Supreme Court of India
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR.versusWATERLINE HOTELS PVT. LTD.
- Citation
- 2022 INSC 90
- Decided
- 25 January 2022
- Disposal
- Appeal(s) allowed
- Bench
- N V RAMANA
Holding
The Court held that, since stamp duty has been paid and the issue of adequacy can be decided later, the arbitration agreement is not deadwood and a sole arbitrator must be appointed.
Summary
The Intercontinental Hotels Group (India) and its associate entered into a Hotel Management Agreement (HMA) with Waterline Hotels, which required the latter to pay incentive fees for renovations. Waterline Hotels failed to pay and later terminated the HMA, prompting the petitioners to invoke the arbitration clause and seek appointment of a sole arbitrator. Waterline contended that the HMA, which contained the arbitration agreement, was unstamped under the Karnataka Stamp Act and therefore unenforceable. The Supreme Court examined whether the issue of insufficient stamping constituted "deadwood" that would bar arbitration, emphasizing the pro‑arbitration stance of the Arbitration and Conciliation Act, 1996 and the principle that questions of arbitrability are for the arbitrator unless a clear case of non‑existence exists. The Court held that stamp duty had been paid, albeit possibly insufficient, and that the stamping issue could be resolved later without halting the arbitration process. Consequently, the Court appointed a sole arbitrator and allowed the petition, directing the parties to proceed under SIAC rules.
Issues considered
- The HMA containing the arbitration clause is unstamped or insufficiently stamped under the Karnataka Stamp Act, rendering the arbitration agreement unenforceable.
- Whether the question of stamp duty adequacy constitutes "deadwood" that justifies refusal to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
- Whether the court can intervene at the pre‑appointment stage to decide the validity of the arbitration agreement or must refer the matter to arbitration.
- Whether the respondent is estopped from challenging the enforceability of the HMA and its arbitration clause.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(12)(a), s. 11(6), s. 16
- Indian Stamp Act, 1899s. 3
- Karnataka Stamp Act, 1957s. 2(6), s. 34
- Maharashtra Stamp Acts. 3
Subjects
ArbitrationStamp dutyArbitration agreement validitySection 11(6) Arbitration ActAppointment of arbitratorHotel Management AgreementEstoppelDeadwood doctrinePro‑arbitration stance
Judgment
[2022] 13 S.C.R. 859 859
INTERCONTINENTAL HOTELS GROUP (INDIA) A
PVT. LTD. & ANR.
v.
WATERLINE HOTELS PVT. LTD.
(Arbitration Petition No. 12 of 2019) B
JANUARY 25, 2022
[N. V. RAMANA, CJI, SURYA KANT AND
HIMA KOHLI, JJ.]
Arbitration and Conciliation Act, 1996 – ss. 11(6), 11(12)(a) C
& 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 D
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 E
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 F
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 G
later stage – The petitioners, have themselves attempted to self-
adjudicate 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
H
859
860 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 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
B 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
C 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
D 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
E to settle the jurisprudence, this Court is also cognizant of time-
sensitivity 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
F 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
G 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,
H
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 861
v. WATERLINE HOTELS PVT. LTD.
and whether a separate stamp fee would be payable for the A
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
B
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 C
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 D
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. E
Case Law Reference
[2019] 5 SCR 579 referred to Para 14
(2021) 2 SCC 1 referred to Para 18
(2021) 4 SCC 379 relied on Para 20 F
CIVIL ORIGINAL JURISDICTION: Arbitration Petition (Civil)
No. 12 of 2019.
Petition under section 11(6) read with section 11(12) of the
Arbitration and Conciliation Act, 1996, for Appointment of Sole Arbitrator.
G
Ritin Rai, Sr. Adv., S. S. Shroff, Ms. Ila Kapoor, Ms. Surabhi Lal,
Ms. Ritika Sinha, Advs. for the Petitioners.
Navkesh Batra, Sandeep Narain for M/s S. Narain & Co., Advs.
for the Respondent.
H
862 SUPREME COURT REPORTS [2022] 13 S.C.R.
A The Judgment of the Court was delivered by
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.
B 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 (Asia-Pacific) Pvt
Ltd. (Petitioner 2), are subsidiaries of Intercontinental Hotels Group PLC
(IHG Group), based out of India and Singapore respectively. The parent
C company (IHG Group) is a British multi-national 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.
D 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.
E 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
F 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 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”.
G
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.
H
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 863
v. WATERLINE HOTELS PVT. LTD. [N. V. RAMANA, CJI]
7. In any case, the respondent sent an e-mail on 12.10.2018 A
terminating the HMA. In the aforesaid e-mail, 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
B
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 APIM No. 3/
2018. The High Court, on 23.10.2018, passed an ad-interim order directing C
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 D
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
E
(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 F
ten (10) Business Days of receipt of a notice issued 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 G
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
H
864 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 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
B
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. The decision and award of the
Arbitrator will be final and binding and shall be enforceable by the
C Indian Courts…”
10. In the Notice of Arbitration, the petitioners claimed the
following reliefs:
a. A declaration that:
D 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.
E
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;
F
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;
G 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
H
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 865
v. WATERLINE HOTELS PVT. LTD. [N. V. RAMANA, CJI]
iv. Such other future sums towards damages and as may A
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 B
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 C
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.
12. Accordingly, the petitioners communicated their intention to D
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 three-member
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
E
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 F
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. G
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.” H
866 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 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
B and filed a counter-affidavit 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
C 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
D 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.
E 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.
F
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 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
G 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., ten-
H
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 867
v. WATERLINE HOTELS PVT. LTD. [N. V. RAMANA, CJI]
times that duty amounting to INR 2,000 in accordance with the A
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 B
disputes that arise between the parties.”
16. The respondent, while objecting to the aforesaid application
filed by the petitioners, 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 C
had tendered a Letter dated 28.02.2020 annexing therewith a single
e-Stamp 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 D
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 e-Stamp paper, dated
29.07.2019 along with a proper Application.
6. I state that, the Petitioners have not filed the said single e- E
Stamp 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 e-Stamp Papers of Rs.200/- each all dated 10.06.2020
this time classifying the agreement under Article 5(j) of the F
Schedule to the Karnataka Stamp Act, 1957 and annexing the
HMA dated 07.08.2015 therewith, under the 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,
G
dated 02.03.2020, the Petitioners were granted permission to file
the 11 e-Stamp 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.
H
868 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 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.
B
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:
C SELF ADJUDICATION BY THE PETITIONERS WITH
THE MAXIMUM PENALTY OF 10 TIMES
D
E
F
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
G
to adjudicate issues at the pre-appointment 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 pro-arbitration stance
envisaged by the 1996 Act. Case by case, Courts restricted themselves
H in occupying the space provided for the arbitrators, in line with party
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 869
v. WATERLINE HOTELS PVT. LTD. [N. V. RAMANA, CJI]
autonomy that has been reiterated by this Court in Vidya Drolia v. A
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.
B
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
C
conclusion, with respect to adjudication of subject-matter
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
D
‘subject-matter arbitrability’ at the pre-arbitral 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 E
objections are provided separately Under Section 34 of the Act,
the Courts herein have understood the same to be interchangeable
under the Act. Further, subject matter arbitrability is inter-linked
with in-rem rights.
225.4 There are special classes of rights and privileges, which F
enure to the benefit of a citizen, by virtue of constitutional or
legislative instrument, which may affect the arbitrability of a subject-
matter.”
Following is the opinion of one of us (N. V. Ramana, J., as His
Lordship then was):- G
“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.
H
870 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 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
B a party has established a prima facie (summary findings) case of
non-existence 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,
C 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:
244.5.1 Whether the arbitration agreement was in writing? or
D 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 subject-matter of dispute
E 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
F 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
G “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.,
H (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is important in that
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 871
v. WATERLINE HOTELS PVT. LTD. [N. V. RAMANA, CJI]
what was specifically under consideration was an arbitration clause A
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
B
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 sub-contract would not “exist” as a matter of law until the
sub-contract is duly stamped, as has been held by us above. The
argument that Section 11(6-A) deals with “existence”, as opposed
to Section 8, Section 16 and Section 45, which deal with “validity” C
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.”
D
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 E
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 Stamp Acts. Any concerns of non-stamping
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 F
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 G
Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9
SCC 209] that the non-payment of stamp duty on the commercial
contract would invalidate even the arbitration agreement, and
render it non-existent in law, and un-enforceable, is not the correct
position in law. H
872 SUPREME COURT REPORTS [2022] 13 S.C.R.
A 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 co-ordinate 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
B
bench of this Court.
58. We consider it appropriate to refer the following issue, to
be authoritatively settled by a Constitution Bench of five Judges
of this Court:
C “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
D being non-existent, 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.”
E
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.
F 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
G 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, un-
enforceable or non-existent, even if the substantive contract is
H
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 873
v. WATERLINE HOTELS PVT. LTD. [N. V. RAMANA, CJI]
not admissible in evidence, or cannot be acted upon on account of A
non-payment 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 time-sensitivity
when dealing with arbitration issues. All these matters are still at a pre-
appointment stage, and we cannot leave them hanging until the larger B
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 C
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 Clause 22(1)(b) of the
HMA, to contend that the respondent has presented a warranty to ensure
D
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:
… E
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 F
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 G
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 H
874 SUPREME COURT REPORTS [2022] 13 S.C.R.
A not 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.
25. Moreover, the petitioners have reiterated that without prejudice,
B 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
C 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
D 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
E 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
F 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
G
concern raised in N. N. Global (supra), however, this case, is not one
such scenario.
27. Therefore, we deem it appropriate for this matter to be referred
to arbitration, in terms of Clause 18.2 of the arbitration agreement.
H
INTERCONTINENTAL HOTELS GROUP (INDIA) PVT. LTD. & ANR. 875
v. WATERLINE HOTELS PVT. LTD. [N. V. RAMANA, CJI]
28. Accordingly, we appoint Mr. Justice A.V. Chandrashekara, a 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.
B
Ankit Gyan Petition allowed.
(Assisted by : Rahul Rathi, LCRA)
C
D
E
F
G
H
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