BACKGROUND OF DISPUTES
- Aggrieved by the Notice, the Petitioners invoked section 9 of the Arbitration and Conciliation Act, 1996 (Act) and sought interim relief before the
High Court of Karnataka (High Court ). By an ad-interim order datedOctober 23, 2018 , theHigh Court directed the Respondent not to evict the Petitioners from the Hotel without due process of law until further orders (Order). The Petitioners alleged that the Respondent failed to comply with the Order. Subsequently, the Petitioners invoked the arbitration clause under the HMA and issued a notice of arbitration datedJanuary 21, 2019 (Arbitration Notice). In response to the Arbitration Notice, the Respondent allegedly stated that the Arbitration Notice was not a notice of arbitration and did not merit a response. - The arbitration clause inter alia provided the procedure for constitution of the tribunal. Pursuant to the response received from the Respondent, the Petitioners requested Singapore International Arbitration Centre to suggest names of sole arbitrators or invoke the mechanism of appointing a three-member tribunal, as per the HMA, in the event the Respondent did not agree to the name of a sole arbitrator. Although SIAC issued a notice dated
February 15, 2019 to the Respondent for the appointment of a suitable arbitrator, in response, the Respondent stated the Arbitration Notice was defective and not curable. Aggrieved by the Respondent's refusal to appoint an arbitrator, the Petitioners filed the present petition under sections 11(6) read with 11(12)(a) of the Act to constitute the Tribunal, before theSupreme Court (Section 11 Proceedings). - The Petitioners filed an application for permission to file additional documents on
June 23, 2020 (Application). By the said Application, the Petitioners inter alia (i) stated that they had taken the requisite steps to pay the applicable stamp duty along with the penalties that may be accruable under Karnataka Stamp Act, 1957 (Karnataka Stamp Act) on a without prejudice basis; (ii) pointed out that the HMA was a services agreement, which would be covered under the residuary provisions, i.e., Article 5(j) of the Karnataka Stamp Act; and (iii) requested theSupreme Court to appoint an arbitrator. - Objecting to the Application, the Respondent, submitted that by a letter dated
February 28, 2020 , the Petitioners had previously stated that the HMA was classified as a "bond". The Respondent further contended that (i) the Petitioners had not been granted permission to file additional stamp papers under Article 5(j) of the Karnataka Stamp Act; (ii) the Petitioners have not paid the proper stamp duty and penalty under the Karnataka Stamp Act; and (iii) the Petitioners could not have self-adjudicated the proper stamp duty and penalty payable. - The
Supreme Court held that while there is a need for a larger bench to settle the jurisprudence, considering the "time sensitive" nature of arbitration matters, all matters at pre-appointment stage could not be left hanging until the larger bench settled the issue. In view of the same,Supreme Court held that until the larger bench decided on the interplay between sections 11(6) and 16 of the Act, theSupreme Court should ensure that arbitrations are carried on unless the issue before theSupreme Court patently indicates the existence of 'deadwood'. - Referring to Vidya Drolia, the
Supreme Court held that 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". - The
Supreme Court concluded that "it was clear that stamp duty had been paid. Whether it was insufficient or appropriate is a question to be answered at a later stage as the Court could not review this issue under section 11(6). If it was a question of complete non stamping, then the Court, might have had an occasion to examine the concern raised in N. N. Global, however, this case, is not one such scenario."
SUBMISSIONS OF THE PARTIES
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In the Section 11 Proceedings, the Respondent filed a counter-affidavit dated
FINDINGS OF THE COURT
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The issue which arose for consideration before the
Reiterated the view in Vidya Drolia that 'When in doubt, do refer'
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The
The
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The
The warranty provided by the Respondent in the HMA give rise to deeper issues which can be resolved at a later stage. Therefore, the issue of insufficient stamping is not 'deadwood'.
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The
The
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The
CONCLUSION AND ANALYSIS
In view of the above, the
Scope of intervention under Section 11(6) of the Act
The
Different approach from N. N. Global Mercantile
In N.N. Global Mercantile, the
Taking a different path from this view, in the present case, the
The apex court acknowledged that issues of substantive rights and obligations under the HMA would require adjudication at a later stage. However, it did not clarify whether the adjudication of rights and obligations of the main contract could proceed before complying with the mandatory provisions of the relevant stamp act. On the other hand, in N.N. Global Mercantile, the
The
Further, although in the present judgement the
Way Forward
The way forward in similar matters where allegations of inadequate payment of stamp duty are levelled in proceedings under Section 11 of the Act is likely to change. In the present judgement, the
The present judgement has been delivered by a bench that is equal in strength to N.N. Global Mercantile and Vidya Drolia. Therefore, the larger bench constituted pursuant to the reference made in N.N. Global Mercantile ought to clarify the different views adopted in these three judgements and the road ahead.
We hope you have found this information useful.
Footnotes
1. Judgement dated
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3. Vidya Drolia and Others v. Durga
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5.
6. Vidya Drolia and Others v. Durga
Vidya Drolia (at paragraph 92) had affirmed paragraphs 22 and 29 of
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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