The Delhi High Court in Drooshba Fabricators v. Indue Private Limited observed that non-payment or insufficiency of stamp duty on the underlying agreement cannot render the arbitration clause invalid.
The facts, in brief, are that the parties entered into a work order (agreement) on 04.12.2012. Subsequently, a dispute arose between the parties, consequently, the petitioner issued the notice of arbitration on 02.08.2021. This petition has been filed under section 11 of the Arbitration & Conciliation Act 1996 seeking the appointment of an arbitrator to adjudicate upon the disputes that are stated to have arisen with the respondent from the said Work Order.
However, the Respondent has objected to the same by filing a reply to this petition on 16.12.2021. Three principal objections have surfaced on the said reply, and they are:-
That, the work order on which the petitioner has placed reliance has “not been duly stamped”. Reliance is placed on Garware Wall Ropes Limited vs. Coastal Marine Construction and Engineering Limited wherein it has been held that-
“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……”
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.
That, the claims sought to be referred to arbitration are barred by limitation, since the invoices against which payments are sought relate to the years 2013, 2014, 2015 and 2016. In support of this contention, it is submitted that the parties did not maintain a “running account”, since there were no mutual debit/credit entries in their accounts; nor has the petitioner produced a ledger to evidence any such running account.
These objections were rebutted by the Petitioner. After hearing the extensive arguments advanced by both sides, the Court observed that non-payment or insufficiency of stamp duty on the underlying agreement cannot render the arbitration clause invalid.
Further, it placed reliance on N.N. Global Mercantile Private Limited vs. Indo Unique Flame Limited and Intercontinental Hotels Group (India) Pvt. Ltd. and Another vs. Waterline Hotels Pvt. Ltd. to hold that the court while exercising jurisdiction under Section 11 of the A&C Act should impound the unstamped/inadequately agreement and direct the parties to cure the defect before the arbitrator could adjudicate upon such an agreement.
With relation to non-compliance of pre-arbitral conditions, it further observed that “....the record reveals that on multiple occasions the petitioner did communicate its grievances to the respondent in writing, seeking an amicable resolution thereof. However, evidently such communications have been to no avail. Apart from the bare averment that the pre-conditions for reference to arbitration, set-out as a four step process in the reply, have not been complied with by the petitioner, there is nothing specific on record to show that the respondent participated in the dispute resolution process initiated by the petitioner; which the respondent is now canvassing as an impediment to allowing the present petition.”
“...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. In the opinion of this court, there is thus no merit in this objection raised by the respondent.”
The Court also rejected the argument of the respondent that the claims are barred by limitation, the court held that on a prima-facie view the claims of the petitioner appears to be within limitation as the details of amounts withheld by the respondent were last updated on 29.12.2017.
Accordingly, the Registrar General was directed to impound the agreement and the Respondent was to pay the requisite stamp duty.