TMI Blog2022 (1) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 . In N.N. GLOBAL MERCANTILE PVT. LTD. VERSUS INDO UNIQUE FLAME LTD. AND ORS. [ 2021 (1) TMI 1121 - SUPREME COURT] this Court was of the opinion that the utility of the doctrine of separability overrides the concern under the respective Stamp Acts. Any concerns of nonstamping or under stamping would not affect the validity of the arbitration agreement. Although we agree that there is a need to constitute a larger Bench to settle the jurisprudence, we are also cognizant of time sensitivity 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Hotels Group (AsiaPacific) Pvt Ltd. (Petitioner 2), are subsidiaries of Intercontinental Hotels Group PLC (IHG Group), based out of India and Singapore 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by 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 language of the arbitration will be English. In reaching a decision, the Arbitrators, will be bound by the terms and provisions of this Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, stated as under: 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 ₹ 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 ₹ 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 above cited Application seeking permission t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 'subject matter 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 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 expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Stamp Act, this Court needs to examine the nature of the substantive agreement, the nature of the arbitration agree ..... X X X X Extracts X X X X X X X X Extracts X X X X
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