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

J U D G M E N T

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

entered into between the parties under which the appellant-Bharat

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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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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