Introduction
The Delhi High Court’s decision in Eureka Forbes Ltd v Indian Railway Catering and Tourism Corporation Decided On: 12.05.2026 Citation: MANU/DE/3689/2026 throws sharp light on a recurring but under‑discussed problem in arbitral practice: what happens to a counterclaim when a respondent is proceeded ex parte. In setting aside an arbitral order that outright rejected a duly‑filed counterclaim merely because the respondent was proceeded ex parte, the Court has drawn a clear doctrinal line between procedural case‑management and the final extinguishment of substantive rights.
For judges, arbitrators and practitioners, the judgment is important on three axes: it refines the “interim award vs procedural order” distinction, it constrains the use of ex parte powers under Section 25 of the Arbitration and Conciliation Act, 1996 (“A&C Act”), and it re‑anchors arbitral procedure in the guarantee of equal treatment and fair opportunity under Section 18.
Factual matrix in brief
IRCTC invited bids in 2015 for operation and maintenance of Water Vending Machines (WVMs) at railway stations, pursuant to which Eureka Forbes was awarded a licence for Cluster 02 under a licence agreement dated 14 September 2016. Disputes arose regarding alleged non‑payment of licence fees, leading IRCTC to invoke arbitration and, on failure to agree on an arbitrator, to approach the Delhi High Court under Section 11, which appointed a retired District and Sessions Judge as sole arbitrator.
IRCTC filed its statement of claim on 6 May 2024, Eureka Forbes filed its statement of defence on 24 June 2024, and pursuant to liberty granted by the arbitrator on 3 July 2024, Eureka Forbes filed a counterclaim on 10 July 2024. On 31 July 2024, when no one appeared for Eureka Forbes, the DIAC Deputy Counsel informed the arbitrator that previous counsel had withdrawn, and at the same hearing IRCTC sought two weeks’ time to file its reply to the counterclaim and rejoinder, whereupon the matter was adjourned to 21 August 2024 with directions to circulate the order to the parties by email.
On 21 August 2024, noting that emails sent to some Eureka addresses had bounced while those to two official addresses had not, and that no one appeared for Eureka Forbes, the arbitrator proceeded ex parte against Eureka and, in the same breath, rejected the counterclaim. When Eureka later sought recall of this order and restoration of its counterclaim, the arbitrator held that while the defence would remain on record and Eureka could participate in the proceedings, the rejection of the counterclaim amounted to an (interim) award that he lacked jurisdiction to recall.
The Section 34 challenge and core issue
Eureka Forbes approached the Delhi High Court under Section 34 of the A&C Act to assail both the 21 August 2024 order (proceeding ex parte and rejecting the counterclaim) and the 21 October 2024 order (refusing to recall the ex parte order or restore the counterclaim). The petitioner argued that the rejection of its counterclaim amounted to an “interim award” within Sections 2(1)(c) and 31(6), following IFFCO Ltd v Bhadra Products and Delhi High Court precedents such as Cinevistaas Ltd v Prasar Bharti.
The respondent countered that the orders were purely procedural, particularly the ex parte direction, and hence were not amenable to Section 34 scrutiny; it also contended that the petitioner’s own conduct and repeated non‑appearance justified the arbitrator’s course of action. Thus, the central legal issue became whether the arbitrator’s order, to the extent it rejected a duly‑filed counterclaim contemporaneously with proceeding ex parte, was a challengeable interim award or a non‑justiciable procedural direction.
The triple test for an “interim award”
The Court anchored its analysis in its earlier decision in H.S. Nag & Ors v Asian Hotel (North) Ltd, where it had synthesised statutory text and precedent (including IFFCO) into a three‑part test for identifying an “interim award”. An order qualifies as an interim award if:
It finally adjudicates a substantive dispute or claim between the parties.
Such adjudication attains finality and binding effect in respect of that issue.
The arbitral tribunal becomes functus officio qua that issue, retaining no further adjudicatory discretion over it.
The Court emphasised that mere nomenclature is irrelevant; the inquiry must focus on substance and legal effect. Procedural directions that regulate the conduct of proceedings, even if they affect valuable rights, do not cross the threshold unless they conclusively determine a component of the arbitral reference.
Ex parte direction: procedural, not an interim award
Applying this test, the Court first considered the arbitrator’s decision to proceed ex parte against Eureka in respect of IRCTC’s claims. It held that such a direction, by itself, does not adjudicate any substantive issue, nor does it extinguish the defaulting party’s underlying rights; the claims remain to be decided on the merits.
Crucially, the arbitrator remained in seisin of IRCTC’s claims, retained full adjudicatory discretion, and could even revisit procedural aspects, including the ex parte status, in appropriate circumstances. On this reasoning, the ex parte order was characterised as purely procedural and therefore outside the scope of Section 34 review at this stage, with the Court making it clear that any challenge to such procedural steps could ordinarily be raised when assailing the final award or, in exceptional cases, under constitutional jurisdiction.
From an arbitral‑practice perspective, this part of the ruling is conservative and continuity‑based: it preserves tribunal autonomy over day‑to‑day case‑management, resists fragmentation of arbitral review through piecemeal challenges, and aligns with the policy of minimal curial intervention.
Rejection of the counterclaim: a true interim award
The analysis changes starkly when the Court turns to the rejection of the counterclaim. Here, applying the same triple test, the Court concluded that the arbitrator’s decision satisfied all three elements of an interim award.
First, the rejection of the counterclaim was a conclusive determination of Eureka’s independent substantive claims, leaving nothing further to be adjudicated on those claims in the arbitration. Second, the determination plainly bore an element of finality and binding effect, as the arbitral record treated the counterclaim as dismissed, not merely deferred or held in abeyance. Third, the arbitrator himself proceeded on the footing that he was functus officio qua the counterclaim, expressly holding that he could not recall what he regarded as an award and that any challenge had to be mounted before a court.
In the Court’s words, the orders “taken in conjunction, insofar as they relate to the Petitioner’s counterclaims, constitute an interim award and would be amenable to challenge under Section 34”. This classification is doctrinally significant: it recognises that while ex parte directions are procedural, the outright extinction of an already‑filed counterclaim is qualitatively different and confronts the parties’ substantive rights in a final manner.
Section 18 and the equal‑treatment imperative
Having brought the matter within Section 34, the Court scrutinised the arbitrator’s rejection of the counterclaim on the touchstone of Section 18, which mandates equal treatment of parties and a full opportunity to present one’s case. The arbitral record showed that:
The counterclaim was duly filed on 10 July 2024 pursuant to express liberty granted by the arbitrator.
On 31 July 2024, the adjournment was substantially driven by IRCTC’s request for time to file its reply to the counterclaim and rejoinder, not solely by Eureka’s non‑appearance.
The proceedings on the counterclaim were still at the pleadings stage; there is no indication that IRCTC’s reply had been filed by 21 August 2024.
Against this backdrop, the Court considered it arbitrary and legally untenable to reject a duly‑filed counterclaim solely because the respondent was proceeded ex parte on a single subsequent date, particularly when the adjournment had previously been sought by the claimant itself. The Court underscored that non‑appearance may justify proceeding ex parte but does not, ipso facto, justify striking off substantive claims that are already on record.
The critical point is conceptual: ex parte status affects how the tribunal proceeds (e.g., taking evidence without participation) but does not erase previously crystallised pleadings. To treat ex parte as a trigger for extinguishing a counterclaim is to convert a procedural consequence into a substantive sanction without statutory warrant, in direct tension with Section 18’s guarantee of equal treatment.
Section 25: default, but not dismissal of claims
The Court then turned to Section 25 of the A&C Act, which deals with “default of a party”. While Section 25(a) allows termination of the proceedings if a claimant fails to communicate its statement of claim at all, and Section 25(b) permits the tribunal to proceed without a respondent’s defence, the Court emphasised two limits:
Section 25(a) contemplates termination of the proceedings where no claim (or, by implication, counterclaim) is filed; it does not authorise dismissal of claims that have already been validly filed and are on record.
Section 25(c) allows the tribunal to continue proceedings and make an award based on available evidence where a party fails to appear or produce evidence; it does not envisage rejection of a substantive claim purely for non‑appearance.
In Eureka Forbes, the counterclaim had been filed; the case was not one of failure to communicate a claim or counterclaim at all. Thus, Section 25(a) was inapplicable, and the statutory scheme, taken as a whole, pointed towards proceeding on merits on the material before the tribunal rather than striking off claims.
The Court therefore held that the arbitrator’s course—rejecting the counterclaim as a direct consequence of proceeding ex parte—was inconsistent with the legislative design of Section 25 and amounted to visiting the party with an “extreme consequence” not contemplated by the Act.
Public policy, patent illegality and “unable to present the case”
Having found jurisdiction under Section 34, the Court identified multiple grounds for setting aside the interim award rejecting the counterclaim.
First, it treated the rejection as being in “conflict with the public policy of India” under Section 34(2)(b)(ii), because it involved a serious violation of principles of natural justice and Section 18’s equal‑treatment requirement. Denying adjudication on a duly‑filed counterclaim, at a stage when even the claimant’s reply was not on record, was held to constitute a manifest failure of procedural fairness.
Second, the Court invoked Section 34(2A) (patent illegality apparent on the face of the award), pointing out that the arbitrator’s approach showed elements of perversity: it misapplied Section 25, ignored the context of the 31 July 2024 adjournment, and treated ex parte status as equivalent to extinguishment of substantive rights.
Third, the Court held that the situation squarely attracted Section 34(2)(a)(iii) — the party was “otherwise unable to present his case”. By rejecting the counterclaim at the threshold of pleading and without merit‑based adjudication, the arbitrator effectively prevented Eureka from ever placing its counter‑case before the tribunal.
This three‑pronged reasoning sends a strong signal: courts will not countenance procedural shortcuts that result in the permanent foreclosure of substantive claims under the guise of case‑management.
Relief: restoration of counterclaim, ex parte order left untouched
On relief, the Court adopted a calibrated approach. It set aside the 21 August 2024 order “insofar as it proceeds ex parte as against the Petitioner and goes on to hold that as the reason for rejecting the counterclaims of the Petitioner”, and restored the counterclaims to their original position, directing the arbitral tribunal to consider them in accordance with law.
However, the Court declined to interfere with the direction that the petitioner be proceeded ex parte in respect of IRCTC’s claims, reiterating that this part of the order was procedural and did not qualify as an interim award. The same logic applied to the later order of 21 October 2024 so far as it related to ex parte status; the Court expressly disclaimed jurisdiction to rule on its correctness under Section 34, leaving Eureka to pursue any other remedies available in law for challenging such procedural directions.
The outcome is therefore asymmetrical but principled: the counterclaim is revived and must be adjudicated; the ex parte posture towards the main claim remains, unless corrected in some other forum or stage.
Critical appraisal: strengths of the Court’s approach
The judgment’s most compelling strength lies in its insistence on conceptual clarity between procedure and substance. By classifying the rejection of the counterclaim as an interim award while treating the ex parte direction as procedural, the Court preserves arbitral flexibility in managing hearings yet protects parties from the irreversible loss of claims without adjudication.
The reliance on H.S. Nag’s triple test is also doctrinally neat: it offers tribunals and courts a workable framework to distinguish challengeable interim awards from unchallengeable interlocutory orders, reducing the risk of ad hoc classifications based on labels or convenience. This clarity is particularly useful in complex arbitrations where multiple orders—on jurisdiction, limitation, bifurcation, or partial claims—are disposed of at different stages.
Further, the judgment correctly reads Section 25 as an enabling, not punitive, provision. It empowers tribunals to continue despite default; it does not authorise them to weaponise default into dismissal of claims that are already alive on the record. That interpretive stance aligns with the pro‑arbitration but fair‑procedure ethos of the A&C Act.
Points of tension and open questions
That said, the judgment raises some interesting questions for arbitral practice. First, while the Court classifies the ex parte order as purely procedural and thus beyond Section 34, the same ex parte posture can, in practice, substantially impair a respondent’s ability to defend, especially at the evidence stage. The Court hints that such grievances may be raised when challenging the final award, but interim prejudice can still be severe.
Second, the judgment assumes that dismissal of a counterclaim for non‑prosecution can never be a legitimate exercise of tribunal discretion where default is repeated and contumacious. While the facts here plainly did not justify such a drastic step, in other cases tribunals may confront respondents who use counterclaims tactically to delay proceedings and then routinely default. The line between robust docket control and extinguishment of rights remains fact‑sensitive and will require careful, record‑based calibration.
Third, by accepting the arbitrator’s own characterisation that he lacked power to recall an “award” on the counterclaim, and instead correcting the position under Section 34, the Court indirectly leaves unresolved the larger question of how far arbitral tribunals can revisit their own interim awards. The judgment does cite Srei Infrastructure v Tuff Drilling (through the arbitral order), but does not itself develop the contours of an arbitral “recall power”, a question that continues to generate debate.
Practical takeaways for arbitrators
For arbitrators, the message is clear and operational.
Proceeding ex parte is a procedural step; it should not be mechanically coupled with dismissal of pending claims or counterclaims that are already on file.
Even where a respondent defaults on appearance, a filed counterclaim must ordinarily be adjudicated on the basis of available pleadings and evidence, with the tribunal drawing appropriate inferences from non‑participation rather than erasing the claim.
When dealing with defaults, orders should clearly identify which consequences flow from Section 25(a), (b) or (c); tribunals should avoid creative “sanctions” not contemplated by the statute.
Tribunals would also be well advised to record, with some care, whether their determinations on specific issues are intended to have finality (and hence the character of awards or interim awards) or are merely procedural directions, to reduce downstream classification disputes.
Practical takeaways for counsel
For counsel, the judgment underscores the importance of both diligence and record‑building.
Withdrawal of counsel without formal substitution and without the client being clearly informed of the next dates can expose parties to ex parte consequences; tribunals and institutions will increasingly look at email trails and service records as the Delhi High Court did here.
Where a counterclaim (or any independent claim) is struck off during proceedings, counsel should carefully examine whether the order satisfies the H.S. Nag triple test; if it does, a timely Section 34 challenge, even mid‑arbitration, may be necessary to prevent irrevocable loss.
At the same time, parties should not reflexively challenge every adverse procedural order as an “interim award” lest arbitral timelines be derailed and costs escalated.
Conclusion: re‑centring fairness in arbitral default
Eureka Forbes v IRCTC is a useful reminder that ex parte proceedings are a tool for efficiency, not a licence to amputate substantive rights. By restoring a counterclaim that had been rejected merely because counsel failed to appear on a given date, the Delhi High Court has re‑affirmed a simple but vital proposition: in arbitration, as in court, default should not become a backdoor substitute for adjudication.
For the arbitral community, the decision invites greater discipline in distinguishing between case‑management and final dispositions, and in ensuring that even in a regime of party autonomy and minimal court interference, the foundational guarantees of equal treatment and fair hearing remain non‑negotiable.
