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In the matter of Parsvnath Developers Ltd v. Future Retail Limited (ARB.P. 14/2020) before Hon’ble Delhi High Court [decided on 12.04.2022], the petitioner moved an application under section 11(6) of the Arbitration and Conciliation Act, 1996 (“1996 Act”) for appointment of the presiding arbitrator in a dispute that erupted between the parties in relation to the Sub-License Agreement. Under the said agreement, the petitioner had sub-licensed certain area of the Parsvnath Mall to the Respondent for running a departmental store under the name of ‘Big Bazaar’.

The dispute arose on account of the introduction of service tax on the service of renting/licensing of immovable properties for commercial use with effect from 01.06.2007 under the Finance Act, 2007 enacted by the Government of India.  As per the Petitioner, the Respondent was liable to bear the additional burden of service tax. However, the Respondent failed to reimburse the service tax paid by the Petitioner. It was contended by the Respondent that it was liable to pay any service tax since there was no stipulation contained in the Sub-License Agreement for payment of service tax. Between the period of period 01.06.2007 to 31.12.2017, the amount payable added up to Rs. 4,27,93,994/- towards service tax and GST.

When the parties approached the Hon’ble High Court, the moot question for determination was since the main Agreement is not sufficiently stamped whether the petition for appointment of an arbitrator is required to be rejected?

The Hon’ble Court referred to the judgments in N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Limited & Ors (2021) 4 SCC 379 and Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited (2019) 9 SCC 209 wherein the Hon’ble Supreme Court held that non-payment or deficiency of stamp duty did not invalidate the main contract.  By virtue of doctrine of severability, the arbitration agreement or arbitration clause in a main contract is an independent agreement. It does not require mandatory registration. Therefore, invalidation of main contract on account of non-stamping, insufficient stamping or non-registration does not necessarily affect the arbitration agreement adversely.

The Court also referred to the law laid down in the matter of Vidya Drolia and Ors. v. Durga Trading Corporation (2021) 2 SCC 1 wherein a thumb rule of non-interference was laid down by the Hon’ble Supreme Court at the stage of reference unless it is found that the disputes ex facie are not arbitrable or the principal agreement is plainly invalid and unenforceable. It was held that the Courts would abstain from carrying out any adjudicatory exercise in respect of any contentious issue at a pre-reference stage.

The Court went on to further affirm the settled position by virtue of Section 6A of the  Arbitration and Conciliation Act, 1996 which lays down plainly that the scope of examination under Section 11 of the Arbitration and Conciliation Act, 1996 is confined to the existence of an Arbitration Agreement. The Court in this regard referred to the judgment in Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729. The Court also went on to analyse Mayavati Trading Pvt. Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714 and Bharat Sanchar Nigam Limited and Ors. v.Nortel Networks India Pvt. Ltd. (2021) 5 SCC 738.It was held in the matter of Bharat Sanchar Nigam Limited  that “It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.” Similarly in the matter of NCC Limited v. Indian Oil Corporation Limited (2019) SCC OnLine Del 6964, it was held that “Thus, unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the concerned Court hearing Section 11 petition should follow the more conservative course of allowing parties to have their say before the Arbitral Tribunal”.

The Court therefore concluded that although there was an existing dispute as to whether the contract was sufficiently stamped or not and the same was contentious issue in the light of the arguments forwarded by the petitioner that Agreement was in the nature of leave and license and did not create any interest in respect of the premises in question, in favour of the respondent. In the light of same position of law, the Court further stated that the question of limitation, which is a mixed question of law and facts, is also required to be examined, not at the pre-reference stage by the Court but subsequently by the Arbitral Tribunal. The Court referred to the judgment in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd (2020) 2 SCC 455. In the said judgment the Hon’ble Apex Court made the following observation:

In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction, “including any objections” with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator.

In the light of the discussion the Hon’ble Court appointed an arbitrator for the adjudication of the disputes between the parties.