Can A Counter-Claim Be Filed At A Belated Stage – Calcutta HC Unravels

INTRODUCTION

It is a no-brainer that India has come a long way, emerging as a fast-paced economy that attracts global ventures and pours in resources from all four corners of the subcontinent and international sources. As a nation poised to become the third-largest economy, placing reliance on outdated mechanisms for resolving large-scale commercial disputes will only add more weight to the shoulders of an already overburdened legal system, thereby hindering the growth and support needed by India in these crucial upcoming decades.

The transition from a lacking legal system bound in the shackles of colonial imperialism to that of a robust and forward-looking legal system stares India in the face. In order to get future-ready and smoothly affect the transition, India ought to lead by example in the timely resolution of legal disputes amongst individuals or those involving large-scale multi-million dollar corporate giants eager to multiply their wealth by catering to the Indian market. In light of the said circumstances, Arbitration is bound to emerge as the most preferred route for tapping into India's potential of becoming a sanctuary for commercial opportunities and global ventures. Owing to the unique features of Arbitration, it is being progressively preferred as a mechanism for dispute resolution, specifically due to the extent of confidentiality and autonomy it brings to the table. It further offers the parties the option of skipping the procedural delays and backlogs in the courts, resulting in a quick and efficacious process of dispute resolution. The parties involved in such disputes prioritize protecting sensitive business information and their reputation by tapping into the confidential nature of Arbitration Proceedings. Moreover, arbitration awards are final and binding, with limited grounds for appeal, thereby providing legal certainty and closure. The international enforceability of arbitral awards, supported by instruments like the New York Convention of 1958, makes arbitration especially suitable for cross-border commercial disputes.

Arbitration is also a way of the future as it offers a certain extent of flexibility, despite being a time-saving method of dispute resolution, as it allows the parties involved to mutually agree upon timelines, evidence procedure, along with the language and venue of the proceedings.

The Calcutta High Court, in its recent decision in the case of Gayatri Granites and Ors vs Srei Equipment Finance Ltd¹, identified and filled a procedural gap in arbitration law by clarifying when a respondent may introduce a counterclaim. Although Section 23(2A) of the Act places no explicit time limit on counterclaims, the Court held that such claims usually cannot be entertained after issues are framed, except in narrowly defined exceptional circumstances.

BACKDROP OF THE CASE AT HAND

The dispute in Gayatri Granites and Ors. v. Srei Equipment Finance Ltd. can be traced back to the underlying finance agreement entered into by the parties, i.e., Srei Equipment Finance Ltd. (claimant), and Gayatri Granites, along with its affiliate entities (respondents). When the parties were stuck in a deadlock, the claimant opted for arbitration as per the terms of the agreement to resolve the dispute with the respondent. The claimant sought recovery of outstanding dues allegedly payable by the respondent party.

In response, the respondents filed their Statement of Defence (“SoD”) within the timeline prescribed by the arbitral tribunal, contesting the claimant's claims. The arbitral proceedings progressed in the ordinary course, pleadings were completed, issues were framed, and the claimant led its evidence. At this advanced stage, after the claimant had concluded its evidence, the respondents sought to amend their SoD to incorporate a counterclaim. The proposed counterclaim was not based on any subsequent event or newly discovered fact; rather, it related to matters that were within the respondents' knowledge from the inception of the dispute.

The arbitral tribunal, exercising its discretion under Section 23(3) of the Arbitration and Conciliation Act, 1996, declined the request for amendment. The tribunal reasoned that permitting such a belated counterclaim would disrupt the procedural schedule and cause prejudice to the claimant, who had already concluded its evidence. Aggrieved by this decision, the respondents approached the Calcutta High Court under Section 34 of the Act, challenging the tribunal's order.

Now, the issues that were presented before the High Court were to decide, “Whether Section 23(2A) of the Act permits filing of a counter claim at any stage of arbitration, if not, what is the permissible time limit, and what factors inform the tribunal's decision?”

SCRUTINY BY THE COURT

The Court analysed the statutory framework that exists in this regard in the Act and in the Code of Civil Procedure (“Code”). Delving into the text of Section 23, the Court first noted that sub-section (2A) expressly authorises a respondent to state a counterclaim or plead a set-off without specifying any temporal boundary other than that the claim must lie within the ambit of the arbitration agreement. Sub-sections (1) and (2), however, channel that liberty through a procedural funnel by requiring the Statement of Defence, including any counterclaim claim to be submitted within the period either agreed by the parties or decided by the tribunal. The tribunal is empowered by sub-section (3) to allow amendments to the pleadings unless the delay for such a request is deemed as prejudicial, thereby leaving some margin for the tribunal's discretion. Reading these provisions conjunctively, the Court concluded that the statute creates a presumption in favour of early filing but preserves an equitable safety-valve for belated claims where no prejudice ensues. 

The Court contrasted this architecture with Order VIII Rule 6A of the Code, which allows a defendant to raise a counterclaim only until the written-statement stage. The court noted that it is a settled principle that arbitral tribunal is not bound by the Code and the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings and the arbitral tribunal may also conduct the proceedings in the manner it considers appropriate in view of Section 19 of the Act but the fact remains that the Act has fixed certain schedule for completion of the statement of claims and defence under Section 23(4) of the Act and Section 29A has also fixed the time limit for making an arbitral award.

The court discussed the law laid down by the Apex Court with regard to the delay in filing a counterclaim. The Hon'ble Supreme Court in the case of Life Insurance Corporation of India v. Sanjeev Builders Private Limited² Held that a prayer for amendment should be allowed if it is required for effective and proper adjudication of the dispute between the parties. Further, the Supreme Court in the case of Ashok Kumar Kalra v. Wing CDR. Surendra Agnihotri³ Held that even if a counterclaim is filed within the limitation period, the Trial Court has to exercise its discretion by balancing in such a manner so that the substantive justice is not defeated. The Hon'ble Supreme Court held that Order 8 Rule 6A of the Code does not give an absolute right to the defendant to file the counterclaim with substantive delay, even if the limitation period prescribed has not elapsed. It was further held that the Court must take into consideration the outer limit for filing the counterclaim claim which is pegged till the issues are framed. The Hon'ble Supreme Court further mentioned certain factors which the Courts must take into consideration for exercising discretion to entertain the filing of counterclaims.

The court concluded that the proposition of law laid down by the Hon'ble Supreme Court fixing the outer limit for filing a counterclaim under Order 8 Rule 6A of the Code can also be applied to the arbitration proceedings.

THE BENCH'S PROGNOSIS

The court concluded that the counter claim in an arbitration proceeding shall not be allowed to be filed after the issues are framed and only in exceptional cases filing of a counter claim may be permitted till the stage of commencement of recording evidence of the claimant as in the arbitration proceedings as there is no substantial progress in the proceedings between the framing of issues and the commencement of witness action. Therefore, an application for amendment of the SoD to set up a counterclaim cannot be allowed after commencement of the evidence of the claimant.

In the matter at hand, the court held that such an application for amendment was not based on any subsequent event or incident which took place after the commencement of the trial, and that the respondents were aware of relevant facts which they had sought to be introduced by way of amendment. The court stated that allowing such an application for amendment of the SoD to incorporate the counterclaim at this belated stage would cause serious prejudice and injustice to the claimant. Therefore, the court held the tribunal was correct in setting aside the respondent's application for amendment of the SoD.

JUDICIAL TRENDS AND GLOBAL STANDARDS ON TIMELY FILING OF COUNTERCLAIMS

This approach was previously affirmed by the Delhi High Court in Railtel Corporation of India Ltd. v. Primatel Fibcom Ltd., in two separate decisions,⁴ where the Court upheld the rejection of belated counterclaims, in both cases, the Court noted that the counterclaim was not part of the original defence and was filed after pleadings had concluded, and the counterclaim was introduced after the matter was scheduled for final hearing. Both rulings emphasized that such late filings disrupt the arbitral process and are not maintainable and further clarified that rejection of such claims is not appealable under Section 37(2)(a) of the Act.

Furthermore, this aligns with the international standards, as the UNCITRAL Model Law on International Commercial Arbitration, 1985, which forms the backbone of many arbitration statutes. Article 23 allows respondents to state their defence and counterclaims within the time agreed by the parties or determined by the tribunal. While no rigid timeline is prescribed, Tribunals typically require counterclaims to be filed alongside the SoD to ensure procedural fairness.

EPILOGUE

The Arbitration and Conciliation Act, 1996, over the course of time, has been refined to address the procedural shortcomings and to lift up the Arbitration practice in India and bring it at par with global standards or even better. The addition of Section 23(2A) into the statute was one such measure deployed to counter procedural uncertainty presented by the absence of a specific provision in the Act that expressly allows the respondent in a dispute to file a counterclaim, resulting in a new proceeding to address those claims.

The legislative intent behind Section 23(2A) can be traced to the recommendations of the Law Commission of India in its 246th Report. To address this, the Commission proposed an amendment to Section 23 in the following terms:

The note accompanying the proposed amendment was intended to make way for the counterclaims and set-offs to be dealt with by the tribunal in the same proceedings and to eliminate unnecessary commencement of new proceedings, provided the said claims are covered by the arbitration agreement.

This recommendation aimed to secure the final settlement of disputes between parties and prevent multiplicity of litigation. The 2015 amendment adopted this principle, albeit in a slightly modified form, by introducing Section 23(2A).

Section 23(2A) affords respondents a potent tool to level the playing field through counterclaims, yet this statutory latitude is tempered by judicial insistence on adherence to timelines decided by the tribunal after consulting the parties.

The jurisprudential metamorphosis witnessed in the Gayatri Granites case indicates that discretion exercised by the tribunal will not entail permitting counterclaims post-framing of issues, except in certain exceptional cases. However, there should be scope for intelligible differentia to prevent the commencement of separate arbitration for such claims, which could have been dealt with in the same arbitration proceedings.

Parties must therefore weigh the strategic implications carefully and avoid tactical delays that could undermine their position. To straighten out these issues, legislative inputs may prove to be fruitful. Such inputs shall include expressly providing an indicative timeline for introducing the counterclaims, ideally, at a time before the evidence commences. The legislative intervention shall simultaneously lay down certain guiding principles for the tribunals to help them exercise their discretion carefully in permitting the introduction of claims at a belated stage only on exceptional grounds.

Footnotes

1. Gayatri Granites and Ors vs Srei Equipment Finance Ltd, 2025 SCC OnLine Cal 7185.

2. Life Insurance Corporation of India v Sanjeev Builders Private Limited (2022) 16 SCC 1.

3. Ashok Kumar Kalra v Wing CDR. Surendra Agnihotri (2020) 2 SCC 349.

4. Railtel Corpn. of India Ltd. v. Primatel Fibcom Ltd., 2024 SCC OnLine Del 8599; see also, Railtel Corpn. of India Ltd. v. Primatel Fibcom Ltd., 2025 SCC OnLine Del 2598

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