Shri Balakrishna G Godse vs. The State Of Karnataka

Facts

The petitioner, Shri Balakrishna G. Godse, a Class I contractor, filed a writ petition challenging an order dated May 19, 2023, passed by the sole arbitrator in Arbitration Case No. C.M.P. No. 100014/2021. The petitioner had filed an interim application (I.A. No. II/2022) under Order VI Rule XVII of the CPC seeking to amend his pleadings to incorporate an additional claim related to the payment of Goods and Services Tax (GST). The respondents, the State of Karnataka and its officials, resisted the application. The arbitrator rejected the amendment application, holding that the relief sought could not be entertained in the pending arbitration proceedings and that the arbitral tribunal lacked jurisdiction to decide the claim made by way of amendment.

Held

The High Court allowed the writ petition. The Court found that the arbitration clause (Clause 4.1) clearly stipulated that any dispute or difference arising between the employer and the contractor relating to any matter arising out of or connected with the agreement shall be settled in accordance with the Arbitration and Conciliation Act, 1996. The Court held that the additional claim for 12% GST, as against the previous 4% KVAT, pertained to this contractual work and therefore fell within the scope of disputes covered by the arbitration clause. The Court disagreed with the arbitrator's reasoning that the tribunal lacked jurisdiction. Regarding the respondents' contention of limitation and belated stage, the Court stated that when a dispute relates to financial implications, and the petitioner is entitled to seek recovery under law, they deserve a fair opportunity to substantiate their claim. The Court found no malafides or oblique motive in the amendment application. It concluded that disallowing the amendment would cause serious prejudice to the petitioner and potentially lead to a miscarriage of justice, whereas allowing it would not cause significant prejudice to the respondents. Therefore, the order under challenge was deemed unsustainable. The Court permitted the petitioner to raise the additional claim by way of amendment and granted liberty to the respondents to file an additional statement.

Key Issues

1. Whether the arbitral tribunal has the jurisdiction to entertain an amendment application seeking to incorporate a claim for GST payment, under the Arbitration and Conciliation Act, 1996, and the relevant arbitration clause in the agreement? 2. Whether the proposed amendment, seeking to claim GST at 12% instead of the previously applicable 4% KVAT, is a dispute arising out of or connected with the agreement? 3. Whether the amendment application, if otherwise permissible, is barred by limitation or sought at a belated stage, and if disallowing it would cause prejudice to the petitioner? Petitioner's arguments: The petitioner contended that the additional claim for GST payment is a matter arising out of or connected with the contract and should be entertainable by the arbitrator. He argued that he was compelled to pay GST at a higher rate to avoid penalties, and this financial implication is directly linked to the contractual work. He also argued that disallowing the amendment would cause him serious prejudice and lead to a miscarriage of justice, while allowing it would not cause undue prejudice to the respondents. Respondents' arguments: The respondents resisted the amendment application on the grounds that it was barred by limitation, as the claim was not made in the initial petition. They also argued that the proposed amendment sought was outside the purview of the arbitral tribunal.