Introduction
In India, arbitration has truly become a fairly developed dispute resolution instrument, steered by party autonomy and flexibility of procedural regulations. The very flexibility may result in conflicts with procedural discipline particularly when the substantive rights are brought forward late. One such area of consistent dispute is the filing of counterclaims.
Section 23(2A) of Arbitration and Conciliation Act, 1996 (“Arbitration Act”) provides that it is open to the respondent to raise a counter claim or a plea of a set-off provided that such counterclaim or plea does not exceed the scope of the arbitration agreement. The statute is silent though about when such a counterclaim is to be introduced and that temporal vacuum has given rise to interpretative indeterminacy, and many times courts have been left to weigh fair judgment of a case against procedural economy.
This debate recently arose in the Calcutta High Court in Gayatri Granites & Ors. v. Srei Equipment Finance Ltd.,2025: CHC-AS:1698 where the Court determined that counterclaims are generally not allowed once the issues have been framed with an exception that arises in special cases. This ruling is a procedural gap that would not be final, as it represents a tendency of the judiciary toward increasingly procedural discipline.
The Opinion on the Jurisdictional Scope of Counterclaims Under Section 23(2A)
The Indian Arbitration statutes also provide for the recognition of counterclaim including the Arbitration and Conciliation (Amendment) Act, 2015 which introduced Section 23(2A) of the Act. This amendment was in light of the 246th Report of the Law Commission of India which identified a structural loophole in the Arbitration Act. The Commission noted that the lack of an express provision which allowed the respondents to raise counterclaims gave rise to uncertainty and often forced parties to raise separate arbitral references for interconnected disputes. The amendment therefore sought to ensure that disputes that could be adjudicated under the arbitration agreement may be decided in the same proceedings, with finality and so avoid procedural fragmentation.
Section 23(2A) gives the right to the respondent to file a counterclaim. However, it does not specify any fixed stage at which the said right can be exercised. This appears to have led to interpretative disputes. When Section 23(2A) is read together with Sections 23(1)-(4) and 29A of the Arbitration Act, legislative intent can be discerned to promote the trial of cases at an early date despite having enough flexibility for exceptional circumstances. The provision is therefore a compromise between procedural freedom and a certain amount of temporal discipline in an approach to “flexibility within limits”.
In Gayatri Granites, the Calcutta High Court opined that while arbitral tribunals are not subject to Code of Civil Procedure, 1908 (“CPC”), nonetheless, there is scope to have procedural analogies for the sake of fairness and efficiency. Order VIII Rule 6A of CPC permits the plaintiffs to file counterclaim only up to filing of written statement. By analogy the Court concluded that such should be the rule of the arbitral practice, for the not early bringing forward of the counter claims after framing of the issues should prejudice the claimant and prejudice the regularity of the procedure.
Therefore, the discretionary ambit of the jurisdiction of Section 23(2A) is restricted; it is a procedural jurisdiction that provides wide discretion for early pleading of a particular kind but lies within a framework of principles and fairness.
Procedural Fairness and the Schedule of Counterclaims
The dispute in Gayatri Granites & Ors. v. Srei Equipment Finance Ltd. was relying on a payment arrangement under which the claimant asked for recovery of money allegedly payable by the respondents. The respondents filed their Statement of Defence (“SoD”) in time, but after the claimant had finished his evidence, they applied for an amendment of their SoD to their counterclaim. Importantly, the proposed counterclaim was not predicated on any subsequent occurrence or subsequent discovery of any fact but was regarding matters known to the respondents since the beginning of the proceedings.
The arbitral tribunal, under discretion given to it under Section 23(3) of the Arbitration Act dismissed the amendment. It held that allowing such a late returning counterclaim would lead to disruption in the procedural timetable and would prejudice the claimant as it had furnished its evidence. When the respondents refused to comply with this request under Section 34 of the Arbitration Act, the Calcutta High Court upheld the decision of the tribunal, stating that conciseness of pleadings and the sanctity of the arbitral proceedings are a part of procedural fairness.
The Court looked to two Supreme Court cases that shed light on the judicial analysis of balancing delay and justice. In Life Insurance Corp of India v. Sanjeev Builders Pvt. Ltd., Civil Appeal No. 5909 of 2022, the Court ruled that amendments which make proper adjudication easy should ordinarily be permitted to be made provided they do not lead to injustice to the opposite party. In Ashok Kumar Kalra v. Wing Commander Surendra Agnihotri, AIR ONLINE 2019 SC 1525 going further than the previous case, the Court did hold that even when a counterclaim is filed within limitation, the court would have to take into consideration the elements of delay like prejudice, similarity of cause of action and stage at which the proceedings are, before permitting the same. In Gayatri Granites, the Court followed these principles and ruled that counterclaims could not be accepted as a rule after the framing of the issues and especially not after the commencement of evidence except in certain narrowly defined exceptional circumstances.
While arbitral tribunals are not governed by the CPC, Section 19 of the Arbitration Act empowers arbitral tribunals to adopt procedural rules that will ensure the fairness and efficiency of arbitration proceedings. The approach adopted by the Calcutta High Court thus further bolsters the disciplined but just approach, which does not allow gaming with the system while at the same time protecting the substantive right of the respondent to be heard.
The Judicial Trends: Uniting Logic in the High Courts and the Supreme Court
The Gayatri Granites decision is an emerging judicial trend of Indian courts to exercise procedural discipline in filing a counterclaim. A similar issue had been previously considered by the Delhi High Court in Railtel Corporation of India Ltd. v. Primatel Fibcom Ltd., where respondent was trying to bring forward a counterclaim to the case, but contradictions were over and the case was put on final hearing. The Court did not give a chance to the counterclaim because it considered that such tardy filings were disrupting the arbitral schedules and the effectiveness aimed under the Arbitration Act.
The decision was later restated by the same Court, holding that a counterclaim brought after the issues are framed is inadmissible and such refusal by establishing such a claim is not an appealable order under Section 37(2)(a) of the Act. The Railtel line of cases therefore echoes the argument in Gayatri Granites and represents a larger judicial tendency to emphasise an aspect of procedural certainty and fairness over unrestricted procedural discretion.
The initiatives taken at the doctrinal level resonate with the decision made by the Supreme Court in Ashok Kumar Kalra where the Court identified an “outer limit” on the extent of counterclaims that can be filed, basing on the point at which issues are to be framed. This time constraint, although formed during civil litigation, has been taken over into arbitration to make certain that counter claims do not fall-out proceedings which are already in high gear. Discretion is, however, emphasised: tribunals can only allow counterclaims to be delayed by reasons amounting to compelling circumstances and in circumstances where such delay does not cause prejudice to the claimant.
These judicial words all point to a developing interpretative proceeding between procedural elasticity and expediency, along with the consideration that the efficiency of arbitration could not be gained to the detriment of equity and that equity could not be bought to promote procedural profligacy indefinitely. The insistence of the courts on discipline is a slow process involving shift to procedural predictability in making sure that arbitration is fast and substantively fair.
Comparative and International Perspectives
Counterclaim management in arbitration differs depending on jurisdiction, but the common theme is the ability to establish a balance between a free process and a just one. Article 21(3) of the UNCITRAL Arbitration Rules in international commercial arbitration provides that counterclaims are allowed to the extent that they are within the scope of the arbitration agreement, although the tribunal may grant them approval where they are brought up late. This practice gives tribunals latitude over the admissibility of later counterclaims where the fairness and the absence of prejudice does so fare obtained, which is an exception that is reflected in Indian judicial logic in the post-Ashok Kumar Kalra era.
In the UK, the Arbitration Act 1996 has been flexible where procedural management has been left mostly to the arbitral tribunal. The English courts have become used to not interfering with procedural orders on counterclaims, except where the decision demonstrates procedural unfairness or biasness. This is a sign of a deference to arbitral autonomy, which is a pro-arbitration approach of the English law.
The Singapore International Arbitration Centre (“SIAC”) Rules are, in their turn, more rigid. There is a Rule 28.1 which permits counterclaims to be added with the Response to the Notice of Arbitration, forbidding any subsequent additions unless authorized by the tribunal. It focuses on procedural economy, which reflects the changing judicial forbearance in India against post-strongholds.
Indian jurisprudence, seen in comparison, seems to be heading towards the middle ground: that of acknowledging the discretionary powers of the tribunal but in a procedural context which guard against their abuse. Although the Indian approach still bases itself on the Arbitration Act, the spirit is in line with global best practices and seeks to balance party autonomy, efficiency, and equity. The difficulty, however, is to see that such procedural discipline is not rigidified, on which the flexibility of arbitration has been its most important asset.
Doctrinal and Policy Analysis – Drifting towards a Standardised Harmonisation
The underlying conflict in the doctrines between arbitral flexibility and procedural finality can be read in between the recurring controversy over such a delayed counterclaim. The Arbitration Act was drafted in likeness of the UNCITRAL Model Law, where minimum court intervention and the autonomy of the parties are the key ingredients. However, the increasing number of judicial intercessions in regard to the promptness of counterclaims are indicative that there is still procedural uncertainty in regard to these mounting purposes.
As a matter of doctrine, counterclaims provoke concern about two issues which are connected to each other: jurisdictional competency and procedural fairness. The tribunal is given jurisdiction to deal with a counterclaim linguistically, but it has to arise out of the “same legal relationship” as that behind the initial claim. Procedurally, fairness requires that the parties be allowed to put forward their different cases fairly without any surprise or prejudice. The challenge is not to ambush claimant with late counterclaims, while making sure that the procedure is not too rigid to the point of having substantive justice compromised.
The changing court position, in terms of policy, is also an indication of the re-setting of priorities. Previous decisions, like in State of Goa v. Praveen Enterprises, AIR 2011 Supreme Court 3814 supported a liberal interpretation of jurisdiction to enable the existence of counterclaims despite reference to arbitration. The Gayatri Granites and Railtel cases are more recent and demonstrate a turn to procedural discipline, with emphasis on predictability and efficiency in time. Such a development is similar to the 2015 and 2019 amendments of the Arbitration Act, which was meant to reduce delays and encourage institutional arbitration.
A harmonised standard must then be based on three considerations: firstly, a specified period within which counterclaims can be made and preferably prior to the filing of the statement of defence; secondly, a limit to discretion of the arbitral tribunal to receive counterclaims made late unless it can be demonstrated that the counterclaim has been made fairly and without prejudice; and thirdly, judicial restraint in reviewing procedural orders by courts unless such arbitral awards clearly demonstrate arbitrariness. This kind of a model would balance efficiency and justice, helping to rebuild confidence in arbitration as a suitable tool for solving disputes.
Conclusion
The debate over counterclaims in Indian arbitration reflects the constant struggle between procedural efficiency and fairness. The Calcutta High Court’s decision in Gayatri Granites provides important clarity, yet the broader goal remains to preserve both order and equity in arbitral proceedings. A clear procedural timeline for filing counterclaims, supported by limited tribunal discretion, can strengthen confidence in the arbitral process. Such a balanced framework would align Indian practice with global standards while preventing misuse of flexibility. Ultimately, arbitration in India must remain fair, efficient, and predictable to maintain its credibility as a trusted dispute resolution forum.
Explore Landmark Arbitration Judgments Shaping Indian Law 2025 to understand how recent rulings have shaped the approach to counterclaims and jurisdiction in Indian arbitration.
