Non-Payment/Insufficiency Of Stamp Duty Cannot Render The Arbitration Agreement Invalid: Delhi High Court

The Bench of Justice Anup Jairam Bhambhani relied on the judgments of the Supreme Court in N.N. Global Mercantile Private Limited vs. Indo Unique Flame Limited^[1] and Intercontinental Hotels Group (India) Pvt. Ltd. and Another vs. Waterline Hotels Pvt. Ltd.^[2] to hold that the court while exercising jurisdiction under Section 11 of the A&C should impound the unstamped/inadequately agreement and direct the parties to cure the defect before the arbitrator could adjudicate upon such an agreement.

The Court further held that the requirement of pre-arbitral steps in the form of negotiation/conciliation would stand satisfied when the petitioner issues several notices to amicably settle the dispute, however, no response comes from the respondent.

Facts

The parties entered into a work order (agreement) dated 04.12.2012. A dispute arose between the parties, consequently, the petitioner issued the notice of arbitration on 02.08.2021. Thereafter, the respondent filed its reply.

The Contention of the Parties

The respondent objected to the maintainability on the following grounds:

• The work order is not stamped, therefore, the arbitration clause embedded in it is not enforceable in law and cannot be acted upon unless the requisite stamp duty is paid.
• The petitioner has not complied with the dispute resolution mechanism provided under the agreement which provides a 4-stage dispute resolution and arbitration cannot be resorted to unless the first three remedies are exhausted.
• The substantive claims of the petitioner are barred by limitation as the invoices against which the payment is sought relate to the years 2013-16.

The petitioner countered the submissions of the respondent on the following grounds:

• Under Schedule 1A of the Indian Stamp (Delhi Amendment) Act, 2010, a „work order‟ is not required to be compulsorily stamped, therefore, the objection is without any merit.
• Moreover, the Supreme Court in N.N. Global (supra) and Intercontinental Hotels (supra) has held that non-payment of stamp duty does not invalidate the arbitration clause, therefore, the courts at the stage of appointing an arbitrator cannot refuse to exercise jurisdiction on this ground.
• The petitioner has made multiple attempts at amicable settlement as provided under the agreement, however, the same was not reciprocated by the respondent.
• The claims of the petitioner are within limitation, moreover, the issue of limitation is a complex one that has to be decided by the arbitrator only unless it falls in the category of 'dead claims'.

Analysis by the Court

The Court held that non-payment or insufficiency of stamp duty on the underlying agreement cannot render the arbitration clause invalid.

It relied on the judgments of the Supreme Court in N.N. Global Mercantile Private Limited vs. Indo Unique Flame Limited and Intercontinental Hotels Group (India) Pvt. Ltd. and Another vs. Waterline Hotels Pvt. Ltd.  to hold that the court while exercising jurisdiction under Section 11 of the A&C Act should impound the unstamped/inadequately agreement and direct the parties to cure the defect before the arbitrator could adjudicate upon such an agreement.

It further held that in terms of Section 29(m) of the Indian Stamp Act, 1899, the obligation to pay the stamp duty is on the respondent.

The Court further held that the requirement of pre-arbitral steps in the form of negotiation/conciliation would stand satisfied when the petitioner issues several notices to amicably settle the dispute, however, no response comes from the respondent.

The Court observed that it is futile to deny to the petitioner a reference to arbitration, since there is sufficient material on record to show that the petitioner made attempts at amicable resolution of its disputes with the respondent.

The Court further rejected the argument of the respondent that the claims are barred by limitation, the court held that on a prima-facie view the claims of the petitioner appears to be within limitation as the details of amounts withheld by the respondent were last updated on 29.12.2017.

Accordingly, the Court allowed the petition and directed the Registrar General to impound the agreement and respondent to pay the requisite stamp duty.

Case Title: Drooshba Fabricators v. Indue Private Limited

Citation: 2022 LiveLaw (Del) 844

Date: 26.08.2022

Counsel for the Petitioner: Mr. Adarsh Kumar Tiwari, Advocate with Mr. Vinit Pathak, Advocate and Mr. Vivek K. Tripathi, Advocate.

Counsel for the Respondent: Mr. Prashant Mehta, Advocate with Ms. Divita Vyas, Advocate.

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