Scope of examination under S. 11 of A&C Act is confined to existence of arbitration agreement or does it extend to adjudicating nature of contract as well? Del HC addresses

Delhi High Court: Vibhu Bakhru, J., held that whether claims are barred by limitation is a mixed question of fact and law and is required to be examined by the Arbitral Tribunal.

The petitioner (PDL) had filed the instant petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 praying that an arbitrator can be appointed on behalf of the respondent (FRL).

Factual Background

PDL had entered into an agreement with the Delhi Metro Rail Corporation Limited, whereby a specified area on the ground and first floor within the Station Box was allocated for constructing a shopping complex under the name and style of ‘Parsvnath Mall’.

PDL was given the right to sub-license the use of the facility for the period of the agreement and for the uses specified.

Thereafter, PDL and FRL entered into a sub-license agreement (Contract) wherein two units on the ground and first floors were agreed to be sub-licensed to FRL for running a departmental store under the name of ‘Big Bazaar’.

During the subsistence of the Contract, in the year 2007, the Government of India enacted the Finance Act, 2007 by virtue of which the service of renting/licensing immovable properties for commercial use was included as a taxable service and brought under the nest of service tax. Consequently, the licensing of the premises to FRL under the Contract was a taxable service.

PDL claimed that FRL was liable to bear the additional burden of service tax; however, FRL had failed to reimburse the service tax.

FRL submitted that no stipulation was contained in the Contract for payment of service tax.

Analysis, Law and Decision

Whether the petition for the appointment of an arbitrator required to be rejected on the ground that the main agreement is insufficiently stamped?

High Court observed that, an arbitration agreement, even though embodied in a main agreement, is a separate agreement and invalidation of the main agreement does not necessarily invalidate the arbitration agreement.

An arbitration agreement is not required to be compulsorily registered.

Hence, 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.

Well Settled Law

By virtue of Section 11(6A) of the A&C Act, the scope of examination under Section 11 of the A&C Act is confined to the existence of an arbitration agreement.

The Bench observed that, 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.

Supreme Court’s decision in NCC Ltd. v. Indian Oil Corpn. Ltd., 2019 SCC OnLine Del 6964, was also referred.

High Court opined that it would be apposite for this Court to adjudicate the issue of whether PDL’s claims were barred by limitation, the same shall be decided by an Arbitral Tribunal.

PDL had nominated Mr S.C. Jain, Additional District Judge (Retired) as its nominated Arbitrator. Accordingly, Mr Laxmi Kant Gaur, District Judge (Retired), is appointed as FRL’s nominated Arbitrator. Further, it was stated that both the arbitrators shall appoint the third arbitrator for the constitution of the Arbitral Tribunal.

The petition was allowed under the above terms. [Parsvnath Developers Ltd. v. Future Retail Ltd., 2022 SCC OnLine Del 1017, decided on 12-4-2022]


Advocates before the Court:

For the Petitioner: Mr Rahul Malhotra and Mr Rishu Kant Sharma, Advocates.

For the Respondent: Mr Sudhir K. Makkar, Senior Advocate with Ms Saumya Gupta, Ms Veera Mathai, Ms Yogita Rathore, Advocates.

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