- Apprentice Lawyer
- Legal Jobs
A three-judge Bench of the Bombay High Court has held that a Court can entertain and grant any interim or ad-interim relief in an application under Section 9 of the Arbitration Act even if the document containing arbitration clause is unstamped or insufficiently stamped.
The Court also held that while considering and passing final orders on an application under Section 11(6A) of the Arbitration and Conciliation Act, 1996 (Act), it would not be necessary for the court to await adjudication by stamp authorities when a document is not adequately stamped.
The Bench of Chief Justice NH Patil and Justices RD Dhanuka and GS Kulkarni passed the judgment.
The judgment came in two separate matters which were referred to a larger Bench and heard together.
The two questions framed
The following were the two questions before the three-judge Bench.
First Question – Section 9
Dealing with the first question, the Court at the outset noted the situation it was dealing with. The arbitration clause was part of the agreement which was not stamped.
The court said that under the scheme of the Act, an arbitration clause is severable from other clauses of the contract and is treated as a separate agreement and an arbitration agreement is not required to be stamped or registered.
“An arbitration agreement between the parties is required to be severed from the principle contract and is required to be given effect independently by a principal contract between the parties.”
The next issue considered in the context of the first question was regarding the applicability of the judgment of Supreme Court in SMS Tea Estates (P) Ltd. vs. Chandmari Tea Co. (P) Ltd.
The decision of the Supreme Court in SMS Tea Estates was rendered in the context of Section 11 of the Act.
The question before the Supreme Court, in that case, was whether an application under Section 11 of the Act can be rejected on the ground that the arbitration agreement was contained in lease deed which was not sufficiently stamped.
Referring to Sections 33 and 35 of the Indian Stamp Act, the Supreme Court had ruled in that case that unless the stamp duty and penalty due on the instrument is paid, the Court cannot act upon the instrument, which means it cannot act upon the arbitration agreement also which is part of the instrument.
The respondents placed reliance on the above judgment. However, the Bombay High Court held that the said judgment was in a case concerning an application under Section 11 of the Act. It is not an authority when it comes to an application under Section 9 of the Act as in the present case.
In this context, the Court also noted that if it waits till the document is stamped and not act upon the document for granting relief under Section 9, it may lead to severe consequences which may cause irreparable damage and prejudice to the cause brought before the court.
Further, under the Stamp Act, the defect of non-payment of stamp duty is not an incurable defect. It can be cured at any stage before it is admitted in evidence, the Court noted.
Thus, the Court made it clear that respondents cannot insist on applying the decision of the Supreme Court in the case of SMS Tea Estates in proceedings under Section 9.
The Court then placed reliance on the judgment of the Supreme Court in Firm Ashok Traders and anr wherein it was held that the right conferred by Section 9 cannot be said to be one arising out of a contract.
The qualification which the person invoking the jurisdiction of the court under Section 9 must possess, is of being a party to an arbitration agreement.
It was, therefore, held in Firm Ashok Traders that the arbitration clause being a separate agreement from the main contract, it is only the arbitration agreement which would have relevance for the purpose of an application under Section 9.
Applying the above judgment, the High Court held that even if the main agreement containing arbitration agreement is not stamped or insufficiently stamped, there could not be any bar against the court hearing the application under Section 9 for interim measures to grant ad-interim or interim relief to a party. Reliance was also placed on the judgment in Universal Enterprises v. Deluxe Laboratories to conclude:
“Thus, in our view, the question of law i.e. whether a Court, under the Arbitration and Conciliation Act, 1996, can entertain and grant any interim or ad interim relief in an application under Section 9 of the said Act when a document containing arbitration clause is unstamped or insufficiently stamped, is required to be answered in the affirmative.”
Second Question – Section 11
The parties did not dispute that an arbitration agreement existed in the main agreement entered into between the parties. However, during the course of the hearing, the respondents raised an issue of insufficiency of stamp duty in the main agreement and prayed for impounding of the said document while an application filed under Section 11(6) of the Act was being heard. A request was made to refer the document for adjudication to the stamp authority.
The Court noted that the sub-section (6A) of Section 11 was inserted by way of an amendment with effect from 2015. As per the said provision, Supreme Court or the High Court, while considering any application under sub-section (4) or subsection (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.
Thus, the scope of the inquiry in the adjudication of such applications falling under Section 11 is now confined to the examination of the existence of an arbitration agreement.
“The use of the words “notwithstanding any judgment, decree or order of any court” in the said provision would also indicate that any other facet or issue which would impede or inhibit the requirement of examination of the existence of an arbitration agreement even if contained in any judgment, decree or order of any court, stands discarded, when the court is called upon to exercise jurisdiction under Section 11.”
The Court placed reliance on the judgment in M/s Duro Felguera vs. Gangavaram Port Ltd wherein the scope of the power of the Court under Section 11(6A) came to be considered, in great detail.
In that case, the Supreme Court held that as per sub-section (6A), the power of the Court has now been restricted only to examine the existence of the arbitration agreement. Earlier, the Chief Justice had been given the power to examine other aspects as well, i.e. limitation, whether the claims were referable for arbitration, etc. Now all preliminary issues have been left for the Arbitral Tribunal to decide in terms of Section 16 of the Act, the Supreme Court had ruled in that judgment.
Now the question which arose before the Bombay High Court was whether in view of Section 11(6A), as interpreted by the judgment in the case of Duro Felguera, the issue of insufficiency of stamp duty on the agreement containing arbitration clause is required to be decided while deciding the application under Section 11(6A) by the court itself at the threshold or such an issue can be decided by arbitral tribunal upon constitution of such tribunal by the court under Section 11(6).
After considering the judgments cited and in view of the legislative intent of the amended provisions, the Court held that the power of the Supreme Court or the High Court, while considering the application under Section 11(6) shall notwithstanding any judgment, decree or order of any court, be confined to the examination of the existence of an arbitration agreement. The issue as to whether sufficiency or otherwise of the stamp duty on the said agreement can be left to the decision of the arbitral tribunal.
Stamp Act a fiscal statute
In reaching its conclusion regarding the two questions, the Court also noted the objectives of the Stamp Act and the principles guiding judicial decision making, in arbitration matters.
The Stamp Act is a fiscal statute and its purpose is collection of revenue, the Court noted. The said purpose will be achieved by impounding the document and sending it to the stamp authorities if it is found to be insufficiently stamped. It is not necessary for the court to wait for the outcome of the said adjudication. It would not be appropriate to put restrictions on the court’s powers to exercise its jurisdiction if the party deserves such intervention by the court.
Postponing application for consideration, filed under Section 11 or Section 9, to indefinite period till the final decision of the issue raised under the Stamp Act, would also not be in conformity with the legislative policy and intent to provide speedy remedy under Section 11 or Section 9, the Court held.
The Court also stressed on the basic principles guiding judicial decision making, in the context of arbitration matters.
“The basic principle which must guide judicial decision-making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal….The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy.”
Taking an overall view of the scheme of the Act and judgments delivered by the Supreme Court, the Court concluded that it was of the view that the party need not be put to a disadvantage merely because an objection has been raised in respect of insufficiency of the stamp on the agreement presented before the court. A balanced approach, keeping in view the legislative intent and the view adopted by the Supreme Court, needs to be adopted, so that the purpose of enacting the provisions of Sections 11 and 9 of the Act is not defeated, the Court concluded.
Thus, the first question was answered in the affirmative and the second question in the negative.
Read the judgment below.