1. Petition for appointment of sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act following disputes and termination of a hotel management agreement. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 )
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2022 Supreme(SC) 46
SUPREME COURT OF INDIA
N.V. RAMANA, CJI., SURYA KANT, HIMA KOHLI, JJ.
Intercontinental Hotels Group (India) Pvt. Ltd. and Another – Petitioners
Versus
Waterline Hotels Pvt. Ltd. – Respondent
Arbitration Petition (Civil) No. 12 of 2019
Decided On : 25-01-2022
Important Points
IMPORTANT POINT
Appointment of Sole Arbitrator – Any concerns of non-stamping or under stamping would not affect validity of arbitration agreement.
Appointment of Sole Arbitrator – Any concerns of non-stamping or under stamping would not affect validity of arbitration agreement.
Subject
Arbitration Law - Appointment of Arbitrator
Act Referred
Headnote
Arbitration and Conciliation Act, 1996 – Section 11(6) r/w 11(12)(a) – Appointment of Sole Arbitrator – Dispute emanating from Hotel Management Agreement (HMA) – Courts had very limited jurisdiction under Section 11(6) of Act – Courts are to take a prima facie’ view on issues relating to existence of arbitration agreement – Any concerns of non-stamping or under stamping would not affect validity of arbitration agreement – Respondent is under obligation to ensure that agreement would be legally valid in India – 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) – It is appropriate for this matter to be referred to arbitration, in terms of Clause 18.2 of arbitration agreement – A former Judge of High Court of Karnataka appointed as a sole Arbitrator to adjudicate the issues. (Paras 18, 20, 24, 26, 27 and 28)
Facts of the case:
Instant petition is filed under Section 11(6) r/w 11(12)(a) of Arbitration and Conciliation Act, 1996 for appointment of a sole Arbitrator. 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. Petitioners alleged that under the HMA, 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. As the settlement talks between the parties failed, and respondent remained in persistent breach of the HMA, petitioners were left with no option other than to invoke Arbitration under clause 18.2 of HMA.
Findings of Court:
In order to ascertain whether adequate stamp duty has been paid in terms of the Karnataka 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.
Result : Arbitration Petition allowed.
Legal Category Hierarchy
Advocates appeared:
For the Petitioner(s): Mr. Ritin Rai, Sr.Adv. Mr. S. S. Shroff, AOR Ms. Ila Kapoor, Adv. Ms. Surabhi Lal, Adv. Ms. Ananya Aggarwal, Adv. Ms. Ritika Sinha, Adv.
For the Respondent(s): Mr. Navkesh Batra, Adv. Mr. Sandeep Narain, Adv. For M/S. S. Narain & Co., AOR
For the Petitioner(s): Mr. Ritin Rai, Sr.Adv. Mr. S. S. Shroff, AOR Ms. Ila Kapoor, Adv. Ms. Surabhi Lal, Adv. Ms. Ananya Aggarwal, Adv. Ms. Ritika Sinha, Adv.
For the Respondent(s): Mr. Navkesh Batra, Adv. Mr. Sandeep Narain, Adv. For M/S. S. Narain & Co., AOR
Table of Contents
2. Petitioners seek arbitrator appointment; Respondent contends the arbitration agreement is unenforceable due to insufficient stamping and improper self-adjudication of stamp duty. (Para 14 , 15 , 16 )
3. Court noted limited jurisdiction under Section 11(6) to examine prima facie validity, emphasizing that disputes over stamp duty adequacy are generally not deadwood. (Para 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 )
4. Issues of insufficient stamping do not render an arbitration agreement deadwood if some duty is paid, leaving adequacy for the arbitrator to decide. (Para 22 , 26 )
5. Petition allowed; sole arbitrator appointed to adjudicate disputes in accordance with the arbitration agreement and SIAC rules. (Para 27 , 28 , 29 )
6. What is the scope of the court's jurisdiction when appointing an arbitrator under Section 11(6) of the Arbitration and Conciliation Act?
The court has limited jurisdiction to take a prima facie view on the existence of a valid arbitration agreement. It should refer the matter to arbitration unless a party establishes a strong case of non-existence, following the principle when in doubt, do refer. (Para 18 )
7. Does the non-payment or insufficient payment of stamp duty on a substantive contract automatically invalidate the arbitration agreement contained within it?
While the issue is referred to a Constitution Bench, the court observed that the doctrine of separability suggests the arbitration agreement is distinct. If some stamp duty is paid, the question of adequacy is not deadwood and can be decided by the arbitrator. (Para 20 , 21 , 26 )
8. When is an arbitration agreement considered deadwood that justifies judicial refusal to appoint an arbitrator?
An agreement is deadwood only when it is patently unworkable or non-existent. If the validity is debatable—such as when a party warrants the agreement's enforceability or some stamp duty has been paid—the matter should be referred to arbitration. (Para 22 , 24 , 26 )
JUDGMENT :
N.V. RAMANA, CJI.
1. This petition is filed under Section 11(6) r/w 11(12)(a) of the Arbitration and 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 (Asia-Pacific) Pvt. Ltd. (Petitioner 2), are subsidiaries of Intercontinental Hotels Group PLC (IHG Group), based out of India and Singapore 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 and 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 from the respondent for the use of brand and marks as well as an agreed sum towards “System Fund Contributions” and “Technology Service Fee” and “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 re-branded 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 APIM No. 3/2018. The High Court, on 23.10.2018, passed an ad-interim 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 one party to another seeking resolution, such disputes, controversies or claims
