The Single Bench of the Delhi High Court in the case of Parsvnath Developers Ltd. vs Future Retail Limited consisting of Justice Vibhu Bakhru while allowing an arbitration petition observed that 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.
Facts
PDL (petitioner) entered into an agreement with the Delhi Metro Rail Corporation Ltd (DMRC), whereby a specified area was allocated to PDL for constructing a shopping complex called ‘Parsvnath Mall’. Under its terms, PDL had the right to sub-license the facility. Thereafter, PDL and FRL (respondent) entered into a Sub-License Agreement (‘the Contract’), wherein some area was agreed to be sublicensed to FRL for running a departmental store under the name of ‘Big Bazaar’. During the Contract, the Government enacted the Finance Act, 2007 by which the service of renting/licensing immovable properties for commercial use was brought under service tax. Consequently, the licensing of the premises was a taxable service. PDL claims that FRL was liable to bear the additional burden of service tax; however, FRL had failed to reimburse the service tax paid by PDL. PDL states that various letters were issued to FRL demanding the payment, but FRL failed to do so.
Procedural History
PDL informed FRL via notice that it was liable to pay an amount of ₹4,27,93,994/- towards service tax and GST. However, since the concession period of PDL with DMRC expired, and after adjusting the IFRSD amount of ₹54,51,184/-, FRL was liable to pay the balance amount of ₹3,73,42,810/-. Accordingly, PDL called upon FRL to pay the same within seven days of the receipt of the notice. FRL responded by a letter, disputing the payment of service tax, and stated that no stipulation was contained in the Contract for payment of service tax. PDL issued a notice invoking the Dispute Resolution Clause of the Contract and called upon FRL to mutually resolve the disputes within forty-five days of the receipt of the notice. FRL did not respond to the aforesaid notice due to which PDL invoked the Arbitration Clause of the Contract and nominated Mr. S.C. Jain to act as one of the arbitrators. FRL responded to PDL’s notice denying its liability to pay the service tax. Further, it stated that majority of the claims of PDL were barred by limitation and thus, were unsustainable. Then PDL sent another notice to FRL, reminding it to nominate its arbitrator within seven days of the notice. However, FRL did not respond to the same. PDL has filed the present petition in the aforesaid context.
Contentions Made
Respondent: The Contract was insufficiently stamped and therefore, the same cannot be looked at this stage. It is contended that since the Arbitration Clause is incorporated as a part of the Contract, the recourse to courts in respect of the said clause is currently unavailable. The disputes raised by PDL are, ex facie, barred by the Limitation Act, 1963.
Appellant: The Contract was like a leave and license agreement and was sufficiently stamped. in any event, the question of validity of an agreement falls within the jurisdiction of the Arbitral Tribunal and the scope of examination u/s 11 of the A&C Act is now limited by virtue of Section 11(6A) of the A&C Act. The claims raised by PDL were not barred by limitation. PDL continued to hold a security deposit, which was liable to be adjusted against the dues owed to PDL. However, after adjusting the service tax payable by FRL, there were substantial amounts still outstanding. In any event, PDL’s claim for reimbursement of service tax paid during the last three years prior to the time the license subsisted, were live claims as cause of action demanding reimbursement of such amounts would arise only once PDL had paid the same.
Observations of the Court
The Bench observed that an arbitration agreement, even though embodied in a main agreement, is a separate 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.
Relying on a plethora of judgments, it was observed that by virtue of Sub-section (6A) of Section 11 of the A&C Act, the scope of examination u/s 11 of the A&C Act is confined to the existence of an Arbitration Agreement. 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.
Judgment
The Bench was of the view that it would not be apposite for the Court to adjudicate the issue whether PDL’s claims were barred by limitation, in these proceedings. The same was also required to be decided by an Arbitral Tribunal. Hence, the present petition was allowed.
Case Name: Parsvnath Developers Ltd. vs Future Retail Limited
Citation: ARB.P. 14/2020
Bench: Justice Vibhu Bakhru
Decided on: 12th April 2022
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