Sufficiency Of Stamp Duty On Agreement And Nature Of Contract Cannot Be Adjudicated By Court Under Section 11 Of A&C Act: Delhi High Court

The Single Bench of Justice Vibhu Bakhru held that the dispute as to whether the contract containing the arbitration clause is sufficiently stamped or not, and the nature of the contract, are contentious issues which cannot be decided by the Court in a petition filed under Section 11.

Parsvnath Developers Ltd (PDL) entered into an agreement with Delhi Metro Rail Corporation Ltd (DMRC), whereby a specific area was allocated to PDL for constructing a shopping complex. PDL was given the right to further sub-license the allocated area. Thereafter, PDL entered into a Sub-License Agreement with Future Retail Limited (FRL). After the enactment of the Finance Act, 2017, renting and licensing immovable properties for commercial use was made exigible to service tax. PDL called upon FRL to reimburse the service tax paid by PDL, however FRL denied its liability to pay service tax under the Contract. PDL invoked the Arbitration Clause and filed a petition before the Delhi High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator, after FRL failed to nominate an arbitrator.

FRL contended before the High Court that the Contract entered into between PDL and FRL was insufficiently stamped, and since the Arbitration Clause was incorporated as a part of the Contract, the recourse to courts in respect of the said clause was not available. FRL submitted that the Contract was required to be compulsorily registered, and since it was an unregistered document, the same would not affect the rights and obligations of the parties. Also, FRL averred that the disputes raised by PDL were ex facie barred by the Limitation Act, 1963. The Counsel for PDL submitted that the Contract was in the nature of a leave and license agreement and was sufficiently stamped. The Counsel added that the question of validity of an agreement fell within the jurisdiction of the Arbitral Tribunal and the scope of examination under Section 11 of the A&C Act is limited by virtue of Section 11(6A) of the A&C Act. The Counsel relied on the judgment of the Delhi High Court in the case of Bhupender Singh Bhalla versus Neelu Bhalla & Neelam Singh (2013), wherein the High Court had held that the question whether the agreement is a lease or a license is a triable question. Also, the Counsel averred that the claims raised by PDL were not barred by limitation.

Section 11 (6A) of the Arbitration and Conciliation Act, 1996 provides that the Supreme Court or the High Court, while considering any application under Section 11 for appointment of an arbitrator, shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

The High Court observed that the Supreme Court in the case of N.N. Global Mercantile Pvt Ltd versus Indo Unique Flame Limited & Ors (2021) had held that non-payment or deficiency of stamp duty does not invalidate the main contract.

The High Court held that even though an arbitration agreement is embodied in a main agreement, it is a separate agreement and invalidation of the main agreement does not necessarily invalidate the arbitration agreement. Also, an arbitration agreement is not required to be compulsorily registered. The Court ruled that following the doctrine of severability, the benefit of an arbitration agreement cannot be denied to a party on the ground of any deficiency in the main agreement.

The Court ruled that by virtue of Section 11(6A) of the A&C Act, the scope of examination under Section 11 of the A&C Act is confined to the existence of an arbitration agreement. The Court held that the standard for rejecting a reference to arbitration on the ground that the disputes are not arbitrable or that the agreement is invalid is that of 'beyond any doubt'.

The Court observed that the dispute as to whether the Contract was sufficiently stamped or not, and the averments made by PDL with respect to the nature of the Contract, are contentious issues which are required to be adjudicated by the Arbitral Tribunal. The Court added that the standards of examination under Section 11 of the A&C Act do not extend to adjudicating any contentious disputes between the parties.

The Court ruled that the question whether a claim was barred by limitation or not is a mixed question of fact and law. The Court observed that the Supreme Court in the case of Uttarakhand Purv Sainik Kalyan Nigam Ltd versus Northern Coal Field Ltd (2019) had held that the issue of limitation is a jurisdictional issue which is required to be decided by the arbitrator under Section 16 of the A&C Act, and not by the High Court at the pre-reference stage under Section 11 of the A&C Act.

The High Court thus held that the Court cannot adjudicate on the issue whether the claims made by the petitioner PDL were barred by limitation since the same was required to be decided by the Arbitral Tribunal.

The Court thus allowed the petition and appointed an Arbitrator.

Case Title: Parsvnath Developers Ltd versus Future Retail Limited

Citation: 2022 LiveLaw (Del) 323

Dated: 12.04.2022 (Delhi High Court)

Counsel for the Petitioner: Mr Rahul Malhotra and Mr Rishu Kant Sharma, Advocates.

Counsel for the Respondent: Mr Sudhir K. Makkar, Senior Advocate with Ms Saumya Gupta, Ms Veera Mathai, Ms Yogita Rathore, Advocates.

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