ARBITRATION UPDATE | INSUFFICIENTLY STAMPED ARBITRATION AGREEMENT CAN BE ACTED UPON
The Supreme Court of India (Supreme Court) in the case of Intercontinental Hotels Group (India) Private Limited and Another v Waterline Hotels Private Limited has held that an arbitration agreement is insufficiently or inadequately stamped can still be acted upon, for the purpose of appointment of arbitrator.
This update briefly analyses the said judgement of the Supreme Court.
On 17 September 2015, Intercontinental Hotels Group (India) Private Limited (IHG) and Anr. and Waterline Hotels Private Limited (Waterline) entered into a Hotel Management Agreement (HMA) , for a period of 10 years, to operate and run a hotel named Holiday Inn and Suites, Bengaluru, Whitefield (Hotel).
It was contended by IHG that it had made significant investments and further, had carried out renovations for setting up the Hotel, in accordance with the HMA. However, despite IHG complying with its obligations, Waterline failed to pay the requisite fees which it was contractually bound to under the HMA.
Thereafter, on 12 October 2018, Waterline addressed an email to IHG terminating the HMA. In response, IHG addressed an email to Waterline contending that the unilateral termination of the HMA was not valid as there was no legal basis for the same.
Subsequently, IHG invoked the arbitration clause under the HMA vide their notice dated 21 January 2019. In response, Waterline stated that the notice sent by IHG was not a notice of arbitration and hence, did not merit a reply.
Accordingly, IHG communicated its intention to invoke arbitration to the Singapore International Arbitration Centre (SIAC) and requested SIAC to either suggest names of sole arbitrators or to invoke the mechanism of appointing a three-member tribunal if Waterline did not agree on a single name. Although SIAC issued a notice to Waterline for the appointment of a suitable arbitrator, Waterline replied to the SIAC`s notice stating that notice of arbitration dated 21 January 2019 was defective and not curable.
Accordingly, IHG filed the aforementioned arbitration petition (Petition) before the Court for appointment of Arbitrator under Section 11(6) of the Act.
CONTENTIONS OF THE PARTIES:
Waterline opposed the Petition contending that the HMA, which contained the arbitration agreement, was an unstamped document. In this regard, Waterline contended that an agreement which is not duly stamped cannot be relied on or acted upon unless the unstamped document is impounded, and the applicable stamp duty and penalty is assessed and paid.
In this regard, IHG filed an application along with an e-challan evidencing that it had taken steps to pay the requisite stamp duty, along with the maximum penalty thereon, in accordance with the Karnataka Stamp Act 1957 (Stamp Act . In view of the same, IHG requested the Supreme Court to appoint the Arbitrator.
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Whether an insufficiently stamped arbitration agreement can be acted upon, for the purpose of appointment of arbitrator under Section 11(6) of the Act?
Keeping in mind the divergent view taken by the Supreme Court in NN Global Mercantile Case and Garware Wall Ropes Case regarding the arbitrability of unstamped documents (containing arbitration agreements) and the reference of the aforesaid question of law to a constitutional bench, the Supreme Court held that arbitration issues were time-sensitive in nature and hence could not be left hanging until the constitutional bench settles the issue. In view of the same, the Supreme Court held that the 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``.
- In light of the above, the Supreme Court proceeded to deal with the question as to whether the issue of insufficient stamping raised by Waterline is deadwood or there are deeper issues which can be resolved at a later stage. Placing extensive reliance on the settled position of law which expounds that courts have very limitedjurisdiction while dealing with issues under Section 11(6) of the Act, the Supreme Court held that the issue of `existence` and/or `validity` of the arbitration clause would not be needed to be looked into as the stamp duty had been paid in the present case. The Supreme Court held that the insufficiency or appropriateness of stamp duty is a question that could answered at a later stage as the Supreme Court could not review or go into this aspect under Section 11(6).
- The Supreme Court further held that if the present Petition involved a question of complete non-stamping, then it might have had an occasion to examine the judgement passed in N. N. Global (supra) (which states that any concerns of non-stamping would not affect the validity of the arbitration agreement). However, since the present Petition did not deal with a similar scenario, the Supreme Court referred the disputes between IHG and Waterline to arbitration in terms of the HMA.
The Judgment is one of the many pro-arbitration rulings passed by the Indian judiciary in the recent past. While the question regarding the validity of unstamped documents containing arbitration agreements still remains grey and requires consideration by a larger bench, the Supreme Court, in this judgment, clarifies the position as regards insufficiently or inadequately stamped agreements, and holds that such deficiency does not act as a bar to the reference of disputes to an arbitral tribunal.
This update was released on 15 Feb 2022.
Legal Update Team
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