INTERCONTINENTAL HOTELS GROUP (INDIA) vs WATERLINE HOTELS PVT. LTD

INTERCONTINENTAL HOTELS GROUP (INDIA) vs WATERLINE HOTELS PVT. LTD - Supreme Court Case 2022 


IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
    ARBITRATION PETITION (CIVIL)  NO. 12 OF 2019
INTERCONTINENTAL HOTELS GROUP (INDIA)  ….PETITIONERS
PVT. LTD. & ANR.
VERSUS
WATERLINE HOTELS PVT. LTD   .... RESPONDENT
    J U D G M E N T
    N.V. RAMANA, CJI.
1. This petition is filed under Section 11(6) r/w 11(12)(a) of the
Arbitration   &   Conciliation   Act,   1996   for   appointment   of   a   sole
arbitrator. 
2. The brief facts which are necessary for adjudication of this
application are that the Intercontinental Hotels Group (India) Pvt.
Ltd   (Petitioner   No.1)   and   Intercontinental   Hotels   Group   (AsiaPacific) Pvt Ltd. (Petitioner 2), are subsidiaries of Intercontinental
Hotels Group PLC (IHG Group), based out of India and Singapore
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REPORTABLE
respectively. The parent company (IHG Group) is a British multinational hotel based out of Denham, United Kingdom. 
3. The respondent is an Indian company engaged in hospitality
sector. The Respondent had agreed to run and operate a hotel by
name Holiday Inn & Suites Bengaluru, Whitefield. 
4. The respondent entered into a Hotel Management Agreement
(HMA) with the petitioners for renovating the existing infrastructure
in accordance with the brand standards established by the IHG
group. The HMA elaborated on the rights and obligations of parties
from 17.09.2015 for initial ten years and further renewals were also
provided thereunder. The petitioners alleged that under the HMA,
the petitioners were required to make significant investments for
setting up the hotel in accordance with the brand standards. These
investments were to be recovered gradually from the profits made
by the hotel in due course. 
5. The HMA mandated that for the renovation undertaken by the
petitioners, the respondent was contractually bound to pay the fee
to petitioner no. 1, known as incentive management fee, at the end
of every month. Further, Petitioner No.2 was entitled to license fee
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from the respondent for the use of brand and marks as well as an
agreed   sum   towards   “System   Fund   Contributions”,   “Technology
Service Fee” & “Technical Service Fee”. 
6. The petitioners allege that the respondent failed to pay the
requisite fee which it was contractually bound to under the HMA
since   early   2016.   As   of   12.10.2018,   the   respondent   owed   the
petitioners a sum amounting to USD 6,18,719, excluding interest
for the late payment as provided under Clause 21.3 of the HMA.
7. In any case, the respondent sent an e­mail on 12.10.2018
terminating the HMA. In the aforesaid e­mail, the respondent stated
that   the   hotel   was   rebranded   as   Miraya   Hotels,   and   all   guests
checking into the hotel after noon on 12.10.2018, were informed
that the management of the hotel had been handed over to Miraya.
On   the   same   day,   the   petitioners   replied   to   the   aforesaid
termination   letter   contending   that   unilateral   termination   of   the
HMA was not valid as there was no legal basis for the same. 
8. The respondent failed to retract the email of 12.10.2018, and
the petitioners invoked Section 9 of the Arbitration Act seeking
interim relief before the High Court of Karnataka at Bengaluru in
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APIM No. 3/2018. The High Court, on 23.10.2018, passed an adinterim order directing the respondent not to evict the petitioners
from the premises without due process of law until further orders.
However, the petitioners allege that the respondent has not been
sincere in complying with the order and has taken steps to frustrate
the aforesaid order. 
9. As the settlement talks between the parties failed, and the
respondent   remained   in   persistent   breach   of   the   HMA,   the
petitioners were left with no option other than to invoke Arbitration
under clause 18.2 of HMA, which reads as under: 
“Clause 18.2­ Dispute Resolution 
(a) All disputes, controversies or claims arising out of
or in connection with this Agreement and/or any matters
incidental   hereto   and/or   the   interpretation   and/or
breach hereof, will first be discussed by the Owner and
the Manager with the objective of resolving such dispute,
controversy   or   claim   in   a   fair,   amicable   and   friendly
manner. If such efforts fail to bring a resolution within
ten (10) Business Days of receipt of a notice issued by
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one party to another seeking resolution, such disputes,
controversies   or   claims   will   be   finally   determined   by
arbitration in accordance with the Arbitration Rules of
Singapore   International   Arbitration   Centre   (“SIAC”)   for
the   time   being   in   force,   which   rules   are   deemed
incorporated by reference into this clause. 
(b) The   Tribunal   shall   consist   of   a   sole   Arbitrator.
However, in the event that the Parties are unable to agree
on the sole Arbitrator the tribunal shall consist of three
Arbitrators, one to be appointed by each of Manager and
Owner,   and   the   third   to   be   appointed   by   mutual
agreement of the two appointed Arbitrators. In the event
the Arbitrators appointed by the Manager and the Owner
fail to mutually agree on the third Arbitrator, such third
Arbitrator shall be appointed by a Competent Court of
Law in Bangalore. The Parties herein mutually agree to
exclude the applicability of rules of SIAC to this extent
(i.e., regarding appointment of third Arbitrator). The place
of arbitration will be SIAC in Bengaluru and the official
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language of the arbitration will be English. In reaching a
decision, the Arbitrators, will be bound by the terms and
provisions of this Agreement. The decision and award of
the   Arbitrator   will   be   final   and   binding   and   shall   be
enforceable by the Indian Courts…”
10. In   the   Notice   of   Arbitration,   the   petitioners   claimed   the
following reliefs: 
a. A declaration that: 
i. The   Respondent   is   in   breach   of   the
Management   Agreement   dated   7th  August
2015; and 
ii. The Respondent has illegally and wrongfully
purported   to   terminate   the   Management
Agreement   by   its   email   dated   12th  October
2018. 
b. Direct   the   Respondent   to   pay   to   the
Claimants, 
i. The outstanding dues of USD 618,719 as on
8 October 2018 owed to the Claimants under
the Management Agreement;
ii. Interest on the above outstanding amounts
from the dates the amounts became due until
the filing of this notice invoking arbitration, in
accordance   with   Clause   21.3   of   the
Management Agreement; 
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iii. Damages   due   to   the   wrongful
termination of the Management Agreement for
the   remainder   Term   of   the   Management
Agreement   which   has   as   Initial   Term   of   10
years from 15 September 2015 with a potential
2 x 5 years of Renewal Term, in an amount to
be assessed later; and
iv. Such   other   future   sums   towards
damages   and   as   may   fall   due   under   the
Management Agreement and as the Claimants
may put forth before the Hon’ble Tribunal in its
Statement of Case. 
c. Pendente   Lite   and   future   interest   on   all
sums   awarded   to   it   at   such   rate   as   the
Tribunal may deem fit, in accordance with Rule
32.9   of   the   SIAC   Rules   and   Arbitration   &
Conciliation Act, 1996; 
d. Award   of   costs   from   the   Respondent   and
interest on the costs awarded, till payment. 
e. Any other prayer the Hon’ble Tribunal may
deem fit in the interest of justice.,”
11. The respondent is alleged to have replied to the aforesaid
Notice   of   Arbitration   by   stating   that   the   said   notice   dated
21.01.2019 was not a notice, and consequently did not require a
reply.
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12. Accordingly, the petitioners communicated their intention to
invoke arbitration to the Singapore International Arbitration Centre
(SIAC). They also approached the SIAC for suggesting names of sole
arbitrators   or   to   invoke   the   mechanism   of   appointing   a   threemember tribunal   if  the  respondent  does  not  agree  on   a  single
name.   SIAC   further   sent   a   notice   dated   15.02.2019   to   the
respondent for appointment of a suitable arbitrator. Interestingly,
the respondent replied to the notice sent by the SIAC stating that
the notice of arbitration dated 21.01.2019 was defective and was
not curable. In any case, the respondent alleges as under: 
“Strictly   without   prejudice,   we   do   not
accept IHG’s proposal to appoint any of the
3 Arbitrators named in its Notice, dated
08.02.2019, as a sole arbitrator. Nor do we
wish   to   propose   and   names   of   a   sole
arbitrator. Further, there is no question of
proposing or agreeing to Arbitration by a
Tribunal   of   3   Arbitrators   for   the   same
reason. The reasons have been elaborately
narrated   hereinabove   and   bear   no
repetition. 
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Clearly   SIAC   and   its   Associate   Counsel
have turned a complete blind eye to the
legal   position,   facts   of   the   case   and
conduct of IHG and its Advocates. It would
not be out place to mention that, in the
given   circumstances   SIAC   would   not   be
entitled to exclusion of liability under Rule
38, SIAC Rules.”
13. Aggrieved by the respondent’s denial to appoint a suitable
Arbitrator,   the   petitioners   have   filed   this   petition   seeking
appointment of an Arbitrator.
14. When this matter was listed on 16.04.2019, this Court was
pleased   to   issue   notice.   Thereafter,   the   respondent   entered
appearance   and   filed   a   counter­affidavit   dated   24.07.2019,
pointing   out   that   the   purported   HMA,   which   contains   the
arbitration agreement, was an unstamped document. It notes that
this   Court,   in  Garware   Wall   Ropes   Ltd.   v   Coastal   Marine
Constructions   and   Engineering   Ltd.,  (2019)   9   SCC   209   has
earlier held that an agreement which is not duly stamped cannot
be relied on or acted upon unless the unstamped document is
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impounded, and the applicable stamp duty and penalty is assessed
and paid. 
15. On 02.03.2020, this Court, at the request of the petitioners,
allowed four weeks to file an application. In line with the aforesaid
permission, the petitioners filed an application for permission to
file additional documents dated 23.06.2020 which reads inter alia
as under: 
“ ………..
3. Without prejudice to the above, the Petitioner
No.1 has taken the necessary step to pay the
stamp   duty   applicable   to   the   HMA.   In
accordance   with   Section   2(6)   of   the   Indian
Stamp   Act,   1899,   the   stamping   of   the   HMA
would be governed by the Karnataka Stamp Act,
1957 (“Karnataka Stamp Act”) because the HMA
was first executed in Bengaluru, the place of
performance   is   Bengaluru   and   the   subject
matter of the HMA is situated in Bengaluru. 
4. The Schedule of the Karnataka Stamp Act
enumerates different types of instruments that
attract stamp duty and the corresponding duty
that   is   payable.   Article   5   of   the   Schedule
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provides the duty applicable to different types of
agreements, The HMA is a services agreement
which is not specifically provided for in Article
5, and therefore, it would be covered under the
residuary provisions, Article 5(j), “Agreement or
[its records or] Memorandum of an Agreement if
not otherwise provided for”. The corresponding
stamp duty is INR 200. In order to establish its
bona fide and to avert any argument regarding
the adequacy of the stamp duty paid, Petitioner
No. 1 has also paid the maximum penalty i.e.,
ten­times that duty amounting to INR 2,000 in
accordance with the proviso to Section 34 of the
Karnataka Stamp Act. 
5. The Petitioners further submit that since they
have paid the requisite stamp duty along with
the   maximum   penalty   prescribed   under   the
Karnataka Stamp Act, this Hon’ble Court may
proceed to appoint a sole Arbitrator who has the
jurisdiction to deal with all disputes that arise
between the parties.”
16. The respondent, while objecting to the aforesaid application
filed by the petitioners, stated as under: 
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“4. I state that at the time of hearing of the
above   cited   Petition   on   the   02.03.2020,   the
learned Sr. Counsel appearing for the Petitioner
had   tendered   a   Letter   dated   28.02.2020
annexing   therewith   a   single   e­Stamp   paper
bearing   Unique   Doc.   Reference   No.
SUBINKAKABACSL0850557522508599R dated
29.07.2020 for Rs.2,200/­ classifying the HMA
as “Bond” under Article 12 of the Schedule to
the   Karnataka   Stamp   Act,   1957   and   the
Consideration Prices as Zero….
5. That this Hon’ble Court, had by its Order
dated 02.03.2020 directed the Petitioners to file
the   said   single   e­Stamp   paper,   dated
29.07.2019 along with a proper Application. 
6. I state that, the Petitioners have not filed the
said single e­Stamp Paper, dated 29.07.2019,
classifying   the   HMA   as   “Bond”.   Instead,
purportedly   in   furtherance   of   this   Hon’ble
Court’s Order dated 02.03.2020, the Petitioners
have filed a completely different set of 11 eStamp   Papers   of   Rs.200/­   each   all   dated
10.06.2020 this time classifying the agreement
under   Article   5(j)   of   the   Schedule   to   the
Karnataka Stamp Act, 1957 and annexing the
HMA   dated   07.08.2015   therewith,   under   the
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above cited Application seeking permission to
file   Additional   Documents   being   I.A   D.   No.
60764 of 2020. 
7.   I  state   that   it   is   not  true   that,   vide   this
Hon’ble Court’s Order, dated 02.03.2020, the
Petitioners were granted permission to file the
11   e­Stamp   Papers,   for   Rs.200/­   each,   all
dated 10.06.2020, that have been filed along
with   the   above   cited   Application   seeking
permission to file Additional Documents being
I.A D. No. 60764 of 2020. 
8. I submit that the Petitioners have not paid
the proper Stamp Duty and penalty under the
Karnataka   Stamp   Act,   1957   nor   has   the
procedure of adjudication of proper stamp duty
and   penalty   payable   been   followed   by   the
Petitioner as per law. The Petitioners have, in
fact,   arrogated   to   themselves   the   power   of
adjudication under the Karnataka Stamp Act,
1957. 
9. I state that there is no procedure whereby a
party   self   adjudicates   and   self   certifies   the
proper stamp duty and the penalty payable on
a Document as sought to be done twice by the
Petitioners as under: 
SELF ADJUDICATION BY THE PETITIONERS WITH
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THE MAXIMUM PENALTY OF 10 TIMES
29.07.2019 10.06.2020
Single e­Stamp paper
for Rs.2,200/­
11   e­Stamp   Papers
for Rs.200/­ each
Description of Doc.
Art 12 Bond 
Description   of   Doc.
Art 5(j) Agreement
(In any other cases)
Property Description 
Description 
Hotel   Management
Agreement 
Property
Agreement 
Consideration Price 
(Rs.) 0 
(Zero) 
Consideration Price 
(Rs.) 0 
(Zero)
17. We have heard learned counsel for the parties and perused
the documents available on record.
18. At the outset, we need to state that this Court’s jurisdiction to
adjudicate   issues   at   the   pre­appointment   stage   has   been   the
subject matter of numerous cases before this Court as well as High
Courts. The initial interpretation provided by this Court to examine
issues   extensively,   was   recognized   as   being   against   the   proarbitration 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
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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’.
This Court concluded as under: 
“225.  From a study of the above precedents,
the   following   conclusion,   with   respect   to
adjudication   of   subject­matter   arbitrability
Under Section 8 or 11 of the Act, are pertinent:
225.1 In line with the categories laid down by
the   earlier   judgment   of   Boghara   Polyfab
[National   Insurance   Co.   Ltd.   v.   Boghara
Polyfab (P) Ltd., (2009) 1 SCC 267] the Courts
were examining 'subject­matter arbitrability' at
the   pre­arbitral   stage,   prior   to   the   2015
amendment.
225.2  Post   the   2015   amendment,   judicial
interference at the reference stage has been
substantially curtailed.
225.3  Although   subject   matter   arbitrability
and   public   policy   objections   are   provided
separately Under Section 34 of the Act, the
Courts herein have understood the same to be
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interchangeable   under   the   Act.   Further,
subject matter arbitrability is inter­linked with
in­rem rights.
225.4  There are special classes of rights and
privileges,   which   enure   to   the   benefit   of   a
citizen, by virtue of constitutional or legislative
instrument, which may affect the arbitrability
of a subject­matter.”
Following is the opinion of one of us (N. V. Ramana, J., as His
Lordship then was):­
“244. Before we part, the conclusions reached,
with respect to question No. 1, are:
244.1  Sections 8 and 11 of the Act have the
same   ambit   with   respect   to   judicial
interference.
244.2  Usually,   subject   matter   arbitrability
cannot be decided at the stage of Sections 8 or
11   of   the   Act,   unless   it's   a   clear   case   of
deadwood.
244.3  The Court, Under Sections 8 and 11,
has   to   refer   a   matter   to   arbitration   or   to
appoint   an   arbitrator,   as   the   case   may   be,
unless a party has established a prima facie
(summary   findings)   case   of   non­existence   of
valid   arbitration   agreement,   by   summarily
portraying a strong case that he is entitled to
such a finding.
244.4  The Court should refer a matter if the
validity of the arbitration agreement cannot be
determined   on   a   prima   facie   basis,   as   laid
down above, i.e., 'when in doubt, do refer'.
244.5 The scope of the Court to examine the
prima facie validity of an arbitration agreement
includes only:
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244.5.1 Whether the arbitration agreement
was in writing? or
244.5.2 Whether the arbitration agreement
was   contained   in   exchange   of   letters,
telecommunication etc?
244.5.3  Whether   the   core   contractual
ingredients qua the arbitration agreement
were fulfilled?
244.5.4  On   rare   occasions,   whether   the
subject­matter of dispute is arbitrable?”
19. While   holding   as   above,   this   Court   by   majority   opinion
speaking through Justice Sanjiv Khanna held as under:
“147.1. In Garware Wall Ropes Ltd. [Garware
Wall   Ropes   Ltd. v. Coastal   Marine
Constructions & Engg. Ltd., (2019) 9 SCC 209 :
(2019)   4   SCC   (Civ)   324]   ,   this   Court   had
examined the question of stamp duty in an
underlying contract with an arbitration clause
and  in  the  context  had  drawn a  distinction
between the first and second part of Section
7(2)   of   the   Arbitration   Act,   albeit   the
observations   made   and   quoted   above   with
reference to “existence” and “validity” of the
arbitration   agreement   being   apposite   and
extremely   important,   we   would   repeat   the
same by reproducing para 29 thereof : (SCC p.
238)
“29.   This   judgment   in Hyundai   Engg.
case [United   India   Insurance   Co.
Ltd. v. Hyundai Engg. & Construction Co. Ltd.,
(2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is
important in that what was specifically under
consideration was an arbitration clause which
would get activated only if an insurer admits
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or accepts liability. Since on facts it was found
that the insurer repudiated the claim, though
an arbitration clause did “exist”, so to speak,
in the policy, it would not exist in law, as was
held   in  that   judgment,  when   one   important
fact   is   introduced,   namely,   that   the   insurer
has   not   admitted   or   accepted   liability.
Likewise, in the facts of the present case, it is
clear   that   the   arbitration   clause   that   is
contained in the sub­contract would not “exist”
as a matter of law until the sub­contract is
duly stamped, as has been held by us above.
The argument that Section 11(6­A) deals with
“existence”, as opposed to Section 8, Section
16 and Section 45, which deal with “validity” of
an arbitration agreement is answered by this
Court's   understanding   of   the   expression
“existence”   in Hyundai   Engg.   case [United
India   Insurance   Co.   Ltd. v. Hyundai   Engg.   &
Construction   Co.   Ltd.,   (2018)   17   SCC   607   :
(2019) 2 SCC (Civ) 530] , as followed by us.”
Existence   and   validity   are   intertwined,   and
arbitration   agreement   does   not   exist   if   it   is
illegal   or   does   not   satisfy   mandatory   legal
requirements.   Invalid   agreement   is   no
agreement.”
20. In   any   case,   again   in N.N.   Global   Mercantile   Private
Limited v. Indo Unique Flame Limited, (2021) 4 SCC 379, this
Court  doubted the above proposition as held in  Garware  Wall
Ropes  (supra),   and   was   of   the   opinion   that   the   utility   of   the
doctrine of separability overrides the concern under the respective
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Stamp Acts. Any concerns of non­stamping or under stamping
would not affect the validity of the arbitration agreement. However,
this   Court   considered   it   appropriate   to   refer   the   issue   for
authoritative settlement by a Constitution Bench in the light of
Vidya   Drolia  (supra), citing the ratio in  Garware  Wall   Ropes
(supra). The relevant  observations made in  N.N.   Global (supra)
read as under:
“56. We are of the considered view that the
finding in SMS Tea Estates  [SMS Tea Estates
(P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14
SCC   66] and Garware  [Garware   Wall   Ropes
Ltd. v. Coastal   Marine   Constructions   &   Engg.
Ltd., (2019) 9 SCC 209]  that the non­payment
of   stamp   duty   on   the   commercial   contract
would   invalidate   even   the   arbitration
agreement, and render it non­existent in law,
and un­enforceable, is not the correct position
in law.
57. In view of the finding in paras 146 and
147   of   the   judgment   in Vidya   Drolia   [Vidya
Drolia v. Durga Trading Corpn., (2021) 2 SCC 1
by a co­ordinate Bench, which has affirmed the
judgment   in Garware   [Garware   Wall   Ropes
Ltd. v. Coastal   Marine   Constructions   &   Engg.
Ltd., (2019) 9 SCC 209], the aforesaid issue is
required   to   be   authoritatively   settled   by   a
Constitution bench of this Court.
58.  We consider it appropriate to refer the
following issue, to be authoritatively settled by
19
a   Constitution   Bench   of   five   Judges   of   this
Court:
“Whether   the   statutory   bar   contained   in
Section   35   of   the   Indian   Stamp   Act,   1899
applicable to instruments chargeable to Stamp
Duty under Section 3 read with the Schedule
to the Act, would also render the arbitration
agreement contained in such an instrument,
which is not chargeable to payment of stamp
duty, as being non­existent, unenforceable, or
invalid, pending payment of stamp duty on the
substantive contract/instrument?”
59.  In light of the same, the Registry may
place   this   matter   before   the   Hon'ble   Chief
Justice   of   India   for   appropriate
orders/directions.”
21. The reasoning for the above was provided in the captioned
judgment as follows:
“24. The arbitration agreement contained in
the   Work   Order   is  independent   and  distinct
from the underlying commercial contract. The
arbitration agreement is an agreement which
provides   the   mode   of   dispute   resolution.
Section 3 of the Maharashtra Stamp Act does
not   subject   an   arbitration   agreement   to
payment of Stamp Duty, unlike various other
agreements enlisted in the Schedule to the Act.
This   is   for   the   obvious   reason   that   an
arbitration   agreement   is   an   agreement   to
resolve disputes arising out of a commercial
agreement,   through   the   mode   of   arbitration.
On the basis of the doctrine of separability, the
arbitration   agreement   being   a   separate   and
20
distinct   agreement   from   the   underlying
commercial   contract,   would   survive
independent of the substantive contract. The
arbitration agreement would not be rendered
invalid, un­enforceable or non­existent, even if
the substantive contract is not admissible in
evidence, or cannot be acted upon on account
of non­payment of Stamp Duty.”
22. Although we agree that there is a need to constitute a larger
Bench to settle the jurisprudence, we are also cognizant of timesensitivity when dealing with arbitration issues. All these matters
are still at a pre­appointment 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.
23. This brings us to the only issue at hand: whether the issue of
insufficient stamping raised by the respondent is deadwood and
clearly indicative of an unworkable arbitration agreement, or there
are deeper issues which  can  be resolved  at a  later  stage.  The
counsel for the petitioners has sought to draw our attention to
21
Clause 22(1)(b) of the HMA, to contend that the respondent has
presented a warranty to ensure the said HMA would be valid and
legally enforceable. Clause 22.1 (b) of the HMA reads as follows:
“22.1.   Owner   represents   and   warrants   to
Manager upon execution of this Agreement and
again on the Commencement Date that:
b) it has obtained or shall obtain (with Manager’s
assistance as it is reasonably able to provide) all
necessary   governmental   permissions,   licenses
and   permits   (including   but   not   limited
construction, occupancy, liquor, bar, restaurant,
sign and hotel accommodation licenses) to enable
Manager to operate the Hotel in accordance with
the   Brand   Standards   and   to   ensure   this
Agreement is fully valid and enforceable in the
Country.”
24. Having perused Clause 22.1, it is necessary to note that the
respondent is under an obligation to ensure that the agreement
would   be   legally   valid   in   India.   If   such   an   obligation   was
undertaken by the respondent, the extent to which the petitioners
can rely on the respondent’s warranty, is clearly a debatable issue.
Further, it is also a matter of adjudication whether the respondent
could   have   raised   the   issue   of   validity   of   the   arbitration
agreement/substantive   contract   in   view   of   the   warranty.   This
aspect clearly mandates that the aforesaid issue is not deadwood.
22
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.
25. Moreover,   the   petitioners   have   reiterated   that   without
prejudice, they have paid the required stamp duty, including the
penalty that may be accruable and sought appointment of a sole
arbitrator in light of the same.  On the contrary, the respondent, in
rebuttal to the payment of stamp duty, has challenged the same,
contending that payment of stamp duty has been wrongly classified
and   stamp   duty   has   been   paid   against   Article   5(j)   under   the
schedule of the Karnataka Stamp Act, 1957, which is erroneous.
Therefore, the respondent contends that the HMA has not been
properly stamped.      
26. Upon reading  Vidya  Drolia  (supra), 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
23
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 self­adjudicate 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 e­stamps 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 (supra), however, this case, is not one such
scenario.
24
27. Therefore,   we   deem   it   appropriate   for   this   matter   to   be
referred to arbitration, in terms of Clause 18.2 of the arbitration
agreement.
28. Accordingly, we appoint Mr. Justice  A.V. Chandrashekara, a
former Judge of the High Court of Karnataka as a sole arbitrator to
adjudicate the issues. The parties are directed to take steps to
convey this order to the SIAC to proceed in terms of the SIAC rules.
29. The arbitration petition is allowed in the above terms.
  
...........................................CJI.
                (N.V. RAMANA)
 ..............................................J.
(SURYA KANT)
..............................................J.
(HIMA KOHLI)
NEW DELHI;
JANUARY 25, 2022
25

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

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