business efficacy, the same is to be held as an

“implied term of the contract” and the appellant-Company was under

a duty to issue CENVAT invoices pertaining to all taxes and duties

as applicable.

12. The learned Senior counsel for the respondent further

contended that the question whether or not the counter claim raised

by the respondent-Company falls within the scope of the agreement

entered into between the parties or within the terms of reference is a

question of fact and the same could be decided by the learned

Arbitrator after due enquiry and the learned Arbitrator was not right

8 in rejecting the counter claim at the threshold which is not in

accordance with the settled position of law.

13. We have carefully considered the rival contentions and

perused the impugned judgment and materials on record. The

points falling for consideration are whether the counter claim

regarding CENVAT invoices was beyond the scope of reference to

arbitration and whether the High Court was right in holding that the

learned Arbitrator had jurisdiction to consider the counter claim

regarding CENVAT invoices raised by the respondent.

14. Relevant facts are not in dispute. Admittedly, there is Aviation

Fuel Supply Agreement dated 01.01.2007 (for the period from

01.01.2007 to 31.03.2008) and another Fuel Supply Agreement

dated 01.04.2009 (for the period from 01.04.2009 to 31.03.2011).

Dispute arose between the parties relating to payment and interest

payable on the delayed payment. The appellant sent notice dated

25.03.2010 suggesting the appointment of Arbitrator Mrs. Justice

Sujatha Manohar. The respondent sent the reply dated 27.04.2010

whilst accepting the appellant’s suggestion has recorded that “….we

are sure that she would be able to adjudicate the issues

appropriately considering our various claims against BPCL”.

According to the respondent, they have accepted the nomination of

9 a Single Arbitrator conditional that the Arbitrator would also

adjudicate its counter claim against the appellant. According to the

respondent, in their reply dated 27.04.2010, they have laid the basis

for making the counter claim though they have not specifically

stated about CENVAT invoices. Once a claim is made, the

defendant has a right to make a counter claim. The respondent

relies upon clause 7(ii) of the agreement in the counter claim of

CENVAT invoices. Whether or not the counter claim is part of the

reference and whether it is arbitrable and whether the dispute are

traceable to contractual rights or obligations or wholly outside the

contract could be determined only after the enquiry by the Arbitrator.

15. Contention of the respondent is that as per Clause 7(ii) of the

agreement, the appellant was required to issue CENVAT invoices

pursuant to supply of Aviation fuel under the agreement and the

appellant did not do so and therefore, issuance of CENVAT invoices

and dispute between the parties relating to the terms and conditions

set forth in the agreement and consequently, the Tribunal has the

jurisdiction to adjudicate upon the same.

16. Clause 7(ii) of the agreement requires issuance of taxes

invoices by the appellant. Clause 7 of the agreement reads as

under:-

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“7. Invoicing and Payment Terms:

i. Seller shall invoice Buyer for the fuel deliveries (Jet A-1); ii. Invoices in Indian Rupees containing the date of delivery, locations, Aircraft Registration No., Grade, Quantity of Fuel, Unit Price, taxes and duties (applicable on the date of delivery) with delivery ticket attached shall be submitted to Buyer’s local office/designated bank for payment/factoring in full. Cost of factoring & insurance shall be borne by Go Air. iii. Seller will invoice the Buyer as per the following periodicity, to the designated persons/address:-

Billing period Date of Credit into BPC A/c by Bank 1st to 7th 16th 8th to 15th 23rd 16th to 23rd 30th/31st 24th to month end 8th (next month)

In case the above dates are weekend or holidays payment will be made on the next working day.

iv. In case of any delay in payment beyond due date, the outstanding amount will attract interest at PLR plus 2%. v. In case Bank limits get choked, payment shall be made by due dates directly by Go Air.

vi. In case the factoring limit remains choked, exposure would need to be covered with adequate BG, in absence of which would be constrained to review the discount arrangements & payments terms.

17. Contention of the learned Senior counsel for the respondent is

that Clause 7(ii) of the agreement requires issuance of invoices

inter alia the invoices of taxes and duties available on the date of

delivery. According to the respondent, the request for issuance of

CENVAT invoices were in the nature of oral requests/demands

11 which were made by the respondent’s representative during the

course of the discussion and despite such requests, CENVAT

invoices were not issued and therefore, there is a “dispute” between

the parties relating to the terms and conditions set forth in the

agreement.

18. Case of the appellant is that the counter claim regarding

CENVAT credit is beyond the scope of reference to arbitration and is

not expressly covered under the terms and conditions of the

agreement nor impliedly arising under the agreement dated

01.01.2007. It is submitted that in response to the said notice dated

25.03.2010-for appointment of Arbitrator, the respondent sent the

reply on 27.04.2010 accepting the Arbitrator and stating that the

Arbitrator would be able to adjudicate the respondent’s various

claims against BPCL and in the said reply, the respondent has not

specifically raised the plea of CENVAT invoices.

19. Clause 12 of the agreement dated 01.01.2007 deals with the

arbitration clause. Clause 12 provides for reference of dispute to an

Arbitrator nominated by mutual consent. If the parties fail to decide

the Arbitrator by mutual consent, each party will nominate an

Arbitrator of their choice and the Arbitrators so nominated shall

choose the third Arbitrator. As rightly contended by the learned

12 Senior counsel for the respondent, in response to the notice dated

25.03.2010 issued by the appellant suggesting the appointment of

Mrs. Justice Sujatha Manohar as Arbitrator, the respondent

accepted the same by expressing hope “that she would be able to

adjudicate the issues appropriately considering our claims against

BPCL”. Merely because the respondent did not specify the nature

of claims against BPCL in the letter dated 27.04.2010, that may not

be a ground to reject the counter claim of CENVAT invoices at the

threshold. Whether the counter claim regarding CENVAT invoices is

outside the terms of arbitration agreement and whether it is

arbitrable or outside the scope of reference to arbitration could be

seen only after enquiry by the learned Arbitrator.

20. Taking us through the relevant materials, the learned Senior

counsel for the appellant made earnest submissions that before

05.05.2010, the respondent did not make any claim of CENVAT

invoices and only for the first time on 05.05.2010 that is after the

commencement of the arbitration proceeding, the respondent called

upon the claimant to issue CENVAT invoices. According to the

appellant, as per the terms of the agreement, the appellant was not

bound to issue CENVAT invoices to the respondent and levy of

service tax on domestic air travel came into force only by the

13 Finance Act, 2010 and therefore, the learned Arbitrator has rightly

held that the counter claim is beyond the specific reference and

would not fall within the jurisdiction of the Arbitrator.

21. The learned Senior counsel for the appellant submitted that

when the jurisdiction of the Arbitrator is circumscribed by specific

reference, the Arbitrator can decide only those specific disputes. In

support of this contention, the learned Senior counsel placed

reliance upon State of Goa v. Praveen Enterprises (2012) 12 SCC

581, in which it was held as under:-

“11. Reference to arbitration can be in respect of all disputes between the parties or all disputes regarding a contract or in respect of specific enumerated disputes. Where “all disputes” are referred, the arbitrator has the jurisdiction to decide all disputes raised in the pleadings (both claims and counter claims) subject to any limitations placed by the arbitration agreement. Where the arbitration agreement provides that all disputes shall be settled by arbitration but excludes certain matters from arbitration, then, the arbitrator will exclude the excepted matter and decide only those disputes which are arbitrable. But where the reference to the arbitrator is to decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator’s jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes.”

22. The learned Senior counsel for the respondent contended that

Clause 7(ii) of the agreement requires the invoices issued by the

respondent to contain inter alia the taxes and duties and this has

14 been refused by the appellant and therefore, there is a dispute

between the parties relating to the agreement and the learned

Arbitrator ought not to have rejected the counter claim at the

threshold by holding that the counter claim is outside the jurisdiction

of the Arbitrator. In this regard, the learned Senior counsel for the

respondent also placed reliance upon Praveen Enterprises in which

it was held as under:-

“27. Similarly, Section 23 read with Section 2(9) makes it clear that a respondent is entitled to raise a counter claim “unless the parties have otherwise agreed” and also add to or amend the counter claim, “unless otherwise agreed”. In short, unless the arbitration agreement requires the arbitrator to decide only the specifically referred disputes, the respondent can file counter claims 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 counter claims and further entitled to add to or amend such claims and counter claims provided they are arbitrable and within limitation. ………

29. Where the arbitration agreement requires the disputes to be formulated and referred to arbitration by an appointing authority, and the appointing authority fails to do so, the Chief Justice or his designate will direct the appointing authority to formulate the disputes for reference as required by the arbitration agreement. The assumption by the courts below that a reference of specific disputes to the arbitrator by the Chief Justice or his designate is necessary while making appointment of arbitrator under Section 11 of the Act, is without any basis. Equally baseless is the assumption that where one party filed an application under Section 11 and gets an arbitrator appointed the arbitrator can

15 decide only the disputes raised by the applicant under Section 11 of the Act and not the counter claims of the respondent.”

23. The questions whether the issue regarding CENVAT invoices

was outside the terms of agreement or whether CENVAT invoices

relates to the agreement dated 01.01.2007 and 01.04.2009 and

whether it is arbitrable and whether it falls beyond the scope of

reference to arbitration and such other related questions, are to be

determined only during the enquiry. It may be that after enquiry, the

Arbitrator might reject the counter claim for CENVAT invoices as not

arbitrable and the counter claim beyond the scope of reference to

arbitration. But to reject the counter claim at the threshold on the

ground that the Arbitrator has no jurisdiction would not be proper.

The High Court, in our view, has rightly set aside the order of the

learned Arbitrator dated 18.04.2011.

24. The learned Senior counsel appearing for the parties have

inter alia raised various contentions. We are not inclined to consider

those contentions at this stage. Lest, expressing any opinion on

such contentions might prejudicially affect the parties either in the

proceedings before the Arbitrator or any other proceedings that may

be initiated by the parties.

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25. In the result, the impugned judgment of the High Court of

Bombay dated 07.12.2011 in Arbitration Appeal (Lodging) No.14228

of 2011 is affirmed and this appeal is dismissed. The observations

of the High Court in the impugned order in para No. (10) as to the

availability of CENVAT credit allegedly specified in the CENVAT

Rules, 2004 may not be considered as expression of opinion on the

merits of the matter. The learned Arbitrator shall proceed with the

matter on its own merits and in accordance with law. No costs.

………………………..J. [R. BANUMATHI]

………………………..J. [A.S. BOPANNA]

….………………………..J. [HRISHIKESH ROY]

New Delhi;

October 23, 2019

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