M/S.Bhagheeratha Engineering Ltd vs. State Of Kerala

REPORTABLE

IN THE SUPREME COURT OF INDIA
2026 INSC 4

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,
Signature Not Verified
Digitally signed by
CHANDRESH
Date: 2026.01.05
16:12:33 IST
Reason:
Thiruvananthapuram, dated 22.06.2010 in O.P. (Arb.) No.238
of 2006, al beit, on different grounds. The District Judge had
Page 1 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
Page 2 of 41


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 3 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
Page 4 of 41


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
Page 5 of 41


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 6 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
Page 8 of 41


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 9 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 10 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
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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 imposed 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
Page 12 of 41


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.
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The last date for referring the matter to the Adjudicator
shall be as follows:

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
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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 15 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 16 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 17 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 18 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 19 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 20 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 21 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
1
Enterprises .

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 22 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 23 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 24 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 25 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 26 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 27 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
2
M.P. , 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 28 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 non-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 29 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 30 of 41


3
Shapoorji Pallonji & Company Private Limited , 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 31 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 reckoning
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 32 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
4
Structurals Private Limited and others , 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 33 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
5
Corporation Ltd. v. Amritsar Gas Service and Others 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 34 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
6
Tribunal. As held in State of Goa vs. Praveen Enterprises 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 35 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 36 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 37 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 38 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 39 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 &
7
Steel Co. Ltd. v. Tiwari Road Lines , and MSK Projects
8
India (JV) Limited vs. State of Rajasthan and Another ,
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 40 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;
th
5 January, 2026

Page 41 of 41