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Bharat Petroleum Corporation Ltd. v. Go Airlines (India) Ltd.

Civil Appeal · 2019 INSC 1183Decided 23 Oct 2019
Civil Appeal No. 8227 of 2019
Justice R. Banumathi · Justice A.S. Bopanna · Justice Hrishikesh Roy

Background

BPCL supplied aviation fuel to Go Airlines under two successive supply agreements. A payment dispute arose, and BPCL invoked arbitration to recover unpaid dues and interest. In its defence, Go Airlines raised a counter-claim demanding that BPCL issue "CENVAT" tax-credit invoices (or pay substantial damages instead), and also sought damages for being put on restrictive "cash and carry" payment terms. The sole Arbitrator rejected the CENVAT counter-claim at the threshold, holding it fell outside the scope of the dispute referred to arbitration, but the Bombay High Court reversed this, holding the Arbitrator did have jurisdiction to consider it.

Decision Breakdown

The Supreme Court held that whether the CENVAT counter-claim actually falls within the scope of the arbitration agreement, and whether it is genuinely "arbitrable," are questions that can properly be answered only after a full inquiry by the Arbitrator, not decided at the outset merely by looking at the correspondence exchanged while appointing the Arbitrator. Since Go Airlines had broadly referred to "various claims" against BPCL when accepting the Arbitrator's appointment, the counter-claim could not be shut out without first examining whether it was genuinely connected to the supply agreement. The Supreme Court agreed with the High Court and dismissed BPCL's appeal, while clarifying that the Arbitrator remains free to reject the counter-claim later after examining it on its merits.

Lesson Learnt

An arbitrator should not dismiss a counter-claim as "outside jurisdiction" without first examining, through a proper inquiry, whether it is genuinely connected to the contract in dispute: jurisdictional objections of this kind are usually best resolved after, not before, that inquiry.

Official source (sci.gov.in)View Judgment (PDF)

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