On 20th October 2022, the Supreme Court in a Division bench comprising of Justice Uday Umesh Lalit and Justice Bela M. Trivedi observed that there is no legal impediment to the enforceability of the arbitration agreement pending payment of stamp duty on the substantive contract and the matters which are still pending at a pre-appointment stage, cannot be left hanging until the larger Bench settled the issue. (WEATHERFORD OIL TOOL MIDDLE EAST LIMITED Vs. BAKER HUGHES SINGAPORE PTE)
Facts of the case:
The petitioner is a company incorporated in the British Virgin Islands, engaged in the business of providing products and services for mud logging, drilling jars and fishing tools and exports of spare parts and oilfield equipments. The respondent is a company incorporated under the laws of Singapore and engaged in providing oilfield services, inter alia engaged in provision of well design, engineering, project management and well construction services to Vedanta Limited (Operator). In 2018, the respondent was considering the possibility of providing services to the Operator-Vedanta Ltd. at the Operator’s oil fields. Thereafter, the parties entered into three contracts (Lease Agreement, Drilling service Agreement and an Onshore Service Agreement). On April 9, 2020, the respondent issued termination letters to the petitioner thereafter the latter informed the respondent of its obligation to pay the amount equivalent to the residual value of the “call out orders” in terms of the Agreements. After denying the same, the petitioner on December 28, 2020, issued three notices invoking arbitration clause contained in the respective agreements. The respondent gave a common reply saying “stamp duty was not paid on the agreements and therefore, consequences would follow as per the Maharashtra Stamp Act, 1958.” On January 29, 2021, the petitioner agreed to refer the dispute to mediation which failed. Petitioner vide the Letter dated 1st September, 2021 agreed for the consolidation of disputes under the three agreements to be heard by a sole arbitrator in one single arbitration, and further suggested two names of arbitrators. The respondent did not agree to any of the methods for resolution giving rise to the present three petitions.
Contentions of the petitioner:
The counsel for the petitioner relied upon the case of f Inter-continental Hotels Group (India) Private Limited and Another versus Waterline Hotels Private Limited and submitted that “after considering all the earlier judgments as also taking note of the reference of the issue made to the Constitution Bench, had entertained the Arbitration Petition filed under Sections 11(6) read with Section 11(12) of the Arbitration Act, holding that considering the time sensitivity in arbitration matters, the Court could not leave the matters hanging until the larger bench settled the issue.” “The insufficient payment or non-payment of stamp duty is a curable defect and there is no legal impediment to the enforceability of the arbitration agreement, pending payment of stamp duty on the substantive contract.” Moreover, “the Court is required to examine only the issue of existence of arbitration agreement and may not go into the issue of validity of the agreements in which the arbitration clause is contained.”
Contentions of the Respondent:
The counsel for the respondent submitted that “out of the three agreements only one agreement was stamped and the other two were not stamped as required under the Maharashtra Stamp Act, 1958” admitting that the matter in respect of determination of stamp duty for the other two agreements is pending with the Collector. The case of N.N Global Mercantile Unique Pvt. Ltd. Vs. Indo. Unique Flame Ltd. and Others was referred and it was submitted that “in the said case the bench referred the issue as to whether the statutory bar contained in Section 35 of the Stamp Act 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render arbitration agreement contained in such instrument which is not chargeable to the payment of stamp duty as being non-existent, unenforceable or invalid, pending payment of stamp duty on the substantive contract/instrument, to the Constitution Bench of five judges, and therefore the present petitions filed by the petitioner seeking appointment of a sole arbitrator may not be entertained at this stage.”
Observations and Order of the court:
The hon’ble court observed that “an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract, and that a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. In the said case of N.N. Global Mercantile (P) Ltd. the issue whether the arbitration agreement contained in an unstamped contract can be acted upon had also arisen. The execution of three agreements is not in dispute, the identical clause-23 for Arbitration contained in all the three agreements and the termination letter terminating the said agreements is also not disputed. Moreover, other correspondence that ensued between the parties as stated in the earlier part of the judgment are also not disputed”. “Since the arbitration agreements contained in all the three agreements were not disputed by the respondent, and since the respondent itself had proposed to consolidate the disputes under the said agreements and to refer them to a sole arbitrator in one single arbitration, the court is of the opinion that now it does not lie in the mouth of the respondent to say that the petitions seeking appointment of a sole arbitrator should not be entertained, as the matter with regard to the determination of requisite stamp duty under the Maharashtra Stamp Duty Act on the two agreements is pending before the Collector”. The case of Intercontinental Hotels Group (India) Pvt. Ltd. & Anr. Vs. Waterline Hotels Private Limited was also referred by the court.
The present petitions are allowed by the court and appointing Mr. Suresh C. Gupte, former Judge, High Court of Bombay as the sole arbitrator.
Case: WEATHERFORD OIL TOOL MIDDLE EAST LIMITED Vs. BAKER HUGHES SINGAPORE PTE
Citation: Arbitration Petition No. 03 Of 2022, Arbitration Petition No. 52 Of 2021 And Arbitration Petition No. 2 Of 2022
Bench: Justice Uday Umesh Lalit and Justice Bela M. Trivedi
Date: October 20, 2022
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