Arbitration will not be invalid if there is Non-Payment/Insufficiency Of Stamp Duty :

Delhi High Court

The Delhi High Court said that arbitration clause cannot be invalid just because there was
non-payment or insufficiency of stamp duty on the underlying agreement. This was seen in
the case of Drooshba Fabricators v. Indue Private Limited,( ARB. P. 695 of 2021) the
judgement was presided over by a single judge bench of ANUP JAIRAM BHAMBHANI J.

Facts of the case –

A dispute arose between the parties after they entered into a work order (agreement).
Thereafter the petitioner issued notice of arbitration. The respondent objected that The work
order is not stamped, therefore, the arbitration clause embedded in it is not enforceable in law
and cannot be acted upon unless the requisite stamp duty is paid moreover they contended
that the petitioner has not complied with the dispute resolution mechanism provided under
the agreement which provides a 4-stage dispute resolution and arbitration cannot be resorted
to unless the first three remedies are exhausted.

On the other hand petitioner argued that Under Schedule 1A of the Indian Stamp (Delhi
Amendment) Act, 2010, a „work order‟ is not required to be compulsorily stamped,
therefore, the objection is without any merit and The petitioner has made multiple attempts at
amicable settlement as provided under the agreement, however, the same was not
reciprocated by the respondent moreover the issue of limitation is a complex one that has to
be decided by the arbitrator only unless it falls in the category of 'dead claims'.

Judgement-

The court held that arbitration clause cannot be invalid just because there was non-payment
or insufficiency of stamp duty on the underlying agreement. For the same the court relied on
judgement of Supreme Court in the cases of Intercontinental Hotels Group (India) Pvt. Ltd.
and Another vs. Waterline Hotels Pvt. Ltd and N.N. Global Mercantile Private Limited vs.
Indo Unique Flame Limited.

Furthermore the court held that in terms of Section 29(m) of the Indian Stamp Act, 1899, the
obligation to pay the stamp duty is on the respondents and the requirement of pre-arbitral
steps in the form of negotiation/conciliation would stand satisfied when the petitioner issues
several notices to amicably settle the dispute, however, no response comes from the
respondent therefore it is futile to deny to the petitioner a reference to arbitration, since there
is sufficient material on record to show that the petitioner made attempts at amicable
resolution of its disputes with the respondent.