Unstamped contract does not invalidate the arbitration agreement

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Shubham Budhiraja[1]

Mr. A and Mr. B enter into an agreement for construction of a mall. A sub-lease the property to C to carry on its outlet in the mall, during the year, Govt. declared service tax on the sub-lease and therefore Mr. A raise the demand of service tax from C for payment to the govt. Mr. C denied it. Mr. A filed section 11(6) for appointment of arbitrator, which was defended by Mr. C on ground that (I) debt is time barred, (II) Main contract is unstamped. The Delhi High Court refused both the contentions and appoints the arbitrator[2].  

 

(I)                 In N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Limited & Ors.: (2021) 4 SCC 379, the Supreme Court had observed that non-payment or deficiency of stamp duty did not invalidate the main contract. The Court had also referred the decision in the case of Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited: (2019) 9 SCC 209 for reconsideration to a Constitution Bench.

 

(II)               An arbitration agreement, even though embodied in a main agreement, is a separate agreement. Invalidation of the main agreement does not necessarily invalidate the arbitration agreement. An arbitration agreement is not required to be compulsorily registered. Thus, following the doctrine of severability, denying the benefit of an arbitration agreement to a party on the ground of any deficiency in the main agreement, may not be apposite.

 

(III)             The Courts would deny referring the parties to arbitration if there is no vestige of doubt that the disputes are not arbitrable, or if the agreements are invalid. The Courts would refrain from carrying out any adjudicatory exercise in respect of any contentious issue at a prereference stage as the agreement between the parties that all disputes must be adjudicated by an arbitral tribunal, is required to be implemented.

 

(IV)             The standard for rejecting a reference on the ground that the disputes are not arbitrable or the agreement is invalid is that of ‘beyond any doubt’. In cases where there is no vestige of doubt that the claims are not arbitrable or the agreement is invalid, the courts may decline to refer the parties to arbitration but not in any other case.

 

 

 


[1] Advocate, Delhi High Court, shubhambudhiraja02@gmail.com

[2] ARB.P. 14/2020, Delhi High Court

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