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Delhi High Court could not answer whether a lower Court is bound by the decision of Supreme Court when the same has been referred to a larger bench by another Supreme Court bench of equal strength.

In the case of Bhagwati Devi Gupta v Star Infratech Pvt. Ltd., the Delhi High Court was faced with the question of the validity of an arbitration clause when the agreement is invalid on the grounds of not having paid stamp duty. The Court considered multiple judgements but when faced with two contradicting Supreme Court judgements of equal strength, decided to not adjudge upon it and referred the case to the Arbitrator, leaving for him to decide the same.

The petition was filed under Section 11(5) of the Arbitration and Conciliation Act, 1996. The dispute related to the appointment of the arbitrator. Since both the parties could not agree upon one arbitrator, they decided to approach the abovementioned Court.

The learned Counsel for the Respondent had raised the objection that the agreement between the parties is inadequately stamped. He has relied on the judgment of the Supreme Court in N.N. Global Mercantile Pvt. Ltd. v. M/s Indo Unique Flame Ltd. to contend that, till this defect is rectified, the Court cannot refer the dispute to arbitration. On the other hand, the Counsel for the petitioner submits that the arbitration agreement is not insufficiently stamped and that, even if it were, this aspect could be decided by the learned Arbitrator.

The judgment in N. N. Global Mercantile is of import here. It states that “On the basis of the doctrine of separability, the arbitration agreement being a separate and distinct agreement from the underlying commercial contract would survive independent of the substantive contract. The arbitration agreement would not be rendered invalid even if the substantive contract …cannot be acted upon on account of non-payment of Stamp Duty.

On the other hand, a three Judge Bench of the Supreme Court held in Vidya Drolia v Durga Trading Corporation that “Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement.

Therefore, the Court was in a dilemma that if once a bench of the Supreme Court has doubted the correctness of an earlier bench of co-equal strength and referred the issue to a larger bench, whether Courts of lower hierarchy should continue to follow the earlier decision.

The Counsel for the Respondent agreed to refer the dispute to an Arbitrator. The Court held that an Arbitrator would be appointed and would decide upon the consequences of non-stamping of the agreement. The petition stood disposed.

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