Arbitration and Conciliation Act, 1996 – ss. 11(6), 11(12)(a) & 16 – Appointment of Arbitrator – Karnataka Stamp Act – Stamp Duty on Arbitration Agreement – Respondent, an Indian Company engaged in hospitality sector, entered into a Hotel Management Agreement (HMA) with Petitioners – HMA mandated that for the renovation undertaken by the petitioners, respondent was contractually bound to pay the fee to the petitioner as incentive fees – As per the petitioner, respondent failed to pay the requisite fee – Respondent via mail on 12.10.2018 terminated the HMA stating that the Hotel was rebranded – Petitioner invoked the arbitration clause provided under HMA – Aggrieved by the respondent’s denial to appoint a suitable arbitrator, the petitioner have filed petition for appointment of sole arbitrator – Respondent contended that the Arbitration Agreement was an unstamped document and the petitioners have not paid stamp duty under the Karnataka Stamp Act – Held: Usually, issues of arbitrability/validity are matters to be adjudicated upon by arbitrators – This Court, until the larger Bench decides on the interplay between Sections 11(6) and 16, should ensure that arbitrations are carried on, unless the issue before the Court patently indicates existence of deadwood – The issues whether the respondent is estopped from raising the contention of unenforceability of the HMA or the issue whether the HMA is insufficiently or incorrectly stamped, can be finally decided at a later stage – The petitioners, have themselves attempted to selfadjudicate the required stamp duty and have paid, a stamp duty of Rs 2,200/-, describing the HMA as a “bond” and further purchased
11 e-stamps for Rs. 200/- each, describing the HMA as an ‘agreement’ under article 5(j) – From the above it is clear, that stamp duty has been paid, whether it be insufficient or appropriate is a question that maybe answered at a later stage. Allowing the petition, the Court
HELD: 1. The initial interpretation provided by this Court to examine issues extensively, was recognized as being against the pro-arbitration stance envisaged by the 1996 Act. Case by case, Courts restricted themselves in occupying the space provided for the arbitrators, in line with party autonomy that has been reiterated by this Court in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, which clearly expounds that Courts had very limited jurisdiction under Section 11(6) of the Act. Courts are to take a ‘prima facie’ view, as explained therein, on issues relating to existence of the arbitration agreement. Usually, issues of arbitrability/validity are matters to be adjudicated upon by arbitrators. The only narrow exception carved out was that Courts could adjudicate to ‘cut the deadwood’. Ultimately the Court held that the watch word for the Courts is ‘when in doubt, do refer’. However, this Court considered it appropriate to refer the issue for authoritative settlement by a Constitution Bench in the light of Vidya Drolia, citing the ratio in Garware Wall Ropes. Although this Court agrees that there is a need to constitute a larger Bench to settle the jurisprudence, this Court is also cognizant of timesensitivity when dealing with arbitration issues. All these matters are still at a pre-appointment stage, and we cannot leave them hanging until the larger Bench settles the issue. In view of the same, this Court – until the larger Bench decides on the interplay between Sections 11(6) and 16 – should ensure that arbitrations are carried on, unless the issue before the Court patently indicates existence of deadwood. [Paras 18, 20 & 22][868-H; 869-A-B; 871-F; 873-B]
2. Upon reading Vidya Drolia, the issue of ‘existence’ and/or ‘validity’ of the arbitration clause, would not be needed to be looked into herein, as payment of stamp duty, sufficient or otherwise, has taken place herein. In order to ascertain whether adequate stamp duty has been paid in terms of the Karnataka Stamp Act, this Court needs to examine the nature of the substantive agreement, the nature of the arbitration agreement, and whether a separate stamp fee would be payable for the arbitration agreement at all. It may be noted that the petitioners, have themselves attempted to self-adjudicate the required stamp duty and have paid, on 29.07.19, a stamp duty of Rs 2,200/-, describing the HMA as a “bond”. On 10.06.2020, the petitioners further purchased 11 e-stamps for Rs. 200/- each, describing the HMA as an ‘agreement’ under article 5(j). Therefore, it falls upon the Court, under the stamp act to review the nature of the agreement in order to ascertain the stamp duty payable. From the above it is clear, that stamp duty has been paid, whether it be insufficient or appropriate is a question that maybe answered at a later stage as this court cannot review or go into this aspect under Section 11(6). If it was a question of complete non stamping, then this court, might have had an occasion to examine the concern raised in N. N. Global, however, this case, is not one such scenario. [Para 26][874-D-G]
Garware Wall Ropes Ltd. v Coastal Marine
Constructions and Engineering Ltd. (2019) 9 SCC 209 : [2019] 5 SCR 579; Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 - referred to.
N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited (2021) 4 SCC 379 – relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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