TaxTMI 
TaxTMI 
2022 (1) TMI 1171
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....pondent entered into a Hotel Management Agreement (HMA) with the petitioners for renovating the existing infrastructure in accordance with the brand standards established by the IHG group. The HMA elaborated on the rights and obligations of parties from 17.09.2015 for initial ten years and further renewals were also provided thereunder. The petitioners alleged that under the HMA, the petitioners were required to make significant investments for setting up the hotel in accordance with the brand standards. These investments were to be recovered gradually from the profits made by the hotel in due course. 5. The HMA mandated that for the renovation undertaken by the petitioners, the respondent was contractually bound to pay the fee to petitioner no. 1, known as incentive management fee, at the end of every month. Further, Petitioner No.2 was entitled to license fee from the respondent for the use of brand and marks as well as an agreed sum towards "System Fund Contributions", "Technology Service Fee" & "Technical Service Fee". 6. The petitioners allege that the respondent failed to pay the requisite fee which it was contractually bound to under the HMA since early 2016. As of 12.10.2....
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....sist of three Arbitrators, one to be appointed by each of Manager and Owner, and the third to be appointed by mutual agreement of the two appointed Arbitrators. In the event the Arbitrators appointed by the Manager and the Owner fail to mutually agree on the third Arbitrator, such third Arbitrator shall be appointed by a Competent Court of Law in Bangalore. The Parties herein mutually agree to exclude the applicability of rules of SIAC to this extent (i.e., regarding appointment of third Arbitrator). The place of arbitration will be SIAC in Bengaluru and the official language of the arbitration will be English. In reaching a decision, the Arbitrators, will be bound by the terms and provisions of this Agreement. The decision and award of the Arbitrator will be final and binding and shall be enforceable by the Indian Courts..." 10. In the Notice of Arbitration, the petitioners claimed the following reliefs: a. A declaration that: i. The Respondent is in breach of the Management Agreement dated 7th August 2015; and ii. The Respondent has illegally and wrongfully purported to terminate the Management Agreement by its email dated 12th October 2018. b. Direct the Respondent ....
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....nabove and bear no repetition. Clearly SIAC and its Associate Counsel have turned a complete blind eye to the legal position, facts of the case and conduct of IHG and its Advocates. It would not be out place to mention that, in the given circumstances SIAC would not be entitled to exclusion of liability under Rule 38, SIAC Rules." 13. Aggrieved by the respondent's denial to appoint a suitable Arbitrator, the petitioners have filed this petition seeking appointment of an Arbitrator. 14. When this matter was listed on 16.04.2019, this Court was pleased to issue notice. Thereafter, the respondent entered appearance and filed a counteraffidavit dated 24.07.2019, pointing out that the purported HMA, which contains the arbitration agreement, was an unstamped document. It notes that this Court, in Garware Wall Ropes Ltd. v Coastal Marine Constructions and Engineering Ltd., (2019) 9 SCC 209 has earlier held 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. 15. On 02.03.2020, this Court, at the request of the petitioners, allowed four weeks to file a....
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....0 directed the Petitioners to file the said single eStamp paper, dated 29.07.2019 along with a proper Application. 6. I state that, the Petitioners have not filed the said single eStamp Paper, dated 29.07.2019, classifying the HMA as "Bond". Instead, purportedly in furtherance of this Hon'ble Court's Order dated 02.03.2020, the Petitioners have filed a completely different set of 11 eStamp Papers of Rs. 200/each all dated 10.06.2020 this time classifying the agreement under Article 5(j) of the Schedule to the Karnataka Stamp Act, 1957 and annexing the HMA dated 07.08.2015 therewith, under the above cited Application seeking permission to file Additional Documents being I.A D. No. 60764 of 2020. 7. I state that it is not true that, vide this Hon'ble Court's Order, dated 02.03.2020, the Petitioners were granted permission to file the 11 eStamp Papers, for Rs. 200/each, all dated 10.06.2020, that have been filed along with the above cited Application seeking permission to file Additional Documents being I.A D. No. 60764 of 2020. 8. I submit that the Petitioners have not paid the proper Stamp Duty and penalty under the Karnataka Stamp Act, 1957 nor has the procedure of adjudic....
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.... 1 SCC 267] the Courts were examining 'subject matter arbitrability' at the prearbitral stage, prior to the 2015 amendment. 225.2 Post the 2015 amendment, judicial interference at the reference stage has been substantially curtailed. 225.3 Although subject matter arbitrability and public policy objections are provided separately Under Section 34 of the Act, the Courts herein have understood the same to be interchangeable under the Act. Further, subject matter arbitrability is interlinked with inrem rights. 225.4 There are special classes of rights and privileges, which enure to the benefit of a citizen, by virtue of constitutional or legislative instrument, which may affect the arbitrability of a subjectmatter." Following is the opinion of one of us (N. V. Ramana, J., as His Lordship then was): " 244. Before we part, the conclusions reached, with respect to question No. 1, are: 244.1 Sections 8 and 11 of the Act have the same ambit with respect to judicial interference. 244.2 Usually, subject matter arbitrability cannot be decided at the stage of Sections 8 or 11 of the Act, unless it's a clear case of deadwood. 244.3 The Court, Under Sections 8 an....
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....ract would not "exist" as a matter of law until the subcontract is duly stamped, as has been held by us above. The argument that Section 11(6A) 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. case [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] , as followed by us." Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement." 20. In any case, again in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited, (2021) 4 SCC 379, this Court doubted the above proposition as held in Garware Wall Ropes (supra), and 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. However, this Court considered it appropriate to refer the issue for autho....
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.... of arbitration. On the basis of the doctrine of separability, the arbitration agreement being a separate and distinct agreement from the underlying commercial contract, would survive independent of the substantive contract. The arbitration agreement would not be rendered invalid, unenforceable or nonexistent, even if the substantive contract is not admissible in evidence, or cannot be acted upon on account of nonpayment of Stamp Duty." 22. Although we agree that there is a need to constitute a larger Bench to settle the jurisprudence, we are also cognizant of timesensitivity 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. 23. This brings us to the only issue at hand: whether the issue of insufficient stamping raised by the respondent is deadwood and clearly indicative of an unworkable arbitration agreement, or there are deeper....