WEATHERFORD OIL TOOL MIDDLE EAST LIMITED versus BAKER HUGHES SINGAPORE PTE on 20 October 2022

1. All these three Arbitration petitions filed by the petitioner underSection 11(6) read with Section 11(12) of the Arbitration and ConciliationAct, 1996 (hereinafter referred to as Arbitration Act, 1996), seekingappointment of a sole arbitrator to adjudicate upon the disputes arisingout of the three agreements executed between the parties, beingintrinsically connected with each other were heard together, and arebeing disposed of by this common order.

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2. The bare facts germane for deciding these petitions may bestated as under:- C

(i) The petitioner is a company incorporated in the British VirginIslands, engaged in the business of providing products andservices for mud logging, drilling jars and fishing tools andexports of spare parts and oilfield equipments. Therespondent is a company incorporated under the laws ofDSingapore and engaged in providing oilfield services, interalia engaged in provision of well design, engineering, projectmanagement and well construction services to VedantaLimited. (“Operator”).

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(ii) In the year 2018, the respondent was considering thepossibility of providing services to the Operator-VedantaLtd. at the Operator’s oil fields located in Rajasthan. Theparties thereafter executed following three agreements:

a)Onshore Lease Agreement No. BHGE-DSA-WDI-2018 dated 20[th] November, 2018 for the lease of RigsFon a day-rate basis (“Lease Agreement”), b)Onshore Drilling Service Agreement No. BHGE-DSA-WDI-2018 (INTL HOLDING BVI) dated 20[th]November, 2018 for drilling services (“DrillingService Agreement”), andG

c)Agreement dated 05[th] February, 2019 to provide (a)mud logging; (b) drilling jars; (c) fishing tools; andother services, with a full complement of crew,equipment and materials at the Oil Fields (“OnshoreService Agreement”). The said Agreement was H

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Aamended vide the amendment agreements dated 22[nd]November, 2019 and dated 7[th] January, 2020.

(iii) The respondent on April 9, 2020 issued three letters(identical) to the petitioner terminating the said threeagreements. Pursuant to the said Termination Letters, theBpetitioner on April 13, 2020 informed the respondent of itsobligation to pay the amount equivalent to the residual valueof the “call out orders” in terms of the Agreements.However, the respondent denied to make payments to thepetitioner. The petitioner thereafter issued three notices alldated December 18, 2020 invoking the arbitration clauseCcontained in the respective three agreements raising itsclaims against the respondent.

(iv) The respondent in response to the said three ArbitrationNotices gave a common reply on January 17, 2021 raisingcontentions inter alia that the stamp duty was not paid onDthe agreements and therefore, consequences would followas per the Maharashtra Stamp Act, 1958. The respondenthowever made a proposal in the said letter for referringthe disputes under the Agreements to Mediation. Therespondent also made proposal for consolidation of theEdisputes under the Agreements and for referring thedisputes for adjudication by a sole arbitrator, consolidatinginto a single arbitration. The respondent however, did notagree to any of the names of arbitrators suggested by thepetitioner, and reserved its right to propose the names ofarbitrators.

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(v) On January 29, 2021, the petitioner agreed to therespondent’s suggestion to refer the disputes to theMediation. However, the Mediation having failed, thepetitioner vide the Letter dated 1[st] September, 2021 agreedfor the consolidation of disputes under the three agreementsGi.e., the Onshore Service Agreement, Lease Agreement andDrilling Service Agreement, to be heard by a sole arbitratorin one single arbitration, and further suggested two namesof arbitrators. The petitioner in the alternative suggestedthat the Mumbai Centre of International Arbitration(“MCIA”) as the appointing authority under Rule 7.8 of H

MCIA Rules, 2016 may appoint a sole arbitrator in theConsolidated Arbitration.

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(vi) The respondent did not agree to any of the proposals madeby the petitioner vide the Letter dated September 07, 2021,nor did it propose any name for the appointment of a solearbitrator. Thereafter, some correspondence had ensuedBbetween the parties, however the respondent did not proposeany names of individuals for being appointed as a solearbitrator in the consolidated arbitration. Hence, thepetitioner has filed these three petitions.

3) The bone of contention raised by the Learned Senior Advocate,Mr. Jayant Mehta for the respondent is that out of the three agreementsonly one agreement was stamped and the other two were not stampedas required under the Maharashtra Stamp Act, 1958 (hereinafter referredas the “Stamp Act”). Of course, he admitted that the matter in respectof determination of stamp duty for the other two agreements is pendingwith the Collector. However, according to him, a three-judge Bench ofthis Court, in case of N.N Global Mercantile Unique Pvt. Ltd. Vs.Indo. Unique Flame Ltd. and Others[1 ]has referredthe issue as towhether the statutory bar contained in Section 35 of the Stamp Act 1899applicable to instruments chargeable to stamp duty under Section 3 readwith the Schedule to the Act, would also render arbitration agreementcontained in such instrument which is not chargeable to the payment ofstamp duty as being non-existent, unenforceable or invalid, pendingpayment of stamp duty on the substantive contract/instrument, to theConstitution Bench of five judges, and therefore the present petitionsfiled by the petitioner seeking appointment of a sole arbitrator may notbe entertained at this stage.

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4. Per-contra, Learned Senior Advocate, Mr. Amit Sibal for thepetitioner placing heavy reliance on the decision of this Court in case ofInter-continental Hotels Group (India) Private Limited and Anotherversus Waterline Hotels Private Limited[2] submitted that the three-judge Bench in the said case, after considering all the earlier judgmentsas also taking note of the reference of the issue made to the ConstitutionBench, had entertained the Arbitration Petition filed under Sections 11(6)

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Aread with Section 11(12) of the Arbitration Act, holding that consideringthe time sensitivity in arbitration matters, the Court could not leave thematters hanging until the larger bench settled the issue. He furthersubmitted that the insufficient payment or non-payment of stamp duty isa curable defect and there is no legal impediment to the enforceability ofthe arbitration agreement, pending payment of stamp duty on theBsubstantive contract. He further submitted that even otherwise as perthe settled legal position, the Court is required to examine only the issueof existence of arbitration agreement and may not go into the issue ofvalidity of the agreements in which the arbitration clause is contained.

5. At the outset, it may be noted that Sub-section 6A of Section 11Cof the Arbitration Act, 1996 was inserted by the Act 3 of 2016 withretrospective effect from 23.10.2015, which read as under:- “(6A) The Supreme Court or, as the case may be, the High Court,while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment,Ddecree or order of any Court, confine to the examination of theexistence of an arbitration agreement.”

6. The said sub-sections 6 A came to be omitted by the Act 33 of2019 which came into force on 30.08.2019. Meaning thereby the saidsub-section (6A) stands omitted as on the date.E7. Further, Section 16 of the Arbitration Act pertains to thecompetence of Arbitral Tribunal to rule on its own jurisdiction. Therelevant sub-section 1 of Section 16 reads as under: - “Section 16 - Competence of arbitral tribunal to rule on itsFjurisdiction- (1) The arbitral tribunal may rule on its own jurisdiction,including ruling on any objections with respect to the existence orvalidity of the arbitration agreement, and for that purpose,-

(a) an arbitration clause which forms part of a contract shallbe treated as an agreement independent of the otherterms of the contract; andG

(b) a decision by the arbitral tribunal that the contract is nulland void shall not entail ipso jure the invalidity of thearbitration clause.”

8. The bare reading of the afore-stated provision makes it clearHthat arbitral tribunal is competent not only to rule on its own jurisdiction but to rule on the issue of the existence or validity of the arbitrationagreement. It further clarifies that an arbitration clause which formspart of a contract shall be treated as an agreement independent of theother terms of the contract, and that a decision by the arbitral tribunalthat the contract is null and void shall not entail ipso jure the invalidity ofthe arbitration clause.

9. The doctrine of separability and the doctrine of kompetenz-kompetenz encompassed in the arbitration jurisprudence, have beensuccinctly explained by a three-judge Bench of this Court in the recentcase of N.N. Global Mercantile(P) Ltd. (supra):

“4. It is well settled in arbitration jurisprudence that an arbitrationagreement is a distinct and separate agreement, which isindependent from the substantive commercial contract in which itis embedded. This is based on the premise that when parties enterinto a commercial contract containing an arbitration clause, theyare entering into two separate agreements viz.: (i) the substantivecontract which contains the rights and obligations of the partiesarising from the commercial transaction; and (ii) the arbitrationagreement which contains the binding obligation of the parties toresolve their disputes through the mode of arbitration.

4.1. The autonomy of the arbitration agreement is based on thetwin concepts of separability and kompetenz-kompetenz. Thedoctrines of separability and kompetenz-kompetenz though inter-related, are distinct, and play an important role in promoting theautonomy of the arbitral process.

4.2. The doctrine of separability of the arbitration agreementconnotes that the invalidity, ineffectiveness, or termination of thesubstantive commercial contract, would not affect the validity ofthe arbitration agreement, except if the arbitration agreement itselfis directly impeached on the ground that the arbitration agreementis void ab initio.

4.3. The doctrine of kompetenz-kompetenz implies that the ArbitralTribunal has the competence to determine and rule on its ownjurisdiction, including objections with respect to the existence,validity, and scope of the arbitration agreement, in the first instance,which is subject to judicial scrutiny by the courts at a later stageof the proceedings. Under the Arbitration Act, the challenge before A

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Athe Court is maintainable only after the final award is passed asprovided by sub-section (6) of Section 16. The stage at which theorder of the tribunal regarding its jurisdiction is amenable to judicialreview, varies from jurisdiction to jurisdiction. The doctrine ofkompetenz-kompetenz has evolved to minimise judicial interventionat the pre-reference stage, and reduce unmeritorious challengesBraised on the issue of jurisdiction of the Arbitral Tribunal.”

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10. In the said case of N.N. Global Mercantile (P) Ltd. (supra),the issue whether the arbitration agreement contained in an unstampedcontract can be acted upon had also arisen and the court observed asunder:C

“21. The issue which has arisen in the present case is whetherthe arbitration agreement incorporated in the unstamped workorder dated 28-9-2015, would also be legally unenforceable, tillsuch time that the work order is subjected to payment of stampduty. Undisputedly, the work order is chargeable to payment ofDstamp duty under Item 63 of the First Schedule to the MaharashtraStamp Act, 1958.

22. In our view, the non-payment or deficiency of stamp duty onthe work order does not invalidate the main contract. Section 34provides that an unstamped instrument would not be admissible inEevidence, or be acted upon, till the requisite stamp duty is paid.This would amount only to a deficiency, which can be cured onthe payment of the requisite stamp duty.

23. The point for consideration is whether the non-payment ofstamp duty on the work order, would render the arbitration clauseFinvalid, non-existent, or unenforceable in law, till the stamp duty ispaid on the substantive commercial contract.

24. The arbitration agreement contained in the work order isindependent and distinct from the underlying commercial contract.The arbitration agreement is an agreement which provides themode of dispute resolution. Section 3 of the Maharashtra StampAct does not subject an arbitration agreement to payment of stampduty, unlike various other agreements enlisted in the Schedule tothe Act. This is for the obvious reason that an arbitration agreementis an agreement to resolve disputes arising out of a commercialagreement, through the mode of arbitration. On the basis of the G

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doctrine of separability, the arbitration agreement being a separateand distinct agreement from the underlying commercial contract,would survive independent of the substantive contract. Thearbitration agreement would not be rendered invalid, unenforceableor non-existent, even if the substantive contract is not admissiblein evidence, or cannot be acted upon on account of non-paymentof stamp duty.

26. In our view, there is no legal impediment to the enforceabilityof the arbitration agreement, pending payment of stamp duty onthe substantive contract. The adjudication of the rights andobligations under the work order or the substantive commercialcontract would, however, not proceed before complying with themandatory provisions of the Stamp Act.

27. The Stamp Act is a fiscal enactment for payment of stampduty to the State on certain classes of instruments specified in theStamp Act. Section 40 of the Stamp Act, 1899 provides theprocedure for instruments which have been impounded, and sub-section (1) of Section 42 requires the instrument to be endorsedafter it is duly stamped by the Collector concerned. Section 42(2)provides that after the document is duly stamped, it shall beadmissible in evidence, and may be acted upon.”

11. The three-judge Bench in the said case (N.N. GlobalMercantile(P) Ltd.)overruled the judgment in SMS Tea Estates (P)Ltd v. Chandmari Tea Co. (P) Ltd.[3 ]in which it was held that anarbitrationagreement in an unstamped commercial contract cannot beacted upon and is unenforceable in law. The court further held thereinthat the Judgment in case of Garware Wall Ropes Ltd. v. CoastalMarine Constructions & Engg. Ltd.[4 ]whichhad followed the judgmentin SMS Tea Estates (supra) did not lay down the correct position in law.However, the Court noticed that the judgment in Garware Wall RopesLtd. (supra) was cited with approval by the Co-ordinate Bench of thisCourt in Vidya Drolia v. Durga Trading Corporation[5], and thereforethe court (in N.N. Global Mercantile case) observed as under:

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“33. We notice that the judgment in Garware Wall Ropes Ltd.has been cited with approval by a coordinate Bench of this Courtin Vidya Drolia v. Durga Trading Corpn. [Vidya Drolia v.Durga Trading Corpn., Paras 146-147 of the judgment readsthus: (Vidya Drolia Case SCC pp. 115-16)

“146. We now proceed to examine the question, whetherthe word “existence” in Section 11 merely refers to contractformation (whether there is an arbitration agreement) and excludesthe question of enforcement (validity) and therefore the latter fallsoutside the jurisdiction of the court at the referral stage. Onjurisprudentially and textualism it is possible to differentiatebetween existence of an arbitration agreement and validity of anarbitration agreement. Such interpretation can draw support fromthe plain meaning of the word “existence”. However, it is equallypossible, jurisprudentially and on contextualism, to hold that anagreement has no existence if it is not enforceable and not binding.Existence of an arbitration agreement presupposes a validagreement which would be enforced by the court by relegatingthe parties to arbitration. Legalistic and plain meaning interpretationwould be contrary to the contextual background including thedefinition clause and would result in unpalatable consequences. Areasonable and just interpretation of “existence” requiresunderstanding the context, the purpose and the relevant legal normsapplicable for a binding and enforceable arbitration agreement.An agreement evidenced in writing has no meaning unless theparties can be compelled to adhere and abide by the terms. Aparty cannot sue and claim rights based on an unenforceabledocument. Thus, there are good reasons to hold that an arbitrationagreement exists only when it is valid and legal. A void andunenforceable understanding is no agreement to do anything.Existence of an arbitration agreement means an arbitrationagreement that meets and satisfies the statutory requirements ofboth the Arbitration Act and the Contract Act and when it isenforceable in law.

147. We would proceed to elaborate and give furtherreasons:

147.1. (i) In Garware Wall Ropes Ltd. this Court hadexamined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinctionbetween the first and second part of Section 7(2) of the ArbitrationAct, albeit the observations made and quoted above with referenceto “existence” and “validity” of the arbitration agreement beingapposite and extremely important, we would repeat the same byreproducing para 29 thereof : (SCC p. 238)

‘29. This judgment in Hyundai Engg. case [United IndiaInsurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd.,(2018) 17 SCC 607] is important in that what was specificallyunder consideration was an arbitration clause which would getactivated only if an insurer admits or accepts liability. Since onfacts it was found that the insurer repudiated the claim, though anarbitration clause did “exist”, so to speak, in the policy, it wouldnot exist in law, as was held in that judgment, when one importantfact is introduced, namely, that the insurer has not admitted oraccepted liability. Likewise, in the facts of the present case, it isclear that the arbitration clause that is contained in the sub-contractwould not “exist” as a matter of law until the sub-contract is dulystamped, as has been held by us above. The argument that Section11(6-A) deals with “existence”, as opposed to Section 8, Section16 and Section 45, which deal with “validity” of an arbitrationagreement is answered by this Court’s understanding of theexpression “existence” in Hyundai Engg. case [United IndiaInsurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd.,(2018) 17 SCC 607 ] , as followed by us.’

Existence and validity are intertwined, and arbitrationagreement does not exist if it is illegal or does not satisfy mandatorylegal requirements. Invalid agreement is no agreement.”

34. We doubt the correctness of the view taken in paras146 and 147 of the three-Judge Bench in Vidya Drolia [VidyaDrolia v. Durga Trading Corpn., (2021) 2 SCC 1] . We considerit appropriate to refer the findings in paras 22 and 29 of GarwareWall Ropes Ltd. [Garware Wall Ropes Ltd. v. Coastal MarineConstructions & Engg. Ltd., (2019) 9 SCC 209] , which hasbeen affirmed in paras 146 and 147 of Vidya Drolia [VidyaDrolia v. Durga Trading Corpn., (2021) 2 SCC 1] , to aConstitution Bench of five Judges.”

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A12. The Court ultimately referred the following issue to beauthoritatively settled by a Constitution Bench of five Judges: - “58. We consider it appropriate to refer the following issue, to beauthoritatively settled by a Constitution Bench of five Judges ofthis Court:

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“Whether the statutory bar contained in Section 35 of theStamp Act, 1899 applicable to instruments chargeable to stampduty under Section 3 read with the Schedule to the Act, wouldalso render the arbitration agreement contained in such aninstrument, which is not chargeable to payment of stamp duty, asCbeing non-existent, unenforceable, or invalid, pending payment ofstamp duty on the substantive contract/instrument?”

13. It may further be noted that recently a three-judge Bench ofthis Court in case of Intercontinental Hotels Group (India) Pvt. Ltd.& Anr. Vs. Waterline Hotels Private Limited[6] while dealing with anapplication filed under Section 11(6) read with Section 11(12)(e) of theDArbitration Act for appointment of a sole arbitrator on the basis of anarbitration clause contained in the agreement which was unstampeddocument, took notice of the earlier decisions as also the issue referredto the Constitution Bench and observed as under:- “25. Although we agree that there is a need to constitute a largerEBench to settle the jurisprudence, we are also cognizant of time-sensitivity when dealing with arbitration issues. All these mattersare still at a pre-appointment stage, and we cannot leave themhanging until the larger Bench settles the issue. In view of thesame, this Court—until the larger Bench decides on the interplayFbetween Sections 11(6) and 16—should ensure that arbitrationsare carried on, unless the issue before the Court patently indicatesexistence of deadwood.”

14. In the light of the afore-stated legal position, if the facts of thepresent petitions are examined, it deserves to be noted that the executionGof three agreements, namely, Onshore Service Agreement, LeaseAgreement and Drilling Service Agreement between the petitioner andthe respondent has not been disputed. The identical clause-23 forArbitration contained in all the three agreements has also not beendisputed. The said clause reads as under:

“ARBITRATION:

Any dispute, controversy or claim between the parties arising outof, relating to, or connected with this Agreement, the breach,termination or invalidity hereof, or the provisions contained hereinor omitted here from (collectively, a “Dispute”) will be referred toand finally resolved by arbitration under the Indian Arbitrationand Conciliation Act, 1996 and the rules made thereunder, whichare deemed to be incorporated by reference into this Article 23.The arbitration shall be conducted as follows:

i.A sole arbitrator shall be mutually appointed in case thevalue of claim under dispute is less than US$10 million andin any other event by a panel of three arbitrators will beappointed with one arbitrator nominated by each Party andthe presiding arbitrator selected by the nominated arbitrators.

ii.The language of the arbitration proceedings shall be English.

iii.The seat of arbitration shall be Mumbai, India.

iv.The award made in pursuance thereof shall be final andbinding on the Parties.

v.The arbitrators will have no power to award damages of atype described in Article 11(k).”

15. The letters of termination terminating the said three agreementsby the respondent on 9[th] April, 2020, and other correspondence thatensuedbetween the parties as stated in the earlier part of the judgmentare also not disputed. Though the respondent, in response to the arbitrationnotices given by the petitioner had raised a contention in the letter dated17[th] January 2021 that the agreements were not stamped and thatconsequences would follow as per the Maharashtra Stamp Act, therespondent proposed to amicably resolve the disputes through Mediation,and also suggested in the alternative to consolidate the disputes underthe three agreements to be heard by a sole arbitrator in one singlearbitration. The efforts to amicably resolve the disputes through Mediationhaving failed, the petitioner thereafter also agreed vide letter dated 1[st]September, 2021 to consolidate the disputes under the three agreementsto be heard by a sole arbitrator in one single arbitration, as proposed bythe respondent. The petitioner also proposed the names of the arbitrators,however, the said names were not agreeable to the respondent. The A

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Arespondent also failed to propose any names for the appointment of asole arbitrator.

16. In view of the above, since the arbitration agreements containedin all the three agreements namely, Onshore Service Agreement, LeaseAgreement and Drilling Service Agreement were not disputed by theBrespondent, and since the respondent itself had proposed to consolidatethe disputes under the said agreements and to refer them to a solearbitrator in one single arbitration, the court is of the opinion that now itdoes not lie in the mouth of the respondent to say that the petitionsseeking appointment of a sole arbitrator should not be entertained, as thematter with regard to the determination of requisite stamp duty underCthe Maharashtra Stamp Duty Act on the two agreements is pendingbefore the Collector. As held by this Court in N.N. Global Mercantile(supra) there is no legal impediment to the enforceability of the arbitrationagreement pending payment of stamp duty on the substantive contract.Of course, the said issue is pending under consideration by the ConstitutionDBench, nonetheless as observed by this Court in Intercontinental Hotels Group (India Pvt. Ltd.) (supra), the matters which are still pending ata pre-appointment stage, cannot be left hanging until the larger Benchsettled the issue. Following the said proposition and considering the timesensitivity in the arbitration cases, we deem it appropriate to entertainthe present petitions and allow the same.E

17. Since the respondent had proposed and the petitioner hadagreed to consolidate all the disputes arising out of the three agreements,namely, Onshore Service Agreement, Lease Agreement and DrillingService Agreement, and to refer them to a sole arbitrator in a singlearbitration for adjudication, it is ordered as such. Accordingly, we appointFMr. Suresh C. Gupte, former Judge, High Court of Bombay as a solearbitrator to adjudicate upon the disputes arising out of the said threeagreements treating it as one single arbitration. The other terms andconditions of the arbitration shall be as per Clause 23 contained in thethree agreements, as may be suitably made applicable to the arbitrationGproceedings.

18. All the three petitions stand allowed accordingly.

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Devika Gujral(Assisted by : Shevali Monga, LCRA)

Petitions allowed.