Drooshba Fabricators Vs Indure Private Limited (Delhi High Court)
Held that there is no dispute that the work order was issued by the respondent but stamp duty on the same is not paid. Accordingly, arbitration clause would be non-existent in law and unenforceable till stamp duty is adjudicated and paid.
Facts-
Vide the present petition u/s 11 of the Arbitration & Conciliation Act 1996, the petitioner seeks appointment of an arbitrator to adjudicate upon the disputes that are stated to have arisen with the respondent from Work Order dated 04.12.2012.
The respondent mainly objected that that the work order on which the petitioner has placed reliance has “not been duly stamped”. It is accordingly contended, that the work order requires to be impounded by the court; and that since an agreement only becomes a contract if it is enforceable by law, and being unstamped, the work order cannot be enforced, and therefore, the arbitration clause contained therein is also not enforceable. In this regard the respondent has drawn attention to the provisions of sections 11 (6A) and 7 of the A&C Act and to section 2(h) of the Indian Contract Act, 1872 to submit, that if an agreement is not enforceable in law, an arbitration clause contained therein is also not enforceable.
Conclusion-
Hon’ble Supreme Court in the case of Garware has clearly held that the arbitration clause would be non-existent in law and unenforceable till stamp duty is adjudicated and paid on the substantive contract.
In the present case, since there is no dispute that the work order was issued by the respondent, it is the respondent who would be liable to pay the applicable stamp duty.
Accordingly, at this stage, 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.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
By way of the present petition under section 11 of the Arbitration & Conciliation Act 1996 („A&C Act‟ for short), the petitioner seeks appointment of an arbitrator to adjudicate upon the disputes that are stated to have arisen with the respondent from Work Order dated 04.12.2012 („work order‟ for short).
2. Notice on this petition was issued on 02.08.2021, consequent to which the respondent filed its reply dated 16.12.2021.
3. Adarsh Kumar Tiwari, learned counsel for the petitioner has drawn the attention of this court to clause 15 of the work order, which comprises the arbitration agreement between the parties; and contemplates reference of disputes between them to arbitration in accordance with the A&C Act; with the „venue‟ of arbitration being at a designated office address at New Delhi.
4. For completeness, it may be recorded that a separate territorial jurisdiction provision is also contained in clause 18 of the work order, which also subjects the disputes between the parties to the jurisdiction of courts of law at New Delhi.
5. As per the record, the petitioner invoked arbitration vide Notice dated 28.04.2021; to which however, the respondent sent no reply.
6. However, in reply dated 16.12.2021 filed to the present petition, the respondent has taken the following three principal objections:
i. Objection I: The respondent’s first objection is that the work order on which the petitioner has placed reliance has “not been duly stamped”. It is accordingly contended, that the work order requires to be impounded by the court; and that since an agreement only becomes a contract if it is enforceable by law, and being unstamped, the work order cannot be enforced, and therefore, the arbitration clause contained therein is also not enforceable. In this regard the respondent has drawn attention to the provisions of sections 11 (6A) and 7 of the A&C Act and to section 2(h) of the Indian Contract Act, 1872 to submit, that if an agreement is not enforceable in law, an arbitration clause contained therein is also not enforceable.
ii. Furthermore, learned counsel for the respondent relies upon the decision of the Hon‘ble Supreme Court in Garware Wall Ropes Limited vs. Coastal Marine Construction and Engineering Limited‘ in support of this contention, in particular on paras 22 and 29, which held as follows:
“22. When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6-A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates2 has, in no manner, been touched by the amendment of Section 11(6- A).
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“29. This judgment in Hyundai Engg. Case12 is important in that what was specifically under consideration was an arbitration clause 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 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” of an arbitration agreement is answered by this Court’s understanding of the expression “existence” in Hyundai Engg. Case12, as followed by us”
(emphasis supplied)
It is submitted that though the decision of the Hon’ble Supreme Court in paras 22 and 29 of Garware has been referred to a Constitution Bench of 05 judges in the case of N.N. Global Mercantile Private Limited vs. Indo Unique Flame Limited And Other2 , until such time as the Constitution Bench decides or takes a contrary view to that taken in Garware, the ratio of Garware must be treated as settled law; and that accordingly, the arbitration clause contained in the work order is not enforceable.
iii. Objection II: The respondent‟s second objection is that the petitioner has not complied with the dispute resolution mechanism agreed to in clauses 14 and 15 of the work order, which lays-down the pre-conditions for invocation of arbitration; and the present petition is therefore, premature and not maintainable. To support this contention, the respondent cites the following clauses of the work order:
“14. Settlement of Disputes:
14.1 Any dispute(s) or differences arising out of or in connection with the contract shall to the extent possible, be settled amicably between the parties.
14.2 All unsettled dispute(s) or difference(s) arising out of or in connection with the contract shall be decided by the Engineer whose decision shall be final and binding on the parties.
Prior to the initiation of any / or arbitration proceedings permitted by this contract to resolve disputes between them, in the event a dispute arises between you and us regarding the application or interpretation of this contract (a “Dispute”), Our Project Incharge and your representative shall use their best efforts in good faith to reach a reasonable and equitable resolution of the matter. If our Project lncharge and your representative are unable to resolve the matter within 30 days, either party by written notice may refer the matter for resolution by good faith negotiation between their respective senior officers with decision making power and who shall not have had substantive involvement in the matters involved in the dispute, unless the parties otherwise agree.
15. Arbitration
All disputes or differences whatsoever arising between the parties cut of (sic) or relating to the construction, meaning and operation or effect of this order or the breach thereof shall be settled by arbitration in accordance with the provisions of Indian Arbitration and reconciliation Act 1986(sic) or any statutory modification thereof and the awards made in pursuance thereof as subsisting shall be binding on the parties.
Except where otherwise provided in the Order, any dispute arising out of or in connection with the order or claim there under and as to the respective rights, obligations and liabilities of the parties hereto whether during the continuance of this order or thereafter shall be referred to at the written request of either party to the sole arbitration of Shri N P Gupta, President of Desein Private Limited, New Delhi.
The Desein House, Greater Kailash-11, New Delhi, India shall be the venue of the arbitration.”
(emphasis supplied)
iv. The respondent argues that the aforesaid dispute resolution mechanism comprises a four-step process, as summarised in their reply as follows:
“6. It is submitted that compliance of Clause 14 is a four- step process.
A tabular form of the said process is given as under:
