Tulip Kanth

New Delhi, April 18, 2022: The Delhi High Court has recently allowed the petition filed by Parsvnath Developers under Section 11(6) of the Arbitration and Conciliation Act, 1996 praying that an Arbitrator be appointed on behalf of the respondent-Future Retail Limited and two Arbitrators (one nominated by PDL and the other as may be appointed by this Court on behalf of FRL) be directed to appoint the Presiding Arbitrator.

While accepting the plea of the Developers, the Bench of Justice Vibhu Bakhru said, “An arbitration agreement, even though embodied in a main agreement, is a separate agreement. 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.”

The factual matrix of this case was such that  Parsvnath Developers Lltd. (PDL) engaged in the business of developing land and constructing residential and commercial projects in India, entered into an agreement with the Delhi Metro Rail Corporation Ltd (DMRC), whereby a specified area on the ground floor and first floor within the Station Box at Inderlok Metro Railway Station was allocated to PDL for constructing a shopping complex under the name and style of ‘Parsvnath Mall’. Under the terms of the said agreement, PDL was given the right to sub-license the use of the facility for the period of the agreement and for the uses specified therein.

Thereafter, PDL and Future Retail Limited(FRL) entered into a Sub-License Agreement (Contract), wherein two Units located at the Ground and First floors, of Parsvnath Mall, were agreed to be sub-licensed to FRL for running a departmental store under the name of ‘Big Bazaar’.

When 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 was enacted then 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 paid by PDL.According to PDL, from July 10,2007 onwards, various letters were issued to FRL demanding payment of the service tax amount. However, FRL had failed to make the said payment.

By a notice dated 27.06.2018, PDL informed FRL that for the period June 1,2007 to December 31,2017, FRL was liable to pay an amount of Rs.4,27,93,994/- towards service tax and GST. However, since the concession period of PDL with DMRC expired on June 19,2017, and after adjusting the IFRSD amount of Rs.54,51,184/-, FRL was liable to pay the balance amount of Rs.3,73,42,810/-. Accordingly, PDL called upon FRL to pay the same within a period of seven days of the receipt of the notice.FRL responded by a letter dated 27.09.2018, disputing the payment of service tax and stated that no stipulation was contained in the Contract for payment of service tax.

In view of the disputes, PDL issued a notice invoking the Dispute Resolution Clause of the Contract – and, called upon FRL to mutually resolve the disputes within a period of forty-five days of the receipt of the notice and after receiving no response from FRL, PDL invoked Arbitration Clause and nominated Mr. S.C. Jain to act as one of the arbitrators.PDL had filed the present petition when FRL refused to reply to any of the notices sent by PDL.

Noting that in the present case, there was a dispute whether the Contract was sufficiently stamped and according to PDL, it was in the nature of leave and license and did not create any interest in respect of the premises in question, in favour of FRL, the Bench observed that this was a contentious issue and was required to be adjudicated. However, the  Bench added that the standards of examination under Section 11 of the A&C Act do not extend to adjudicating any contentious disputes between the parties.

On the question of whether the claims are barred by limitation, the Court held that the same was also required to be examined by the Arbitral Tribunal as this question whether a claim is barred by limitation was a mixed question of fact and law. 

Now,  according to the petitioner, the cause of action of such reimbursement could not arise prior to PDL making payment for the same. Thus, according to the counsel in any view of the matter, PDL’s claim for service tax paid during the three years prior to the invocation of the dispute resolution mechanism would not be barred by limitation.

Regarding this contention, the Bench referred to the judgment in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. wherein the Apex Court had allowed an appeal against the High Court’s decision to reject the petition under Section 11 of the A&C Act on the ground that the claims raised by the petitioner were barred by limitation. 

The Bench concluded the matter by saying that that it would not be apposite for this Court to adjudicate the issue whether PDL’s claims are barred by limitation, in these proceedings. The same was also required to be decided by an Arbitral Tribunal, added the Court.

Allowing the petition, the Bench appointed Mr. Laxmi Kant Gaur, District Judge (Retired) as FRL’s nominated Arbitrator. Considering that PDL had nominated Mr. S.C. Jain, Additional District Judge (Retired) as its nominated Arbitrator, the Bench held that both the Arbitrators shall appoint the third Arbitrator for constitution of the Arbitral Tribunal. It was also clarified that this would be subject to the Arbitrators making the necessary disclosure as required under Section 12(1) of the A&C Act and not being ineligible under Section 12(5) of the A&C Act.

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