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Intercontinental Hotels Group (India)  Pvt. Ltd. & Anr. Versus Waterline Hotels Pvt. Ltd [2022]

By Shivendra Pratap Singh
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Intercontinental Hotels Group (India)  Pvt. Ltd. & Anr. Versus Waterline Hotels Pvt. Ltd   [Arbitration Petition (Civil)  No. 12 Of 2019]

Judgment  

1. This petition is filed under Section 11(6) r/w 11(12)(a) of the Arbitration   &   Conciliation   Act,   1996   for   appointment   of   a   sole arbitrator.  

2. The brief facts which are necessary for adjudication of this application are that the Intercontinental Hotels Group (India) Pvt. Ltd   (Petitioner   No.1)   and   Intercontinental   Hotels   Group   (AsiaPacific) Pvt Ltd. (Petitioner 2), are subsidiaries of Intercontinental Hotels Group PLC (IHG Group), based out of India and Singapore 1 REPORTABLE respectively. The parent company (IHG Group) is a British multinational hotel based out of Denham, United Kingdom.  

3. The respondent is an Indian company engaged in hospitality sector. The Respondent had agreed to run and operate a hotel by name Holiday Inn & Suites Bengaluru, Whitefield.  

4. The respondent 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 2 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   12.10.2018,   the   respondent   owed   the petitioners a sum amounting to USD 6,18,719, excluding interest for the late payment as provided under Clause 21.3 of the HMA. 

7. In any case, the respondent sent an e­mail on 12.10.2018 terminating the HMA. In the aforesaid e­mail, the respondent stated that   the   hotel   was   rebranded   as   Miraya   Hotels,   and   all   guests checking into the hotel after noon on 12.10.2018, were informed that the management of the hotel had been handed over to Miraya. On   the   same   day,   the   petitioners   replied   to   the   aforesaid termination   letter   contending   that   unilateral   termination   of   the HMA was not valid as there was no legal basis for the same.  

8. The respondent failed to retract the email of 12.10.2018, and the petitioners invoked Section 9 of the Arbitration Act seeking interim relief before the High Court of Karnataka at Bengaluru in 3 APIM No. 3/2018. The High Court, on 23.10.2018, passed an adinterim order directing the respondent not to evict the petitioners from the premises without due process of law until further orders. However, the petitioners allege that the respondent has not been sincere in complying with the order and has taken steps to frustrate the aforesaid order.  

9. As the settlement talks between the parties failed, and the respondent   remained   in   persistent   breach   of   the   HMA,   the petitioners were left with no option other than to invoke Arbitration under clause 18.2 of HMA, which reads as under:  “Clause 18.2­ Dispute Resolution  (a) All disputes, controversies or claims arising out of or in connection with this Agreement and/or any matters incidental   hereto   and/or   the   interpretation   and/or breach hereof, will first be discussed by the Owner and the Manager with the objective of resolving such dispute, controversy   or   claim   in   a   fair,   amicable   and   friendly manner. 

If such efforts fail to bring a resolution within ten (10) Business Days of receipt of a notice issued by 4 one party to another seeking resolution, such disputes, controversies   or   claims   will   be   finally   determined   by arbitration in accordance with the Arbitration Rules of Singapore   International   Arbitration   Centre   (“SIAC”)   for the   time   being   in   force,   which   rules   are   deemed incorporated by reference into this clause.  (b) The   Tribunal   shall   consist   of   a   sole   Arbitrator. 

However, in the event that the Parties are unable to agree on the sole Arbitrator the tribunal shall consist 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 5 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   to   pay   to   the Claimants, 

The outstanding dues of USD 618,719 as on 8 October 2018 owed to the Claimants under the Management Agreement; ii. Interest on the above outstanding amounts from the dates the amounts became due until the filing of this notice invoking arbitration, in accordance   with   Clause   21.3   of   the Management Agreement;  6 iii. Damages   due   to   the   wrongful termination of the Management Agreement for the   remainder   Term   of   the   Management Agreement   which   has   as   Initial   Term   of   10 years from 15 September 2015 with a potential 2 x 5 years of Renewal Term, in an amount to be assessed later; and iv. Such   other   future   sums   towards damages   and   as   may   fall   due   under   the Management Agreement and as the Claimants may put forth before the Hon’ble Tribunal in its Statement of Case.  c. Pendente   Lite   and   future   interest   on   all sums   awarded   to   it   at   such   rate   as   the Tribunal may deem fit, in accordance with Rule 32.9   of   the   SIAC   Rules   and   Arbitration   & Conciliation Act, 1996;  d. Award   of   costs   from   the   Respondent   and interest on the costs awarded, till payment.  e. Any other prayer the Hon’ble Tribunal may deem fit in the interest of justice.,” 

11. The respondent is alleged to have replied to the aforesaid Notice   of   Arbitration   by   stating   that   the   said   notice   dated 21.01.2019 was not a notice, and consequently did not require a reply. 7 

12. Accordingly, the petitioners communicated their intention to invoke arbitration to the Singapore International Arbitration Centre (SIAC). They also approached the SIAC for suggesting names of sole arbitrators   or   to   invoke   the   mechanism   of   appointing   a   threemember tribunal   if  the  respondent  does  not  agree  on   a  single name.   SIAC   further   sent   a   notice   dated   15.02.2019   to   the respondent for appointment of a suitable arbitrator. 

Interestingly, the respondent replied to the notice sent by the SIAC stating that the notice of arbitration dated 21.01.2019 was defective and was not curable. In any case, the respondent alleges as under:  “Strictly   without   prejudice,   we   do   not accept IHG’s proposal to appoint any of the 3 Arbitrators named in its Notice, dated 08.02.2019, as a sole arbitrator. 

Nor do we wish   to   propose   and   names   of   a   sole arbitrator. Further, there is no question of proposing or agreeing to Arbitration by a Tribunal   of   3   Arbitrators   for   the   same reason. The reasons have been elaborately narrated   hereinabove   and   bear   no repetition.  8 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 9 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 an application. In line with the aforesaid permission, the petitioners filed an application for permission to file additional documents dated 23.06.2020 which reads inter alia as under:  “ ……….. 3. Without prejudice to the above, the Petitioner No.1 has taken the necessary step to pay the stamp   duty   applicable   to   the   HMA.   

In accordance   with   Section   2(6)   of   the   Indian Stamp   Act,   1899,   the   stamping   of   the   HMA would be governed by the Karnataka Stamp Act, 1957 (“Karnataka Stamp Act”) because the HMA was first executed in Bengaluru, the place of performance   is   Bengaluru   and   the   subject matter of the HMA is situated in Bengaluru.  

The Schedule of the Karnataka Stamp Act enumerates different types of instruments that attract stamp duty and the corresponding duty that   is   payable.   Article   5   of   the   Schedule 10 provides the duty applicable to different types of agreements, The HMA is a services agreement which is not specifically provided for in Article 5, and therefore, it would be covered under the residuary provisions, Article 5(j),

 “Agreement or [its records or] Memorandum of an Agreement if not otherwise provided for”. The corresponding stamp duty is INR 200. In order to establish its bona fide and to avert any argument regarding the adequacy of the stamp duty paid, Petitioner No. 1 has also paid the maximum penalty i.e., ten­times that duty amounting to INR 2,000 in accordance with the proviso to Section 34 of the Karnataka Stamp Act.  

The Petitioners further submit that since they have paid the requisite stamp duty along with the   maximum   penalty   prescribed   under   the Karnataka Stamp Act, this Hon’ble Court may proceed to appoint a sole Arbitrator who has the jurisdiction to deal with all disputes that arise between the parties.” 

16. The respondent, while objecting to the aforesaid application filed by the petitioners, stated as under:  11 “4. I state that at the time of hearing of the above   cited   Petition   on   the   02.03.2020,   the learned Sr. Counsel appearing for the Petitioner had   tendered   a   Letter   dated   28.02.2020 annexing   therewith   a   single   e­Stamp   paper bearing   Unique   Doc.   Reference   No. SUBINKAKABACSL0850557522508599R dated 29.07.2020 for Rs.2,200/­ classifying the HMA as “Bond” under Article 12 of the Schedule to the   Karnataka   Stamp   Act,   1957   and   the Consideration Prices as Zero.

That this Hon’ble Court, had by its Order dated 02.03.2020 directed the Petitioners to file the   said   single   e­Stamp   paper,   dated 29.07.2019 along with a proper Application.  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 12 above cited Application seeking permission to file   Additional   Documents   being   I.A   D.   No. 60764 of 2020.  

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 adjudication of proper stamp duty and   penalty   payable   been   followed   by   the Petitioner as per law. The Petitioners have, in fact,   arrogated   to   themselves   the   power   of adjudication under the Karnataka Stamp Act, 1957.  

I state that there is no procedure whereby a party   self   adjudicates   and   self   certifies   the proper stamp duty and the penalty payable on a Document as sought to be done twice by the Petitioners as under:  SELF ADJUDICATION BY THE PETITIONERS WITH 13 THE MAXIMUM PENALTY OF 10 TIMES 29.07.2019 10.06.2020 Single e­Stamp paper for Rs.2,200/­ 11   e­Stamp   Papers for Rs.200/­ each Description of Doc. Art 12 Bond  Description   of   Doc. Art 5(j) Agreement (In any other cases) Property Description  Description  Hotel   Management Agreement  Property Agreement  Consideration Price  (Rs.) 0  (Zero)  Consideration Price  (Rs.) 0  (Zero) 

17. We have heard learned counsel for the parties and perused the documents available on record. 

18. At the outset, we need to state that this Court’s jurisdiction to adjudicate   issues   at   the   pre appointment   stage   has   been   the subject matter of numerous cases before this Court as well as High Courts. The initial interpretation provided by this Court to examine issues   extensively,   was   recognized   as   being   against   the   pro arbitration stance envisaged by the 1996 Act. 

Case by case, Courts restricted   themselves   in   occupying   the   space   provided   for   the arbitrators, in line with party autonomy that has been reiterated by 14 this Court in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, which clearly expounds that Courts had very limited jurisdiction under Section 11(6) of the Act. Courts are to take a ‘prima   facie’   view,   as   explained   therein,   on   issues   relating   to existence   of   the   arbitration   agreement.   

Usually,   issues   of arbitrability/validity   are   matters   to   be   adjudicated   upon   by arbitrators. The only narrow exception carved out was that Courts could adjudicate to ‘cut the deadwood’. Ultimately the Court held that the watch word for the Courts is ‘when in doubt, do refer’. This Court concluded as under:  

“225.  From a study of the above precedents, the   following   conclusion,   with   respect   to adjudication   of   subject­matter   arbitrability Under Section 8 or 11 of the Act, are pertinent: 225.1 In line with the categories laid down by the   earlier   judgment   of   Boghara   Polyfab [National   Insurance   Co.   Ltd.   v.   Boghara Polyfab (P) Ltd., (2009) 1 SCC 267] the Courts were examining ‘subject­matter 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 15 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 and 11, has   to   refer   a   matter   to   arbitration   or   to appoint   an   arbitrator,   as   the   case   may   be, unless a party has established a prima facie (summary   findings)   case   of   non­existence   of valid   arbitration   agreement,   by   summarily portraying a strong case that he is entitled to such a finding. 

244.4  The Court should refer a matter if the validity of the arbitration agreement cannot be determined   on   a   prima   facie   basis,   as   laid down above, i.e., ‘when in doubt, do refer’. 244.5 The scope of the Court to examine the prima facie validity of an arbitration agreement includes only: 16 244.5.1 Whether the arbitration agreement was in writing? or 244.5.2 Whether the arbitration agreement was   contained   in   exchange   of   letters, telecommunication etc? 

244.5.3  Whether   the   core   contractual ingredients qua the arbitration agreement were fulfilled? 244.5.4  On   rare   occasions,   whether   the subject­matter of dispute is arbitrable?” 19. While   holding   as   above,   this   Court   by   majority   opinion speaking through Justice Sanjiv Khanna held as under: 

“147.1. In Garware Wall Ropes Ltd. [Garware Wall   Ropes   Ltd. v. Coastal   Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019)   4   SCC   (Civ)   324]   ,   this   Court   had examined the question of stamp duty in an underlying contract with an arbitration clause and  in  the  context  had  drawn a  distinction between the first and second part of Section 7(2)   of   the   Arbitration   Act,   albeit   the observations   made   and   quoted   above   with reference to “existence” and “validity” of the arbitration   agreement   being   apposite   and extremely   important,   we   would   repeat   the same by reproducing para 29 thereof : (SCC p. 238) 

“29.   This   judgment   in Hyundai   Engg. case [United   India   Insurance   Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] 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 sub­contract 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 18 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 authoritative settlement by a Constitution Bench in the light of Vidya   Drolia  (supra), citing the ratio in  Garware  Wall   Ropes (supra). The relevant  observations made in  N.N.   Global (supra) read as under: 

“56. We are of the considered view that the finding in SMS Tea Estates  [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC   66] and Garware  [Garware   Wall   Ropes Ltd. v. Coastal   Marine   Constructions   &   Engg. Ltd., (2019) 9 SCC 209]  that the non­payment of   stamp   duty   on   the   commercial   contract would   invalidate   even   the   arbitration agreement, and render it non­existent in law, and un­enforceable, is not the correct position in law. 

57. In view of the finding in paras 146 and 147   of   the   judgment   in Vidya   Drolia   [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 by a co­ordinate Bench, which has affirmed the judgment   in Garware   [Garware   Wall   Ropes Ltd. v. Coastal   Marine   Constructions   &   Engg. Ltd., (2019) 9 SCC 209], the aforesaid issue is required   to   be   authoritatively   settled   by   a Constitution bench of this Court. 58.  We consider it appropriate to refer the following issue, to be authoritatively settled by 19 a   Constitution   Bench   of   five   Judges   of   this Court: 

“Whether   the   statutory   bar   contained   in Section   35   of   the   Indian   Stamp   Act,   1899 applicable to instruments chargeable to Stamp Duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non­existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?” 59.  In light of the same, the Registry may place   this   matter   before   the   Hon’ble   Chief Justice   of   India   for   appropriate orders/directions.” 

21. The reasoning for the above was provided in the captioned judgment as follows: “24. The arbitration agreement contained in the   Work   Order   is  independent   and  distinct from the underlying commercial contract. The arbitration agreement is an agreement which provides   the   mode   of   dispute   resolution. Section 3 of the Maharashtra Stamp Act does not   subject   an   arbitration   agreement   to payment of Stamp Duty, unlike various other agreements enlisted in the Schedule to the Act. 

This   is   for   the   obvious   reason   that   an arbitration   agreement   is   an   agreement   to resolve disputes arising out of a commercial agreement,   through   the   mode   of   arbitration. On the basis of the doctrine of separability, the arbitration   agreement   being   a   separate   and 20 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 issues which  can  be resolved  at a  later  stage.  The counsel for the petitioners has sought to draw our attention to 21 Clause 22(1)(b) of the HMA, to contend that the respondent has presented a warranty to ensure the said HMA would be valid and legally enforceable. Clause 22.1 (b) of the HMA reads as follows: 

“22.1.   Owner   represents   and   warrants   to Manager upon execution of this Agreement and again on the Commencement Date that: … b) it has obtained or shall obtain (with Manager’s assistance as it is reasonably able to provide) all necessary   governmental   permissions,   licenses and   permits   (including   but   not   limited construction, occupancy, liquor, bar, restaurant, sign and hotel accommodation licenses) to enable Manager to operate the Hotel in accordance with the   Brand   Standards   and   to   ensure   this Agreement is fully valid and enforceable in the Country.” 

24. Having perused Clause 22.1, it is necessary to note that the respondent is under an obligation to ensure that the agreement would   be   legally   valid   in   India.   If   such   an   obligation   was undertaken by the respondent, the extent to which the petitioners can rely on the respondent’s warranty, is clearly a debatable issue.

Further, it is also a matter of adjudication whether the respondent could   have   raised   the   issue   of   validity   of   the   arbitration agreement/substantive   contract   in   view   of   the   warranty.   This aspect clearly mandates that the aforesaid issue is not deadwood. 22 The issues whether the respondent is estopped from raising the contention of unenforceability of the HMA or the issue whether the HMA is insufficiently or incorrectly stamped, can be finally decided at a later stage. 

25. Moreover,   the   petitioners   have   reiterated   that   without prejudice, they have paid the required stamp duty, including the penalty that may be accruable and sought appointment of a sole arbitrator in light of the same.  On the contrary, the respondent, in rebuttal to the payment of stamp duty, has challenged the same, contending that payment of stamp duty has been wrongly classified and   stamp   duty   has   been   paid   against   Article   5(j)   under   the schedule of the Karnataka Stamp Act, 1957, which is erroneous. Therefore, the respondent contends that the HMA has not been properly stamped.       

26. Upon reading  Vidya  Drolia  (supra), the issue of ‘existence’ and/or ‘validity’ of the arbitration clause, would not be needed to be looked into herein, as payment of stamp duty, sufficient or otherwise, has taken place herein. In order to ascertain whether adequate stamp duty has been paid in terms of the Karnataka 23 Stamp   Act,   this   Court   needs   to   examine   the   nature   of   the substantive agreement, the nature of the arbitration agreement, and   whether   a   separate   stamp   fee   would   be   payable   for   the arbitration agreement at all. 

It may be noted that the petitioners, have themselves attempted to self­adjudicate the required stamp duty and have paid, on 29.07.19, a stamp duty of Rs 2,200/­, describing the HMA as a “bond”. On 10.06.2020, the petitioners further purchased 11 e­stamps for Rs. 200/­ each, describing the HMA as an ‘agreement’ under article 5(j). 

Therefore, it falls upon the   Court,   under   the   stamp   act   to   review   the   nature   of   the agreement in order to ascertain the stamp duty payable. From the above it is clear, that stamp duty has been paid, whether it be insufficient or appropriate is a question that maybe answered at a later stage as this court cannot review or go into this aspect under Section 11(6). If it was a question of complete non stamping, then this court, might have had an occasion to examine the concern raised in N. N. Global (supra), however, this case, is not one such scenario. 24 

27. Therefore,   we   deem   it   appropriate   for   this   matter   to   be referred to arbitration, in terms of Clause 18.2 of the arbitration agreement. 

28. Accordingly, we appoint Mr. Justice  A.V. Chandrashekara, a former Judge of the High Court of Karnataka as a sole arbitrator to adjudicate the issues. The parties are directed to take steps to convey this order to the SIAC to proceed in terms of the SIAC rules. 

29. The arbitration petition is allowed in the above terms.

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