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2022 (1) TMI 1171 - SC - Indian LawsAppointment of a sole arbitrator - Section 11(6) r/w 11(12)(a) of the Arbitration Conciliation Act 1996 - arbitration to the Singapore International Arbitration Centre (SIAC) was rejected stating that the notice of arbitration was defective and was not curable - requirement of sufficient stamping of documents - Hotel Management Agreement (HMA) sufficiently stamped or not - HELD THAT - This Court s jurisdiction to adjudicate issues at the preappointment 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 proarbitration 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 AND OTHERS VERSUS DURGA TRADING CORPORATION 2020 (12) TMI 1227 - SUPREME COURT 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. 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 the Court patently indicates existence of deadwood. Whether the issue of 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? - HELD THAT - 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 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 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. 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. It is deemed appropriate for this matter to be referred to arbitration in terms of Clause 18.2 of the arbitration agreement - arbitration petition is allowed.
Issues Involved:
1. Appointment of a sole arbitrator under Section 11(6) r/w 11(12)(a) of the Arbitration & Conciliation Act, 1996. 2. Alleged breach of the Hotel Management Agreement (HMA) by the respondent. 3. Validity and enforceability of the HMA due to issues of stamping under the Karnataka Stamp Act, 1957. 4. Jurisdiction of the Court to adjudicate issues at the pre-appointment stage. Issue-wise Detailed Analysis: 1. Appointment of a Sole Arbitrator: The petitioners filed under Section 11(6) r/w 11(12)(a) of the Arbitration & Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The HMA between the parties included an arbitration clause (Clause 18.2) that mandated arbitration under the SIAC rules. Despite efforts to resolve the dispute amicably, the respondent's refusal to appoint an arbitrator led the petitioners to approach the court. 2. Alleged Breach of the HMA: The petitioners alleged that the respondent failed to pay the requisite fees under the HMA since early 2016, amounting to USD 618,719 as of 12.10.2018. The respondent unilaterally terminated the HMA via email on 12.10.2018, rebranding the hotel as Miraya Hotels. The petitioners contested the termination as illegal and wrongful, invoking arbitration to resolve the dispute. 3. Validity and Enforceability of the HMA Due to Stamping Issues: The respondent argued that the HMA was an unstamped document, referencing the Supreme Court's decision in Garware Wall Ropes Ltd. v Coastal Marine Constructions and Engineering Ltd., which held that an unstamped document cannot be relied upon or acted upon unless duly stamped. The petitioners subsequently paid the stamp duty and penalty under the Karnataka Stamp Act, 1957, but the respondent contended that the classification and payment were erroneous. 4. Jurisdiction of the Court at the Pre-appointment Stage: The Court's jurisdiction to adjudicate issues at the pre-appointment stage has been limited by precedents emphasizing a pro-arbitration stance. The Court's role is to take a 'prima facie' view on the existence of the arbitration agreement, with a preference to refer matters to arbitration unless there is clear 'deadwood.' The Court cited Vidya Drolia v. Durga Trading Corporation, which restricted judicial interference and emphasized party autonomy. Analysis and Conclusion: The Court noted that the respondent's obligation under Clause 22.1(b) of the HMA to ensure the agreement's validity in India raised debatable issues, indicating that the matter was not 'deadwood.' The petitioners' payment of stamp duty, whether sufficient or not, was a matter for later adjudication. The Court emphasized that issues of 'existence' and 'validity' of the arbitration clause should not be extensively examined at this stage. The Court appointed Mr. Justice A.V. Chandrashekara, a former Judge of the High Court of Karnataka, as the sole arbitrator to adjudicate the issues, directing the parties to proceed in terms of the SIAC rules. The arbitration petition was allowed in these terms.
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