Should lower courts follow earlier decision of Supreme Court which was doubted by bench of equal strength? Delhi High Court ponders

The observation was made in light of two conflicting Supreme Court decisions on the question of whether an arbitration agreement would be invalid if it was not adequately stamped.

Delhi High Court

The Delhi High Court recently noted that when a Supreme Court bench doubts the correctness of the decision of a bench of equal strength, it is debatable as to whether the lower courts should follow the earlier decision [Bhagwati Devi Gupta v. Star Infra Tech Private Ltd].

Justice C Hari Shankar made the observation while hearing a petition filed under Section 11(5) of the Arbitration and Conciliation Act, 1996, which deals with appointment of arbitrator.

It was contended on behalf of the respondent that the arbitration agreement was inadequately stamped, and till this defect is rectified, the Court cannot refer the dispute to arbitration. Counsel for the respondent cited NN Global Mercantile Pvt Ltd v. M/s Indo Unique Flame Ltd, wherein it was held,

"The arbitration agreement would not be rendered invalid, un-enforceable or non-existent, even if the substantive contract is not admissible in evidence, or cannot be acted upon on account of non-payment of Stamp Duty."

By this decision, the Court also doubted the correctness of Vidya Drolia & Ors v. Durga Trading Corporation and referred the issue to a Constitution Bench of five judges.

Justice C Hari Shankar

In this light, the Delhi High Court noted,

"The question of whether, 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, Courts lower in hierarchy should continue to follow the earlier decision, appears to be debatable."

The Court ultimately referred the matter to arbitration before the Delhi International Arbitration Centre (DIAC), which would appoint a suitable arbitrator for them.

Due to the conflicting apex court decisions on the issue, the Court refrained from expressing a definitive opinion on the same.

"All issues of fact and law, including the aspect of non-stamping of the agreement between the parties and, if so, the consequences thereof on arbitrability of the dispute, are left open for agitation before the learned Arbitrator. This Court does not return any definitive opinion thereon," the Court said.

Advocate Shalabh Singhal appeared for the petitioner, while Advocate Rakesh Saini represented the respondent.