M/S. N.N. Global Mercantile Private Limited vs M/S. Indo Unique Flame Ltd. & Ors.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S). 3802-3803 OF 2020

M/S. N.N. GLOBAL MERCANTILE PRIVATE LIMITED … APPELLANT(S)

VERSUS

M/S. INDO UNIQUE FLAME LTD. & ORS. … RESPONDENT(S)

JUDGMENT

K.M. JOSEPH, J.

Index A. THE REFERENCE............................................................................................................................... 2 B. A BIRD’S OVERVIEW OF THE FACTS IN N.N. GLOBAL ...................................................................... 3 C. THE FINDINGS IN N.N. GLOBAL IN REGARD TO THE QUESTION UNDER THE CAPTION ‘VALIDITY OF AN ARBITRATION AGREEMENT IN AN UNSTAMPED AGREEMENT’................................................... 5 D. SUBMISSION OF THE PARTIES ....................................................................................................... 15 E. ANALYSIS ....................................................................................................................................... 29 F. THE ACT ......................................................................................................................................... 30 G. WHAT LED TO THE INSERTION OF SECTION 11(6A)? .................................................................... 32 H. THE SCHEME OF THE STAMP ACT ................................................................................................. 53 I. HINDUSTAN STEEL LIMITED ANALYSED ........................................................................................ 59 J. THE INDIAN CONTRACT ACT, 1872 - A SURVEY; DISSECTION OF GARWARE, VIDYA DROLIA AND N.N. GLOBAL ......................................................................................................................................... 64 Signature Not Verified

K. Digitally signed by THE STAMP ACT – WHETHER A PROCEDURAL LAW?.................................................................... 88 Nidhi Ahuja Date: 2023.04.25 L. 18:29:45 IST Reason: SECTION 7 OF THE ACT – ITS IMPACT ........................................................................................... 97 M. THE ALTERNATIVE PERSPECTIVE ............................................................................................. 105 N. THE AMICUS CURIE SPRINGS A SURPRISE ................................................................................... 111

1 O. SECTIONS 33 AND 35 OF THE STAMP ACT; THE COURT OR THE ARBITRATOR TO ACT? ............ 124 P. ARBITRATION AGREEMENT, A DISTINCT AGREEMENT AND ITS IMPACT? ................................. 132 Q. CONCLUSIONS ............................................................................................................................. 137

1. We have perused the draft judgments prepared by

our esteemed brothers Ajay Rastogi, J. and Hrishikesh

Roy, J. With profound respect to our learned Brothers,

we are unable to, however, concur with them in their

reasoning and conclusions save as will be made clear.

Hence, the following judgment.

A. THE REFERENCE

2. A Bench of three learned Judges disposed of Civil

Appeal Nos. 3802-3803 of 2020 by Judgment dated

11.01.2021. The Judgment is reported in N.N. Global

Mercantile Private Limited v. Indo Unique Flame Limited

and others1. What is of relevance for the purpose of

the Reference is the following:

“56. We are of the considered view that the finding in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] and Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ)

1 (2021) 4 SCC 379 2 324] that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-

existent in law, and unenforceable, is not the correct position in law.

57. In view of the finding in paras 146 and 147 of the judgment in Vidya Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] by a coordinate Bench, which has affirmed the judgment in Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , the aforesaid issue is required to be authoritatively settled by a Constitution Bench of this Court.

58. We consider it appropriate to refer the following issue, to be authoritatively settled by a Constitution Bench of five Judges of this Court:

“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?”

B. A BIRD’S OVERVIEW OF THE FACTS IN N.N. GLOBAL

3. The first respondent, who was awarded the Work

Order, entered into a sub-contract with the appellant.

3 Clause 10 of the Work Order, constituting the sub-

contract, provided for an Arbitration Clause. The

appellant had furnished a bank guarantee in terms of

Clause 9. The invocation of the said guarantee led to

a Suit by the appellant against the encashment of the

bank guarantee. The first respondent applied under

Section 8 of the Arbitration and Conciliation Act, 1996

(hereinafter referred to as, ‘the Act’, for short)

seeking Reference. A Writ Petition was filed by the

first respondent challenging the Order of the

Commercial Court rejecting the Application under

Section 8 of the Act. One of the contentions raised was

that the Arbitration Agreement became unenforceable as

the Work Order was unstamped. The High Court, however,

allowed the Writ Petition filed by the first

respondent. The issue relevant to this Bench was,

whether the Arbitration Agreement would be enforceable

and acted upon, even if the Work Order is unstamped and

unenforceable under the Indian Stamp Act, 1899

(hereinafter referred to as, ‘the Stamp Act’, for

short).

4 C. THE FINDINGS IN N.N. GLOBAL IN REGARD TO THE QUESTION UNDER THE CAPTION ‘VALIDITY OF AN ARBITRATION AGREEMENT IN AN UNSTAMPED AGREEMENT’

4. The Court found that an Arbitration Agreement is a

distinct and separate agreement, which is independent

from the substantive commercial contract in which it

is embedded. Under the Doctrine of Kompetenz–Kompetenz,

the Arbitral Tribunal had competence to rule on its own

jurisdiction, including objections with regard to the

existence, validity and scope of the Arbitration

Agreement. Section 16(1) of the Act was relied upon.

The Court made a copious reference to case law in

support of the Doctrine of Kompetenz-Kompetenz. Section

5 of the Act contemplated minimal judicial

interference. The Court referred to the Maharashtra

Stamp Act, 1958. Section 34 of the said Act,

essentially, is pari materia with Section 35 of the

Stamp Act, 1899 hereinafter referred to as the Stamp

Act. There are other provisions, which essentially

follow the same pattern as is contained in the latter

Act. The Court, thereafter, went on to refer to Item

5 63 of Schedule I of the Maharashtra Stamp Act, 1958,

which dealt with ‘Works Contract’. It was found that

the Stamp Act is a fiscal measure. Thereafter, the

Court went on to discuss the Judgment of this Court

reported in SMS Tea Estates Private Limited v.

Chandmari Tea Company Private Limited2. The Court

referred to the following part of the Judgment in SMS

Tea Estates (supra):

“19. Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction.

xxx xxx xxx

21. Therefore, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to

2 (2011) 14 SCC 66 6 the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of the Stamp Act. The court cannot act upon such a document or the arbitration clause therein. But if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.”

5. The Court further went on to find that, at the time

SMS Tea Estates (supra) was decided, the law relating

to reference to Arbitration under Section 11 of the

Act, was expounded in the Constitution Bench decision

reported in SBP & Co. v. Patel Engineering Ltd. and

another3, among other cases. It was further found that

the law laid down was that in an Application under

Section 11(6) of the Act, the Court may determine

certain threshold issues, such as, whether the claim

was time-barred, or a stale claim; whether there was

accord and satisfaction, which would preclude the need

for reference to arbitration. Thereafter, the Court

refers to the amendment to Section 11 by the insertion

of Sub-Section (6A) in Section 11. The Court referred

3 (2005) 8 SCC 618 7 to the Judgment in Duro Felguera, S.A. v. Gangavaram

Port Limited4, to conclude that what was to be gone

into was only whether an Arbitration Agreement existed

or not. The Court noted that the said position was

affirmed by a Bench of three learned Judges in Mayavati

Trading Private Limited v. Pradyuat Deb Burman5. Still

further, the Court went on to notice the Judgment

rendered by the Bench of two learned Judges in Garware

Wall Ropes Limited v. Coastal Marine Constructions &

Engineering Limited6 and referred to para 22 of the

said decision where this Court relied on Section 2 (h)

of the Indian Contract Act, 1872 (hereinafter referred

to as, ‘the Contract Act’, for short) and found that

an unstamped agreement to be unenforceable.

6. In Garware (supra), the Bench of two learned Judges

took the view that the Arbitration Clause contained in

the sub-contract would not exist as a matter of law

until the sub-contract was duly stamped. It was further

found that Section 11(6A) deals with existence as

4 (2017) 9 SCC 729 5 (2019) 8 SCC 714 6 (2019) 9 SCC 209 8 opposed to Section 8, and Section 45 of the Act [See

paragraph 29 of Garware (supra)]. The Bench of three

learned Judges in its judgment in N.N. Global (supra),

containing the Order of Reference to the Constitution

Bench, found that an Arbitration Agreement is not

included in the Schedule as an instrument chargeable

to stamp duty. The Court referred to Item 12 of Schedule

I of the Maharashtra Stamp Act, 1958, in this regard.

Thereafter, the Court went on to find that the Work

Order was chargeable to payment of stamp duty. The

Court, however, found that the non-payment or the

deficiency on the Work Order did not invalidate the

main contract. Section 34 of the Maharashtra Act

corresponding to Section 35 of the Stamp Act did not

make the unstamped instrument, invalid, non-existent

or unenforceable in law. The Court found that the

Arbitration Agreement was a distinct and an independent

contract. On the Doctrine of Separability, it would not

be rendered invalid, unenforceable or non-existing,

even if the substantive contract, in which it is

contained, was inadmissible in evidence or could not

9 be acted upon, in view of it not being stamped. The

Bench in N.N. Global (supra) went on to hold as follows:

“26. In our view, there is no legal impediment to the enforceability of the arbitration agreement, pending payment of stamp duty on the substantive contract. The adjudication of the rights and obligations under the work order or the substantive commercial contract would, however, not proceed before complying with the mandatory provisions of the Stamp Act.

27. The Stamp Act is a fiscal enactment for payment of stamp duty to the State on certain classes of instruments specified in the Stamp Act. Section 40 of the Stamp Act, 1899 provides the procedure for instruments which have been impounded, and sub-section (1) of Section 42 requires the instrument to be endorsed after it is duly stamped by the Collector concerned.

Section 42(2) provides that after the document is duly stamped, it shall be admissible in evidence, and may be acted upon.

28. In our view, the decision in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] does not lay down the correct position in law on two issues i.e. : (i) that an arbitration agreement in an unstamped commercial contract cannot be acted upon, or is rendered unenforceable in law; and (ii) that an arbitration agreement would be invalid where the contract or instrument is voidable at the option of a party, such as under Section 19 of the Contract Act, 1872.

10

29. We hold that since the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract, would not invalidate the arbitration clause, or render it unenforceable, since it has an independent existence of its own. The view taken by the Court on the issue of separability of the arbitration clause on the registration of the substantive contract, ought to have been followed even with respect to the Stamp Act. The non-payment of stamp duty on the substantive contract would not invalidate even the main contract. It is a deficiency which is curable on the payment of the requisite stamp duty.

30. The second issue in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] that a voidable contract would not be arbitrable as it affects the validity of the arbitration agreement, is in our view not the correct position in law. The allegations made by a party that the substantive contract has been obtained by coercion, fraud, or misrepresentation has to be proved by leading evidence on the issue. These issues can certainly be adjudicated through arbitration.

31. We overrule the judgment in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] with respect to the aforesaid two issues as not laying down the correct position in law.” 11

7. We may also notice paragraph-32 in N.N. Global

(supra):

”32.Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] judgment has followed the judgment in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] . The counsel for the appellant has placed reliance on para 22 of the judgment to contend that the arbitration clause would be non-existent in law, and unenforceable, till stamp duty is adjudicated and paid on the substantive contract. We hold that this finding is erroneous, and does not lay down the correct position in law. We have already held that an arbitration agreement is distinct and independent from the underlying substantive commercial contract. Once the arbitration agreement is held to have an independent existence, it can be acted upon, irrespective of the alleged invalidity of the commercial contract.”

8. Thereafter, the Bench of three learned Judges in

N.N. Global (supra) noted that the Judgment in Garware

(supra) was cited with approval by a Bench of three

learned Judges in Vidya Drolia and others v. Durga

12 Trading Corporation7. The Court set out paragraphs 146

and 147 of Vidya Drolia (supra) and doubted the

correctness of the said view and found it appropriate

to refer the findings in paragraphs-22 and 29 of

Garware (supra) as affirmed in paragraphs 146 & 147 of

Vidya Drolia (supra) to the Constitution Bench. We deem

it appropriate to now refer to the following paragraphs

in N.N. Global (supra):

“35. The next issue which arises is as to which authority would exercise the power of impounding the instrument under Section 33 read with Section 34 of the Maharashtra Stamp Act, in a case where the substantive contract contains an arbitration agreement.

36. In an arbitration agreement, the disputes may be referred to arbitration by three modes.

36.1. The first mode is where the appointment of the arbitrator takes place by the parties consensually in accordance with the terms of the arbitration agreement, or by a designated arbitral institution, without the intervention of the court. In such a case, the arbitrator/tribunal is obligated by Section 33 of the Stamp Act, 1899 (or the applicable State Act) to impound the instrument, and direct the parties to pay the requisite stamp duty (and penalty, if any), and obtain an endorsement from the Collector concerned. This would be

7 (2021) 2 SCC 1 13 evident from the provisions of Section 34 of the Stamp Act which provides that “any person having by law or consent of parties authority to receive evidence” is mandated by law to impound the instrument, and direct the parties to pay the requisite stamp duty.

36.2. The second mode of appointment is where the parties fail to make the appointment in accordance with the arbitration agreement, and an application is filed under Section 11 before the Court to invoke the default power for making the appointment. In such a case, the High Court, or the Supreme Court, as the case may be, while exercising jurisdiction under Section 11, would impound the substantive contract which is either unstamped or inadequately stamped, and direct the parties to cure the defect before the arbitrator/tribunal can adjudicate upon the contract.

36.3. The third mode is when an application is filed under Section 8 before a judicial authority for reference of disputes to arbitration, since the subject-matter of the contract is covered by an arbitration agreement. In such a case, the judicial authority will make the reference to arbitration. However, in the meanwhile, the parties would be directed to have the substantive contract stamped in accordance with the provisions of the relevant Stamp Act, so that the rights and obligations emanating from the substantive contract can be adjudicated upon.”

14 D. SUBMISSION OF THE PARTIES

9. Shri Gagan Sanghi, learned Counsel, appeared on

behalf of the appellant (M/s N.N. Global Mercantile

Private Limited). Initially, since there was no

appearance for the first respondent, we appointed Shri

Gourab Banerji, learned Senior Counsel as Amicus

Curiae. We also heard Ms. Malavika Trivedi, learned

Senior Counsel, appearing by way of intervention. Shri

K Ramakanth Reddy, learned Senior Counsel appeared

thereafter for the first respondent and made his

submissions.

10. Shri Gagan Sanghi would take us through the

provisions of the Stamp Act and the Act and contended

that Section 35 of the Stamp Act barred admission of a

not duly stamped instrument in evidence for any purpose

in Court. Furthermore, a Court could not act upon such

an instrument. Not even for a collateral purpose, ran

the argument. There is an absolute bar. An Arbitration

Agreement, even if contained in a Clause, in a Work

Order or in other commercial contract, cannot have a

separate existence as found in N.N. Global (supra). The 15 Doctrine of the Arbitration Agreement being distinct

and having a separate existence, has been erroneously

understood in the context of Sections 33 and 35 of the

Stamp Act. The Judgment in SMS Tea Estates (supra)

ought not to have been overruled. The Principle of

Stare Decisis could not have been overlooked. The

learned Counsel drew our attention to the fact that

several foreign countries have laws, which contain

provisions similar to Sections 33 and 35 of the Stamp

Act. In fact, he would contend that there was no

occasion to make the reference as the main case stood

disposed of. He would submit that even in an

Application under Section 11 of the Act, the Court was

bound to observe the mandate of the law contained in

Sections 33 and 35 of the Stamp Act. The law has been

correctly laid down in SMS Tea Estates (supra) and

Garware (supra) and it was also correctly upheld in

Vidya Drolia (supra). The amendment to Section 11 by

the insertion of sub-Section (6A), could not authorise

a Court to overlook the dictate of Sections 33 and 35

of the Stamp Act.

16

11. Smt. Malvika Trivedi, learned Senior Counsel, projected the same complaint against the view taken in

N.N. Global (supra). She, in fact, drew our attention

to the impact of the view taken in N.N. Global (supra)

to the proceedings under Section 9 of the Act. It is

her case that the requirement to comply with Sections

33 and 35 of the Stamp Act, would not stand displaced,

even in an Application under Section 9 of the Act.

12. Shri Gourab Banerji, learned Amicus, contended that actually, there were parts of Garware (supra),

Vidya Drolia (supra) and N.N. Global (supra), which did

lay down the law correctly. He began by pointing out

that the Bench in N.N. Global (supra) was not correct

in proceeding on the basis that, an Arbitration

Agreement, was not required to be stamped. He drew our

attention to Article 5 of Schedule I of the Maharashtra

Stamp Act, 1958 in this regard. It is his submission

that the existence and/or validity of an Arbitration

Agreement is not affected by the provisions of the

Stamp Act. Non-payment of the stamp duty will not

invalidate the instrument. It is a curable defect. A

true reading of Section 11(6A) would establish that the 17 impounding of an unstamped or deficiently stamped

instrument, is not to be done by the Judge under Section

11 but by the Arbitrator appointed under Section 11.

Section 11(6A) compels the Court to confine its

examination to the question of the existence of the

Arbitration Agreement. In view of the fact that,

neither Garware (supra) nor N.N. Global (supra) laid

down the law correctly, he requested that the reference

be reformulated as indicated later.

13. Relying upon the Judgment of this Court in

Hindustan Steel Ltd. v. Dilip Construction Company8, it

is contended that an unstamped document can be acted

upon, after payment of duty and penalty. Being a

curable defect, it could not be found that an unstamped

instrument did not exist in the eye of law. He drew our

attention to the Judgment of the Privy Council in

Lachmi Narayan Agarwalla and Others v. Braja Mohan

Singh (SINCE DECEASED)9, to contend that an unstamped

instrument, with penalty paid, became effective in law.

He further drew support from the following Judgments:

8

(1969) 1 SCC 597 9 51 Indian Appeals 332 18 i. Joyman Bewa v. Easin Sarkar10;

ii. Gulzari Lal Marwari v. Ram Gopal11

iii. Purna Chandra Chakrabarty and others v. Kalipada

Roy and another12.

14. The aforesaid case law, unerringly points to the conclusion that failure to stamp a document, did not

affect the validity of the document. It merely rendered

the document inadmissible in evidence. From the

Judgment of the Pakistan Supreme Court in United

Insurance Company of Pakistan Limited v. Hafiz Muhammad

Siddique13, the following words of Dorab Patel, J., are

enlisted before us:

“It would be against all cannons of construction to enlarge the meaning of the words in Section 35 so as to render invalid instruments which fall within mischief of the section.”

15. The learned Amicus would point out that stamp duty is levied with reference to the instrument and not the

transaction. The Stamp Act is a consolidating Act. It

10 AIR 1926 Calcutta 877 11 ILR 1937 1 Calcutta 257 12 AIR 1942 Calcutta 386 13 PLD 1978 SC 279 19 is a fiscal law. Securing revenue was the aim. It cannot

be used to clothe a litigant with an arm of

technicality. He drew our attention to Section 5 of the

Act interdicting judicial intervention. He pointed out

Section 8 of the Act, which, after the amendment in the

year 2015, permits disallowing of making a reference

to arbitration, only if the Court found prima facie

that no valid Arbitration Agreement existed. Section

8, he pointed out, did refer to ‘validity’. He took us

through the decision in SMS Tea Estates (supra), in the

context of the law laid down in SBP (supra), by the

Constitution Bench, the Report of the Law Commission

of India and emphasised the need for minimal

interference and to give full meaning to Section

11(6A), by ensuring minimal interference. He drew our

attention to the discussion by the high-level

Committee, which preceded the amendment in Section 11.

He commended for the Court’s acceptance, the view taken

by this Court in Duro Felguera14, wherein, Justice

Kurian Joseph, speaking for the Court inter alia, held

in the post Section 11(6A) scenario, as follows: 14

(2017) 9 SCC 729 20 “59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co.

Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] . This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”

16. The learned Amicus would point out that non- stamping did not render the agreement null and void.

In law and in point of fact, an unstamped instrument

bears life. He would point out that Duro Felguera

(supra) was approved by a Bench of three learned Judges

in Mayavati Trading (supra). He would attack the

finding in Garware (supra) that an unstamped instrument

was void as being incorrect. He would submit that what

is required in law, after the insertion of sub-Section

(6A) is clear as daylight. The existence of an

Arbitration Agreement, is all that should detain the

Judge in an application under Section 11. No doubt, he

would point out that there may be cases where the actual 21 situation, which occasioned the Judgment in Vidya

Drolia (supra), may exist. This means that since

Section 5 of the Act makes certain disputes non-

arbitrable, it may detain a Judge, who is approached

under Section 11, to dissuade him from making a

reference. There may arise occasions, which may leave

the Judge with little choice but to decline the

reference. An instance may be an agreement demonstrated

to be made by a minor or a person of unsound mind. Such

exceptional cases apart, the learned Amicus would

request the Court to draw comfort from the thought that

the Arbitrator is fully competent by virtue of the

Doctrine of Kompetenz-Kompetenz, which stands

enshrined in Section 16 of the Act, to deal with all

sorts of objections. Having regard to the clear

legislative intent, discernible from the Report of the

Law Commission and the amendment to Section 11 of the

Act, which finds its echo in the change brought about

in Section 8 of the Act, by the same amendment, the

effort must be to facilitate an unhindered and smooth

passage for an Application seeking reference to

arbitration. The learned Amicus with reference to

22 paragraph-18 of SBP (supra), submits that the Court in

Garware (supra) erred in holding that only if the

Arbitrator was appointed, without intervention of the

Court, Section 16 would have full play. It is pointed

out that the Judgment in SBP (supra) will not have

life, after the amendment in 2015. He would also point

out that the Court in Garware (supra) erred in

paragraph-19, when it suggested that the Court was only

giving effect to a mandatory enactment, which purported

to protect the public revenue. While it is correct, it

is pointed out that an agreement enforceable by law is

a contract and Section 2(g) of the Contract Act,

provides that an agreement not enforceable by law, is

said to be void, non-stamping or inadequate stamping

would not make an instrument void. It is pointed out

that the suggestion that, an unstamped document did not

become a contract, and that it was, therefore,

unenforceable in law was incorrect. He also would find

fault with the Court in Garware (supra), when it found

that an unstamped document would not ‘exist’ as a

matter of law. The solution suggested by the learned

Amicus is that an Arbitrator may be appointed and, to

23 allow the Arbitral Tribunal to fulfil its duties under

the Stamp Act. In other words, it is pointed out, in

keeping with the purpose of Section 11(6A) and the need

for minimal interference, as contemplated in Section 5

of the Act, on a prima facie examination as to existence

of an Arbitration Agreement, a reference must be made. He further also would point out that the Judgment of

Justice Sanjiv Khanna in Vidya Drolia (supra) may

require a revisit. With reference to paragraph-31,

wherein Sanjiv Khanna, J., felt bound by the

Constitution Bench Judgment in SBP (supra), it is

pointed out that the learned Judge ignored the

amendments to Sections 8 and 11 brought about by the

amendment in 2015. He would further point out that in

paragraphs-81 to 154, under the caption ‘Who decides

non-arbitrability’, he calls for clarity to be brought.

In paragraph-98, it is pointed out that an error was

occasioned in coming to the conclusion that Sections 8

and 11 were complementary in nature and in exercising

power under the two provisions, the jurisdiction was

complementary. It is pointed out that the views of

Justice Sanjiv Khanna appear to be inconsistent with

24 that of the three-Judge Bench in Mayavati (supra). It

is submitted by the learned Amicus that the

observations of Justice Sanjiv Khanna, in paragraphs-

146, 147.1, 147.9 and paragraph-147.10 may require

recalibration. Paragraphs-146 to 154, it is the stand

of the Amicus Curiae, may have to be fine-tuned.

Learned Amicus would point out that the conclusion of

N.V. Ramana, J. in Paragraphs-237 and 244 may be

endorsed to the extent of inconsistency with that of

Justice Sanjiv Khanna. Coming to N.N. Global (supra),

the learned Amicus, apart from pointing out that

contrary to what was held, viz., that an Arbitration

Agreement was not exigible to stamp duty, it was,

indeed, liable. It is pointed out that the ratio in

paragraphs-22 and 26, would have to be supported. It

is the contention of the learned Amicus that Sections

8 and 11 of the Act could not be equated. The standard

to be applied may be the same, i.e., a prima facie

satisfaction of the existence of the Arbitration

Agreement. In Section 11, the Court operates as a

substitute of an Appointing Authority. There is only a

narrow scope. It is his case, that in an Application

25 under Section 8, the scope may be wider as one has to

see whether there was a valid Arbitration Agreement.

It is his submission that unless it is patently void,

‘subject matter arbitrability’ should be left to the

Arbitrator. In a Section 8 Application, the Court

should not undertake the exercise of examining of the

issue relating to the stamp duty, which goes to

admissibility and not jurisdiction. The word

‘existence’ in Section 11(6A) meant legally enforceable

existence and not mere presence in the contract. The

scope of the Court must be circumscribed to narrow the

prima facie examination of:

i. Formal validity of the Arbitration Agreement at

the stage of contract formation, including as to

whether it is in writing;

ii. Whether the core contractual ingredients were

fulfilled?;

iii. On rare occasions, whether the dispute was

arbitrable;

17. The adjudication of stamp duty is a time-consuming affair and it would not align with the goal of the Act,

26 which is to ensure the expeditious appointment of

Arbitrators and the conclusion of the proceedings with

the least judicial interference. If the Court refrained

from interfering on the score of disputes as to stamp

duty and allow the Arbitrator to deal with the matter,

which, he is, in law, fully competent to deal with, it

would promote the very cause of speedy dispute

resolution, which is the very goal of the institution

of arbitration.

18. At the time of hearing Shri K. Ramakanth Reddy, learned senior counsel appeared for the first

respondent. He would contend that the court must adopt

a harmonious construction as between the Stamp Act and

the Act. He emphasises the importance of conforming to

Section 5 of the Act. He drew our attention to the

judgment of this Court in Great Offshore Ltd. v.

Iranian Offshore Engg. & Construction Co.15 In the said

judgment which is authored by a learned Single Judge,

while dealing with a petition under Section 11 of the

Act, inter alia, held:

15

(2008) 14 SCC 240 27

55. Second, the plain language of Section 7 once again governs my conclusion. Section 7 does not require that the parties stamp the agreement. It would be incorrect to disturb Parliament's intention when it is so clearly stated and when it in no way conflicts with the Constitution.

60. Technicalities like stamps, seals and even signatures are red tape that have to be removed before the parties can get what they really want—an efficient, effective and potentially cheap resolution of their dispute.

The autonomie de la volonté doctrine is enshrined in the policy objectives of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985, on which our Arbitration Act is based. (See Preamble to the Act.) The courts must implement legislative intention. It would be improper and undesirable for the courts to add a number of extra formalities not envisaged by the legislation. The courts' directions should be to achieve the legislative intention.

19. He drew our attention to the judgment of this Court in Commissioner of Income Tax v. Hindustan Bulk

Carriers16, inter alia, that a Court should, faced with

two interpretations avoid the construction which

reduces the legislation to futility but accept a bolder

construction which will produce an effective result qua

the purpose sought to be achieved.

16

(2003) 3 SCC 57 28

20. Shri Debesh Panda, learned counsel appearing for the Applicant (Intervention) in I.A.No.199969 of 2022

submitted that the Act constitutes a complete Code.

Since Section 5 of the Act contains a non-obstante

clause which declares that “notwithstanding anything

contained in any other law for the time being in force”

despite the Stamp Act on the principle of minimum

interference except as provided in Part-I of the Act,

the Court should not be detained by Sections 33 and 35

of the Stamp Act. He also reiterates that what is

required under Section 11 is a prima facie

satisfaction. Parliament did not require the

consideration of validity when it enacted Section 11

(6A). There is a conscious distinction between Sections

8 and 11. In other words, there is a distinction between

the expressions ‘existence’ and ‘validity’. The width

of powers under Section 16 is untrammelled, it is

contended.

E. ANALYSIS

21. In view of the submission made by the learned Amicus that the Court in N.N. Global (supra) was in

error in proceeding on the basis that the Arbitration 29 Agreement would not be exigible to stamp duty, the very

premise of the Order of Reference would stand removed.

The reformulated question sans the words, ‘which is not

chargeable to payment of stamp duty’, and words,

‘unenforceable or invalid’, would, therefore, be as

follows:

“Whether the statutory bar contained in Section 35 of the Stamp Act applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, as being non-existent, pending payment of stamp duty on the substantive contract/instrument?”

F. THE ACT

22. Section 2(b) of the Act defines an Arbitration Agreement to be ‘an agreement referred to in Section

7’.

23. Section 5 of the Act declares as follows: -

“5. Extent of judicial intervention. -

Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

24. Section 7 of the Act reads as follows:

“7 Arbitration agreement. —

30 (1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”

25. Section 11 deals with Appointment of Arbitrators. Since we are concerned with the impact of Section

11(6A), which was inserted by Act 3 of 2016 w.e.f.

23.10.2015, we deem it appropriate to refer to the

same:

31

“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), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

It must be noticed that the aforesaid provision

stands omitted by Act 33 of 2019. But Act 33 of 2019

has not been brought into force.

G. WHAT LED TO THE INSERTION OF SECTION 11(6A)?

26. It is important to delve into the past and enquire as to what led to the insertion of sub-Section (6A) in

Section 11 of the Act. The Act was passed in the year

1996. The Act is, undoubtedly, based on the UNCITRAL

MODEL Law. The Hundred and Seventy-Sixth Report of the

Law Commission of India made its recommendations for

enacting amendments to the Act. This is followed by the

Justice B.P. Saraf Committee Report, which was

submitted on 29.01.2005. The nature of the power

exercised by the courts under Section 11 of the Act,

was the subject matter of considerable case law.

Suffice it to notice, a Bench of seven learned Judges,

with a lone dissent, in SBP (supra), proceeded to hold

32 that the power exercised under Section 11(6) was a

judicial power and not an administrative power. In the

Majority Judgment, the Court had occasion to consider

the impact of Section 16 of the Act, which incorporates

the Principle of Kompetenz-Kompetenz. The Court held,

inter alia, as follows:

“12. … When the Tribunal decides these two questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in an appeal against the final award, when the objection is overruled. Sub-section (5) enjoins that if the Arbitral Tribunal overrules the objections under sub-section (2) or (3), it should continue with the arbitral proceedings and make an arbitral award. Sub- section (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the Arbitral Tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-section (7) of Section 11 of the Act, to such a decision 33 of the Chief Justice, the Arbitral Tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an Arbitral Tribunal, the Arbitral Tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the Tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. The argument of the learned Senior Counsel, Mr K.K. Venugopal that Section 16 has full play only when an Arbitral Tribunal is constituted without intervention under Section 11(6) of the Act, is one way of reconciling that provision with Section 11 of the Act, especially in the context of sub-section (7) thereof. We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal and at subsequent stages of the proceeding except in an appeal in the Supreme Court in the case of the decision being by the Chief Justice of the High Court or by a Judge of the High Court designated by him.” (Emphasis supplied)

27. We may next notice the Judgment rendered by a Bench of two learned Judges in SMS Tea Estates (supra). They

dealt with three questions. What is of relevance, is

the second question, which was, ‘whether an Arbitration

Agreement in an unregistered instrument, which is not

34 duly stamped, is valid and enforceable’. The Court,

inter alia, held as follows:

“20. The Scheme for Appointment of Arbitrators by the Chief Justice of Gauhati High Court, 1996 requires an application under Section 11 of the Act to be accompanied by the original arbitration agreement or a duly certified copy thereof. In fact, such a requirement is found in the scheme/rules of almost all the High Courts. If what is produced is a certified copy of the agreement/contract/instrument containing the arbitration clause, it should disclose the stamp duty that has been paid on the original. Section 33 casts a duty upon every court, that is, a person having by law authority to receive evidence (as also every arbitrator who is a person having by consent of parties, authority to receive evidence) before whom an unregistered instrument chargeable with duty is produced, to examine the instrument in order to ascertain whether it is duly stamped. If the court comes to the conclusion that the instrument is not duly stamped, it has to impound the document and deal with it as per Section 38 of the Stamp Act.

xxx xxx xxx

22. We may therefore sum up the procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registerable) and which is not duly stamped:

22.1. The court should, before admitting any document into evidence or acting upon such

35 document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registerable.

22.2. If the document is found to be not duly stamped, Section 35 of the Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Sections 35 and 38 of the Stamp Act.

22.3. If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the court or before the Collector (as contemplated in Section 35 or 40 Section of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.” (Emphasis supplied)

This view has been followed subsequently in Garware

(supra) and also in Dharmaratnakara Rai Bahadur Arcot

Narainswamy Mudaliar Chattram v. Bhaskar Raju & Bros.17

We have omitted repetition of paragraphs-19 and 21,

which have been referred to earlier.

17 (2020) 4 SCC 612 36

28. Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. and another18 was a case of international arbitration

arising under Section 45 of the Act. With a Bench of

three learned Judges deciding the case, the majority

with Justice Y.K. Sabharwal dissenting, took the view

that in deciding the question as to whether a reference

must be made to arbitration under Section 45, the

approach must be to find out whether a prima facie case

is made out and whether it was ‘plainly arguable’ that

an Arbitration Agreement was in existence. The Court,

in other words, took the view that there must be a

prima facie satisfaction that there was an Arbitration

Agreement, which is not null and void, inoperative or

incapable of being performed. Section 45, it must be

noticed, at the time when the case was decided, read

as follows:

“45. Power of judicial authority to refer parties to arbitration.-Notwithstanding anything contained in Part I or in the Code of Civil Procedure , 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person

18 (2005) 7 SCC 234 37 claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” (Emphasis supplied)

29. It was on the aforesaid statutory text that Justice B.N. Srikrishna took the view that the finding as to

the existence of the Arbitration Agreement, was to be

a prima facie finding. Justice D.M. Dharmadhikari

agreed with Justice B.N. Srikrishna with certain

additions.

30. In National Insurance Company Limited v. Boghara

Polyfab Private Limited19, the question, which fell

for consideration before the Bench of two learned

Judges, was as to in what circumstances, a Court would

refuse to refer a dispute relating to quantum to

arbitration even though the contract contemplated a

reference of such a dispute to arbitration. It also

fell for consideration, as to whether the resistance

to the reference on the ground that the applicant under

Section 11 of the Act, received the amount and issued

a full and final discharge voucher, which he contented

19 (2009) 1 SCC 267 38 was issued under undue influence, coercion and economic

compulsion, justified the reference. Justice R.V.

Raveendran, speaking for the Court, inter alia,

purported to follow the Judgment in SBP (supra) and

held as follows:

“22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. [(2005) 8 SCC 618] This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court.

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

39

(a) Whether the claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).

(ii) Merits or any claim involved in the arbitration.

23. It is clear from the scheme of the Act as explained by this Court in SBP & Co. [(2005) 8 SCC 618] , that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence.

Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot re- examine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of 40 contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.

24. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or undue influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the Arbitral Tribunal as directed by the order under Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant.”

31. It is to be noticed that, at the time when the

Court rendered SBP (supra) and SMS Tea Estates (supra),

Section 11(6) contemplated appointment being made of

an Arbitrator, essentially on the failure of parties

to agree on the appointment or to make the appointment.

It is in the context of the views expressed by the

Courts, as aforesaid, that the Law Commission of India

submitted the Two Hundred and Forty-Sixth Report in

August, 2014. In the said Report, after referring to

the Judgment in SBP (supra) and the views expressed in

41 National Insurance (supra), the Law Commission, inter

alia, submitted the following recommendations:

“31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of Section 11, should also apply to Sections 8 and 45 of the Act - since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refuses to appoint an arbitrator in terms of the arbitration agreement, or moves a proceeding before a judicial authority in the face of such an arbitration agreement.

32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234, (in the context of Section 45 of the Act), where the Supreme Court has ruled in favour of looking at the issues/controversy only prima facie.

33. It is in this context, the Commission has recommended amendments to Sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it 42 is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, Under Sections 8 and 11 respectively, such a decision will be final and non-appealable. An appeal can be maintained Under Section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator.” (Emphasis supplied)

32. It is, accordingly, accepting the Report that Section 11(6A) came to be inserted. After having set

out the events, which led to the insertion of Section

11(6A), we may take the narrative forward. In Duro

Felguera (supra), we have noticed the view taken in

paragraph 59 in an earlier part of this judgment, in

essence, the duty to find out whether an arbitration

agreement exists or not. The learned Judge also made

observations in paragraph 48 wherein after quoting

Section 11(6A) he held as follows:

43

“…From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.”

33. In Garware (supra) a Bench of two learned Judges dealt with a case under Section 11(6A) itself and that

too in the context of the Maharashtra Stamp Act, 1958. The contention raised by the appellant was that the

Judgment in SMS Tea Estates (supra) continues to apply

even after the introduction of Section 11(6A). In other

words, notwithstanding the insertion of Section 11(6A),

the procedure contemplated in SMS Tea Estates (supra)

would have to be followed. The Court went on to hold,

inter alia, as noticed by us already and which has been

referred to in N.N. Global (supra):

22. When an arbitration Clause is contained "in a contract", it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Indian Stamp Act, an agreement does not become

44 a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration Clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates has, in no manner, been touched by the amendment of Section 11(6A).

XXX XXX XXX

29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration Clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration Clause did "exist", so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability.

Likewise, in the facts of the present case, it is clear that the arbitration Clause that is contained in the sub-contract would not "exist" as a matter of law until the sub-contract is duly stamped, as has been held by us above.

The argument that Section 11(6A) deals with "existence", as opposed to Section 8, Section 16, and Section 45, which deal with "validity" of an arbitration agreement is answered by this Court's understanding of the expression "existence" in Hyundai Engg. Case as followed by us.”

34. We may notice that in Section 45 of the Act, for the words ‘unless it finds’, by Act 33 of 2019, the

words ‘unless it prima facie finds’, were substituted.

45 This amounted to a legislative recognition of the

position taken by this Court through the Judgment

rendered by Justice B. N. Srikrishna in SMS Tea Estates

(supra).

35. In Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman20, a Bench of three learned Judges of this Court

inter alia held as follows:

10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785], as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] — see paras 48 & 59 [Ed. : The said paras 48 & 59 of Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764, for ready reference, read as follows:“48. Section 11(6-A) added by the 2015 Amendment, reads as follows:“11. (6-A) The Supreme Court or, as the case may be, the High Court, while

20 (2019) 8 SCC 714 46 considering any application under sub-

section (4) or sub-section (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.”(emphasis supplied)From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question.

The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.***59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 and National Insurance Co.

Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6- A) ought to be respected.”] .

36. The view taken in Garware (supra) [paragraphs-22 and 29 (supra)], came to be specifically approved by a

47 Bench of three learned Judges in the Judgment reported

in Vidya Drolia (supra). Therein, Justice Sanjiv Khanna

wrote for the Court and Justice N.V. Ramana

supplemented with his own Judgment. The Judgment was

rendered on a Reference dated 28.02.2009 and the

question was, whether landlord-tenant disputes,

governed by provisions of the Transfer of Property Act

were arbitrable or not. Apart from the said issue, the

other conundrum was as to who would decide, viz., the

Court at the reference stage, or the Arbitral Tribunal

in the arbitration proceedings. The Court also found

it fit to go into the question as to the scope and

ambit of the jurisdiction at the reference stage. It

is in the course of his Judgement that he made the

following observations in pargraphs-146 and 147, 147.1

of Vidya Drolia (supra):

“146. We now proceed to examine the question, whether the word “existence” in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an 48 arbitration agreement. Such interpretation can draw support from the plain meaning of the word “existence”. However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of “existence” requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law.

147. We would proceed to elaborate and give further reasons:

147.1. In Garware Wall Ropes Ltd. [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 :

49 (2019) 4 SCC (Civ) 324] , this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to “existence” and “validity” of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing para 29 thereof : (SCC p. 238) “29. This judgment in Hyundai Engg.

case [United India Insurance Co.

Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability.

Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub-contract would not “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above.

The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court's understanding of the expression “existence” in Hyundai Engg. case [United India Insurance Co. Ltd. v. Hyundai Engg. &

50 Construction Co. Ltd., (2018) 17 SCC 607 :

(2019) 2 SCC (Civ) 530] , as followed by us.” 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.”

37. It is thereafter that in N.N. Global (supra), the Court doubted the correctness of the view taken in the

aforesaid paragraphs and referred to the findings in

paragraph-22 and 29 in Garware (supra), which stood

affirmed in paragraphs-146 and 147 of Vidya Drolia

(supra). We may notice that paragraph-147 of Vidya

Drolia (supra) purported to give reasons in regard to

what was stated in paragraph-146. Paragraph-147 is

followed by paragraphs- 147.1 to 147.11. However, what,

apparently, the Court in N.N. Global (supra) doubted,

appears to be paragraphs-146 and 147, which we

understand in the context of this case, is to be

confined to paragraph-147.1.

38. We may resume survey of the Act to the extent it is relevant. Section 16 enshrines the Principle of

Kompetenz-Kompetenz. It reads as follows:

51 “16. Competence of arbitral tribunal to rule on its jurisdiction.— (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-

section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-

section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

52 (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section

34.”

H. THE SCHEME OF THE STAMP ACT

39. Section 2(6) defines the word ‘chargeable’ as follows:

“2(6) “Chargeable”. — ―chargeable means, as applied to an instrument executed or first executed after the commencement of this Act, chargeable under this Act, and, as applied to any other instrument, chargeable under the law in force in India when such instrument was executed or, where several persons executed the instrument at different times, first executed:”

40. Section 2(11) defines the words ‘duly stamped’ as

follows:

“2(11) “Duly stamped”. — duly stamped, as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law for the time being in force in India:”

41. Section 2(12) defines the word ‘executed’ with reference to instruments as meaning ‘signed’.

42. Section 2(14) defines the word ‘instrument’ as ‘including every document, by which any right or

53 liability is or purports to be created, transferred,

limited, extended, extinguished or recorded’.

43. Section 3 deals with the instruments indicated therein being chargeable with duty, subject to what is

provided by way of exemptions contained in Schedule I.

44. Section 4 contemplates a situation, where there are several instruments.

45. There are other provisions, which relate to other transactions. Section 17 deals with the time of

stamping of instruments. Section 17 provides for

instruments executed in India. It declares that such

instruments, chargeable with duty, shall be stamped

before or at the time of execution. Section 31 deals

with adjudication as to proper stamp. The adjudication

is to be made by the Collector. Chapter IV contains

Section 33 and the Chapter heading is ‘Instruments not

duly stamped’. In the Stamp Act, Section 33 reads as

follows:

“33. Examination and impounding of instruments. —

(1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a pubic office, except an officer of police, before whom any

54 instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.

(2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed: Provided that—

(a) nothing herein contained shall be deemed to require any Magistrate or Judge of a Criminal Court to examine or impound, if he does not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (V of 1989);

(b) in the case of a Judge of a High Court, the duty of examining and impounding any instrument under this section may be delegated to such officer as the Court appoints in this behalf.

(3) For the purposes of this section, in cases of doubt, —

(a) the State Government may determine what offices shall be deemed to be public offices;

(b) the State Government may determine who shall be deemed to be persons in charge of public offices.”

46. Next, we must notice Section 35, which reads as follows:

55

“35. Instruments not duly stamped inadmissible in evidence, etc. — No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped : Provided that—

(a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of any instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;

(b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it;

(c) Where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;

(d) nothing herein contained shall prevent the admission of any instrument in evidence in proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure 1898 (V of 1898);

(e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on 56 behalf of the Government, or where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act.”

47. Equally, we must bear in mind Section 36. It provides as follows:

“36. Admission of instrument where not to be questioned. —Where an instrument has been admitted in evidence, such admission shall not, except as provided in section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped.”

48. Section 38 deals with, how instruments, which are impounded, must be dealt with. It reads as follows:

“38. Instruments impounded how dealt with. — (1) When the person impounding an instrument under section 33 has by law or consent of parties authority to receive evidence and admits such instrument in evidence upon payment of a penalty as provided by section 35 or of duty as provided by section 37, he shall send to the Collector an authenticated copy of such instrument, together with a certificate in writing, stating the amount of duty and penalty levied in respect thereof, and shall send such amount to the Collector, or to such person as he may appoint in this behalf.”

49. Section 42 is relevant and it reads as follows: -

“42. Endorsement of instruments on which duty has been paid under sections 35, 40 or 41— (1) When the duty and penalty (if any), leviable in respect of any instrument have been paid under section 35, section 40 or section 41, the

57 person admitting such instrument in evidence or the Collector, as the case may be, shall certify by endorsement thereon that the proper duty or, as the case may be, the proper duty and penalty (stating the amount of each) have been levied in respect thereof, and the name and residence of the person paying them.

(2) Every instrument so endorsed shall thereupon be admissible in evidence, and may be registered and acted upon and authenticated as if it had been duly stamped, and shall be delivered on his application in this behalf to the person from whose possession it came into the hands of the officer impounding it, or as such person may direct:

Provided that—

(a) no instrument which has been admitted in evidence upon payment of duty and a penalty under section 35, shall be so delivered before the expiration of one month from the date of such impounding, or if the Collector has certified that its further detention is necessary and has not cancelled such certificate;

(b) nothing in this section shall affect clause

3.”

50. Section 62(1)(b) makes it punishable with fine, which may extend to Rs.500/- for a person to execute

or sign otherwise than as a witness, any instrument

chargeable with duty, without the same being duly

stamped. The proviso, no doubt, contemplates that if

58 any penalty has been paid under Sections 35, 40 or 61,

the same shall be reduced.

I. HINDUSTAN STEEL LIMITED ANALYSED

51. This Court in Hindustan Steel Limited v. Dilip Construction Company21, was dealing with the following

set of facts:

An award was made by an Umpire under the Indian

Arbitration Act, 1940, which was filed in the

Court. The appellant applied to set aside the

Award, inter alia, contending that it was

unstamped. It contended that it was on that

account, invalid, illegal and liable to be set

aside. The respondent thereupon applied to the

District Court to have the Award impounded and

validated by the levy of stamp duty and penalty.

The Award was impounded and visited with duty and

penalty, which was duly paid and certified. The

contention of the appellant was that, not only

could an unstamped Award, be not admitted in

evidence, but it could not be acted upon, as the

21 (1969) 1 SCC 597 59 instrument had no existence in the eye of law. It

is thereupon that the Court had held, inter alia:

“5. An instrument which is not duly stamped cannot be received in evidence by any person who has authority to receive evidence, and it cannot be acted upon by that person or by any public officer.

Section 35 provides that the admissibility of an instrument once admitted in evidence shall not, except as provided in Section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped.

6. Relying upon the difference in the phraseology between Sections 35 and 36 it was urged that an instrument which is not duly stamped may be admitted in evidence on payment of duty and penalty, but it cannot be acted upon because Section 35 operates as a bar to the admission in evidence of the instrument not duly stamped as well as to its being acted upon, and the Legislature has by Section 36 in the conditions set out therein removed the bar only against admission in evidence of the instrument. The argument ignores the true import of Section 36. By that section an instrument once admitted in evidence shall not be called in question at any stage of the same suit or proceeding on the ground that it has not been duly stamped. Section 36 does not prohibit a challenge against an instrument that it shall not be acted upon because it is not duly stamped, but on that

60 account there is no bar against an instrument not duly stamped being acted upon after payment of the stamp duty and penalty according to the procedure prescribed by the Act. The doubt, if any, is removed by the terms of Section 42(2) which enact, in terms unmistakable, that every instrument endorsed by the Collector under Section 42(1) shall be admissible in evidence and may be acted upon as if it has been duly stamped.”

We may also profitably refer to paragraph-8 as

well:

“8. Our attention was invited to the statement of law by M.C. Desai, J., in Mst Bittan Bibi v. Kuntu Lal [ILR (1952) 2 All 984] :

“A court is prohibited from admitting an instrument in evidence and a court and a public officer both are prohibited from acting upon it. Thus a court is prohibited from both admitting it in evidence and acting upon it. It follows that the acting upon is not included in the admission and that a document can be admitted in evidence but not be acted upon. Of course it cannot be acted upon without its being admitted, but it can be admitted and yet be not acted upon. If every document, upon admission, became automatically liable to be acted upon, the provision in Section 35 that an instrument chargeable with duty but not duly stamped, shall not be acted upon by the Court, would be rendered redundant by the provision that it shall not be admitted in evidence for any purpose. To

61 act upon an instrument is to give effect to it or to enforce it.”

“In our judgment, the learned Judge attributed to Section 36 a meaning which the legislature did not intend. Attention of the learned Judge was apparently not invited to Section 42(2) of the Act which expressly renders an instrument, when certified by endorsement that proper duty and penalty have been levied in respect thereof, capable of being acted upon as if it had been duly stamped.”

52. We draw the following conclusions, as to what has been laid down by a Bench of three learned Judges in

Hindustan Steel (supra):

i. The Stamp Act is a fiscal measure intended

to raise revenue;

ii. The stringent provisions of the Act are

meant to protect the interest of the

Revenue;

iii. It is not intended to be used as a weapon

by a litigant to defeat the cause of the

opponent;

iv. Upon the endorsement being made under

Section 42(2) of the Stamp Act, the

62 document would be admissible in evidence

and can be acted upon.

We may only observe that the Court did not take

into consideration Section 17 of the Stamp Act, which

provides for the precise time, at which, the instrument

is to be stamped. Equally, the Court did not bear in

mind that Section 62 of the Stamp Act, penalises

transgression of Section 17, inter alia. Still further,

the Court was dealing with an instrument after it was

impounded, and the payments made which were certified

under Section 42(2).

It is true that an unstamped instrument is

compulsorily impoundable under Section 33 of the Stamp

Act. The procedure to be followed thereafter is also

provided in the Act. After the procedure is followed

and the duty and the penalty is paid, the instrument

would come to be visited with the endorsement under

Section 42(2). Thereafter, it becomes enforceable and

it can be acted upon, as held in Hindustan Steel

(supra).

63 J. THE INDIAN CONTRACT ACT, 1872 - A SURVEY;

DISSECTION OF GARWARE, VIDYA DROLIA AND N.N. GLOBAL

53. Section 2(g) of the Contract Act provides that an agreement, not enforceable by law, is said to be void,

whereas, Section 2(h) declares that an agreement

enforceable by law, is a contract. Section 2(j) of the

same Act provides that a contract, which ceases to be

enforceable by law, becomes void, when it ceases to be

enforceable. We may, at once, notice the distinction

between an agreement and a contract. Not every

agreement is a contract. Only those agreements, which

are enforceable, are treated as contracts. The result

of a contract, ceasing to be enforceable, is that, the

contract becomes void. Next, we may notice Section 10.

It reads as follows:

“What agreements are contracts. - All agreements are contracts, if they are made by the free consent of parties, competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of

64 witnesses, or any law relating to the registration of documents.”

Section 10, in the first part, when broken down

into parts, consists of the following: ‘Agreement must

be made by free consent of parties’.

54. Section 14 defines ‘free consent’ and it reads:

“14. ‘Free consent’ defined. -Consent is said to be free when it is not caused by-

(1) Coercion, as defined in section 15, or (2) Undue influence, as defined in section 16, or (3) Fraud, as defined in section 17, or (4) Misrepresentation as defined in section 18, or (5) Mistake, subject to the provisions of sections 20, 21 and 22.

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.”

55. The next part of Section 10 to be noticed is the expression ‘parties competent to contract’. Section 11

of the Contract Act declares that every person is

competent to contract, according to the law, to which

he is subject, and who is of sound mind and is not

disqualified from contracting by any law to which he

is subject. Since Section 11 requires soundness of mind

for the person to be competent to contract, Section 12 65 articulates as to what is sound mind for the purpose

of the Contract Act. The next part in Section 10 is

that there must be ‘a lawful consideration and a lawful

object’. The said aspect is dealt with in Section 23.

It reads as follows:

“23. What consideration and objects are lawful, and what not. - The consideration or object of an agreement is lawful, unless-

It is forbidden by law; or Is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent; or

Involves or implies, injury to the person or property of another; or

The Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.”

56. The last part of the first limb of Section 10 provides that all agreements are contracts ‘which are

not hereby declared to be void’. Sections 24 to 30 are

the remaining provisions in Chapter II, which deal with

agreements, which are declared to be void within the

meaning of Section 10. This is apart from Section 20

as we shall notice later. Also, the second part of

66 Section 10 provides that peremptory requirements may

still have to be met to constitute a contract a law.

57. Further, we have already noticed that free consent is indispensable for making an agreement, a contract,

under Section 10. Free consent has been defined in

Section 14 and it must be read in conjunction with

Sections 15 to 18 as Sections 15 to 18 define coercion,

undue influence, fraud and misrepresentation,

respectively. Now, the result of there being coercion,

fraud or misrepresentation in securing the consent of

a party, is provided for in Section 19 of the Contract

Act. The presence of the three elements results in what

is described as a contract voidable at the option of

the party, whose consent was so caused. The effect of

misrepresentation has been dealt with by this Court in

the judgment reported in Ganga Retreat & Towers Ltd.

v. State of Rajasthan22, as follows:

“28. According to Section 19 of the Contract Act when consent to an agreement is caused by misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. The latter may, if he thinks fit, insist that the contract shall be

22 (2003) 12 SCC 91 67 performed and that he shall be put in the position in which he would have been if the representations made had been true. According to Section 2 clause (i), an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.

It is not necessary for us to record a clear finding whether there was a misrepresentation on the part of the respondents or not. Suffice it to observe that a voidable contract confers the right of election on the party affected to exercise its option to avoid the legal relations created by the contract or to stand by the contract and insist on its performance. However, his election to stand by the contract once exercised would have the effect of ratification of the contract with the knowledge of misrepresentation on the part of the other party and that would extinguish its power of avoidance. In the very nature of the right conferred on the party affected, the law expects it to exercise its option promptly and communicate the same to the opposite party; for until the right of avoidance is exercised, the contract is valid, and things done thereunder may not thereafter be undone.

29. A right to rescind for misrepresentation can be lost in a variety of ways, some depending on the right of election. A representee on discovering the truth loses his right to rescind if once he has elected not to rescind. But he may lose even before he has made any election where by reason of his conduct or other circumstances it would be unjust or inequitable that he retains the right. For instance, where third parties have acquired rights under the contract; again where it would be unjust to the representor because it is impossible to restore him to his original position. Restitutio in integrum is not only a consequence of rescission, its possibility is indispensable to the right to rescind. Again, 68 delay in election may make it unjust that the right to elect should continue. For this reason the right to rescission for misrepresentation in general must be promptly exercised. (See Indian Contract and Specific Relief Acts, Pollock and Mulla, 11th Edn., Vol. I, pp. 269-

70.)”

Section 19A deals with there being no free consent

on account of the consent of a party being obtained by

undue influence. The said vitiating factor also, does

not result in a void agreement but a voidable contract.

Section 14, defining ‘free consent’, provides that

consent is said to be free, when it is not caused by

mistake, subject to the provisions of Sections 20, 21

and 22, after referring to the other four aspects,

which detract from free consent. We notice what Section

20 provides. Section 20 declares that where both the

parties to an agreement are under a mistake as to a

matter of fact essential to the agreement, the

agreement is void. We may observe that this again is a

case of an agreement, which is declared void within the

meaning of Section 10, apart from Sections 24 to 30.

Section 21 provides that a mistake as to any law in

force in India, would not make the contract voidable.

Thus, while Section 10 sets out the core element for 69 an agreement to become a contract, the effect of non-

conformity varies. Therefore, the lack of competency

and absence of sound mind completely detract from the

formation of a ‘contract’. The absence of free consent

arising from coercion, undue influence,

misrepresentation and even fraud will, however, result

in an agreement which is a ‘contract’ though voidable

(see Sections 19 and 19A of the Contract Act). The

effect of mistake, is again spelt out in Section 22,

insofar as it provides that a contract is not voidable

merely because one of the parties consented to the

contract, labouring under a mistake as to a matter of

fact. Section 37 comes under Chapter IV which deals

with performance of contracts and of contracts which

must be performed. Section 37 reads:

“37. Obligation of parties to contract. -The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law.

Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.”

70

58. We have noticed that in the case of fraud,

misrepresentation or coercion, the person whose consent

is procured on the said basis, may insist that the

contract be performed and that he be put in the

position, in which he could have been, if the

representation had not been made. In this context, we

may notice, Section 64 of the Contract Act:

“64. Consequences of rescission of a voidable contract. -When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.”

59. As to what would happen, if an agreement is discovered to be void or becomes void, is provided in

Section 65. It declares that when such an eventuality

takes place, any person, who has, under such agreement

or contract, received any advantage, is bound to

restore it to the person from whom he has received it

or make compensation for the same. In the context of

Section 65, we may notice the nexus with Section 2(j)

of the Contract Act. Section 2(j), as we have noticed,

71 provides that, when the contract ceases to be

enforceable, it becomes void. Thus, what may be an

agreement and which fulfils the requirement that it is

enforceable and, therefore, becomes a contract, can

upon it ceasing to be enforceable, become void.

However, here we must notice the view expressed by the

Privy Council in the Judgement reported in Mahanth

Singh v. U Ba Yi23. Therein the Court, inter alia, held

as follows:

“A still more startling result, however, is brought about on this construction if s.2(j) is read with s.65 of the Indian Contract Act, since in such a case not only would every unenforceable contract become void but each party would be under the obligation of restoring or making compensation for any benefit received, no matter how much had been done towards the performance by either party. But it is not necessary to adopt a construction leading to such surprising results.

The solution is, in their Lordships’ view, to be found in the wording of s.2(j) itself. Not every unenforceable contract is declared void, but only those unenforceable by law, and those words mean not unenforceable by reason of some procedural regulation, but unenforceable by the substantive law. For example, a contract which was from its inception illegal, such as a contract with an alien enemy, would be avoided by s.2(g), and one which became illegal in the course of its performance, such as a contract with one who had been an alien friend but later became an alien enemy, would be 23 AIR 1939 PC 110 72 avoided by s.2(j). A mere failure to sue within the time specified by the statute of limitations or an inability to sue by reason of the provisions of one of the Orders under the Civil Procedure Code would not cause a contract to become void.”

60. A Full Bench of the Allahabad High Court, while dealing with the effect of inclusion of non-

transferable occupancy rights, along with other

properties, which were transferable in a registered

mortgage deed and, after referring to Section 23 of the

Contract Act, held, in Dip Narain Singh v. Nageshar

Prasad and another24, inter alia, as follows:

“There is a clear distinction between an agreement which may be forbidden by law and one which is merely declared to be void. In the former case the legislature penalises it or prohibits it. In the latter case, it merely refuses to give effect to it. If a void contract has been carried out and consideration has passed, the promisor may not in equity be allowed to go back upon it without restoring the benefit which he has received. But if the promise comes to court to enforce it he would receive no help from a court of law. As pointed out above, the transfer of an occupancy tenancy is not actually forbidden by law but is declared to be void.” (Emphasis supplied)

24 AIR 1930 ALL 1 (FB) / 1929 SCC OnLine ALL 1 73

61. To the extent that N.N. Global (supra) proceeds on the basis that the Stamp Act is a fiscal enactment and

the object is to raise revenue, there may not be any

serious room for objection.

As far as the finding in paragraph-28 of N.N.

Global (supra) that the decision in SMS Tea Estates

(supra) does not lay down the correct law, when it

holds that an Arbitration Agreement, in an unstamped

commercial contract, cannot be acted upon or is

rendered unenforceable, we are of the view that the

finding in N.N. Global (supra) does not appear to be

correct. A perusal of paragraph-29 would show that the

Court in N.N. Global (supra) proceeded on the basis

that the Arbitration Agreement, being an independent

contract is not chargeable to payment of stamp duty and

it would not invalidate the Arbitration Clause or

render it unenforceable, since it had an independent

existence of its own, cannot hold good in view of the

admitted position before us that an Arbitration

Agreement, in its own right, is exigible to stamp duty. The whole premise of the Court in N.N. Global (supra)

being that the Arbitration Agreement, not being 74 exigible to duty and it having a separate existence,

the commercial contract in which the Arbitration

Agreement is contained, being unstamped, would not

impact the Arbitration Agreement, cannot hold good. The

reasoning in N.N. Global (supra) in paragraph-32, for

disapproving of Garware (supra) in paragraph-22

thereof, that the Arbitration Clause would be non-

existent in law and unenforceable till the stamp duty

in adjudicated and paid on the substantive contract,

is again on the premise that the Arbitration Agreement

is a separate agreement under the Stamp Act, which is

not exigible to stamp duty, which we have found is not

the case in law. In this regard, we may refer to Article

5 of the Stamp Act:

Description of Proper Stamp- Instrument duty [5. AGREEMENT OR Two annas. MEMORANDUM OF AN AGREEMENT—

(a) if relating to Subject to a the sale of a bill maximum of ten of exchange; rupees, one anna

(b) if relating to for every Rs. the sale of a 10,000 or part Government thereof of the security or share value of the in an

75 incorporated security or company or other share. body corporate;

(c) if not otherwise provided for Eight annas.

Exemptions Agreement or memorandum of agreement— (a) for or relating to the sale of goods or merchandise exclusively, not being a NOTE OR MEMORANDUM chargeable under No. 43; (b) made in the form of tenders to the Central Government for or relating to any loan;

(Emphasis supplied)

62. While the Stamp Act is a fiscal enactment intended to raise revenue, it is a law, which is meant to have

teeth. The point of time, at which the stamp duty is

to be paid is expressly provided for in Section 17 of

the Stamp Act. There cannot be any gainsaying, that

call it a fiscal enactment, it is intended that it is

to be implemented with full vigour. The duty of a Court

must be to adopt an interpretation which results in the

enforcement of the law, rather than allowing the law

to be flouted with impunity. Once this principle is

76 borne in mind, the task of the Court becomes less

difficult. The law, as contained in Section 33 read

with Section 35 of the Stamp Act, would result in the

following conclusions:

i. Every person having, by law or consent of

parties, the authority to receive evidence,

before whom, an instrument is produced, is

duty-bound to immediately impound the same.

This is upon his forming the opinion that the

instrument is not duly stamped. In a case,

where the instrument does not bear any stamp

at all, when it is exigible to stamp duty,

there can be little difficulty in the person

forming the opinion that it is not duly

stamped. No doubt, under Section 33(2), in

cases of ambiguity, the person shall examine

the instrument to arrive at the liability.

Apart from a person having authority to

receive evidence, which, no doubt, would

include a court and an Arbitrator, every

person In-charge of a Public Office, before

whom, such instrument is produced or comes in

77 the performance of his functions, has the duty

to impound the unstamped or insufficiently

stamped document, arises. This is no doubt

after ‘examining’ the instrument and

ascertaining as to whether the instrument was

stamped as required when the document was

executed or first executed [See Section

33(2)]. One exception in Section 33 is an

Officer of the Police. In other words, the

Officer of the Police has no authority to

impound an unstamped or insufficiently stamped

document produced before him. No doubt, a

Criminal Court is not under compulsion vide

the proviso. Section 33, no doubt, authorises

delegation of power.

ii. Under Section 35, the Law-Giver has disabled

the admission in evidence of an instrument not

stamped or insufficiently stamped, for any

purpose. This would include even a collateral

purpose. This is in stark contrast with a

document, which is compulsorily registerable

but which is not registered. Under Section 49 78 of the Registration Act, 1908, an unregistered

document may be used for proving a collateral

transaction. Even this is impermissible, if

the document is not stamped or insufficiently

stamped. Section 35 further proceeds to

declare that such an unstamped or

insufficiently stamped document shall not be

acted upon. It is important to juxtapose the

embargo cast on an unstamped document as

aforesaid with Section 2(h) of the Contract

Act. Section 2(h) of the Contract Act provides

that an agreement, which is enforceable in law

is a contract whereas Section 2(g), an

agreement not enforceable is void. The words

‘enforceable in law’ or ‘not enforceable in

law’, understood in the context of Sections 33

and 35 of the Stamp Act, would mean that upon

there being an occasion, which necessitates

one of the parties to the agreement having to

enforce the same through recourse to sanctions

available in law, the same should be

vouchsafed to him. Ordinarily, agreements are

79 enforced through actions in Civil Courts.

Remedies may be sought before Public

Authorities. Both the Civil Courts and the

Public Authorities are tabooed from giving

effect to an unstamped instrument. Section 33

does not give a choice to the person, who has

authority by law, or with consent, to take

evidence, or to any Public Officer, but to

impound the agreement. The unstamped or

insufficiently stamped document cannot be used

as evidence for any purpose. It would be

inconceivable, as to how, it could be in the

same breath, be found that an unstamped

document is yet enforceable in law or that it

is not enforceable in law. It is another

matter that the parties may act upon it. Goods

or services may change hands, for instance,

under a document, which may be otherwise

exigible to stamp duty. What is, however,

relevant is that the State will not extend its

protection, by appropriate sanctions. The

rights, which would otherwise have been

80 available, had the agreement been stamped,

would remain frozen or rather they would not

exist. We are further reinforced in our view,

therefore, that the views expressed by this

Court in Garware (supra) in paragraph-22,

following SMS Tea Estates (supra), represent

the correct position in law.

iii. Next, we must pass on to the correctness of

the views expressed in paragraph-29 of Garware

(supra). The Court drew upon the Judgment in

United India Insurance Company Limited and

another v. Hyundai Engineering & Construction

Company Limited and others25.

63. Justice Hrishikesh Roy in paragraph-84 of his draft Judgement finds that in paragraph-29 in Garware

(supra), this Court relied on United India Insurance

Company Limited v. Hyundai Engineering and Construction

Company Limited26. Our learned Brother further notes in

paragraph-84.1 that in Hyundai (supra), the issue of

25 (2018) 17 SCC 607 26 (2018) 17 SCC 607 81 stamping was not in consideration and the question was

whether the matter fell within excepted matter as the

Arbitration Clause was dependant on whether the insurer

accepted liability. Justice Hrishikesh Roy further

finds that the approach in Garware (supra) in relying

upon Hyundai (supra) was incorrect. This is as Hyundai

(supra) has nothing to do with stamping and should have

been distinguished. Our learned Brother notices the

contention of the learned Amicus that Hyundai (supra)

relied on Oriental Insurance Company v. Narbheram Power

and Steel Private Limited27, in which case, the Court

did not have occasion to interpret Section 11(6)(a) of

the Act.

64. It is true that in Hyundai (supra), this Court was not dealing with the impact of the Stamp Act. The Court

was dealing rather with the issue as to the effect of

the Clause, in which it was agreed that there would be

no arbitration, if the insurer disputed or did not

accept liability under or irrespective of the policy. In the context of the said Clause, this Court, in

27 (2018) 6 SCC 534 82 Hyundai (supra), went on to hold, inter alia, that the

denial of the plea about its liability by the insurer,

rendered the ‘making of the Arbitration Clause

ineffective and incapable of being enforced, if not

non-existent’. No doubt, in paragraph-29 of Garware

(supra), this Court found that ‘likewise in the facts

of the present case, it is clear that the Arbitration

Clause, i.e., contained in the sub-contract, would not

exist as a ‘matter of law’ until the sub-contract is

duly stamped as has been held by us above’. Therefore,

the rationale for finding that an Arbitration Agreement

in an unstamped sub-contract would not exist, was

already furnished in paragraph-22. This Court was only

drawing support from Hyundai (supra) for the

proposition about non-existence of the instrument ‘in

law’. While, Hyundai (supra) did not relate to the

Stamp Act, and even, removing the reference to Hyundai

(supra), the finding about the non-existence of an

unstamped agreement, would be supportable on the

reasoning that what is contemplated in Section 11(6)(a)

is no mere facial existence or existence in fact but

also existence in law.

83

65. This Court in Garware (supra) took the view that unless the sub contract was stamped, the arbitration

clause contained therein would not exist as a matter

of law. This finding has been rendered apparently on

the basis of the impact of the amendment leading to the

insertion of Section 11(6A). The Court in Garware

(supra) had in fact after setting out the law prior to

the amendment based on the Two Hundred and Forty-Sixth

Report of the Law Commission of India found in

paragraph-19 that the Law Commission Report did not

mention about SMS Tea Estates (supra). It is further

found that it is for the very good reason that the

court does not while deciding an application under

Section 11 decide any preliminary issue. The Court

further found that it was giving effect to the

provisions of a mandatory enactment, which enjoins upon

the Court, under the provisions of the Stamp Act, to

first impound the agreement, and if only the penalty

and the duty is paid thereafter, to act upon it. The

Court had also found that it was not possible to

bifurcate the arbitration clause. We would find that

as found by us, being unstamped or insufficiently

84 stamped, the agreement would not be enforceable till

it is ‘validated’ which is permissible only in the

manner provided in the Stamp Act and till then it would

not exist ‘in law’.

66. In the context of Article 136 of the Limitation Act, 1963, a Bench of three learned Judges in

Dr. Chiranji Lal (D) by Lrs. v. Hari Das (D) by Lrs.28

had to deal with the argument that a Final Decree for

partition passed on 07.08.1981 became enforceable only

on 25.05.1982, on which day the Decree came to be

engrossed with stamp papers. Under Article 136, the

period of twelve years begins to run when the ‘Decree

or Order’ becomes ‘enforceable’, inter alia. The Court,

inter alia, held as follows:

“23. Such an interpretation is not permissible having regard to the object and scheme of the Indian Stamp Act, 1899. The Stamp Act is a fiscal measure enacted with an object to secure revenue for the State on certain classes of instruments. It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The stringent provisions of the Act are conceived in the interest of the Revenue. Once that object is secured according to law,

28 (2005) 10 SCC 746 85 the party staking his claim on the instrument will not be defeated on the ground of initial defect in the instrument (Hindustan Steel Ltd. v. Dilip Construction Co. [(1969) 1 SCC 597]). …”

xxx xxx xxx

25. The engrossment of the final decree in a suit for partition would relate back to the date of the decree. The beginning of the period of limitation for executing such a decree cannot be made to depend upon date of the engrossment of such a decree on the stamp paper. The date of furnishing of stamp paper is an uncertain act, within the domain, purview and control of a party. No date or period is fixed for furnishing stamp papers. No rule has been shown to us requiring the Court to call upon or give any time for furnishing of stamp paper. A party by his own act of not furnishing stamp paper cannot stop the running of period of limitation. None can take advantage of his own wrong. The proposition that period of limitation would remain suspended till stamp paper is furnished and decree engrossed thereupon and only thereafter the period of twelve years will begin to run would lead to absurdity.

In Yeswant Deorao Deshmukh v. Walchand Ramchand Kothari [1950 SCC 766 : 1950 SCR 852 : AIR 1951 SC 16] it was said that the payment of court fee on the amount found due was entirely in the power of the decree-holder and there was nothing to prevent him from paying it then and there; it was a decree capable of execution from the very date it was passed.

86

26. Rules of limitation are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. As above noted, there is no statutory provision prescribing a time-limit for furnishing of the stamp paper for engrossing the decree or time-limit for engrossment of the decree on stamp paper and there is no statutory obligation on the court passing the decree to direct the parties to furnish the stamp paper for engrossing the decree. In the present case the Court has not passed an order directing the parties to furnish the stamp papers for the purpose of engrossing the decree. Merely because there is no direction by the Court to furnish the stamp papers for engrossing of the decree or there is no time- limit fixed by law, does not mean that the party can furnish stamp papers at its sweet will and claim that the period of limitation provided under Article 136 of the Act would start only thereafter as and when the decree is engrossed thereupon. The starting of period of limitation for execution of a partition decree cannot be made contingent upon the engrossment of the decree on the stamp paper. …” (Emphasis supplied)

67. However, the said view must be understood in the

context of the Law of Limitation standing in the peril

of being wholly defeated by ‘enforceability’ of a

Decree or Order within the meaning of Article 136,

being made dependant on an act of volition of a party

87 to pay the requisite stamp duty. Here, in the case

before us, we are concerned with the duty of a Court,

inter alia, under Sections 33 and 35 of the Stamp Act

and its impact on an unstamped or insufficiently

stamped agreement containing an Arbitration Clause.

This is apart from the meaning to be attributed to the

words ‘existence of an Arbitration Agreement’ in

Section 11(6A) of the Act. We have explained the

concept of ‘enforceability’ in the context of the

Contract Act. What is closer to the facts is the concept

of enforceability or rather the lack of enforceability

resulting in the voidness of the contract in the sense

explained by us.

K. THE STAMP ACT – WHETHER A PROCEDURAL LAW?

68. In this context, it will be profitable to notice the following discussion from the work Salmond on

Jurisprudence, Twelfth Edition. Dealing with Law of

Procedure, it is stated:

“What, then, is the true nature of the distinction? The law of procedure may be defined as that branch of the law which governs the process of litigation. It is the law of actions- jus quod ad actiones pertinent-using the term action in a wide sense to include all legal proceedings, civil or criminal. All the

88 residue is substantive law, and relates, not to the process of litigation, but to its purposes and subject-matter. Substantive law is concerned with tPhe ends which the administration of justice seeks; procedural law deals with the means and instruments by which those ends are to be attained. The latter regulates the conduct and relations of courts and litigants in respect of the litigation itself; the former determines their conduct and relations in respect of the matters litigated.” (Emphasis supplied)

69. The Stamp Act, while it may be a fiscal measure, it may not fall within the fold of procedural law. The

mere fact that Sections 33 and 35 may apply at a stage,

when the person approaches a Court, inter alia, would

not mean that the Stamp Act, providing for a duty on

the executants to stamp the instrument at the point of

time, as declared in Section 17, and what is more,

penalising a deviation under Section 62, falls within

the domain of procedural law. Pertinently, we may, in

the Fourteenth Edition of The Indian Contract and

Specific Relief Acts by Pollock and Mulla, note as

follows:

“Unenforceable Contracts

Unenforceable contracts are valid in all respects, but may not be sued upon by the parties. Such disability may arise for want of

89 registration; or because the time prescribed for filing the suit has expired; or because the plaintiff firm has not been registered; or the document or instrument does not bear the requisite stamp duty; or because the lender of money does not possess a licence under money- lending laws.” (Emphasis supplied)

70. We would find that an agreement, which is

unenforceable on account of a substantive law, which

would include the Stamp Act, would not be a contract,

applying Section 2(h) of the Contract Act. It is only

if an agreement is enforceable, that it would become a

contract. It is only a ‘contract’, which would be the

‘Arbitration Agreement’, which is contemplated in

Section 11(6A) of the Act. It may not be apposite to

merely describe an unstamped Arbitration Agreement as

a ‘curable defect’. As long it remains an unstamped

instrument, it cannot be taken notice of for any

purpose, as contemplated in Section 35 of the Stamp

Act. It remains unenforceable. Section 17 declares the

time at which an instrument, executed in India, must

be stamped. The said provision contemplates that

stamping of such an instrument must take place before

or at the time of the execution of document. No Public

90 Officer, nor Court nor Arbitrator, can permit any

person to ask them to act upon it or receive it as

evidence. In law, it is bereft of life. It is ‘not

enforceable in law’. In the said sense, it also cannot

exist in law. It would be void. Our view in this regard

that voidness is conflated to unenforceability receives

fortification from Section 2(j) of the Contract Act

which renders a contract which ceases to be enforceable

void.

71. What Section 11(6A) contemplates is a contract and it is not an agreement which cannot be treated as a

contract. This is despite the use of the words

‘arbitration agreement’ in Section 11(6A). In other

words, contract must conform to Section 7 of the Act.

It must also, needless to say, fulfil the requirements

of the Contract Act.

72. A voidable contract within the meaning of Section 19 and 19A, undoubtedly stands in stark contrast to

void contracts. However, even in the categories of void

contracts as for instance, Section 20 of the Contract

Act provides that if on a material point, the parties

were mistaken, the contract would be void. If in a 91 given case where this is the contention raised by a

party in a proceeding under Section 11 when the

agreement otherwise satisfies the requirement of a

contract to make it exist as an Arbitration Agreement,

then, the Court would be justified in treating the

agreement as one which exists and leave it open to the

Arbitrator to go into the question, which can be done

after the pleadings are laid and evidence is unfolded

before him. When an Arbitration Agreement is sought to

be brought under the cloud on the basis that it is a

voidable contract which has been avoided, again it may

be a matter where the principle of Kompetenz-Kompetenz

may be apposite and again the court under Section 11

would be justified in proceeding on the basis that an

arbitration agreement exists. The question must

undoubtedly be approached from the standpoint of

advancing the sublime cause of speedy commencement,

progress and conclusion of arbitration. When Parliament

intervened by amending the Act, while in Section 8, it

has employed the words prima facie, it has used the

word ‘examine’ to ascertain about the existence of an

arbitration agreement in Section 11 (6A). Likewise, in

92 Section 8 the law giver has used the word ‘valid’ which

is missing in Section 11(6A). Can it be said that an

invalid agreement can be said to exist in law for the

purpose of Section 11(6A)?

73. What is an invalid document or agreement? It is an expression which is associated and often conflated with

the word void. We have already noticed Section 20 as

an instance where a common mistake of the parties on a

material subject renders the agreement void. We have

also noticed that in view of the very nature of the

voidness, a court under Section 11, may allow the

application under Section 11 when shelter is taken

under Section 20 of the Contract Act by the respondent.

It would turn upon the facts. Coming to invalidity, a

contract would be invalid as for instance if it is

executed by a person of unsound mind. This would

equally be the case where it is found that one of the

parties was a minor. As far as the word ‘invalid’ is

concerned, it has different shades of meaning. In the

context of a contract, we notice the following

93 statement in a judgment of the High Court of Karnataka

reported in Imambi v. Khaja Hussain alias Khajasab29:

“In the context that the words are used the meaning is to be as laid down in Jones v. Bank of Gumming as follows: -

“The word “invalid” as applied to a contract does not always mean an absolute nullity, for a contract may be so imperfect as not to be enforceable, but not such an absolute nullity that it cannot be perfected.” (Vide Words & Phrases – Permanent Edition – West Publishing Co. Volume 22A)”

74. The aforesaid statement appears apposite in the context of an instrument which is unstamped or

insufficiently stamped. This is for the reason that on

the one hand as long as it is not stamped or is

insufficiently stamped, it is both liable to be

impounded under Section 33 of the Stamp Act and it

cannot be used as evidence or registered. This is apart

from the unambiguous bar against ‘acting upon’ such an

instrument. On the other hand, if after such an

instrument is impounded and duty and penalty is paid

and a certificate is endorsed upon it within the

meaning of Section 42(2) signals that the instrument

29 AIR 1988 Karnataka 51 94 regains life, the bar in Section 35 of the Stamp Act

is removed permanently. Equally, under Section 36 in

the case of an instrument (not secondary evidence of

the instrument) which is allowed to be let in evidence

without objection, then it would qualify as evidence

founding a right. But this is an exception to the rule

which is found in Section 35 of the Stamp Act. Thus,

an unstamped or insufficiently stamped instrument

represents a case of an agreement which not being

enforceable, in the sense that the sanctions in law

through a civil action is impermissible, is in the said

sense, invalid. It is not invalid or void in the sense

of it being still born or null and void in the sense

that life cannot be poured into it. We may sum up. An

agreement which is unstamped or insufficiently stamped

is not enforceable, as long as it remains in the said

condition. Such an instrument would be void as being

not enforceable [See Section 2(g) of the Contract Act].

It would not in the said sense exist in law. It can be

“validated” by only the process contemplated in Section

33 and other provisions of the Stamp Act. We find the

expression ‘validation’ used in the decision of this

95 Court in Hariom Agrawal v. Prakash Chand Malviya30 which

we shall refer to in greater detail later. This

necessarily means that the court would not view it as

enforceable, and therefore, existing in law. In the

sense explained, it would not be found as ‘not void’

and therefore ‘not invalid’. Thus, in the context of

the Act, the Stamp Act and the Contract Act, we are of

the view that the opinion of this Court in SMS Tea

Estates (supra), in this regard as reiterated in

Garware (supra) and approved in Vidya Drolia (supra)

is correct.

75. Section 11(6A) cannot be understood as merely predicating for an Arbitration Agreement existing

literally. This means that the mere existence of the

arbitration agreement for all intents and purposes on

the exterior purporting to project a contract duly

executed, may in certain situations, be insufficient

under Section 11. If for reasons such as it being

unstamped when it is clearly required to be stamped,

then it cannot be said to be a case where the agreement

30 (2007) 8 SCC 514 96 exists for it would be no existence in law. While we

agree, the Court must be careful in selecting contracts

where an arbitration agreement which is produced is not

to be acted upon for the reason that it does not exist

in law, all we hold is that an Arbitration Agreement,

which is unstamped, does not exist and an unstamped

contract, containing an Arbitration Agreement, would

not exist as it has no existence in law.

L. SECTION 7 OF THE ACT – ITS IMPACT

76. Our learned Brother, Justice Hrishikesh Roy, is right in noticing that Section 7 of the Act provides

for what an Arbitration Agreement means for the purpose

of Part I. However, with great respect, we express our

inability to agree that a plain reading of Section 7

of the Act, would make it clear that an Arbitration

Agreement can be even non-contractual. For the purpose

of clarity, we may reproduce Section 7(1) of the Act

at this juncture:

“7(1) Arbitration agreement.(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to

97 arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” (Emphasis supplied)

77. We are inclined to hold that what Section 7(1) contemplates is an Arbitration Agreement. We are also

inclined to think that what the Law-Giver has intended

to convey is that under the Arbitration Agreement, the

parties must submit disputes, which have arisen or

which may arise between them. The disputes may have

arisen or may arise in respect of a defined legal

relationship. The defined legal relationship, in turn,

can be either contractual or otherwise. Therefore, what

can give rise to disputes can be a legal relationship,

which is non-contractual. The legal relationship may

arise from out of a Statute. It may arise in relation

to a tort but an Arbitration Agreement must always mean

an agreement. It is really a contract which is intended

as an agreement enforceable by law is a contract. An

Arbitration Agreement may be a Clause in an agreement

providing for Arbitration. It may be a separate or a

standalone agreement [Section 7(2) of the Act]. An

Arbitration Agreement must be in writing [See Section

98 7(3) of the Act]. As to what all are comprehended within

the requirement that the Arbitration Agreement must be

in writing, is set out in Sections 7(4)(a) to 7(4)(c).

It includes a document which is signed by the parties

[See Section 7(4)(a)]. An Arbitration Agreement would

be treated as contained in writing, if there is an

exchange of letters, telex, telegrams or other means

of telecommunications, including, communications

through electronic means which provide a record of the

agreement [See Section 7(4)(b)]. Next, we may notice

that an Arbitration Agreement will be treated as

contained in writing, if there is an exchange of

statements of claims and defence, in which, the

existence of the agreement is alleged by a party and

not denied by the other [See Section 7(4)(c)]. Finally,

Section 7(5) contemplates an Arbitration Agreement by

incorporation, viz., a reference in a contract to a

document containing an Arbitration Clause, would

constitute an Arbitration Agreement, if the contract

is in writing and the reference is such as to make that

Arbitration Clause part of the contract. The true scope

of Section 7(5) of the Act has been elaborately

99 considered in M.R. Engineers & Contractors Private

Limited v. Som Datt Builders Limited31.

78. Section 3(a) of the Stamp Act, no doubt,

contemplates that every instrument mentioned in the

Schedule, which, not having been previously executed

by any person, is executed in India on or after the

first day of July, 1899, is chargeable with duty.

Clause (c) of Section 3 also contemplates ‘execution’

of a document out of India, being chargeable with duty.

Section 17 of the Stamp Act also contemplates that in

respect of documents executed in India, they shall be

stamped before or at the time of execution. Justice

Hrishikesh Roy would reason that an Arbitration

Agreement, as defined in Section 7 of the Act, need not

be an instrument chargeable to stamp duty as stamp duty

is payable under the Stamp Act only on instruments,

which are executed. The word ‘executed’ has been

defined in the Stamp Act as meaning ‘signed’.

79. Section 7(3)(b) of the Act contemplates that an exchange of letters, telex, telegrams or other means

31 (2009) 7 SCC 696 100 of telecommunication, including communication through

electronic means, which provide a record of the

agreement, would constitute an Arbitration Agreement

in writing within the meaning of Section 7(3) of the

Act. We may notice that the proviso (c) to Section 35

of the Stamp Act reads as follows:

“(c) Where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;”

80. Thus, the Stamp Act does contemplate a contract or agreement being formed through correspondence through

two or more letters. It then suffices that any one of

the letters bears the proper stamp. Even proceeding on

the basis that an Arbitration Agreement is contained

in letters and it is signed and, therefore, executed

within the meaning of the Stamp Act, then, it would

fall within the four corners of Sections 33 and 35 of

the Stamp Act.

81. We do notice that a Bench of two learned Judges have, in the Judgment reported in Govind Rubber Limited

101 v. Louids Dreyfus Commodities Asia Private Limited32,

had this to say about the need for an Arbitration

Agreement being signed:

“15. A perusal of the aforesaid provisions would show that in order to constitute an arbitration agreement, it need not be signed by all the parties. Section 7(3) of the Act provides that the arbitration agreement shall be in writing, which is a mandatory requirement. Section 7(4) states that the arbitration agreement shall be in writing, if it is a document signed by all the parties. But a perusal of clauses (b) and (c) of Section 7(4) would show that a written document which may not be signed by the parties even then it can be arbitration agreement. Section 7(4)(b) provides that an arbitration agreement can be culled out from an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement.

16. On reading the provisions it can safely be concluded that an arbitration agreement even though in writing need not be signed by the parties if the record of agreement is provided by exchange of letters, telex, telegrams or other means of telecommunication. Section 7(4)(c) provides that there can be an arbitration agreement in the exchange of statements of claims and defence in which the existence of the agreement is alleged by one party and not denied by the other. If it can be prima facie shown that the parties are at ad idem, then the mere fact of one party 32 (2015) 13 SCC 477 102 not signing the agreement cannot absolve him from the liability under the agreement.

In the present day of e-commerce, in cases of internet purchases, tele purchases, ticket booking on internet and in standard forms of contract, terms and conditions are agreed upon. In such agreements, if the identity of the parties is established, and there is a record of agreement it becomes an arbitration agreement if there is an arbitration clause showing ad idem between the parties. Therefore, signature is not a formal requirement under Section 7(4)(b) or 7(4)(c) or under Section 7(5) of the Act.”

82. When it comes to Section 7(4)(c), what is

constituted as an Arbitration Agreement as being in

writing is an exchange of Statement of Claims and

Defence, wherein the existence of an agreement is

alleged by one party and not denied by another. There

must however be ‘an agreement’, the allegation of the

existence of which remains unrefuted. Since, Section

7(1) defines an arbitration agreement to be one, under

which, parties submit ‘all’ or ‘certain disputes’,

which have arisen or will arise, such an agreement must

be alleged to exist and the allegation must remain

undenied. The formation of such an agreement must

necessarily be tested with reference to the

103 indispensable requirements, such as, competency to

contract and presence of sound mind.

83. All that we are holding is, an Arbitration

Agreement must satisfy the requirements in Section 7(1)

and, therefore, it must be an agreement. Sans an

agreement, there cannot be a reference to arbitration.

While Justice Hrishikesh Roy is right in holding that

Section 10 of the Contract Act recognises oral

agreements and that a written agreement is a sine qua

non for a valid Arbitration Agreement, Section 10 of

the Contract Act, it must be noticed, in the second

part, provides that nothing contained in the first

part, would affect any law, which, inter alia, requires

that any contract is required to be made in writing.

Section 7(3) of the Act which insists that an

arbitration agreement must be in writing harmonises

with Section 10 of the Contract Act.

84. We would think that whenever an Arbitration

Agreement, as defined in Section 7 of the Act, also

attracts stamp duty under the Stamp Act, then, the

provisions of Sections 33 and 35 of the Stamp Act would

come into play. As held in SMS Tea Estates Private 104 Limited (supra), if an Arbitration Clause constitutes

the Arbitration Agreement and the instrument, viz., the

instrument or contract, in which the Arbitration Clause

is contained, is unstamped, when it is otherwise

exigible to stamp duty, then, the provisions of Section

33 as also Section 35 of the Stamp Act would operate.

The court acting under Section (11) of the Act is not

free to disregard their mandate.

85. An Arbitration Agreement, may be a Clause in an instrument, which attracts stamp duty. In such a case,

the Court, acting under Section 11, is bound to act

under Sections 33 and 35 of the Stamp Act, if the

instrument is not stamped or insufficiently stamped.

If an Arbitration Agreement is a standalone agreement

and which attracts duty under the Stamp Act, then also,

the same position obtains.

M. THE ALTERNATIVE PERSPECTIVE

86. In Garware (supra), the Court referred to

paragraph-59 of Duro Felguera (supra) to find that, the

Court in the said case, proceeded on the basis that the

mischief that was sought to be remedied by the

105 insertion of Section 11(6A), was as contained in SBP

(supra) and National Insurance (supra). We must,

however, notice that in paragraph-18 of Garware

(supra), the Court referred to paragraph-12 of SBP

(supra), which we have already noticed and, thereafter,

the Court went on to hold, inter alia, as follows:

“19. It will be seen that neither in the Statement of Objects and Reasons nor in the Law Commission Report is there any mention of SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] . This is for the very good reason that the Supreme Court or the High Court, while deciding a Section 11 application, does not, in any manner, decide any preliminary question that arises between the parties. The Supreme Court or the High Court is only giving effect to the provisions of a mandatory enactment which, no doubt, is to protect revenue. SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] has taken account of the mandatory provisions contained in the Stamp Act and held them applicable to judicial authorities, which would include the Supreme Court and the High Court acting under Section 11. A close look at Section 11(6-A) would show that when the Supreme Court or the High Court considers an application under Sections 11(4) to 11(6), and comes across an arbitration clause in an agreement or conveyance which is unstamped, it is enjoined by the provisions of the Stamp Act to first impound the agreement or conveyance and see that stamp duty and penalty (if any) is paid before the agreement, as a whole, can be acted upon. It is important to remember that 106 the Stamp Act applies to the agreement or conveyance as a whole. Therefore, it is not possible to bifurcate the arbitration clause contained in such agreement or conveyance so as to give it an independent existence, as has been contended for by the respondent. The independent existence that could be given for certain limited purposes, on a harmonious reading of the Registration Act, 1908 and the 1996 Act has been referred to by Raveendran, J. in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] when it comes to an unregistered agreement or conveyance.

However, the Stamp Act, containing no such provision as is contained in Section 49 of the Registration Act, 1908, has been held by the said judgment to apply to the agreement or conveyance as a whole, which would include the arbitration clause contained therein. It is clear, therefore, that the introduction of Section 11(6-A) does not, in any manner, deal with or get over the basis of the judgment in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] , which continues to apply even after the amendment of Section 11(6-A).” (Emphasis supplied)

87. This is apart from, the Court after referring to Sections 2(g) and 2(h) of the Contract Act, going on

to make the observations at paragraph-22 and, finally,

paragraph-29 which we have noticed. In fact, in

paragraph-30, the Court went on to disapprove various

Judgments of High Courts, which included the Full Bench

of the High Court of Bombay in Gautam Landscapes Pvt.

107 Limited v. Shailesh S. Shah33, insofar as it related to

the High Court holding that after the insertion of

Section 11(6A) of the Act, the Court, acting under

Section 11(6), need not be detained by the aspect

relating to the document not being stamped.

88. Section 11(6A) of the Act, no doubt, contemplated constraining the court to not stray into areas which

were permissible under the earlier regime which was set

out in SBP (supra) as explained in National Insurance

(supra). It must be understood that when the law giver

changes the law it would be indeed a wise approach and

fully commended in law to ascertain the mischief which

the legislature was dealing with. Equally, the court

would naturally enquire as to what is the relief

against the mischief which the law giver has provided.

The mischief as we understand was the perception that

courts were overstepping the limits of minimal

interference in consonance with the principle enshrined

in Section 5 of the Act. In other words, if we may bear

in mind paragraphs 22.2 and 22.3 of National Insurance

33 (2019) SCC OnLine Bom 563 108 Company (supra) it would appear that they fell outside

of the question relating to the existence of an

arbitration agreement. The Stamp Act is a law passed

by the same law-giver. It is a law which is meant to

have life, and therefore, to be enforced. The

legislature would not have possibly contemplated, when

it incorporated Section 11(6A), that the courts must

turn a blind eye to the injunction of a law and allow

it to be defeated. This to our minds involves adopting

an interpretation which would ignore the principle of

harmonious construction of statutes.

89. As far as the conclusion in paragraph 55 of Great Offshore Ltd. (supra) that since Section 7 of the Act

does not stipulate for stamping, stamping may not be

required under the Stamp Act, does not commend itself

to us as the correct position in law. We are equally

unable to subscribe to the view that stamp duty, inter

alia, should be treated as a ‘technicality’. We are

also of the view that the view taken by the learned

Single Judge otherwise in the said paragraph again does

not represent the correct position.

109

90. Section 5 no doubt provides for a non-obstante clause. It provides against judicial interference

except as provided in the Act. The non-obstante clause

purports to proclaim so despite the presence of any law

which may provide for interference otherwise. However,

this does not mean that the operation of the Stamp Act,

in particular, Sections 33 and 35 would not have any

play. We are of the clear view that the purport of

Section 5 is not to take away the effect of Sections

33 and 35 of the Stamp Act. The Court under Section 11

purporting to give effect to Sections 33 and 35 cannot

be accused of judicial interference contrary to Section

5 of the Act.

91. It is nobody’s case that if the contract which contains the arbitration clause is an instrument within

the meaning of the Stamp Act is produced before the

court under Section 11 of the Act, and it is found to

be unstamped on the face of it, that Sections 33 and

35 and other allied provisions of the Stamp Act would

have no play. In fact, in N.N. Global (supra), this

Court directed the work order (the contract containing

the arbitration clause) to be impounded. Section 11 110 (6A) of the Act which requires the court to examine

whether an arbitration agreement exists, was the need

realized and articulated by Parliament to curb the

court from straying into other areas highlighted in

National Insurance (supra). In other words, proceeding

on the basis that an ‘unstamped agreement’ exists, it

would not deflect the court of its statutory duty to

follow the regime under Sections 33 and 35 of the Stamp

Act.

N. THE AMICUS CURIE SPRINGS A SURPRISE

92. This Court pointed out to the existence of the Scheme prepared by the Supreme Court in exercise of the

powers under Section 11(10). Paragraph 2(a) of the

Scheme, inter alia, reads as follows:

“2. Submission of request. -The request to the Chief Justice under sub-section (4) or sub- section (5) or sub-section (6) of section 11 shall be made in writing and shall be accompanied by-

(a) the original arbitration agreement or a duly certified copy thereof;”

93. Thereafter, when the curtains were about to be rung down on the hearing, the learned Amicus brought the

following aspect to notice of the Court. He pointed out 111 that under the Scheme, the applicant need produce only

the certified copy of the Arbitration Agreement. He

would draw support from the Judgments of this Court in

Jupudi Kesava Rao v. Pulavarthi Venkata Subbarao and

others34 and Hariom Agrawal (supra) to contend that even

applying Sections 33 and 35 by the Court at the stage

of Section 11 of the Act, the certified copy cannot be

impounded. He, thus, sought to take the wind out of the

sail of the appellant’s contention, by contending that

in most of the cases, since certified copies are alone

being filed and they cannot be impounded, and as after

reference to the Arbitrator based on the certified

copy, the Arbitrator is competent, in law, under

Sections 33 and 35 of the Stamp Act to do the needful,

this Court may bear this aspect in mind. Thereupon,

Shri Gagan Sanghi, would point out that even in the

certified copy, the factum of payment of the stamp duty

must be entered. The said aspect, in fact, engaged the

attention of this Court in SMS Tea Estates (supra). 34

(1971) 1 SCC 545 112

94. Reference has been made to Jupudi Kesava Rao (supra), to contend that a copy of an instrument,

cannot be treated as an instrument under the Stamp Act

for the purpose of Sections 33 and 35 of the Stamp Act.

A copy cannot be impounded under Section 33, it is

pointed out. Therefore, Section 33, which mandates

impounding of an unstamped instrument, would not apply

to a certified copy, which is permitted to be produced

under the Scheme. Reliance has been placed on

paragraphs-13 and 14 of Jupudi Kesava Rao (supra):

“13. The first limb of Section 35 clearly shuts out from evidence any instrument chargeable with duty unless it is duly stamped. The second limb of it which relates to acting upon the instrument will obviously shut out any secondary evidence of such instrument, for allowing such evidence to be let in when the original admittedly chargeable with duty was not stamped or insufficiently stamped, would be tantamount to the document being acted upon by the person having by law or authority to receive evidence. Proviso (a) is only applicable when the original instrument is actually before the Court of law and the deficiency in stamp with penalty is paid by the party seeking to rely upon the document.

Clearly secondary evidence either by way of oral evidence of the contents of the unstamped document or the copy of it covered by Section 63 of the Indian Evidence Act would not fulfil the requirements of the proviso which enjoins upon the authority to receive nothing in evidence except the instrument itself. Section 113 25 is not concerned with any copy of an instrument and a party can only be allowed to rely on a document which is an instrument for the purpose of Section 35. “Instrument” is defined in Section 2(14) as including every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded.

There is no scope for inclusion of a copy of a document as an instrument for the purpose of the Stamp Act.

14. If Section 35 only deals with original instruments and not copies Section 36 cannot be so interpreted as to allow secondary evidence of an instrument to have its benefit. The words “an instrument” in Section 36 must have the same meaning as that in Section 35.

The legislature only relented from the strict provisions of Section 35 in cases where the original instrument was admitted in evidence without objection at the initial stage of a suit or proceeding. In other words, although the objection is based on the insufficiency of the stamp affixed to the document, a party who has a right to object to the reception of it must do so when the document is first tendered. Once the time for raising objection to the admission of the documentary evidence is passed, no objection based on the same ground can be raised at a later stage. But this in no way extends the applicability of Section 36 to secondary evidence adduced or sought to be adduced in proof of the contents of a document which is unstamped or insufficiently stamped.”

(Emphasis supplied)

95. In Jupudi Kesava Rao (supra), the appellant relied on oral evidence to prove the lease document which was

insufficiently stamped. The High Court held that oral

114 evidence could not be acted upon to prove the lease

agreement. The main question, which arose was, whether

secondary evidence of a written agreement to grant a

lease, was barred under Sections 35 and 36 of the Stamp

Act. The Court went on to find, on a survey of the

Evidence Act that it did not purport to deal with

admissibility of documents in evidence, which were

required to be stamped under the Stamp Act. It is

thereafter that the Court went on to hold what was done

in paragraphs-13 and 14 of the Judgment. While dealing

with Section 35 of the Act, the Court, inter alia, held

that ‘the second limb of Section 35 of the Stamp Act,

which related to acting upon the instrument, would

obviously shut out any secondary evidence of such

instrument, for allowing such evidence to be let in,

when the original, admittedly chargeable with duty, was

not stamped or insufficiently stamped, would tantamount

to the document being acted upon by the person having

by law or Authority, to receive evidence. Proviso (a)

is only applicable, it was found when the original

instrument is actually before the Court of Law and the

deficiency in stamp with penalty is paid by the party

115 seeking to rely upon the document. It is, thereafter,

the Court observed that ‘there is no scope for

inclusion of a copy of a document as an instrument for

the purpose of the Stamp Act’. The Court also, in

paragraph-14, found that Section 36 of the Stamp Act,

which precludes a party, who did not object to the

admission of an unstamped or insufficiently stamped

document, in evidence, from raising the objection

later, did not apply to secondary evidence.

96. In Hariom Agrawal (supra), a Bench of three learned Judges, was dealing with the impugned Order of the High

Court, by which, it held that a photocopy of the

original agreement, could neither be impounded nor

could it be accepted as secondary evidence. It was

after following Jupudi Kesava Rao (supra), the Court

held as follows:

“10. It is clear from the decisions of this Court and a plain reading of Sections 33, 35 and 2(14) of the Act that an instrument which is not duly stamped can be impounded and when the required fee and penalty has been paid for such instrument it can be taken in evidence under Section 35 of the Stamp Act. Sections 33 or 35 are not concerned with any copy of the instrument and party can only be allowed to rely on the document which is an instrument within the meaning of Section 2(14). There is

116 no scope for the inclusion of the copy of the document for the purposes of the Stamp Act. Law is now no doubt well settled that copy of the instrument cannot be validated by impounding and this cannot be admitted as secondary evidence under the Stamp Act, 1899.”

(Emphasis supplied)

97. The submission appears to be that the Scheme provides for a certified copy of the Arbitration

Agreement and if the Arbitration Agreement is a part

of the contract, which is either not stamped or

insufficiently stamped and, since, it cannot be

impounded under Section 33 of the Stamp Act, cannot be

validated. All that the Court has to look into is,

whether an Arbitration Agreement exists.

98. It is, no doubt, true that under the Scheme, an applicant can produce, either the Original or the

certified copy. What is a certified copy? A certified

copy is to be understood in the light of Section 76 of

the Indian Evidence Act, 1872 (hereinafter referred to

as, ‘the Evidence Act’, for short). It reads as

follows:

“76. Certified copies of public documents.— Every public officer having the custody of a public document, which any person has a right to inspect, shall give that person on demand a

117 copy of it on payment of the legal fees therefor, together with a certificate written at the foot of such copy that it is a true copy of such document or part thereof, as the case may be, and such certificate shall be dated and subscribed by such officer with his name and his official title, and shall be sealed, whenever such officer is authorized by law to make use of a seal; and such copies so certified shall be called certified copies.— Every 3public officer having the custody of a public document, which any person has a right to inspect, shall give that person on demand a copy of it on payment of the legal fees therefor, together with a certificate written at the foot of such copy that it is a true copy of such document or part thereof, as the case may be, and such certificate shall be dated and subscribed by such officer with his name and his official title, and shall be sealed, whenever such officer is authorized by law to make use of a seal; and such copies so certified shall be called certified copies." Explanation. —Any officer who, by the ordinary course of official duty, is authorized to deliver such copies, shall be deemed to have the custody of such documents within the meaning of this section.”

99. This necessarily would take us to Section 74 of the Evidence Act, which defines what is a ‘public

document’. Section 74 reads as follows:

“74. Public documents. —The following documents are public documents: — (1) Documents forming the acts, or records of the acts—

(i) of the sovereign authority,

(ii) of official bodies and tribunals, and 118

(iii) of public officers, legislative, judicial and executive, of any part of India or of the Commonwealth, or of a foreign country; of any part of India or of the Commonwealth, or of a foreign country;

(2) Public records kept in any State of private documents.”

100. We have already noticed that Section 35 of the

Stamp Act interdicts the registration of an instrument

unless it is duly stamped.

101. The interplay of the Evidence Act, the Stamp

Act and the Registration Act is to be understood as

follows:

In regard to an instrument, which is executed in

India and which is liable to be stamped, then, stamping

has to take place before or at the time of the execution

of the instrument. It is after the instrument is

stamped that it can be presented for registration.

Section 17 of the Registration Act provides for

documents, which are compulsorily registrable. Section

18 permits registration of other documents at the

option of the persons concerned. An instrument, which

is registered, necessarily involves, it being duly

stamped before it is so registered. This result is 119 inevitable, having regard to the impact of Section 35

of the Stamp Act. In fact, an instrument, which is not

duly stamped and which is produced before the

Registering Authority, would be liable to be impounded

under Section 33 of the Stamp Act. What Section 74 read

with Section 76 of the Evidence Act provides for is,

the issuance of certified copies. Certified copies can

be issued only in respect of public documents. Section

62 inter alia of the Evidence Act defines primary

evidence as the document itself produced for the

inspection of the court. Section 63 of the Evidence Act

defines ‘secondary evidence’ as meaning and including,

inter alia, ‘certified copies under the provisions

hereinafter contained’. The provisions ‘hereinafter

contained’ referred to in Section 63 must be understood

as Section 74 read with Section 76. A certified copy

can be given, no doubt, of ‘public records kept in any

State of private documents’. Thus, if a sale deed

between two private parties comes to be registered,

instead of producing the original document, a certified

copy of the sale deed, may qualify as secondary

evidence and a certified copy can be sought for and

120 issued under Section 76 of the Evidence Act. The

expression ‘public records kept in any State of a

private document’ in Section 74 is not confined to

documents, which are registered under the Registration

Act. A private document, which is kept as a public

record, may qualify as a public document. What is

important is, to bear in mind that in view of Section

33 of the Stamp Act, an instrument, which is not duly

stamped, if it is produced before any Public Office,

it would become liable to be impounded and dealt with

as provided in the Stamp Act. Let us assume a case

where a contract, which contains an Arbitration Clause,

is registered. As we have noticed, if the contract, in

which the Arbitration Clause is contained, is exigible

to stamp duty, then, registration cannot be done

without the instrument being duly stamped. It is

keeping the same in mind that in SMS Tea Estates

(supra), this Court held that, ‘if what is produced is

a certified copy of the agreement/contract/instrument,

containing the Arbitration Clause, it should disclose

that the stamp duty has been paid on the original’.

This again is for the reason that a certified copy is

121 a true copy of the document. The Officer, who certifies

the document, must be the person having the custody of

the public document. The public document in the case

of public records of private documents, in the case of

a registered document, would necessarily involve the

document being stamped before registration. The Scheme

framed by the Chief Justice, permits the production of

a duly certified copy to relieve the party of the burden

of producing the original but what is contemplated is

only the production of the certified copy, which duly

discloses the fact of payment of stamp duty. It is

worthwhile to also notice paragraph-5 of the Scheme.

It reads:

“5. Seeking further information. -The Chief Justice or the person or the institution designated by him under paragraph 3 may seek further information or clarification from the party making the request under this Scheme.”

102. Therefore, it is not as if the Judge dealing

with an Application under Section 11 of the Act, is

bereft of authority to seek information or

clarification so as to be satisfied that the certified

122 copy satisfies the requirement as laid down in SMS Tea

Estates (supra) that stamp duty payable has been paid.

103. We have already indicated the scheme of the

Evidence Act in so far as it relates to the admission

of secondary evidence. We have also found that the

Scheme contemplates, without anything more, the

production of a form of secondary evidence, viz., a

certified copy of the Arbitration Agreement. Even if

an Arbitration Agreement between the two parties

becomes a public document under Section 74(c) of the

Evidence Act on the basis that it is a public record,

other than as being a registered document and on the

basis that, it was produced before any public office

and it became a public record of a private document,

in keeping with the mandate of Section 33 of the Stamp

Act and other connected provisions, such a document

again would have been impounded, unless it was

originally stamped as per law. In other words, if a

certified copy is produced, along with a request under

Section 11 of the Act, to be treated as a document, on

which the Application under Section 11 could be

maintained, it must necessarily comply with the

123 requirement that it declares the stamp, which has been

paid in regard to the original.

104. The production of a copy of an instrument, may

not lead to the impounding of the copy as Section 33,

which mandates impounding, applies only in regard to

the original, which alone is treated as an instrument

under Section 2(14) of the Stamp Act. We must

understand the context of the ruling in Jupudi Kesava

Rao (supra) and Hariom Agrawal (supra) to be that a

party cannot ‘validate’ an instrument by producing a

copy and by getting it impounded and paying the duty

and penalty. In fact, as observed in paragraph-13 of

Jupudi Kesava Rao (supra), the Court cannot be invited

to act upon a copy of an instrument, which is

insufficiently stamped. Thus, such a copy, while it

cannot be impounded under Section 33, it cannot also

be acted upon under Section 35.

O. SECTIONS 33 AND 35 OF THE STAMP ACT; THE COURT OR THE ARBITRATOR TO ACT?

105. There was considerable debate at the Bar as

regards the wisdom in relegating the issue relating to

payment of stamp duty to the Arbitrator. On the one 124 hand, the learned Amicus, supported by learned Counsel

for the Respondent, would canvass that, bearing in mind

the object of the Act, and in particular, Section 5 of

the Act, prohibiting judicial interference, except as

provided, questions relating to non-payment of stamp

duty and the amount to be paid, are capable of being

dealt with by the Arbitrator. The concern of the Court,

that the interest of the Revenue is protected, is best

balanced with the overwhelming need to fastrack the

arbitration proceedings and they are best harmonised

by ensuring that the Arbitrator will look into the

matter and ensure that the interest of the Revenue is

not jeopardised. On the other hand, the appellant and

the intervener would point out that the Court cannot

ignore the mandate of the law contained in Sections 33

and 35 of the Stamp Act and a view taken by this Court,

on the said lines, will only encourage evasion of the

law, whereas, if the Court follows the mandate of

Sections 33 and 35 of the Stamp Act and adheres to what

has been laid down in Garware (supra), not only would

the law be observed, but, when the matter reaches the

Arbitrator, the issue would have been given the

125 quietus. Such a view would also encourage persons

falling in line with the Stamp Act.

106. We see merit in the contention of the

appellant. Apart from the Court acting in consonance

with the law, when it adheres to Sections 33 and 35 of

the Stamp Act, where it applies, in our view, under the

watchful gaze of the Court, be it the High Court or the

Supreme Court, the issue relating to stamp duty, in a

case where there is no stamp duty paid, is best

resolved.

107. The question would arise as follows:

i. A document containing the Arbitration Clause may

not bear any stamp duty. We have already found that

even an Arbitration Agreement, on its own, may be

required to be stamped, as submitted by the learned

Amicus. But then the Court can proceed on the basis

that the amount of stamp duty, which the

Arbitration Agreement contained in an Arbitration

Clause, would be exigible to being extremely

meagre, there is very little likelihood of such an

agreement not being stamped. Therefore, what the

Court is to consider is, whether when the contract, 126 in which the Arbitration Clause is contained, is

not duly stamped, it becomes the duty of the Court

to act under Sections 33 and 35 of the Stamp Act.

ii. We have already indicated the background,

consisting of the views expressed by this Court,

about the nature of review undertaken under Section

11, which led to the insertion of Section 11(6A).

Parliament clearly intended to deal with the Court

undertaking excessive review, in exercise of the

power under Section 11(6) of the Act. It was to

curtail excessive judicial interference, which was

in keeping also with the principle enshrined in

Section 5 of the Act that Parliament interfered

and enacted the amendment resulting in Section

11(6A) being inserted. Parliament was aware of the

view taken by this Court in SMS Tea Estates

(supra), namely that, if the Arbitration Agreement

was not duly stamped, then, it had to be impounded

and dealt with as provided therein. The mandate of

the Stamp Act did not conflict with the legislative

command contained in Section 11(6A), viz., to

examine whether an Arbitration Agreement existed.

127 Proceeding on the basis, in fact, that a contract,

containing the Arbitration Agreement, which is not

duly stamped, could be said to exist in law, it

would still not dislodge the duty cast on the Court

under Section 11 to follow the mandate of Sections

33 and 35 of the Stamp Act. In other words, on the

aforesaid view, following the command under

Section 11(6A), could not detract from, the Court

also at the same time, following the equally

binding mandate contained in the Stamp Act.

iii. The question further arises, as to whether, in view

of the power of the Court under Section 11, to find

only prima facie, the existence of the Arbitration

Agreement, it would enable the Court to make a

Reference and appointment and relegate the issue

of impounding of the document to the Arbitrator.

iv. Any shirking of the statutory duty by the Court

under Section 11 to act in tune with the peremptory

statutory dictate of the Stamp Act, appears to us

unjustifiable. Such abdication of its plain duty

is neither contemplated by the Law-Giver nor would

128 it be justifiable as causing the breach of Section

11(6A).

v. The view that cases under Section 11 of the Act

would consume more time and hinder the timely

progress of arbitration and that the matter must

be postponed so that the Arbitrator will more

suitably deal with it, does not appeal to us. While

the Stamp Act is primarily intended to collect

revenue and it is not intended to arm a litigant

to raise ‘technical pleas’, this would hardly

furnish justification for the Court to ignore the

voice of the Legislature couched in unambiguous

terms. We find that the view expressed in SMS Tea

Estates (supra), being reiterated, despite the

insertion of Section 11(6A), would promote the

object of the Stamp Act and yet be reconcilable

with the mandate of Section 11(6A). We may,

however, qualify what we have said with a caveat.

There may be cases, where no stamp duty is seen

paid. It paves the way for the unambiguous

discharge of duty under Sections 33 and 35 of the

Stamp Act. There may, however, be cases, where it

129 may be stamped but the objection is taken by the

party that it is not duly stamped. In such cases,

no doubt, it is ordinarily the duty of the Court

to examine the matter with reference to the duty

under Section 33(2). If the claim that it is

insufficiently stamped, appears to the Court to be

on the face of it, wholly without foundation, it

may make the Reference on the basis of the

existence of an Arbitration Agreement otherwise

and then leave it open to the Arbitrator to

exercise the power under Section 33, should it

become necessary. This approach does justice to

the word ‘examine’ in Section 33(2) of the Stamp

Act while not ignoring the command of Section

11(6A) of the Act. It is not to be confused with

the duty to examine prima facie whether an

‘Arbitration Agreement’ exists under Section

11(6A) of the Act, but is related to the duty to

examine the matter under Section 33(2) of the Stamp

Act.

vi. Under the Evidence Act, production of only the

original document is permissible by way of evidence

130 (See Section 62). However, secondary evidence is

permissible under Section 63 and certified copies

are treated as secondary evidence. Under the

Scheme, in a proceeding under Section 11, without

following the procedure in the Evidence Act,

secondary evidence, in the form of certified copy,

is permitted. It may be true that since certified

copies are permitted to maintain an Application

under Section 11 and, in law, impounding cannot be

done of a certified copy, as it is not an

instrument, the duty of the Court to examine the

matter from the point of view of Section 33 of the

Stamp Act, may not exist as such. However, we have

explained what constitutes a certified copy, and

that, in view of SMS Tea Estates (supra), the stamp

duty paid must be indicated in the certified copy

and, in appropriate case, the Court has power,

under paragraph-5 of the Scheme, to call for

information. It becomes the duty of the Court, in

cases, where a certified copy is produced, to be

satisfied that the production of the certified

copy, fulfils the requirement in law. As already

131 noticed, while the certified copy which does not

show that the stamp duty is paid cannot be

impounded under Section 33, it cannot be acted upon

under Section 35 of the Stamp Act.

P. ARBITRATION AGREEMENT, A DISTINCT AGREEMENT AND ITS IMPACT?

i. The last question, which remains is, whether, if

the contract, in which, the Arbitration Clause is

located, is unstamped but the Arbitration Clause

is stamped, the Court can ignore the fact that the

instrument containing in the Contract is

unstamped. In the first place, such an eventuality

cannot arise. This for the reason that unless there

is misrepresentation or a fraud played, it is

incomprehensible as to how, when the contract is

produced, it will not be dealt with under Section

33 of the Stamp Act among other provisions.

ii. The learned Amicus, in fact, points out that

invariably the Arbitration Agreement is contained

as a clause in a larger agreement. The contract

would consist of the document containing the

Arbitration Agreement. This brings us to the

132 question as to whether the Arbitration Agreement

can be treated as a separate contract, and even if

the main contract is not stamped, it suffices if

the Arbitration Agreement alone is stamped.

iii. In N.N. Global (supra), in fact, the Court

proceeded to impound the main contract which was

the Work Order. The Doctrine of the Arbitration

Agreement being a distinct and a separate

agreement, is well-established.

The Doctrine of Kompetenz-Kompetenz has been

enshrined in Section 16 of the Act. Section 16,

undoubtedly, articulates the principle that the

Arbitral Tribunal may rule on its jurisdiction

including objections relating to the validity of

the Arbitration Agreement and its very existence

and, for that purpose, an Arbitration Clause

forming part of the contract, is to be treated as

an agreement independent from the other terms of

the contract. Equally, Section 16(1)(b) declares

that despite the Tribunal finding that the contract

was null and void, it would not invalidate the

Arbitration Clause. The evolution of the principle

133 that an Arbitration Agreement is a separate and

distinct agreement from the contract, would

indicate that it would have no play in the context

of the duty of a Court, within the meaning of

Sections 33 and 35 of the Stamp Act, to act in

consonance therewith. The efficacy of the

Arbitration Clause in a contract is preserved so

that the extinguishing of the contractual

obligations by termination or non-performance or

alleged performance, does not deprive the parties

of their rights and the power of the Arbitrator to

adjudicate on disputes, which, otherwise fall

within the ambit of the Arbitration Clause.

The underlying principle behind treating the

Arbitration Agreement as a separate agreement is

to create a mechanism, which survives the contract

so that disputes, falling within the Arbitration

Agreement, are resolved. Thus, the rescission of

the main contract would not result in the death of

the Arbitration Clause. We agree that the

Arbitration Clause may be a collateral term [See

134 Heyman v. Darwins Limited35]. The Arbitration

Agreement, it is found in N.N. Global (supra),

‘exists and can be acted upon, irrespective of

whether the main substantive contract is valid or

not’ [See paragraph-4.10 of N.N. Global (supra)]. It may be true that, ordinarily, the invalidity of

the main agreement may not affect the Arbitration

Clause [See paragraph-4.12 of N.N. Global

(supra)]. However, proceeding on the basis that an

Arbitration Agreement contained as a clause in the

main contract, is a separate agreement and it can

exist independently, the fallacy behind such a line

of argument in the context of Sections 33 and 35

of the Stamp Act, can be demonstrated as follows:

The learned Amicus would urge that in N.N.

Global (supra) the Court erred in finding that the

Arbitration Agreement is not required to be

stamped. If so, the Arbitration Clause, being the

Arbitration Agreement, would require to be

stamped. Is it conceivable that a contract,

35 (1942) AC 356 HL 135 containing an Arbitration Clause, would be stamped

only to cover the liability in regard to the

Arbitration Agreement and leave the main agreement

unstamped, when it is required to be stamped? Will

not acceptance of such a view require the Court to

adopt an interpretation that will plainly

encourage parties to contravene the mandate of the

Stamp Act. We are afraid that, therefore, even

proceeding on the basis that an Arbitration

Agreement is a separate agreement, would be of no

avail in a case where the Arbitration Clause and

the main Agreement are both exigible to stamp duty.

108. As found in SMS Tea Estates (supra), in view

of the fact that there is a bar to the use of an

instrument, which is not stamped or insufficiently

stamped for any purpose (unlike Section 49 of the

Registration Act, which allows an unregistered document

to be used to prove a collateral transaction), an

unstamped instrument, in which, an Arbitration Clause

is part of, cannot be allowed to be used, as it would

be allowing the instrument to be used to establish a

collateral transaction. This is proceeding on the basis 136 that an Arbitration Agreement is a collateral term and

may have a distinct existence, separate from the main

agreement.

Q. CONCLUSIONS

109. The view taken in SMS Tea Estates (supra) as

followed in Garware (supra) and by the Bench in

Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar

Chattram and other Charities v. Bhaskar Raju and

Brothers and others36 as to the effect of an unstamped

contract containing an Arbitration Agreement and the

steps to be taken by the Court, represent the correct

position in law as explained by us hereinbefore. N.N.

Global (supra) was wrongly decided, when it held to the

contrary and overruled SMS Tea Estates (supra) and

Garware (supra).

110. An instrument, which is exigible to stamp

duty, may contain an Arbitration Clause and which is

not stamped, cannot be said to be a contract, which is

enforceable in law within the meaning of Section 2(h) 36 (2020) 4 SCC 612 137 of the Contract Act and is not enforceable under

Section 2(g) of the Contract Act. An unstamped

instrument, when it is required to be stamped, being

not a contract and not enforceable in law, cannot,

therefore, exist in law. Therefore, we approve of

paragraphs-22 and 29 of Garware (supra). To this

extent, we also approve of Vidya Drolia (supra),

insofar as the reasoning in paragraphs-22 and 29 of

Garware (supra) is approved.

111. The true intention behind the insertion of

Section 11(6A) in the Act was to confine the Court,

acting under Section 11, to examine and ascertain about

the existence of an Arbitration Agreement.

112. The Scheme permits the Court, under Section 11

of the Act, acting on the basis of the original

agreement or on a certified copy. The certified copy

must, however, clearly indicate the stamp duty paid as

held in SMS Tea Estates (supra). If it does not do so,

the Court should not act on such a certified copy.

113. If the original of the instrument is produced

and it is unstamped, the Court, acting under Section

138 11, is duty-bound to act under Section 33 of the Stamp

Act as explained hereinbefore. When it does so,

needless to say, the other provisions, which, in the

case of the payment of the duty and penalty would

culminate in the certificate under Section 42(2) of the

Stamp Act, would also apply. When such a stage arises,

the Court will be free to process the Application as

per law.

114. An Arbitration Agreement, within the meaning

of Section 7 of the Act, which attracts stamp duty and

which is not stamped or insufficiently stamped, cannot

be acted upon, in view of Section 35 of the Stamp Act,

unless following impounding and payment of the

requisite duty, necessary certificate is provided under

Section 42 of the Stamp Act.

115. We further hold that the provisions of

Sections 33 and the bar under Section 35 of the Stamp

Act, applicable to instruments chargeable to stamp duty

under Section 3 read with the Schedule to the Stamp

Act, would render the Arbitration Agreement contained

in such instrument as being non-existent in law unless

the instrument is validated under the Stamp Act. 139

116. In a given case, the Court has power under

paragraph-5 of the Scheme, to seek information from a

party, even in regard to stamp duty.

117. We make it clear that we have not pronounced

on the matter with reference to Section 9 of the Act.

The reference to the Constitution Bench shall stand

answered accordingly.

118. We record our deep sense of appreciation for

the efforts put in by Shri Gourab Banerji, learned

senior counsel who has ably assisted this Court as

Amicus.

…………………………………………J. [K.M. JOSEPH]

…………………………………………J. [ANIRUDDHA BOSE]

NEW DELHI;

DATED: APRIL 25, 2023.

140 1

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). 3802-3803 OF 2020

M/S. N.N. GLOBAL MERCANTILE PRIVATE LIMITED ….APPELLANT(S)

VERSUS

M/S INDO UNIQUE FLAME LTD. & ORS. ….RESPONDENT(S)

JUDGMENT

Rastogi, J.

2

INDEX

Sr. Topic Page No. no. I. Reference 3-4

II. Conflicting Judgments 4-20

III. Requirements under Indian Stamp Act, 20-31

1899 - Discussions on Provisions of Indian Stamp Act, 1899 (Chapter IV- Sections 33- 48, More specifically Sections 33, 35, 36, 38, 40, 42)

IV. Historical Background of Arbitration in 31-37 India

V. Intent behind incorporation of Section 37-41 11(6A) of the Arbitration and Conciliation Act,1996

VI. Scope of Section 11 (6A) w.r.t. Section 8, 42-53 Section 16, and Section 45 of the Arbitration and Conciliation Act, 1996

VII. Limited Examination by Court under 54-55 Section 11(6A) of the Arbitration and Conciliation Act, 1996

VIII. Interpretation of “Existence of Arbitration 55-57 Agreement”

IX. Clarification on Stamping of Arbitration 57-59 Agreement

X. Answer to the Reference 59-61 3

I. Reference

1. This case deals with the larger question regarding the scope and

ambit to which there should be an intervention of courts at the pre-

referral stage in the working of arbitration contracts.

2. A three-Judge Bench of this Court in M/s. N.N. Global

Mercantile Private Limited v. M/s. Indo Unique Flame Limited

and Others1 has doubted the correctness of the view expressed in

paras 146 and 147.1 of the coordinate three-Judge Bench of this

Court in Vidya Drolia and Others v. Durga Trading Corporation2

and referred the matter to be settled authoritatively by the

Constitution Bench of this Court.

3. The reference which has been made to settle authoritatively by

the Constitution Bench is referred as under:

“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non- existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?” (emphasis added)

1 (2021) 4 SCC 379

2 (2021) 2 SCC 1 4

4. It is necessary to give background facts for better

appreciation of the reference made for our consideration.

II. Conflicting Judgments

5. In the case of SMS Tea Estates Private Limited v. Chandmari

Tea Company Private Limited,3 a two-Judge Bench of this Court

was considering the issue in a pre-2015 amendment regime of

whether an arbitration agreement in an unregistered and unstamped

lease deed, which required compulsory registration under the

Registration Act, 1908(hereinafter being referred to as the “Act 1908”)

was valid and enforceable. It was held as follows:

“19. Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction.

21. Therefore, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of the Stamp Act. The court cannot act upon such a document or the arbitration

3 (2011) 14 SCC 66 5

clause therein. But if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.”

6. The above decision was followed in the case of Naina Thakkar

v. Annapurna Builders,4 wherein it was held as follows:

“7. It is true that the consequences provided in the Stamp Act, 1899 must follow where sufficient stamp duty has not been paid on an instrument irrespective of the willingness of a party to the instrument to pay deficit stamp duty but the procedure where the arbitration clause is contained in a document which is not registered although compulsorily registrable and which is not duly stamped as summed up by this Court in SMS Tea Estates (P) Ltd. case shall not be applicable to the proceedings under Section 8 of the [Arbitration and Conciliation] Act where the party making such application does not express his/her readiness and willingness to pay the deficit stamp duty and the penalty. It is not the duty of the Court to adjourn the suit indefinitely until the defect with reference to deficit stamp duty concerning the arbitration agreement is cured. Accordingly, we are of the opinion that no fault can be found in the order of the trial court in rejecting the application made under Section 8 of the Act as the document on which the petitioner relied upon was admittedly unregistered and insufficiently stamped.”

7. An amendment was brought in the Arbitration and Conciliation

Act, 1996 (hereinafter being referred to as the “Act, 1996”), and

Section 11(6A) was inserted in 2016.

8. A two-Judge Bench in Garware Wall Ropes Limited v.

Coastal Marine Constructions and Engineering Limited,5 dealt

4 (2013) 14 SCC 354

5 (2019) 9 SCC 209 6

with the issue whether an arbitration clause in an agreement which

requires compulsorily to be stamped under the relevant Indian

Stamp Act, 1899(hereinafter being referred to as the “Act, 1899”), but

is not duly stamped, would be enforceable even after the insertion of

clause (6A) to Section 11 of the Act, 1996. The Bench followed the

reasoning and upholding of the decision in SMS Tea Estates Private

Limited(supra), and held:

“19….A close look at Section 11(6-A) would show that when the Supreme Court or the High Court considers an application under Sections 11(4) to 11(6), and comes across an arbitration clause in an agreement or conveyance which is unstamped, it is enjoined by the provisions of the Stamp Act to first impound the agreement or conveyance and see that stamp duty and penalty (if any) is paid before the agreement, as a whole, can be acted upon. It is important to remember that the Stamp Act applies to the agreement or conveyance as a whole. Therefore, it is not possible to bifurcate the arbitration clause contained in such agreement or conveyance so as to give it an independent existence, as has been contended for by the respondent. The independent existence that could be given for certain limited purposes, on a harmonious reading of the Registration Act, 1908 and the 1996 Act has been referred to by Raveendran, J. in SMS Tea Estates when it comes to an unregistered agreement or conveyance. However, the Stamp Act, containing no such provision as is contained in Section 49 of the Registration Act, 1908, has been held by the said judgment to apply to the agreement or conveyance as a whole, which would include the arbitration clause contained therein. It is clear, therefore, that the introduction of Section 11(6-A) does not, in any manner, deal with or get over the basis of the judgment in SMS Tea Estates, which continues to apply even after the amendment of Section 11(6-A).

22. When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain 7

reading of Section 11(6-A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates has, in no manner, been touched by the amendment of Section 11(6-

A).”

9. The decision in Garware Wall Ropes Limited(supra) was cited

in approval by a three-Judge Bench in the case of Vidya Drolia and

Others(supra) wherein it was held:

“146. We now proceed to examine the question, whether the word “existence” in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an arbitration agreement. Such interpretation can draw support from the plain meaning of the word “existence”. However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of “existence” requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law.

8 147. We would proceed to elaborate and give further reasons:

147.1 In Garware Wall Ropes Ltd., this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to ‘existence’ and ‘validity’ of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing paragraph 29 thereof:

“29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the subcontract would not “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court's understanding of the expression “existence” in Hyundai Engg. case, as followed by us.”;

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.”

(Emphasis added)

10. Later, a three-Judge Bench in M/s. N.N. Global Mercantile

Private Limited(supra) held that in arbitration jurisprudence, an

“arbitration agreement is a distinct and separate agreement, which

is independent from the substantive commercial contract in which it 9

is embedded”. This three-Judge Bench made a reference to the

Constitution Bench, as it expressed its disagreements with the view

expressed in SMS Tea Estates Private Limited(supra), Garware

Wall Ropes Limited(supra), and Vidya Drolia and Others(supra). It

held:

“26. In our view, there is no legal impediment to the enforceability of the arbitration agreement, pending payment of Stamp Duty on the substantive contract. The adjudication of the rights and obligations under the Work Order or the substantive commercial contract would however not proceed before complying with the mandatory provisions of the Stamp Act…

28. In our view, the decision in SMS Tea Estates does not lay down the correct position in law on two issues i.e. (i) that an arbitration agreement in an unstamped commercial contract cannot be acted upon, or is rendered un-enforceable in law; and (ii) that an arbitration agreement would be invalid where the contract or instrument is voidable at the option of a party, such as u/s 19 of the Indian Contract Act, 1872.

29. We hold that since the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract, would not invalidate the arbitration clause, or render it un-

enforceable, since it has an independent existence of its own. The view taken by the Court on the issue of separability of the arbitration clause on the registration of the substantive contract, ought to have been followed even with respect to the Stamp Act. The non-payment of stamp duty on the substantive contract would not invalidate even the main contract. It is a deficiency which is curable on the payment of the requisite Stamp Duty.”

11. It also doubted the correctness of the view taken in SMS Tea

Estates Private Limited(supra), which was approved in Garware 10

Wall Ropes Limited(supra) and Vidya Drolia and Others(supra),

and held:

“56. We are of the considered view that the finding in SMS Tea Estates and Garware that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-existent in law, and un-enforceable, is not the correct position in law.

57. In view of the finding in paragraph 146 and 147 of the judgment in Vidya Drolia by a co-ordinate bench, which has affirmed the judgment in Garware, the aforesaid issue is required to be authoritatively settled by a Constitution bench of this Court.”

12. As the Benches in both M/S. N.N. Global Mercantile Private

Limited(supra) and Vidya Drolia and Others(supra) are of equal

strength, this Constitution Bench has been called upon to

authoritatively rule on the issue. To adjudicate the issue, this Bench

at first needs to examine whether the requirements under the Act,

1899 at pre-referral stage are required to be examined for

appointment of Arbitrator under Section 11(6A) of the Act, 1996.

13. Mr. Gourab Banerjee, learned senior counsel, who appears as

Amicus Curiae to assist this Court, submits that the intention of the

Act, 1996 and the later amendments made from time to time were to

streamline the process and judicial intervention in arbitration 11

proceedings adds significantly to the delay in the arbitration process

and that negates the benefit of arbitration. The Arbitration &

Conciliation (Amendment) Act, 2015 (hereinafter being referred to as

the 2015 Amendment) was introduced to emphasize the speedy

disposal of cases relating to arbitration with minimal court

interference.

14. Mr. Banerjee submits that so far as the scope and ambit of

Section 11 is concerned, it is only to fill the gap and the Court is

merely functioning as an appointing authority where the parties fail

to appoint an Arbitrator. After the insertion of Section 11(6A) (2015

Amendment), the legislative policy and purport are essentially to

minimize the Court’s intervention at the stage of appointing the

Arbitrator and with this intention, Section 11(6A) has been

incorporated which ought to be respected.

15. Mr. Banerjee further submits that the scope of the Court should

be circumscribed to confine to the examination, prima facie, of the

formal existence of the arbitration agreement at the stage of contract

formation, including whether the agreement is in writing and the core

contractual ingredients qua the formation of the agreement are

fulfilled. On rare occasions, if a question is being raised by the 12

parties, to some extent, the Court may examine the subject matter of

dispute as arbitrable but that too as an exception. At the same time,

so far as the Act, 1899 is concerned, it is only a fiscal measure

enacted to secure revenue of the State in certain classes of

instruments but that may not be invoked to arm a litigant with a

weapon of technicality to meet the case of his/her opponent. Once

the object of the revenue is secured according to law, the party

staking his claim in the instrument will not be defeated on the ground

of the initial defect in the instrument.

16. Mr. Banerjee further submits that even non-payment of stamp

duty is a curable defect and this defect can be cured at any stage

before the instrument is admitted into evidence by the Arbitral

Tribunal. If the insufficiency of stamp or unduly stamped is being

examined/adjudicated at the pre-referral stage by the Court under

Section 11, it would be nothing but to encourage parasitical

challenges and dilatory tactics in resisting reference to arbitration.

The natural solution inevitable is to appoint the Arbitrator and to

allow the dispute resolution proceedings to commence and permit the

Arbitral Tribunal to fulfil its duty under the Act, 1996. There is no 13

reason why the Arbitral Tribunal cannot prevent the evasion of stamp

duty.

17. It is also brought to our notice that at the time of submitting an

application under Section 11 at the pre-referral stage, the parties are

not under an obligation to file an original arbitration agreement and

since the copy of the arbitration agreement is to be annexed with the

application, in true sense, it is not an instrument as being

contemplated under Section 2(14) of the Act, 1899, particularly at

the pre-referral stage, the question of invoking Sections 33 or 35 of

the Act, 1899 is not available to be invoked. In support of submission

Mr. Banerjee has placed reliance on the judgment of this Court

reported in Jupudi Kesava Rao v. Pulavarthi Venkata Subbarao

and Others6 which has been later followed by this Court in Hariom

Agrawal v. Prakash Chand Malviya7.

18. Taking assistance thereof, Mr. Banerjee submits that Sections

33 or 35 are not concerned with any copy of the instrument and there

is no scope for the inclusion of the copy of the document for the

purpose of the Act, 1899. The copy of the instrument within the

6 (1971) 1 SCC 545

7 (2007) 8 SCC 514 14

meaning of Section 2(14) of the Act, 1899 cannot be validated by

impounding and it cannot be admitted as secondary evidence under

the Act, 1899.

19. Mr. Banerjee further submits that the very question raised for

consideration of this Court as to whether the arbitral agreement is

valid or is in existence in law, is not open to be examined at the pre-

referral stage for the reason that original instrument is not on record

(arbitral agreement) and a conjoint reading of Sections 33 and 35 is

not concerned with any copy of the instrument and the party can

only be allowed to rely on the document in evidence which is an

instrument withing the meaning of Section 2(14) and the validity of

the document is always open to be examined at the post-referral

stage by the Arbitrator/Arbitral Tribunal in its jurisdiction vested in

Section 16 of the Act, 1996.

20. Mr. Gagan Sanghi, learned counsel for the appellant, submits

that Section 35 of the Act, 1899 bars admission of unduly stamped

“instrument” in evidence “for any purpose” and also “acting upon it”

and it was held by this Court in Government of Andhra Pradesh 15

and Others v P. Laxmi Devi(Smt.)8 that “shall” in Section 33 of the

Act, 1899 is mandatory and unstamped document must be

impounded. Even assuming that stamp duty is not payable on an

arbitration agreement under the Act, 1899, when arbitration

agreement is contained as a clause in an instrument on which stamp

duty is payable, such arbitration agreement as an instrument,

attracts the bar of Section 35 of the Act, 1899.

21. Mr. Sanghi further submits that separation of agreement from

the substantive contract is nothing but a legal fiction created by

Section 16 of the Act, 1996 and it cannot be an exception to Section

35 of the Act, 1899.

22. Mr. Sanghi further submits that the Doctrine of Separability

and Kompetenz - Kompetenz has no bearing on the issue of

enforceability of an arbitration agreement when proper stamp duty is

not paid on the instrument containing the arbitration agreement and

relied upon the judgment of the UK Supreme Court in Enka Insaat

Ve Sanayi AS v OOO Insurance Company Chubb9 where it was held

that an “arbitration clause is nonetheless part of bundle of rights and

8 (2008) 4 SCC 720

9 (2020) UK SC 38 16

obligations recorded in the contractual document” and according to

him, the issue of stamping is to be looked into at the very threshold,

even if it is in exercise of Section 11 (6A), i.e. at the time of pre-arbitral

stage with respect to appointment of arbitrator. According to him,

an instrument would exist in law only when it is enforceable and

“existence” defined in Section 11(6A) of the Act, 1996 in respect of an

arbitration agreement, has to be a valid enforceable agreement and

it is always open to examine the issue of non-stamping or of

insufficiently stamped at the initial/pre-referral stage itself and

further highlighting three modes as provided in M/s. N.N. Global

Mercantile Private Limited (supra) i.e. impounding, payment of

stamp duty and appointment of arbitrator, on an application filed

under Section 11 of the Act, 1996, the Court is certainly “acting

upon” the arbitration clause which is contended to be barred by the

clear expression of Section 35 of the Act, 1899 and an Agreement,

unless enforceable by law, cannot be termed to be in existence under

Section 11(6A) of the Act, 1996.

23. Ms. Malvika Trivedi, learned senior counsel, who appears for

the intervenor in I.A. No.18516 of 2022, submits that the regimes of

the Act, 1899 and Act, 1908 are completely different. M/s. N.N. 17

Global Mercantile Private Limited (supra) wrongly applied the

principles of registration of a document to the requirement of

stamping a document. While the former is a curable defect, the latter

determines the very existence and completion of a

document/instrument. In the absence of registration, an instrument

shall remain in existence but without stamping, the instrument is

incomplete/inchoate.

24. Ms. Trivedi further submits that the Act, 1899 envisages the

payment of stamp duty, failing which the instrument, according to

her, cannot be acted upon for any purpose and there is no ambiguity

in the language of the Statute and we have to follow the golden

principles of interpretation of the Statute.

25. Ms. Trivedi further submits that the powers of the Court under

different provisions of law as well as the restrictions created in the

Act, 1899 apply to the proceedings conducted in accordance with

Section 9 of the Act, 1996 and submits that even if the arbitration

clause stands severed, the Court will have to reach a prima facie

conclusion as to whether the substantive contract which contained 18

the clause of arbitration is enforceable in law before granting interim

measures invoking Section 9 of the Act, 1996.

26. Mr. Debesh Panda, learned counsel for the Intervenor in I.A. No.

199969 of 2022 submits that Part I of Act, 1996 deals with Sections

8, 9 and 11, whereas Section 45 is dealt within Part II. Section 45

has been recognized as a provision under Part II which is a complete

code. The expression “unless it finds” in Section 45 was interpreted

by majority in Shin-Etsu Chemical Co. Ltd. v Aksh Optifibre Ltd.

and Another10 as a consideration on a prima facie basis. In 2019,

Parliament amended Section 45 by substituting the expression

“unless it finds” with “unless it prima facie finds”, that brings the

statute in line with the position settled in Shin Etsu (supra). In this

background, the Act, 1899 merely creates a temporary infliction till

the stamp duty is recovered, with or without penalty. The affliction

only attaches to the instrument and not the transaction.

27. Mr. K. Ramakanth Reddy, learned senior counsel for

respondent no.1 took us through the relevant Lok Sabha debates

before the enactment of the Act, 1996 and taking assistance thereof

10 (2005) 7 SCC 234 19

submits that the provisions of the Act 1996, Act 1899 and the

Contract Act, 1872 (hereinafter being referred to as “Act, 1872”) has

to be harmonized. Section 17 of Act, 1899 has to be read with Section

31 of the Act, 1899. The plain language of Section 7 of the Act, 1996

does not require that the parties are under an obligation to stamp

the agreement. The legislative intention would be defeated, if the

Court insist on non-core technical requirements such as stamps,

seals and originals for the purpose of acting upon the arbitration

agreement at a pre-arbitration stage for appointment of an arbitrator

invoking power under Section 11(6A) of the Act, 1996.

28. Learned counsel for the respondents, further submits that in

the instant facts of the case, an application was filed under Section

8 for reference of disputes to arbitration and it was not maintainable

under Section 34 of the Maharashtra Stamp Act, 1958 which is

almost pari materia to the Act, 1899. The work order being an

unstamped document could not be received in evidence for any

purpose, or acted upon, unless it is duly stamped. In consequence

thereof, the arbitration clause in the unstamped agreement also

could not be acted upon or enforced since the arbitration clause

would have no existence in law, unless the applicable stamp duty 20

(and penalty, if any) is paid on the work order and placed reliance on

the judgment of this Court in Garware Wall Ropes Limited(supra).

29. Learned counsel further submits that the High Court, while

relying on the application under Section 8 had enforced a non-

existent arbitration clause which is in violation of Section 34 of the

Maharashtra Stamp Act, 1958 and further contended that the

respondent had not indicated its willingness to pay the stamp duty,

even though, at later stage, an objection was raised and, therefore,

no justification arises to grant any further opportunity to now pay

the stamp duty under the clause of arbitration.

30. We have heard learned counsel for the parties and with their

assistance perused the material available on record and before

delving into the reference, we feel apposite to discuss the statutory

provisions related to the reference.

III. Requirements under the Indian Stamp Act, 1899

31. The Act, 1899 is a fiscal statute laying down the law relating to

tax levied in the form of stamps on instruments recording

transactions. The stamp duties on instruments specified in Entry 91

of List I(Union List) of Schedule VII of the Constitution of India (viz. 21

Bills of Exchange, cheques, promissory notes, bills of lading, letters

of credit, policies of insurance, transfer of shares, debentures,

proxies and receipts) are levied by the Union Government. Similarly,

the stamp duties on instruments other than those mentioned in

Entry 91 of the Union List above are levied by the States as per Entry

63 of List II(State List) of the Schedule VII. Provisions other than

those relating to rates of duty fall within the legislative power of both

the Union and the States by virtue of Entry 44 of the List

III(Concurrent List). However, the stamp duties on all the

instruments are collected and kept by the concerned States.

32. The term ‘Instrument’ has been defined under Section 2(14) of

the Act, 1899 and the ‘Instrument chargeable to Duty’ is provided

under Section 3 whereas Section 17 provides that all instruments

chargeable with duty and executed by any person in India has to be

stamped.

33. Sections 2(14), 3 and 17 of the Act, 1899 are extracted

hereunder: -

“2(14) ― Instrument”. — instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded:

22 3. Instruments chargeable with duty. —Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore respectively, that is to say—

(a) every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in [India] on or after the first day of July, 1899;

(b) every bill of exchange [payable otherwise than on demand] or promissory note drawn or made out of [India] on or after that day and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in [India]; and

(c) every instrument (other than a bill of exchange, or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of [India] on or after that day, relates to any property situate, or to any matter or thing done or to be done, in [India] and is received in [India]:

Provided that no duty shall be chargeable in respect of— (1) any instrument executed by, or on behalf of, or in favour of, the Government in cases where, but for this exemption, the Government would be liable to pay the duty chargeable in respect of such instrument;

(2) any instrument for the sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of any ship or vessel, or any part, interest, share or property of or in any ship or vessel registered under the Merchant Shipping Act 1894, Act No. 57 & 58 Vict. c. 60 or under Act XIX of 1838 Act No. or the Indian Registration of Ships Act, 1841, (CX of 1841) as amended by subsequent Acts.

17. Instruments executed in India. — All instruments chargeable with duty and executed by any person in [India] shall be stamped before or at the time of execution.

18. Instruments other than bills and notes executed out of India.—(1) Every instrument chargeable with duty executed only out of [India], and not being a bill of exchange or promissory note, may be stamped within three months after it has been first received in [India]. (2) Where any such instrument cannot, with reference to the 23

description of stamp prescribed therefore, be duly stamped by a private person, it may be taken within the said period of three months to the Collector, who shall stamp the same, in such manner as the [State Government] may by rule prescribe, with a stamp of such value as the person so taking such instrument may require and pay for.”

34. ‘Instrument’ as defined under Section 2(14) of the Act, 1899

includes every document by which any right or liability is, or purports

to be, created, transferred, limited, extended, extinguished, or

recorded. The term ‘Instrument’ as defined under Section 2(14) refers

to the original instrument and not a copy or a duly certified copy of

the same. It is only on production of the original instrument, the

deficiencies in the stamp duty/penalty can be paid to validate the

same.

35. Chapter IV (Section 33 to Section 48) of the Act, 1899 titled

‘Instruments not duly stamped’ provides for the procedure to be

followed when an instrument which ought to have been stamped is

not stamped.

36. Section 33 of the Act, 1899 provides for ‘Examination and

impounding of instruments’. Under sub-section (1) of Section 33,

“Every person having by law or consent of parties authority to receive

evidence, and every person in charge of a public office, except an 24

officer of police, before whom any instrument, chargeable, in his

opinion, with duty, is produced or comes in the performance of his

functions, shall, if it appears to him that such instrument is not duly

stamped, impound the same”. Section 33(2) of the Act, 1899 provides

that every instrument chargeable with duty shall be examined by

such person as explained in sub-section (1), “in order to ascertain

whether it is stamped with a stamp of the value and description

required by the law in force in India when such instrument was

executed or first executed”. The definition of ‘duly stamped’ as

contained in Section 2(11) as applied to an instrument means that

the instrument bears an adhesive or impressed stamp of not less

than the proper amount and that such stamp has been affixed or

used in accordance with law for the time being in force in India.

37. A plain reading of Section 33 of the Act, 1899 thus explains that

when an instrument or a document is produced before the authority,

it is the duty of such authority to examine whether the instrument is

duly stamped or not, and if it is found that the instrument is not

“duly stamped” under Section 33(2), the concerned authority shall

impound the said instrument.

25

38. Section 34 of the Act, 1899 provides a discretion to the

concerned officer that if any receipt chargeable with a duty not

exceeding “ten naye paise” is tendered to or produced before them

unstamped in the course of the audit of any public account, such

officer may in their discretion, “instead of impounding the

instrument, require a duly stamped receipt to be substituted

therefore.”

39. A plain reading of Section 35 of the Act, 1899 suggests that an

inadmissible instrument because of being unstamped or

insufficiently stamped may be made admissible if the relevant stamp

duty and a penalty is paid later. This shows that the requirement

under Section 35 is not rigid, and can be rectified even at a later

stage. An unstamped or insufficiently stamped instrument is not

completely invalid, and it can be made valid and admissible in

evidence after fulfilling the conditions prescribed in the proviso to

Section 35.

40. Section 37 of the Act, 1899 deals with admission of improperly

stamped instruments. It provides that the State Government may

make rules providing that, where an instrument bears a stamp of 26

sufficient amount but of improper description, it may, on payment of

the duty with which the same is chargeable, be certified to be duly

stamped, and any instrument so certified shall then be deemed to

have been duly stamped as from the date of its execution.

41. Section 38 of the Act, 1899 provides for the procedure for how

the instruments impounded are to be dealt with. Sub-Section (1) of

Section 38 provides that when the person impounding an instrument

under Section 33 admits such instrument in evidence upon payment

of a penalty as provided by Section 35 or of duty as provided by

Section 37, he shall send to the Collector an authenticated copy of

such instrument, together with a certificate in writing, stating the

amount of duty and penalty levied in respect thereof, and shall send

such amount to the Collector, or to such person as he may appoint

in this behalf.

42. Sections 39 and 40 of the Act, 1899 provide a procedure of

exercising discretion by the Collector to either refund, certify the

instrument as duly stamped, or collect the stamp duty.

43. A plain reading of Sections 33, 35 and 2(14) of the Act, 1899

clearly demonstrates that the instrument which is not duly stamped 27

can be impounded and when the required fee and penalty has been

paid, the said instrument can be taken as an evidence under Section

35 of the Act, 1899. But, at the same time, Sections 33 and 35 are

not concerned with any copy of the instrument and party can be

allowed to rely on the document which is an instrument within the

meaning of Section 2(14) of the Act, 1899. This Court had an

occasion to consider the scope and ambit of Sections 33, 35 and 36

of the Act, 1899 and Section 63 of the Evidence Act, 1872 in Jupudi

Kesava Rao(supra) and it was held that:

“13. The first limb of Section 35 clearly shuts out from evidence any instrument chargeable with duty unless it is duly stamped. The second limb of it which relates to acting upon the instrument will obviously shut out any secondary evidence of such instrument, for allowing such evidence to be let in when the original admittedly chargeable with duty was not stamped or insufficiently stamped, would be tantamount to the document being acted upon by the person having by law or authority to receive evidence. Proviso (a) is only applicable when the original instrument is actually before the court of law and the deficiency in stamp with penalty is paid by the party seeking to rely upon the document. Clearly secondary evidence either by way of oral evidence of the contents of the unstamped document or the copy of it covered by Section 63 of the Indian Evidence Act would not fulfil the requirements of the proviso which enjoins upon the authority to receive nothing in evidence except the instrument itself. Section 25 is not concerned with any copy of an instrument and a party can only be allowed to rely on a document which is an instrument for the purpose of Section 35. ‘Instrument’ is defined in Section 2(14) as including every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded. There is no scope for inclusion of a copy of a document as an instrument for the purpose of the Stamp Act.

28 14. If Section 35 only deals with original instruments and not copies Section 36 cannot be so interpreted as to allow secondary evidence of an instrument to have its benefit. The words ‘an instrument’ in Section 36 must have the same meaning as that in Section 35. The legislature only relented from the strict provisions of Section 35 in cases where the original instrument was admitted in evidence without objection at the initial stage of a suit or proceeding. In other words, although the objection is based on the insufficiency of the stamp affixed to the document, a party who has a right to object to the reception of it must do so when the document is first tendered.

Once the time for raising objection to the admission of the documentary evidence is passed, no objection based on the same ground can be raised at a later stage. But this in no way extends the applicability of Section 36 to secondary evidence adduced or sought to be adduced in proof of the contents of a document which is unstamped or insufficiently stamped.” (Emphasis added)

44. This view has been affirmed by a three-Judge Bench of this

Court in Hariom Agrawal(supra) wherein it has been held as under:

“10. It is clear from the decisions of this Court and a plain reading of Sections 33, 35 and 2(14) of the Act that an instrument which is not duly stamped can be impounded and when the required fee and penalty has been paid for such instrument it can be taken in evidence under Section 35 of the Stamp Act. Sections 33 or 35 are not concerned with any copy of the instrument and party can only be allowed to rely on the document which is an instrument within the meaning of Section 2(14). There is no scope for the inclusion of the copy of the document for the purposes of the Stamp Act. Law is now no doubt well settled that copy of the instrument cannot be validated by impounding and this cannot be admitted as secondary evidence under the Stamp Act, 1899.” (Emphasis added)

45. Law on the subject is well settled that duly certified

copy/photocopy of the alleged instrument cannot be validated by

impounding and this cannot be admitted in evidence under the Act,

1899. It leads to the conclusion that the deficiency in an instrument, 29

whether it is unduly stamped or insufficiently stamped, can be

rectified through a procedure as prescribed under the Act, 1899. It

clearly indicates that the requirement under the Act can indeed be

fulfilled even after the time when the instrument was executed. The

requirement under the Act is not rigid or strict, so as to make the

instrument invalid at the first instance.

46. It also shows that the purpose of the Act, 1899 is not to declare

an instrument as completely invalid if it is unstamped or

insufficiently stamped, but to collect the stamp duty on each

instrument. The object of the Act, 1899 is to secure revenue for the

state.

47. This Court, in the case of Hindustan Steel Ltd. v. Messrs Dilip

Construction Company,11 dealt with the object of the Act, 1899 and

held:

“7. The Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments: It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The stringent provisions of the Act are conceived in the interest of the revenue once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of the initial defect in the instrument. Viewed in that light the scheme is clear. Section 35 of the Stamp Act operates as a

11 (1969) 1 SCC 597 30

bar to an unstamped instrument being admitted in evidence or being acted upon; Section 40 provides the procedure for instruments being impounded, sub-section (1) of Section 42 provides for certifying that an instrument is duly stamped, and sub-section (2) of Section 42 enacts the consequences resulting from such certification.”

48. The Bench, after explaining that the scope of the Act, 1899 is to

secure revenue for the state and not to be used as means to harass

the litigant, concluded that unstamped instruments can be acted

upon after payment of duty and penalty. Initial defects can be cured

and it is never the intention of the legislature to treat an initially

unstamped instrument as non-est in law.

49. The Statute deals with the instances of failure to stamp a

document which has got to be stamped under the provisions of the

Act, 1899 but does not affect the validity of the transaction embodied

in the document. That Part IV of the Act, 1899 deals with the

contingencies of non-payment of stamp duties and once the object of

securing the interest of the revenue of State is secured, the claim

based on instrument can always be acted upon on payment of the

requisite stamp duty.

50. We, therefore, hold that the deficiencies under the Act, 1899

can be fulfilled, and do not render any instrument invalid 31

permanently. Now, it is to be seen whether the Court or Arbitral

Tribunal can order rectification of the deficiencies under the Act

1899, if any.

IV. Historical Background of Arbitration in India

51. Arbitration can be understood as a procedure of dispute

resolution in which the dispute is submitted, by the agreement of the

parties, to the appointed Arbitrator or the Arbitral Tribunal who are

having the jurisdiction to resolve the dispute in accordance with the

applicable law as agreed among the parties. Alternatively, it can be

understood as a mechanism to adjudicate disputes between the

parties outside the court in a quasi-judicial manner.

52. The process of arbitration as a preferable method of dispute

resolution is not new in India. According to the scholars of the

ancient Hindu literature, “Brhadaranayaka Upanishad” is the

earliest known treatise that mentions a system that can be closely

associated with present-day arbitration as the same involved various

arbitral bodies such as “Puga” or the local courts, “Srenis” or the

people carrying out the same profession and “Kulas” or members

concerned with the social matters of the same part of the society. All 32

the above-explained bodies were called the Panchas and cumulatively

formed Panchayat. The same has been affirmed by the Privy Council

in the case of Vytla Sitanna v. Marivada Viranna12 wherein it was

observed that the parties used to refer the dispute to the elected

panchayat and these adjudicating bodies were responsible to pass

the award which was based on the principle of fair and equitable

settlement of the dispute based on the prevalent legal as well as moral

grounds.

53. The arbitration regime in India further evolved with the

enactment of the first Bengal Regulation by the Britishers in the year

of 1772. Subsequent to this enactment, all the disputes were

submitted to arbitration and the award of the same had the same

value as that of any decree passed by the Court. Further, the Bengal

Regulation of 1781 also contained provision as reproduced herein:

“The judge do recommend and so far as he can without compulsion prevail upon the parties to submit to the arbitration of one person, to be mutually agreed upon by the parties … No award of any arbitrator be set aside, except upon full proof, made by oath of two creditable witnesses that the arbitrators had been guilty of gross corruption or partially, in the course of which they had made their award.”13

12 AIR 1934 PC 105.

13 C. V. Nagarjuna Reddy, Role of Arbitration in the Wake of CPC (Amendment)

Act, 1999, The Indian Council of Arbitration, 33

54. It is quite evident from the above-mentioned clause that the

Bengal Regulations contained provisions to enable the parties to refer

the dispute to be settled by the process of arbitration as per the

mutual agreement of the parties, especially in disputes involving

breach of the contractual obligations and partnership deeds.

Arbitration also found a place in the earliest enacted legislation by

the State i.e., Code of Civil Procedure, 1859. Specifically, the

provision in Schedule II of the Code of Civil Procedure, 1908

contained the procedure relating to arbitration. These statutory

provisions primarily dealt with two types of arbitrations:

i) Arbitration initiated by the Courts in any pending civil

suit.

ii) Arbitration wherein there is no involvement or

intervention of the Court.

55. Apart from these two types of arbitration, there evolved a third

kind of arbitration known as “Statutory Arbitration” wherein the

https://www.icaindia.co.in/icanet/quterli/apr-june2002/ica5.html (Last accessed on 22nd January, 2023 at 10:50 pm). 34

procedure of arbitration is governed by the provisions contained in

the statute.

56. The major development in the arbitration regime came with the

enactment of the Arbitration Act, 1899 which was quite comparable

to the English Arbitration Act, 1899. This enactment can be

understood as the first step in the direction of enforcement of

arbitration in India. The Arbitration Act, 1899 was initially

applicable to all the presidency towns and there existed judicial

intervention right from the initial reference of the dispute to the

process of arbitration.

57. With the rapidly changing times, the evolution of the arbitration

regime in India also gained momentum. The Code of Civil Procedure,

1908 was amended to insert the provision contained under Section

89 which exclusively dealt with the applicability and enforceability of

the arbitration. In the early 20th century, arbitration emerged as an

acceptable mode of dispute resolution and in order to meet its

growing popularity, the Arbitration Act, 1940(hereinafter being

referred to as the “Act, 1940”) was enacted by the legislature. The

Act, 1940 was enacted with the primary motive of providing speedy 35

and less costly method of dispute resolution in the form of

arbitration. However, there existed many inadequacies in the

practical application of the provisions contained in the Act, 1940.

58. The Act, 1940 contained many provisions similar to the

provisions contained under the English Arbitration Act, 1934 but still

it did not have any provision for enforceability of the foreign award.

Also, the provisions contained in the Act, 1940 facilitated the

intervention of the judiciary at all the three stages of the arbitral

proceedings, i.e., before the dispute was referred to the arbitration,

during the pendency of the arbitral proceedings and after passing the

arbitral award.

59. The ineffective functioning of the provision contained under the

Act, 1940 was regularly criticised by the Judiciary. The following

observation by Justice D.A. Desai in the case of Guru Nanak

Foundation v. Rattan Singh and Sons14 is quite relevant to be

mentioned here:

“1. Interminable, time consuming, complex and expensive Court procedures impelled jurists to search for an alternative Forum, less formal, more effective and speedy for resolution of disputes, avoiding procedural claptrap and this led them to Arbitration Act, 1940. However, the way in which the proceedings under the Act are

14 (1981) 4 SCC 634 36

conducted and without an exception challenged in Courts, has made Lawyers laugh and legal philosophers weep.”

60. This Court further observed in the case of Food Corporation of

India v. Joginderpal Mohinderpal and Another15 that the law

governing arbitration is supposed to be less technical and more

suitable to practical problems by ascertaining equity and fair play in

the entire process. Despite such severe criticism by this Court, no

amendment was brought in the Act, 1940 by the legislature for a long

period of time.

61. It was only by the late 20th century, there came a major shift in

the development of arbitration in India. Due to the economic

liberalization and alike policies of the government in 1991, there was

a need felt to create a conducive environment for attracting foreign

investments. Therefore, based on the 76th Report of the Law

Commission of India as well as the Model UNCITRAL law, the Act,

1996 was enacted by the legislature. The Act,1996 came into force

from 16th August, 1996 with an object of making the process of

15 (1989) 2 SCC 347 37

arbitration cost effective, less technical and in accordance with the

prevalent international practices across the world.

V. Intent behind incorporation of Section 11(6A) of the

Arbitration and Conciliation Act, 1996

62. A major shift for the development of arbitration in India

happened with the enactment of the Act, 1996. Based on the 76 th

Report16 of the Law Commission of India as well as the Model

UNCITRAL law, the Act, 1996 was enacted with an object of making

the process of arbitration cost effective, less technical and in

accordance with the prevalent international practices across the

world. The legislative intent was to provide effective and speedy

procedure for dispute resolution among the parties as well as to limit

the scope of judicial intervention in the process of arbitration.17 India

is gradually moving in the direction of minimal judicial intervention

keeping abreast with the developments of arbitration in other

regimes.

16 Law Commission of India, 76th Report on Arbitration Act, 1940

17Paragraph No. 4(v), Statement of Objects and Reasons, Arbitration and Conciliation Act, 1996.

38

63. The Constitution Bench of this Court while examining the pre

2015 amendment regime in SBP & Co. v. Patel Engineering Ltd.

and Another18 held that all the preliminary or threshold issues

pertaining to jurisdiction of the Arbitrator/Arbitral Tribunal should

be examined by the Court under Section 11 of the Act, 1996. This

position of law was sought to be changed by the Law Commission in

its 246th Report, which states as follows:

“In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.”19 (Emphasis added)

18 (2005) 8 SCC 618

19LAW COMMISSION OF INDIA Report No. 246 Amendments to the Arbitration and Conciliation Act 1996, pg. 43 39

64. In the said report, the Law Commission of India concluded that

the judicial intervention in arbitration proceedings adds significantly

to the delay in the arbitration process and ultimately negates the

benefit of arbitration. At paragraph 24, the Law Commission noted

as follows: “…[I]t is observed that a lot of time is spent for appointment

of arbitrators at the very threshold of arbitration proceedings.”20

65. The Law Commission suggested the insertion of sub-Section

(6A) to Section 11 in the Act, 1996 which was accepted by the

Legislature by way of the 2015 amendment to the Act, 1996. Section

11(6A) unambiguously by its intention manifests that “[the] Supreme

Court or, as the case may be, the High Court, while examining an

application under sub-section (4) or sub-section (5) or sub-section

(6), shall, notwithstanding any judgment, decree or order of any

Court, confine to examine only to the “existence of an arbitration

agreement”.

66. The 2015 amendment, including Section 11(6A), and the later

amendments are in line with this evolution of arbitration

jurisprudence. With the series of amendments to the principal Act,

20 Paragraph No. 24, Report No. 246, Law Commission of India. 40

1996, it is quite evident that the legislature is continuously engaging

with the rapidly evolving arbitration regime in India and the various

challenges allied it with the object to reduce the scope of intervention

by the courts in the arbitration processes. It can be expected that

the arbitration in India is conducted in accordance with the following

views expressed by Justice Sabyasachi Mukharji in the case of Food

Corporation of India(supra):

“7. We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situation, but must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties, but by creating a sense that justice appears to have been done.”

The above discussed approach of the legislature has been

acknowledged by this Court.

67. In the case of Duro Felguera, S.A. v. Gangavaram Port

Limited21, this Court explained the scope and effect of the changes

brought in by the 2015 amendment in the following words:

“48….. From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides

21 (2017) 9 SCC 729 41

for arbitration pertaining to the disputes which have arisen between the parties to the agreement…

59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.” (Emphasis added)

68. This position was affirmed by a three-judge bench in Mayavati

Trading Private Limited v. Pradyuat Deb Burman22:

“10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362], as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, S.A.…,” (Emphasis added)

69. Thus, the 2015 amendment aims to limit the intervention of

Courts to minimal examining the existence and not the validity of an

arbitration agreement at the pre-referral stage of the arbitration

proceedings.

22 (2019) 8 SCC 714 42

VI. Scope of Section 11(6A) w.r.t. Section 8, Section 16 and Section 45 of Arbitration and Conciliation Act, 1996

70. Section 11(6A) of the Act, 1996 reads as follows:

“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, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

71. The scope of inquiry under Section 11(6A) is restricted to

examine the “existence of an arbitration agreement”. The phrase

‘existence of an arbitration agreement’ is to be understood in a literal

sense keeping the intention of the legislature after the introduction

of the 2015 amendment. The position of law that prevails after the

insertion of 2015 amendment is that there should be minimal

interference by the Courts. The limited scope of the Court to examine

at the pre-referral stage is whether the arbitration agreement, prima

facie, exists as referred to under Section 7 of the Act, 1996 which

includes determination of the following factors:

(i) Whether the arbitration agreement is in writing;

(ii) Whether the core contractual ingredients qua the

arbitration agreement are fulfilled?

43 (iii) On rare occasions, on a serious note of objection, if any, it

may examine whether the subject matter of dispute is

arbitrable?

72. Section 8(1), which was replaced by the amendment of 2015,

mandates a judicial authority to refer parties to arbitration unless

there is prima facie finding that no valid arbitration agreement exists.

The language used in the provision is as follows:

“8. Power to refer parties to arbitration where there is an arbitration agreement.—

(1)A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof:

[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.]

(3) Notwithstanding that an application has been made under sub-

section (1) and that the issue is pending before the judicial authority, 44

an arbitration may be commenced or continued and an arbitral award made.”

73. The Section provides that the Court can examine, whether

prima facie there does not exist an arbitration agreement. The scope

of this Section can be seen from the 246th Law Commission Report23,

which made the following note while suggesting amendment to

Section 8:

“….of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.”

74. A plain reading of the Section 8 indicates that it limits the

intervention of the Court to only one aspect i.e., when it finds that

prima facie no valid arbitration agreement exists or is null and void.

23 LAW COMMISSION OF INDIA Report No. 246 Amendments to the Arbitration

and Conciliation Act 1996, pg. 43 45

75. The scheme of the Act, 1996 manifests that Sections 8 and 11

are complementary in nature and both relate to reference to

arbitration and have the same scope and ambit with respect to

judicial interference. The Court, under Sections 8 and 11, has to

refer the matter to arbitration or to appoint an Arbitrator, provided

the party has established a prima facie existence of an arbitration

agreement, nothing more nothing less. At the same time, the Court

should refer the matter if the validity of the arbitration agreement

cannot be determined on a prima facie basis, as laid down above i.e.

“when in doubt, do refer”.

76. At this stage, we would like to observe that the statutory scheme

has been framed for appointment of an Arbitrator by various High

Courts and also by this Court - called the Appointment of Arbitrators

by the Chief Justice of India Scheme, 1996, the relevant portion of

the same is extracted hereunder:-

1. Short title. -This Scheme may be called The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996.

2. Submission of request. - The request to the Chief Justice under sub-section (4) or sub-section (5) or sub-section (6) of section 11 shall be made in writing and shall be accompanied by-

(a) the original arbitration agreement or a duly certified copy thereof;

46 (b) the names and addresses of the parties to the arbitration agreement;

(c) the names and addresses of the arbitrators, if any, already appointed;

(d) the name and address of the person or institution, if any, to whom or which any function has been entrusted by the parties to the arbitration agreement under the appointment procedure agreed upon by them;

(e) the qualifications required, if any, of the arbitrators by the agreement of the parties;

(f) a brief written statement describing the general nature of the dispute and the points at issue;

(g) the relief or remedy sought; and

(h) an affidavit, supported by the relevant document, to the effect that the condition to be satisfied under sub-section (4) or sub-

section (5) or sub-section (6) of section 11, as the case may be, before making the request to the Chief Justice, has been satisfied.

77. It is clear from the scheme of which a reference has been made

that while the applicant approaches the Court for appointment of an

Arbitrator, he is not supposed to file an original arbitration

agreement and attested copy of the agreement can be annexed at the

pre-referral stage which is indeed not an instrument as referred to

under Section 2(14) of the Act, 1899.

78. So far as the reference made of submitting a certified copy of

the arbitration agreement is concerned, suffice it to say, that

arbitration agreement executed between the parties relating to the

business/commercial transactions is not required to be compulsorily 47

registered under the Act, 1908. The obligation to register the

document is invoked under provisions of the substantive law,

namely, Transfer of Property Act, 1882, while Section 17 of the Act,

1908 mandates that the non-testamentary instrument that created

any right, title or interest of the value of Rs.100/- or upwards in an

immovable property must be compulsorily registered. If document is

not registered, transfer is void, there is no valid transfer, and the

property described in the instrument does not pass on, for example,

mortgage does not become complete and enforceable until it is

registered under the Act, 1908.

79. Indisputably, the arbitration agreement is not a public

document to which compulsory registration as referred to under

Section 17 of the Act, 1908 is required and one can obtain a certified

copy of the public document under Sections 74 or 75 of the Evidence

Act, 1872. The Public Officer having the custody of a public

document can make available its certified copy as referred to under

Section 76 of the Evidence Act, 1872. In the absence of the

arbitration agreement being required to be compulsorily registered,

within the scope and ambit of Section 17 of the Act, 1908, such

arbitration agreement/document is not accessible in public domain 48

and is not a public document of which certified copy can be obtained,

as referred to under Section 74 of the Evidence Act, 1872, failing

which the question of presumption as to genuineness of document

purporting to be a certified copy as referred to under Section 79 of

the Evidence Act, 1872 may not arise.

80. In other words, when the arbitration agreement is not required

to be compulsorily registered as referred to under Section 17 of the

Act, 1908 the reference of a certified copy under the Scheme of Rules,

1996 appears to be of an authenticated copy of the arbitration

agreement that qualifies the requirement of Section 7 of the Act, 1996

at the pre-referral stage for the purposes of appointment of an

Arbitrator under Section 11(6A) of the Act, 1996. Hence, the question

of raising objection regarding the arbitration agreement not being

stamped or insufficiently stamped at the pre-referral stage may not

arise.

81. Section 16 of the Act, 1996 is referred to as under:-

“16. Competence of arbitral tribunal to rule on its jurisdiction. — (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,— 49

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence;

however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub- section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.”

82. Section 16(1) of the Act, 1996 envisaged that an Arbitral

Tribunal can rule upon own jurisdiction, “including ruling on any

objection with respect to the existence or validity of the arbitration

agreement”. The provision is based on the doctrine of Kompetenz-

Kompetenz and the doctrine of Separability. The doctrine of

Kompetenz-Kompetenz means that the Arbitral Tribunal is competent 50

enough to rule on its own jurisdiction. At the same time, the Doctrine

of Separability severs the arbitration clause from the commercial

contract. Section 16(1)(a) presupposes the existence of a clause of

arbitration and mandates the same to be treated as independent to

the other terms of the contract. Under Section 16, the Arbitral

Tribunal shall have the jurisdiction to determine the validity of the

arbitration agreement.

83. A division Bench of this Court in Uttarakhand Purv Sainik

Kalyan Nigam Limited v. Northern Coal Field Limited24 while

placing reliance on Duro Felguera (supra) held that issues related

to limitation must be raised before the Arbitral Tribunal. The Court

observed the following:

“7.8. By virtue of the non obstante clause incorporated in Section 11(6-A), previous judgments rendered in Patel Engg. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267], were legislatively overruled. The scope of examination is now confined only to the existence of the arbitration agreement at the Section 11 stage, and nothing more.”

84. What the Courts at the pre-referral stage can examine under

Section 11(6A) is only the “existence” of the arbitration agreement,

24 (2020) 2 SCC 455 51

while the Arbitral Tribunal shall have the jurisdiction to examine

“any objections with respect to the existence or validity of the

arbitration agreement”.

85. Section 45 of the Act, 1996 provides that:

“Power of judicial authority to refer parties to arbitration.— Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, [unless it prima facie finds] that the said agreement is null and void, inoperative or incapable of being performed.” (Emphasis added)

86. A plain comparison between Section 11(6A) and Section 45

manifests that the scope of Section 45 is much broader. Under

Section 45, a judicial authority has to examine whether the

agreement is “null and void”, “inoperative”, or “incapable of being

performed”.

87. This Court in World Sport Group (Mauritius) Limited v. MSM

Satellite (Singapore) Pte. Limited,25 in paras 33 to 35 explained

the difference between the terms ‘null and void’, ‘inoperative’ and

‘incapable of being performed’ as under:-

25 (2014) 11 SCC 639 52

“33. Mr. Gopal Subramanium's contention, however, is also that the arbitration agreement was inoperative or incapable of being performed as allegations of fraud could be enquired into by the court and not by the arbitrator. The authorities on the meaning of the words “inoperative or incapable of being performed” do not support this contention of Mr. Subramanium. The words “inoperative or incapable of being performed” in Section 45 of the Act have been taken from Article II(3) of the New York Convention as set out in para 27 of this judgment. Redfern and Hunter on International Arbitration (5th Edn.) published by the Oxford University Press has explained the meaning of these words “inoperative or incapable of being performed” used in the New York Convention at p. 148, thus:

“At first sight it is difficult to see a distinction between the terms ‘inoperative’ and ‘incapable of being performed’. However, an arbitration clause is inoperative where it has ceased to have effect as a result, for example, of a failure by the parties to comply with a time-limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. By contrast, the expression ‘incapable of being performed’ appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal.”

34. Albert Jan Van Den Berg in an article titled “The New York Convention, 1958 — An Overview” published in the website of ICCA(www.arbitrationicca.org/media/0/12125884227980/new_yo rk_convention_of-1958_overview.pdf), referring to Article II(3) of the New York Convention, states:

“The words ‘null and void’ may be interpreted as referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, fraud or undue influence.

The word ‘inoperative’ can be said to cover those cases where the arbitration agreement has ceased to have effect, such as revocation by the parties.

The words ‘incapable of being performed’ would seem to apply to those cases where the arbitration cannot be effectively set into motion. This may happen where the arbitration clause is too vaguely worded, or other terms of the contract contradict the parties' intention to arbitrate, as in the case of the so-called co-equal forum selection clauses. Even in these cases, the courts interpret the contract provisions in favour of arbitration.” 53

35. The book Recognition and Conferment of Foreign Arbitral Awards : A Global Commentary on the New York Convention by Kronke, Nacimiento, et al.(ed.) (2010) at p. 82 says:

“Most authorities hold that the same schools of thought and approaches regarding the term null and void also apply to the terms inoperative and incapable of being performed. Consequently, the majority of authorities do not interpret these terms uniformly, resulting in an unfortunate lack of uniformity. With that caveat, we shall give an overview of typical examples where arbitration agreements were held to be (or not to be) inoperative or incapable of being performed.

The terms inoperative refers to cases where the arbitration agreement has ceased to have effect by the time the court is asked to refer the parties to arbitration. For example, the arbitration agreement ceases to have effect if there has already been an arbitral award or a court decision with res judicata effect concerning the same subject-matter and parties. However, the mere existence of multiple proceedings is not sufficient to render the arbitration agreement inoperative. Additionally, the arbitration agreement can cease to have effect if the time-limit for initiating the arbitration or rendering the award has expired, provided that it was the parties' intent no longer to be bound by the arbitration agreement due to the expiration of this time-limit.

Finally, several authorities have held that the arbitration agreement ceases to have effect if the parties waive arbitration. There are many possible ways of waiving a right to arbitrate. Most commonly, a party will waive the right to arbitrate if, in a court proceeding, it fails to properly invoke the arbitration agreement or if it actively pursues claims covered by the arbitration agreement.”

88. The above explained examination does not arise in the language

of Section 11(6A). That is to say, the legislature has not borrowed the

language of Section 45 in Section 11(6A), which is limited to the

‘existence’ of the arbitration agreement. 54

VII. Limited Examination by Court under Section 11(6A) of the

Arbitration and Conciliation Act, 1996

89. The limited scope of Section 11(6A) of the Act, 1996 has been

explained by a three-judge bench of this Hon’ble Court in Pravin

Electricals Private Limited v. Galaxy Infra and Engineering

Private Limited26 at para 17 placing its reliance on Vidya Drolia

and Others(supra) wherein it was held that the existence of an

arbitration agreement means an agreement which satisfies the

requirements of both the Act, 1996 and the Contract Act, 1872 and

when it is enforceable in law. The judgment in United India

Insurance Company Limited and Another v. Hyundai

Engineering & Construction Company Limited and Others27 was

also relied upon in Pravin Electricals Private Limited(supra) to

demonstrate that Section 11(6A) deals with “existence”, juxtaposed

to Section 16 and Section 45, which deal with “validity” of an

arbitration agreement. There indeed lies a distinction between the

“existence” and the “validity” of an arbitration agreement.

26 (2021) 5 SCC 671

27 (2018) 17 SCC 607 55

90. The UNCITRAL Model Law also supports a distinction between

jurisdictional objections based on the alleged non-existence,

invalidity, or illegality of the arbitration agreement, and jurisdictional

objections based upon the scope of a concededly valid arbitration

agreement. 28 All issues of jurisdiction including the existence or

validity of the arbitration agreement can be decided by the Arbitral

Tribunal, whether or not appointed through the intervention of the

court under Section 16 of the Act, 1996.

VIII. Interpretation of “Existence of Arbitration Agreement”

91. In order to determine the “existence of an arbitration

agreement” under Section 11(6A), the Act, 1899 may not have a

bearing owing to the reason that at the pre-referral stage, if the

document is not duly stamped/insufficiently stamped that does not

render the arbitration agreement non-existent as discussed and

ascertained earlier. The only consideration that the courts/judicial

authority at the pre-referral stage needs to follow is the prima facie

28 UNCITRAL Model Law on International Commercial Arbitration (1985), with

amendments as adopted in 2006, Available at:

https://uncitral.un.org/sites/uncitral.un.org/files/media- documents/uncitral/en/19-09955_e_ebook.pdf 56

existence of an arbitration agreement as referred under Section 7 of

the Act, 1996 which provides:

“7. Arbitration agreement.—

(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

(3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication [including communication through electronic means] which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”

92. That is to say, the limited scope of the Court under Section

11(6A) at the pre-referral stage is to examine whether the arbitration

agreement, prima facie, exists as referred to under Section 7 of the

Act, 1996, which includes only the determination of the following

factors:

57 (i) Whether the arbitration agreement is in writing?

(ii) Whether the core contractual ingredients qua the

arbitration agreement are fulfilled?

(iii) On rare occasions, on a serious note of objection, if any, it

may examine whether the subject matter of dispute is

arbitrable?

IX. Clarification on Stamping of Arbitration Agreement

93. In the reference Order and in paras 20, 24 and 58 in particular,

a reference has been made that Maharashatra Stamp Act, 1958 does

not subject to arbitration agreement to payment of stamp duty. The

relevant paragraphs of the M/S. N.N. Global Mercantile Private

Limited (supra)29 are as follows:

“20. We have carefully perused the provisions of the Maharashtra Stamp Act, 1958 and Schedule I appended thereto, which enlists the instruments specified in Section 3, on which stamp duty is chargeable. We find that an arbitration agreement is not included in the Schedule as an instrument chargeable to stamp duty. Item 12 of Schedule I to the Maharashtra Stamp Act, 1958 includes an award passed by an arbitrator to be chargeable for payment of stamp duty…..

In Shriram EPC Ltd. v. Rioglass Solar SA [Shriram EPC Ltd. v. Rioglass Solar SA, (2018) 18 SCC 313], this Court held that the payment of stamp duty is applicable to awards made in India, but does not include a “foreign award” which has not been included in the Schedule to the Stamp Act, 1899.

24. …Section 3 of the Maharashtra Stamp Act does not subject an arbitration agreement to payment of stamp duty, unlike various

29 (2021) 4 SCC 379 58

other agreements enlisted in the Schedule to the Act. This is for the obvious reason that an arbitration agreement is an agreement to resolve disputes arising out of a commercial agreement, through the mode of arbitration. 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, unenforceable 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.

58. We consider it appropriate to refer the following issue, to be authoritatively settled by a Constitution Bench of five Judges of this Court:

“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?” (Emphasis added)

94. There appears to be an error in the view taken by the 3-Judge

Bench. The Schedule I to the Act, 1899 in its Article 5 titled

“Agreement or Memorandum of Agreement” has a residuary entry

which says (c) if not otherwise provided for- Eight annas. Article 5

has been reproduced as:

5. Agreement or Memorandum of an Agreement

(a) If relating to the sale of a Bill of Exchange; Two annas

(b) If relating to the sale of a Government Security or Subject to maximum of share in an incorporated Company or other body ten rupees, one anna corporate for every Rs. 10000/-

or part thereof of the value of the security or share

(c) if not otherwise provided for Eight annas Exemptions 59

Agreement or memorandum of agreement –

(a) for or relating to the sale of goods or Merchandise exclusively, not being a NOTE OR MEMORANDUM chargeable under No. 43;

(b) made in the form of tenders to the Central Government for or relating to any loan;

95. The examination of the arbitration agreement at the stage of

Section 11(pre-referral stage) should be done cautiously in a way that

it does not breach the legislative intent behind the provisions by

opening the door wide open for judicial intervention.

96. We, however, refrain ourselves to examine the question

regarding the scope and ambit of Section 9 of the Act, 1996 of which

a reference has been made by a three-Judge Bench in M/s. N.N.

Global Mercantile Private Limited(supra) since the present

reference is not concerned to examine the scope of Section 9 of the

Act, 1996 and leave it open to be examined in the appropriate

proceedings.

X. Answer to the Reference

97. To conclude, in our view:

i) We accordingly hold that the existence of a copy/certified

copy of an arbitration agreement whether unstamped/ 60

insufficiently stamped at the pre-referral stage is an

enforceable document for the purposes of appointment of an

Arbitrator under Section 11(6A) of the Act, 1996 where the

judicial intervention shall be minimal confined only to the

prima facie examination of “existence of an arbitration

agreement” alone keeping in view the object of 2015

amendment and the courts must strictly adhere to the time

schedule for the appointment of Arbitrator prescribed under

Section 11(13) of the Act, 1996.

ii) All the preliminary/debatable issues including insufficiently

stamped/unduly stamped or validity of the arbitration

agreement etc. are referrable to the Arbitrator/Arbitral

Tribunal under Section 16 of the Act, 1996 which, by virtue

of the Doctrine of Kompetenz - Kompetenz has the power to

do so.

iii) The decision in SMS Tea Estates Private Limited(supra)

stands overruled. Paras 22 and 29 of Garware Wall Ropes

Limited(supra) which are approved in paras 146 and 147 in

Vidya Drolia and Others(supra) are overruled to that extent.

61 98. The reference is answered accordingly.

99. We appreciate the contribution made by Mr. Gourab Banerjee,

Amicus Curiae in answering the reference made to this Court.

……………………………..J. (AJAY RASTOGI)

NEW DELHI;

APRIL 25, 2023.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 3802-3803 OF 2020 M/S N.N. GLOBAL MERCANTILE PVT. LTD. APPELLANT(S)

VERSUS M/S INDO UNIQUE FLAME LTD. & ORS. RESPONDENT(S)

JUDGMENT Hrishikesh Roy, J.

A. Introduction B. Reference to the Constitution Bench C. Facts in NN Global D. Modification of the reference question E. Submissions of Counsel F. Statutory scheme of the Stamp Act,1899 G. Statutory scheme of the Arbitration Act, 1996

i) Evolution of law under Section 11(6) of the Arbitration Act,1996

ii) Post-2015 Regime: Insertion of Section 11(6A)

iii) Post-2019 Amendment and the Report of the High-level Committee to review the Institutionalisation of Arbitration in India H. Discussion on SMS Tea I. Discussion on Garware J. Interplay between the Stamp Act, Arbitration Act and Contract Act.

i) Arbitration Act is a special legislation

ii) Harmonious Construction K. Advent of Technology and the changing nature of transactions L. Doctrine of Separability M. Kompetenz Kompetenz, & the issue of judicial logjam in India N. Discussion on Vidya Drolia O. Conclusion

Page 1 of 78 A. Introduction

1. I had the benefit of reading the erudite opinion of my Learned Brother, Justice

K.M. Joseph (for himself and Justice Aniruddha Bose) and the separate

judgment of Learned Brother Justice C.T. Ravikumar. However, I regret my

inability to agree with the majority opinion and the concurring judgment.

Echoing the words of Charles Evans Hughes1 in one of his lectures delivered

at the University of Columbia, let our minority opinion (self and Learned

Brother Justice Ajay Rastogi, who has written a separate opinion), appeal to

the brooding spirit of the future as also the powers of the legislature to

examine the interplay between the Arbitration and Conciliation Act, 1996 (for

short “Arbitration Act, 1996”)and the Indian Stamp Act,1899 (for short “Stamp

Act,1899”); and to emphatically resolve the imbroglio to avoid any confusion

in the minds of the stakeholders in the field of arbitration.

2. The role of Courts in arbitral proceedings has been much debated for years.

Autonomy of the disputing party is the core of the arbitral process but if the

parties fail to arrive at a consensus, the supervisory role of Courts becomes

imperative. Redfern and Hunter on International Commercial Arbitration2

describe the relationship between national courts and arbitral tribunals as

follows:

“To the extent that the relationship between national courts and arbitral tribunals is said to be one of ‘partnership’, it is not a partnership of equals. Arbitration may depend upon the agreement of the parties, but it is also a system built on law, which relies upon that law to make it effective both nationally and internationally. National Courts could exist without arbitration, but arbitration could not exist without the courts. The real

1 Charles Evans Hughes, The Supreme Court of The United States Its Foundations, Methods and Achievements,(Columbia University Press) 68 (1928) 2 Alan Redfern and Martin Hunter, Redfern and Hunter on International Arbitration (6th Edition, 2015, Oxford University Press), Chapter 7, Paragraph 7.03

Page 2 of 78 issue is to define the point at which this reliance of arbitration on the national courts begins and at which it ends.”

[Emphasis supplied]

3. The supervisory role of Courts under the Arbitration Act,1996 can be broadly

categorized into three parts i.e., pre-commencement of arbitral proceedings,

during the arbitral proceedings and at the post-arbitration stage. Section 8

and Section 11 in Part I of the Arbitration Act, 1996, and Section 45 in Part II

of the Arbitration Act,1996 specifically deal with the role of Courts before the

initiation of arbitration proceedings. Section 8 deals with the “Power to refer

parties to arbitration” where there is an arbitration agreement; it provides for

a mandatory reference to arbitration, unless the Court is prima facie satisfied

that no valid arbitration agreement exists. Section 11(6), on the other hand,

provides for “Appointment of Arbitrators” when parties fail to mutually agree

on the name of an arbitrator or appoint an arbitrator in terms of the

arbitration agreement. Section 45 refers to the “Power of judicial authority to

refer parties to arbitration” in Part II of the Arbitration Act,1996.

4. Here in this reference, the extent of judicial intervention before the

commencement of arbitral proceedings is being tested. It raises important

issues of delays in the enforcement of arbitration agreements, subject to

payment of stamp duty and whether an arbitration agreement would be non-

existent, invalid/void, or unenforceable in law, if the underlying instrument is

not stamped/insufficiently stamped, as per the relevant Stamp Act.

5. The moot question in this reference is whether the statutory bar under Section

35 titled “Instruments not duly stamped inadmissible in Evidence” of the

Page 3 of 78 Stamp Act,1899 would be attracted when an arbitration agreement is

produced under Section 11(6) of the Arbitration Act,1996. As a corollary, this

reference also tests the scope and nature of the Court’s intervention

specifically at the stage of appointment of arbitrator under Section 11 of the

Arbitration Act, 1996. The conundrum over the scope of judicial review and

the validity/enforceability of the unstamped/insufficiently stamped

arbitration agreement contained in an underlying contract is expected to be

resolved in this reference.

B. Reference to the Constitution Bench

6. A 3-judge bench in M/S N.N. Global Mercantile Private Limited v M/S Indo

Unique Flame Limited and others3 (for short “NN Global”) by doubting the

reasoning in Paragraphs 146 and 147 of a coordinate bench of this Court in

Vidya Drolia and others v Durga Trading Corporation4 (for short “Vidya Drolia”)

considered it appropriate for the issue to be examined by a Bench of five

judges. The matter before the Court in Vidya Drolia(supra) was related to

subject-matter arbitrability but while deciding the question, it cited with

approval Paragraphs 22 and 29 of the 2-judge Bench judgment in Garware

Wall Tropes Limited v Coastal Marine Constructions and Engineering

Limited5(for short “Garware”).

7. Following the decision in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P)

Ltd.6(for short “SMS Tea”), it was held in Garware(supra) that non-payment of

stamp duty on the commercial contract would invalidate even the arbitration

agreement and render it non-existent in law and unenforceable. 3 (2021) 4 SCC 379 4 (2021) 2 SCC 1 5 (2019) 9 SCC 209 6 (2011) 14 SCC 66 Page 4 of 78

8. This Court in NN Global(supra) overruled the 2-judge bench decision in SMS

Tea(supra) which was cited with approval in Garware(supra).

9. NN Global(supra) relied inter alia, on the principle of Kompetenz Kompetenz

and the doctrine of Separability incorporated under Section 16 of the

Arbitration and Conciliation Act, 1996 to doubt the correctness of the view

taken in Vidya Drolia(supra) and Garware(supra). The relevant paragraphs

which define the scope of this reference are extracted below:

“34. We doubt the correctness of the view taken in paras 146 and 147 of the three-Judge Bench in Vidya Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] . We consider it appropriate to refer the findings in paras 22 and 29 of Garware Wall Ropes Ltd. [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , which has been affirmed in paras 146 and 147 of Vidya Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] , to a Constitution Bench of five Judges.

56. We are of the considered view that the finding in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] and Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 :

(2019) 4 SCC (Civ) 324] that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-existent in law, and unenforceable, is not the correct position in law.

57. In view of the finding in paras 146 and 147 of the judgment in Vidya Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 :

(2021) 1 SCC (Civ) 549] by a coordinate Bench, which has affirmed the judgment in Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , the aforesaid issue is required to be authoritatively settled by a Constitution Bench of this Court.

58. We consider it appropriate to refer the following issue, to be authoritatively settled by a Constitution Bench of five Judges of this Court:

“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or

Page 5 of 78 invalid, pending payment of stamp duty on the substantive contract/instrument?”

10. Thus, the correctness of the decisions in SMS Tea(supra), Garware(supra),

Vidya Drolia(supra), as well as other relevant decisions is to be evaluated

during the course of the reference. It has been brought to the notice of this

Court that conflicting decisions have created a vexed situation for arbitral

proceedings and hence, this issue is expected to be settled through this

reference.

11. The background facts in NN Global (supra) which gave rise to this

reference are to be noted at the outset:

C. Facts in N.N. Global7

12. Indo Unique Flame Ltd. (for short “Indo Unique Flame”) entered into a

sub-contract Work Order with N.N. Global Mercantile Pvt. Ltd (“NN Global”) on

28.09.2015 for transportation of coal. In terms of Clause 9 of the Work Order,

NN Global furnished a Bank Guarantee to Indo Unique. Clause 10 of the Work

Order provided for an arbitration clause. Due to certain disputes in the

principal contract, Indo Unique invoked the Bank Guarantee furnished by NN

Global. Thereafter, NN Global filed a Civil Suit before the Commercial Court,

Nagpur. An application under Section 8 of the Arbitration Act, 1996 was also

filed seeking reference of the disputes to arbitration. The Commercial Court

on 18.01.2018 rejected the application under Section 8 of the Arbitration Act,

1996 holding that the Bank Guarantee was an independent contract.

Thereafter, Indo Unique filed a Writ Petition against the order of the

Commercial Court. On 30.9.2020, the Bombay High Court allowed the

7 (2021) 4 SCC 379

Page 6 of 78 application under Section 8 of the Arbitration Act,1996. It held that the non-

stamping of Work Order can be raised at the stage of Section 11 of the

Arbitration Act,1996 or before the Arbitral Tribunal at the appropriate stage. It

set aside the order of the Commercial Court on 18.01.2018. An appeal was

filed in this Court where NN Global contended that since the sub-contract was

not stamped under the Maharashtra Stamp Act, 1958, the arbitration

agreement would be rendered ‘unenforceable’. It is in this context that the

Court doubted the correctness of previous decisions in Garware (supra) which

was cited with approval in Vidya Drolia (supra) declaring such arbitration

agreements to not exist in law and reconsideration of the issue was sought

from this Constitution Bench.

D. Modification of the reference question:

13. The original reference question in Para 58 of N.N. Global (supra) was set

out as under:

“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty as being non- existent, unenforceable in law, or invalid/void, pending payment of stamp duty on the substantive contract/instrument?” [emphasis supplied] Mr. Gourab Banerjee, learned Senior Counsel assisting this Court as Amicus

Curiae however proposed to reframe the question of reference, as under:

“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty as being non-existent, unenforceable in law, or invalid/void, pending payment of stamp duty on the substantive contract/instrument?”

Page 7 of 78 [Emphasis in original]

14. It is seen that an erroneous observation pertaining to the Maharashtra

Stamp Act,1958 not subjecting an arbitration agreement to stamp duty was

made in para 20, 24 and 58 in NN Global(supra). In each of our four opinions,

Justice KM Joseph, Justice C.T. Ravikumar, Justice Ajay Rastogi (& self), we

find that this is not the correct position on the applicability of the

Maharashtra Stamp Act,1958. The Indian Stamp Act,1899 is a fiscal

enactment that levies a charge on the execution of instruments. Section 2(14)

of the Stamp Act, 1899 defines “instrument” as “every document by which any

right or liability is, or purports to be, created, transferred, limited, extended,

extinguished or recorded”. Section 3 titled “Instruments chargeable with

duty” provides inter alia that the instrument must be mentioned in the

Schedule to the Act. It is essential to note that arbitration agreements are not

specifically mentioned in Schedule I of the Stamp Act,1899 as “instruments”

which are required to be stamped. However, under the residuary entry in

Article 5(c) of Schedule I of the Stamp Act, 1899 titled as “if not otherwise

provided for”, stamp duty becomes payable. This residuary entry is contained

in amendments to Schedule I of the Stamp Act, 1899, as well as various State

Stamp Acts. I would therefore proceed on the basis that an arbitral agreement

falls within the definition of “instrument” as stipulated under the Stamp

Act,1899 and would be subject to stamp duty.

E. Submissions of the Counsel:

15. We have heard the elaborate submissions from Mr. Gourab Banerjee, Learned

Senior Counsel assisting this Court as Amicus Curiae; Mr. Gagan Sanghi,

Page 8 of 78 Learned Counsel for the appellant; Ms. Malavika Trivedi, Learned Senior

Counsel for the Intervenor in IA 18516 of 2022; Mr. Ramakanth Reddy,

Learned Senior Counsel for Respondent No. 1 and Mr. Debesh Panda,

Learned Counsel for the Intervenor in IA 199969 of 2022. They have cited

various decisions of this Court as well as of Courts in other jurisdictions.

16. The learned Amicus Curiae makes the following specific submissions:

16.1. The Determination of whether an arbitration agreement is duly stamped

or not, must be left to the arbitrator. Section 11(6A) of the Arbitration Act, 1996

circumscribes the scope of the appointing authority. It begins with a non-

obstante clause and was specifically meant to overrule the 7-judge bench in

SBP & Co v Patel Engg. Ltd8. (for short “SBP”) and National Insurance Co. Ltd. V

Boghara Polyfab (P) Ltd9 (for short “Boghara Polyfab”). Moreover, the ambit of

Section 16 of Arbitration Act, 1996 which deals with the competence of an

arbitral tribunal to rule on its jurisdiction, is wide enough, according to Mr.

Gourab Banerjee, to allow the arbitrator to make a determination with respect

to the stamping of the instrument.

16.2. The 246th Report of the Law Commission of India10 (for short “246th LCI

Report) recommended that the scope of authority be limited to “existence” and

“validity” of the arbitration agreement. The legislature went one step further

and limited the scope of the appointing authority under Section 11(6A) of the

Arbitration Act,1996 to confine to the examination of only “existence” and not

8 (2005) 8 SCC 618 9 (2009) 1 SCC 267 10 Law Commission of India, ‘Amendments to the Arbitration and Conciliation Act 1996’ (246th Report, August 2014) Available at (https://cdnbbsr.s3waas.gov.in/s3ca0daec69b5adc880fb464895726dbdf/uploads/2022/0 8/2022081615.pdf) <Last accessed on 19.3.2023>

Page 9 of 78 even “validity” of the arbitration agreement. Such approach is consistent with

the objective of expeditious resolution of arbitration disputes. A Court under

Section 11(6) of Arbitration Act,1996 is in the nature of an appointing authority,

to facilitate and assist arbitration.

16.3 The statutory bar in Section 35 of the Stamp Act, 1899 would be triggered

only when there is a finding that the document is not duly stamped. For the

same, there ought to be an inquiry into stamping. Only on triggering of Section

33(2) of the Stamp Act, 1899 titled “Examination and impounding of

instruments”, Section 35 will follow. The examination under Section 33(2) of the

Stamp Act, 1899 should not be undertaken by a Court under Section 11(6A) of

the Arbitration Act, 1996, but by the appointed arbitrator.

16.4. If the court finds under Section 11 of the Arbitration Act, 1996 that there

is no agreement, then it can take a final view. However, if the Court feels that a

deeper consideration is required then the same can be left to the Arbitral

Tribunal under Section 16 of the Arbitration Act,1996. According to Mr. Gourab

Banerjee, the learned Senior Counsel, this is the appropriate way to harmonise

Section 11(6A) with Section 16 of the Arbitration Act, 1996.

16.5. The absence of stamping or instrument inadequately stamped would at

best be an issue of admissibility but not about jurisdiction. The Stamp

Act,1899 is a fiscal measure enacted to secure revenue for the State for certain

classes of instruments. It is, therefore, not enacted to arm a litigant with a

weapon of technicality to meet the case of the opponent.

16.6. The learned Amicus Curiae points out that a Court exercising power

under Section 11(6A) of the Arbitration Act, 1996 is not a Court as defined in

Page 10 of 78 Section 2(1)(e) of the Arbitration Act, 1996 which has the authority to ‘receive

evidence’. In some sense, under Section 11(6A), the Court is to only form a

prime facie opinion.

16.7. Significantly, the parties are not under an obligation to file an original

arbitration agreement and only the copy can be annexed which however is not

an “instrument” as provided in Section 2(14) of the Stamp Act, 1899. The

reading of Section 33 or 35 of the Stamp Act, 1899 would pointedly suggest that

these provisions are not concerned with the copy of the instrument. Validity is

always open to examination at the post-referral stage. [Jupudi Kesava Rao v

Pulavarthi Venkata Subbarao and others11, Hariom Agrawal v Prakash Chand

Malviya12]

17. Projecting the contrary view, Mr. Gagan Sanghi, learned Counsel for the

appellant makes the following submissions:

17.1. Section 35 of the Indian Stamp Act,1899 bars admission of unduly

stamped “instrument” in evidence “for any purpose” and also “acting upon it”.

In Govt. of AP. v P. Laxmi Devi13, it was held that “shall” in Section 33 of Stamp

Act,1899 is mandatory and unstamped document must be impounded.

17.2. Even assuming that stamp duty is not payable on an arbitration

agreement under Stamp Act, 1899, when arbitration agreement is contained as

a clause in an instrument on which stamp duty is payable, such arbitration

agreement as an instrument, attracts the bar of Section 35 of the Stamp

Act,1899.

11 (1971)1 SCC 545 12 (2007) 8 SCC 514 13 (2008) 4 SCC 720

Page 11 of 78 17.3. The learned counsel argues that separation of agreement from the

substantive contract is a legal fiction created by Section 16 of the Arbitration Act,

1996. Section 16 of Arbitration Act,1996 cannot be an exception to Section 35 of

the Indian Stamp Act, 1899.[Bengal Immunity Co vs State of Bihar14, Para 69,70

of Govt. of India v Vedanta15; Amazon V Future Retail16]

17.4. According to Mr. Sanghi, Doctrine of Separability and Kompetenz

Kompetenz has no bearing on the issue of enforceability of an arbitration

agreement when proper stamp duty is not paid on the instrument containing

the arbitration agreement. The learned counsel relied on the decision of UK

Supreme Court in Enka Insaat v OOO Insurance Company17 where it was held

that an “arbitration clause is nonetheless part of bundle of rights and obligations

recorded in the contractual document”.

17.5. The issue of stamping is to be looked into at the very threshold, even if it

is in exercise of Section 11 (6A) of the Arbitration Act, 1996, i.e. at the time, the

consideration with respect to appointment of arbitrator is undertaken.

According to the learned counsel, an instrument would exist in law only when

it is enforceable. Therefore, when the Court under Section 11(6A) of the

Arbitration Act, 1996 is considering the “existence” of the arbitration agreement,

it can examine the issue of non-stamping or of inadequate stamping at that

stage itself.

17.6. Highlighting that three modes are provided in NN Global (supra) i.e.

impounding, payment of stamp duty and then appointment of arbitrator, it is

14 (1955) 2 SCR 603 15 (2020)10 SCC 1 16 (2022) 1 SCC 209 17 [2020] UKSC 38

Page 12 of 78 argued that when an arbitrator is appointed in a Section 11 application, the

Court is certainly “acting upon” the arbitration clause which is contended to be

barred by the clear wordings of Section 35 of the Stamp Act, 1899. An

Agreement, unless “enforceable”, is not in “existence”.

18. The learned Senior Advocate, Ms. Malvika Trivedi, intervening on behalf of the

Appellant made the following submissions:

18.1.The Regimes of the Stamp Act, 1899 and Registration Act, 1908 are

completely different. NN Global (supra) wrongly applied the principles of

registration of a document to the requirement of stamping a document. While

the former is a curable defect, the latter determines the very existence and

completion of a document/instrument. In the absence of registration, an

instrument still remains in existence but without stamping, the instrument is

incomplete/inchoate.

18.2.The Stamp Act, 1899 envisages the payment of stamp duty, failing which

the instrument according to Ms. Trivedi cannot be acted upon for any purpose.

There is no ambiguity in the language of the Statute and plain reading should

be opted.

18.3. The powers of the Court under different provisions of law, as well as the

restrictions created in the Stamp Act, 1899 apply to the proceedings conducted

in accordance with Section 9 of the Arbitration Act,1996. It is, therefore, argued

that even if the arbitration clause stands severed, the Court will have to reach

a prima facie conclusion on whether the main agreement is enforceable in law

before granting interim measures.

Page 13 of 78

19. Learned Counsel for the Respondent No. 1, Mr. Ramakanth Reddy, took us

through the relevant Lok Sabha debates before the enactment of the Arbitration

Act,1996 and makes the following submissions:

19.1 Provisions of Arbitration Act, 1996; Stamp Act, 1899 and Contract Act,

1872 can be harmonized. Section 17 of Stamp Act, 1899 has to be read with

Section 31 of Stamp Act, 1899.

19.2 Plain language of Section 7 of the Arbitration Act,1996 does not require

that the parties stamp the agreement. The legislative intention would be

defeated, if the Court insists on non-core technical requirements such as

stamps, seals and originals.

20. In his turn, Mr. Debesh Panda, learned Counsel for the Intervenor submits

the following:

20.1 Part I of Arbitration Act, 1996 deals with Section 8,9 and 11 whereas

Section 45 is dealt with in Part II. Section 45 has been recognized as a provision

falling under Part II which is a “complete code”. [See Chloro Controls v Severn

Trent Water Purification Inc18] The expression “unless it finds” in Section 45 was

interpreted per majority in Shin-Etsu Chemical Co. Ltd. v Aksh Optifibre Ltd19

(for short “Shin-Etsu) as a consideration on a “prima facie basis” only. In 2019,

Parliament amended Section 45. It substituted the expression “unless it finds.”

with “unless it prima facie finds”. It thus brings the statute in line with the

position settled in Shin Etsu (supra). In this background, the Stamp Act, 1899

merely creates a temporary infliction till the stamp duty is recovered, with or

18 (2013) 1 SCC 641 19 (2005) 7 SCC 234

Page 14 of 78 without penalty (as the case may be). The affliction only attaches to the

instrument and not the transaction.

20.2 The Arbitration Act, 1966 has always been held to be an exhaustive

legislation in the nature of a complete Code. [Paragraphs 83-84, 89 in Fuerst

Day Lawson Ltd. v. Jindal Exports Ltd.20] According to Mr. Panda, the

impounding of the parent instrument that contains the arbitration agreement

by a forum that exercises power under the complete Code, either under Section

8, 9 and 11 within Part I, or under Section 45 within Part-II, is inconsistent

with the character of Arbitration Act, 1996 which is in the nature of a complete

code.

21. Looking at the respective projection by the learned Amicus Curiae and other

counsels, the following questions fall for our consideration:

i) Whether the non-stamping of the substantive contract/instrument

would render the arbitration agreement non-existent in law, void and

unenforceable at the stage of Section 11 of the Arbitration Act, 1996

for the purpose of referring a matter for arbitration?

ii) Whether the examination of stamping and impounding should be

done at the threshold by the Section 11 judge or should it be left to

the arbitrator?

F. The Statutory framework of the Stamp Act, 1899 20 (2011) 8 SCC 333

Page 15 of 78

22. Let us begin by examining the objective behind the enactment of the Stamp

Act, 1899. The 67th Law Commission Report21 suggests that the idea of a fiscal

enactment for the purpose of collecting revenue for the State first originated in

Holland and thereafter, the Bengal Regulation 6 of 1797 was enacted in India.

This was initially limited to Bengal, Bihar, Orissa and Banaras. Subsequently,

various stamp regulations were introduced in Bombay and Madras. The Stamp

duties were primarily intended to compensate for the deficiency in public revenue

due to abolition of tax for the maintenance of police establishments, leviable on

“Indian Merchants and Traders”. However, the Regulation paved way for later

enactments relating to stamp duty. In 1860, the first Act relating to Stamp duties

was enacted in India. This was repealed by the Act of 1862, 1869, 1879 and

subsequently, the Act of 1899 was enacted which is the current legislation.

23. Reflecting on the objective of the Stamp Act, 1899, a 3-judge bench of this

Court in Hindustan Steel Ltd. v. Dilip Construction Co.22 (for short “Hindustan

Steel”) speaking through J.C. Shah J. made the following pertinent observation:

“7. The Stamp Act is a fiscal measure enacted to secure revenue for the State on certain classes of instruments: It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent.”

24. Learned Amicus Curiae, Mr. Gourab Banerjee cited the decision of the

Pakistan Supreme Court in Union Insurance Company of Pakistan Ltd. v Hafiz

Muhammad Siddique23 which addressed this issue as early as 1978, following the

ratio in Hindustan Steel (supra). Faced with the question of whether there would

be any valid arbitral proceedings, if the arbitration agreement is unduly stamped

21 Law Commission of India, ‘Indian Stamp Act’ (67th Report, February,1997) available at https://lawcommissionofindia.nic.in/report_seventh/accessed on 11March 2023 22 (1969) 1 SCC 597 23 1978 PLD SC 279

Page 16 of 78 and hence, inadmissible in evidence under Section 35 of the Stamp Act,1899; the

Court attributed a purely fiscal purpose to stamping, holding that stamping is

not meant to interfere in commercial life. Discussing the provisions of the Stamp

Act,1899 including Section 61 which empowers appellate Courts to revise

decisions on “sufficiency” of stamps, Dorab Patel J concluded that:

“the object of the legislature in enacting the Stamp Act was to protect public revenue and not to interfere with commercial life by invalidating instruments vital to the smooth flow of trade and commerce.”

[emphasis supplied]

25. Thus, the object is to see that the revenue for the State is realised to the

utmost extent24 and not to affect the validity of the document. Its provisions

must be construed narrowly to that extent. In the same judgment, it was

elaborated by the Pakistan Supreme Court as under:

“For example, an instrument would be produced in evidence only when there is a dispute about it, therefore, if the intention of the Legislature had been to render invalid all instruments not properly stamped, it would have made express provision in this respect and it would have also provided some machinery for enforcing its mandate in those cases in which the parties did not have occasion to produce unstamped instruments before the persons specified in the section.”

26. This Court in RIO Glass Solar SA v. Shriram EPC Limited and Ors.25 while

holding that foreign awards need not be stamped noted that the Stamp

Act,1899 reflects the fundamental policy of Indian law. A 2-judge bench

speaking through Nariman J. noted as under:

“ 34. ……The fundamental policy of Indian law, as has been held in Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644, and followed in Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49, makes it clear that if a statute like the Foreign Exchange Regulation Act, 1973 dealing

24 J.M.A. Raju v Krishnamurthy Bhatt, AIR 1976 Guj 72; Chiranji Lal (Dr.) v. Hari Das (2005) 10 SCC 746; Jagdish Narain v. Chief Controlling Revenue Authority, AIR 1994 All

371. 25

(2018) 18 SCC 313

Page 17 of 78 with the economy of the country is concerned, it would certainly come within the expression “fundamental policy of Indian law”. The Indian Stamp Act, 1899, being a fiscal statute levying stamp duty on instruments, is also an Act which deals with the economy of India, and would, on a parity of reasoning, be an Act reflecting the fundamental policy of Indian law.” [emphasis supplied]

27. The object of the Stamp Act can be further understood from S.

Krishnamurthy Aiyar’s Commentary26 on the Stamp Act, 1899 where discussing

the judgments in Hindustan Steel(supra) and J.M.A Raju v Krishnamurthy Bhatt 27 , the object is stated as under:

“The object of the Stamp Act is a purely fiscal regulation. Its sole object is to increase the revenue and all its provisions must be construed as having in view the protection of revenue. It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The whole object is to see that the revenue of the State is realised to the utmost extent” It is plain that the legislative intent and object behind the Stamp Act,1899, is to

secure revenue for the State and it is an Act reflecting the fundamental policy

of Indian law. Thus, policy considerations and securing revenue must also be

kept in mind while interpreting the provisions of the Stamp Act,1899.

27.1. In the case of Commissioner of IT v. Chandanben Maganlal28, it was

held that any provision relating to a tax statute must be interpreted so that

the meaning of such provision must harmonise with the legislature’s

intention behind the law. Let us now consider Section 35 & 36 of the Stamp

Act, 1899 with which we are directly concerned. They are extracted below:

“35. Instruments not duly stamped inadmissible in evidence, etc.— No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or

26 S. Krishnamurthy Aiyar, The Indian Stamp Act, An Exhaustive Summary with State Amendments; 7th Edn, P. 22 27 AIR 1976 Guj 72 28 (2000) 245 ITR 182

Page 18 of 78 authenticated by any such person or by any public officer, unless such instrument is duly stamped: Provided that—

(a) any such instrument [shall], be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;

(b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him, on payment of a penalty of one rupee by the person tendering it;

(c) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;

(d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898);

(e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of 66 [the 67 [Government]] or where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act.” “36. Admission of instrument where not to be questioned.—Where an instrument has been admitted in evidence, such admission shall not, except as provided in section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not duly stamped.”

28. Section 35 proscribes authorities from considering unstamped documents

but the exceptions to the statutory bar under Section 35 as provided in

35(a),(b),(d) and (e) and Section 36, would clearly suggest that non-payment of

stamp duty is a curable defect and the document would not be rendered void at

the first instance, if the requisite Stamp duty is not paid. Thus, there is no

absolute bar. It is also well-settled in law that failure to stamp a document

Page 19 of 78 does not affect the validity of the transaction embodied in the document; it

merely renders a document inadmissible in evidence29.

28.1. K. Krishnamurthy30 in the Commentary on the Indian Stamp Act, 1899

discusses the proviso to Section 35 of Stamp Act, 1899 as under:

“This proviso enables Courts and Arbitrators to admit in evidence documents unstamped or deficiently stamped on payment of the proper duty and penalty. An instrument not duly stamped shall be admitted in evidence on payment of the duty and penalty. An instrument not duly stamped shall be admitted in evidence on payment of the duty with which the same is chargeable or in the case of an instrument insufficiently stamped, of the amount required to make up such together with penalty31. An award which is not engrossed on stamped paper or is engrossed on an insufficiently stamped paper may be validated with retrospective effect by payment of the duty or deficit duty32. Where an award is not stamped, the defect in the award can be cured by impounding the document and after the defect is removed it can be brought on record and made a rule of the Court. 33” [emphasis supplied]

29. Similarly, Section 42(2) of the Stamp Act, 1899 which deals with the

consequence of non-stamping provides as follows:

“42. Endorsement of instruments in which duty has been paid under section 35, 40 or 41.— (1) When the duty and penalty (if any) leviable in respect of any instrument have been paid under section 35, section 40 or section 41, the person admitting such instrument in evidence or the Collector, as the case may be, shall certify by endorsement thereon that the proper duty or, as the case may be, the proper duty and penalty (stating the amount of each) have been levied in respect thereof, and the name and residence of the person paying them.

(2) Every instrument so endorsed shall thereupon be admissible in evidence, and may be registered and acted upon and authenticated as if it had been duly stamped, and shall be delivered on his

29 Gulzari Lal Malwari v Ram Gopal AIR 1937 Cal 765; Mattegunta Dhanalakshmi v Kantam Raju Saradamba,AIR 1977 AP 348; See also Puranchandra v Kallipada Roy, AIR 1942 Cal 386;Boottam Pitchiah v Boyapati Koteswara Rao AIR 1964 AP 519 30 K. Krishnamurthy, The Indian Stamp Act, An Exhaustive Summary with State Amendments;12th Edition P. 372-373 31 Omprakash v. Laxminarayan 2014(1) SCC 618 32 Pattoolal Sharma v Rajadhiraj Umrao Singh AIR 1955 NUC 2621 33 Wilson & Co. Pvt. Ltd. V K.S. Lokavinayagam AIR 1992 Mad 100

Page 20 of 78 application in this behalf to the person from whose possession it came into the hands of the officer impounding it, or as such person may direct:

Provided that—

(a) no instrument which has been admitted in evidence upon payment of duty and a penalty under section 35, shall be so delivered before the expiration of one month from the date of such impounding, or if the Collector has certified that its further detention is necessary and has not cancelled such certificate;

(b) nothing in this section shall affect the Code of Civil Procedure, 1882 (14 of 1882), section 144 clause 3.” [emphasis supplied]

30. The phraseology of Sections 36, 35 and 42 of the Stamp Act,1899 was

considered in Hindustan Steel (supra). The factual backdrop therein was that

Hindustan Steel made an application under Section 30 and 33 of the Indian

Arbitration Act,1940 for setting aside the award on the ground that it was

unstamped and as such, void ab initio. This Court, however, held that there is

no bar against an instrument not duly stamped being “acted upon”, after

payment of stamp duty and penalty according to the procedure prescribed in

the Act. It was pertinently observed as follows:

“6. Relying upon the difference in the phraseology between Sections 35 and 36 it was urged that an instrument which is not duly stamped may be admitted in evidence on payment of duty and penalty, but it cannot be acted upon because Section 35 operates as a bar to the admission in evidence of the instrument not duly stamped as well as to its being acted upon, and the Legislature has by Section 36 in the conditions set out therein removed the bar only against admission in evidence of the instrument. The argument ignores the true import of Section 36.

-

By that section an instrument once admitted in evidence shall not be called in question at any stage of the same suit or proceeding on the ground that it has not been duly stamped. Section 36 does not prohibit a challenge against an instrument that it shall not be acted upon because it is not duly stamped, but on that account there is no bar against an instrument not

Page 21 of 78 duly stamped being acted upon after payment of the stamp duty and penalty according to the procedure prescribed by the Act. The doubt, if any, is removed by the terms of Section 42(2) which enact, in terms unmistakable, that every instrument endorsed by the Collector under Section 42(1) shall be admissible in evidence and may be acted upon as if it has been duly stamped.” (emphasis supplied)

31. The above would indicate that there is no absolute bar against the

instrument being “acted upon” since at a later stage the defect is curable.

31.1. Arguing that the above course is not available, Ms. Malavika Trivedi,

learned Senior Counsel for the intervenor had contended that Section 35

provides for a statutory bar, where the agreement shall not be admitted in

evidence for any purpose nor shall it be acted upon, registered or authenticated

by any such person or by any public officer. It is, therefore, submitted that

when a Court appoints an arbitrator under Section 11 of Arbitration Act,1996, it

is certainly “acting upon” the arbitration clause, which is barred by the clear

language of Section 35 of the Stamp Act,1899. Let us now proceed to test the

above argument.

31.2 In Hameed Joharan v. Abdul Salam34 in the context of an unstamped

decree for partition, 2 judges of this Court had the occasion to interpret Section

35 of the Stamp Act,1899 and the interplay with Article 136 of the Limitation

Act,1963. It was contended in that case that an instrument not duly stamped,

cannot be “acted upon”. The issue therein was whether a decree passed in a

suit for partition can be acted upon/enforced, without engrossing on stamp

paper. It was also argued that the period of limitation begins to run from the

34 (2001) 7 SCC 573

Page 22 of 78 date when the decree becomes enforceable i.e. when the decree is engrossed on

the stamp paper. In this context, the Court opined that:

“38. …..Undoubtedly, Section 2(15) includes a decree of partition and Section 35 of the Act of 1899 lays down a bar in the matter of unstamped or insufficient stamp being admitted in evidence or being acted upon — but does that mean that the prescribed period shall remain suspended until the stamp paper is furnished and the partition decree is drawn thereon and subsequently signed by the Judge? The result would however be an utter absurdity. As a matter of fact, if somebody does not wish to furnish the stamp paper within the time specified therein and as required by the civil court to draw up the partition decree or if someone does not at all furnish the stamp paper, does that mean and imply, no period of limitation can be said to be attracted for execution or a limitless period of limitation is available. The intent of the legislature in engrafting the Limitation Act shall have to be given its proper weightage. Absurdity cannot be the outcome of interpretation by a court order and wherever there is even a possibility of such absurdity, it would be a plain exercise of judicial power to repel the same rather than encouraging it. The whole purport of the Indian Stamp Act is to make available certain dues and to collect revenue but it does not mean and imply overriding the effect over another statute operating in a completely different sphere.” [Emphasis supplied]

31.3. Thus, it was held that the Stamp Act,1899 cannot override the effect of

another statute such as the Limitation Act,1963 operating in a completely

different sphere. Further, the expression “executability” and “enforceability”

was distinguished to mean that “enforceability” cannot be a subject matter of

Section 35 of Stamp Act,1899. It was conclusively held that enforceability

cannot be suspended until furnishing of stamp paper. At most, a document

can be rendered non-executable.

31.4. Thereafter, a 3-judge bench of this Court in Chiranji Lal (Dr.) v. Hari

Das35 after discussing the above judgment in Hameed Joharan(supra) on the

question of period of limitation beginning to run from the date of the decree

being engrossed on the stamp paper, pertinently held as under:

35 2005) 10 SCC 746

Page 23 of 78 “23. Such an interpretation is not permissible having regard to the object and scheme of the Indian Stamp Act, 1899. The Stamp Act is a fiscal measure enacted with an object to secure revenue for the State on certain classes of instruments. It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent. The stringent provisions of the Act are conceived in the interest of the Revenue. Once that object is secured according to law, the party staking his claim on the instrument will not be defeated on the ground of initial defect in the instrument (Hindustan Steel Ltd. v. Dilip Construction Co. [(1969) 1 SCC 597]).” [emphasis supplied]

31.5. It was specifically held that “the starting of period of limitation for

execution of a partition decree cannot be made contingent upon the

engrossment of the decree on the stamp paper.”

31.6. Thus, unstamped/insufficiently stamped document does not affect the

enforceability of a document nor does it render a document invalid36. A plain

reading of the provisions would also make it clear that a document can be

“acted upon” at a later stage. It is therefore a curable defect.

32.The learned Counsel for the Appellant, Mr. Gagan Sanghi argued that

Section 35 and 33 are mandatory provisions as it uses the word “shall” and an

unstamped document must be impounded at the threshold. In Principles of

Statutory Interpretation by Justice G.P. Singh37 on the use of the word “shall”

and presumption of the word being imperative, it is stated:

“ ….this prima facie inference about the provision being imperative may be rebutted by other considerations flowing from such construction. There are numerous cases where the word “shall” has therefore been construed as merely directory. The word ‘shall’, observes HIDAYATULLAH, J. “is ordinarily mandatory but sometimes not so interpreted if the context or the intention otherwise demands

36 Gulzari Lal Malwari v Ram Gopal AIR 1937 Cal 765; Mattegunta Dhanalakshmi v Kantam Raju Saradamba,AIR 1977 AP 348; See also Puranchandra v Kallipada Roy, AIR 1942 Cal 386;Boottam Pitchiah v Boyapati Koteswara Rao AIR 1964 AP 519 37 Justice G.P. Singh: Principles of Statutory Interpretation,(LexisNexis,2016) at P. 450-451; Burjore and Bhawani Prasad v Bhagana ILR 10 Cal 557; Sainik Motors v State of Rajasthan 1962 (1) SCR 517 ; State of UP v Babu Ram AIR 1961 SC 751

Page 24 of 78 and points out SUBBARAO J. “when a statute uses the word ‘shall’, prima facie it is mandatory, but the court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute.” [emphasis supplied] 32.1. P.B. Maxwell in the Commentary on Interpretation of Statutes38 notes that

an Act is to be regarded in its entirety and discusses the following three ways of

interpretation:

“Passing from the external aspects of the Statute to its contents, it is an elementary rule that construction is to be made of all parts together, and not of one part only by itself”

i) Individual words are not considered in isolation, but may be have their meaning determined by other words in the Section in which they occur.

ii) The meaning of a section may be controlled by other individual sections in the same Act.

iii) Lastly, the meaning of a section may be determined, not so much by reference to other individual provisions of the Statute, as by the scheme of the Act regarded in general” [emphasis supplied]

32.2. Justice G.P. Singh in Interpretation of Statutes further notes39:

“ The principle that the statute must be read as a whole is equally applicable to different parts of the same section. The section must be construed as a whole whether or not one of the parts is a saving clause or a proviso. Subbarao J calls it "an elementary rule that construction of a section is to be made of all the parts together” [emphasis supplied]

32.3. Thus, on a consolidated reading of Section 35,36 and the proviso to

Section 35 and 42 ; the use of the word “acted upon” in all these sections or

even in the same section, read with the objective and legislative intent of the

Stamp Act 1899, it is clear that the bar under Section 35 is not intended to be

absolute; non-payment of stamp duty is a curable defect as the objective is to

protect revenue. Moreover, none of the provisions of the Stamp Act,1899 have

the effect of rendering a document invalid or void ab initio.

38 P St J Langan, Maxwell on The Interpretation of Statutes (N M Tripathi Private Ltd, 1976); P. 58-64 39 Justice G.P. Singh: Principles of Statutory Interpretation,(LexisNexis,2016) at P. 46;

Page 25 of 78 G. The Statutory Scheme of the Arbitration Act,1996

33. It is apposite to refer to the parliamentary intent behind the enactment of

the Arbitration Act, 1996 which replaced the Arbitration Act,1940. The first law

on the subject was the Arbitration Act, 1899 with limited application in the

Presidency towns of Calcutta, Bombay and Madras. Thereafter, the second

schedule of the provisions of the Civil Procedure Code, 1908 dealt with

arbitration. The major consolidated legislation was the Arbitration Act,1940

which was based on the (English) Arbitration Act,1940. The Law Commission in

its 246th LCI Report(supra) notes that this arbitral regime was based on the

mistrust of the arbitral process and “The 1996 Act is based on the UNCITRAL

Model Law on International Commercial Arbitration, 1985 and the UNCITRAL

Conciliation Rules, 1980.” The relevant part of the Statement of Object and

Reasons is extracted below:

(i) to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation;

(ii) to make provision for an arbitral procedure which is fair, efficient and capable of meeting the needs of the specific arbitration;

(iii) to provide that the arbitral tribunal gives reasons for its arbitral award;

(iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

(v) to minimise the supervisory role of courts in the arbitral process;

(vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes;

(vii) to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court;

Page 26 of 78 (viii) to provide that a settlement agreement reached by the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal; and

(ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made in a country to which one of the two International Conventions relating to foreign arbitral awards to which India is a party applies, will be treated as a foreign award.”

[emphasis supplied]

34. Further, on reading Article 5 of the Model Law and Section 5 of the

Arbitration Act,1996, which cover the provisions for judicial intervention in

arbitral proceedings, it is clear that the Parliament went beyond Article 5 of

the UNCITRAL Model law and added a non-obstante clause. To substantiate

this point, it is pertinent to quote the provisions in full.

Article 5 of the UNCITRAL Model Law,1985 reads as under:

“ Article 5. Extent of Court intervention- In matters governed by this Law, no court shall intervene except where so provided in this Law.”

Section 5 of the Arbitration Act,1996 reads as under:

“5. Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” [emphasis supplied]

35. Additionally, reflecting on the purpose of Article 5, Dr. Peter Binder in

UNCITRAL Model Law on International Commercial Arbitration, 198540 notes:

“1-107 : According to the Commission Report, the purpose of Article 5 was “to achieve a certainty as to the maximum extent of judicial intervention, including assistance, in international commercial arbitration, by compelling the drafters to list in the (model) law on international commercial arbitration all instances of court intervention. The Analytical Commentary describes the effect of Article 5 as being “to exclude any general or residual powers given to

40 P. Binder, International Commercial Arbitration And Conciliation In UNCITRAL Model Law Jurisdictions 274 (2nd ed., Sweet & Maxwell London 2005) P. 50-51

Page 27 of 78 the courts in a domestic system which are not listed in the model law” In addition to the great advantage of providing clarity of law, which is particularly important for foreign parties(protecting them from unwanted legal surprises, Article 5 also functions to accelerate the arbitral process in allowing less of a chance of delay caused by intentional and dilatory court proceedings.” [emphasis supplied]

36. A collective reading of the Statement of Object and Reasons of the

Arbitration Act,1996 r/w Section 5 of the Act, and Article 5 of the Model Law,

would make it abundantly clear that the legislative intent behind the

enactment was to inter alia, minimise the intervention of the Courts and

provide for timely resolution of disputes. By adding a non-obstante clause, the

Parliament through Section 5 made a significant departure from Article 5 and

gave an overriding effect over the provisions of any other law for the time being

in force. It circumscribed the role of the judicial authority, especially in context

of the Courts exercising any residual power that may accrue to them through

any provision in any law.

37. Let us now refer to the unamended Section 11(6) of the Arbitration Act,1996

which is based on the Article 11 of the UNCITRAL Model law:

“11 Appointment of arbitrators. — (6) Where, under an appointment procedure agreed upon by the parties,—

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”

Page 28 of 78

38. Even though the key provisions in the Arbitration Act,1996 are primarily

based on the UNCITRAL Model Law, the legislature has also made significant

departures, while amending Section 11 and Section 8 of the Arbitration Act,1996.

39. Next, it would be appropriate to briefly trace the jurisprudential history of

Section 11(6) of the Arbitration Act,1996 for the purpose of this reference.

i) Evolution of law under Section 11(6) of Arbitration Act, 1996

40. A 2-judge Bench of this Court in ICICI Ltd. v. East Coast Boat Builders &

Engineers Ltd41 taking into consideration delays in appointment of arbitrators

under Section 11(6), referred the question of jurisdiction of a Section 11 judge

to consider arbitrability of a dispute to a three-judge bench. It was noted that

in KR Raveendranathan v. State of Kerala42, another two Judge Bench of this

Court had already referred to a larger Bench, a similar question.

41. Thereafter, in Sundaram Finance Ltd. v. NEPC India Ltd43, a 2-judge bench

opined that:

"12. …under the 1996 Act, appointment of arbitrator(s) is made as per the provisions of section 11, which does not require the Court to pass a judicial order appointing [the] arbitrator(s)."

42. The above obiter was affirmed by a 2-judge Bench in Ador Samia Pvt Ltd. v.

Peekay Holdings Ltd44 (for short “Ador Samia”). Dealing with the question of

appeal under Article 136 of the Constitution of India, from an order made by

the Chief Justice of a High Court appointing an arbitrator, this Court held that

an order under Section 11 of the Arbitration Act,1996 was an administrative

order. This was affirmed by a three- Judge Bench in Konkan Railways Corpn v. 41 (1998)9 SCC 728 42 (1996)10 SCC 35 43 (1999)2 SCC 479 44 (1999)8 SCC 572

Page 29 of 78 Mehul Construction Co45 (for short “Konkan Railways(I)”) where the matter came

up for reconsideration of the ratio in Ador Samia(supra). It was observed as

under:

" 4. …When the matter is placed before the Chief Justice or his nominee under Section 11 of the Act it is imperative for the said Chief Justice or his nominee to bear in mind the legislative intent that the arbitral process should be set in motion without any delay whatsoever and all contentious issues are left to be raised before the Arbitral Tribunal itself. At that stage it would not be appropriate for the Chief Justice or his nominee to entertain any contentious issue between the parties and decide the same. A bare reading of Sections 13 and 16 of the Act makes it crystal clear that questions with regard to the qualifications, independence and impartiality of the arbitrator, and in respect of the jurisdiction of the arbitrator could be raised before the arbitrator who would decide the same.”

43. The three-judge bench decision was subsequently affirmed by five judges in

Konkan Railways Corpn v. Mehul Construction Co46(for short “Konkan Railways

(II)”). This Court held therein that the power exercised by the Chief Justice or

'any person or institution' designated by him under section 11 is not

adjudicatory. Following a detailed review of the precedents, it was held that the

function of the Chief Justice or his designate under Section 11 is to only "fill

the gap left" and appoint an arbitrator for expeditious constitution and

commencement of arbitration proceedings.

44. The seven judges of this Court in SBP (supra) overturned the decision in

Konkan Railways (II) (supra). It was held therein that deciding an application

for appointment is an exercise of ‘judicial’ power, as opposed to an

‘administrative’ power and that the Court is also authorized to record evidence:

“39. ….[f]or the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the 45 (2000)7 SCC 201 46 (2002) 2 SCC 388

Page 30 of 78 documents produced or take such evidence or get such evidence recorded”

45. However, Justice C.K. Thakker dissented from the majority opinion and

came to the conclusion that it was an administrative power in the following

passage:

“85. …There is […] no doubt in my mind that at that stage, the satisfaction required is merely of prima facie nature and the Chief Justice does not decide lis nor contentious issues between the parties. Section 11 neither contemplates detailed inquiry, nor trial nor findings on controversial or contested matters.”

46. The four main reasons behind the dissent can be summarised as under:

“111. ….Firstly, the function of the Court is to interpret the provision as it is and not to amend, alter or substitute by interpretative process. Secondly, it is for the legislature to make a law applicable to certain situations contemplated by it and the judiciary has no power in entering into ‘legislative wisdom’. Thirdly, as held by me, the ‘decision’ of the Chief Justice is merely prima facie decision and sub-section (1) of Section 16 confers express power on the arbitral tribunal to rule on its own jurisdiction. Fourthly, it provides that remedy to deal with situations created by the order passed by the arbitral tribunal. The sheet anchor of his dissent is that in the guise of interpreting a statute, judicial legislation is not permissible.”

47. In the dissenting opinion in Paragraph 95 & 96, Justice Thakkar further

held as under:

“95. Now, let us consider Section 16 of the Act. This section is new and did not find place in the old Act of 1940. Sub-section (1) of that section enables the Arbitral Tribunal to rule on its own jurisdiction. It further provides that the jurisdiction of the Tribunal includes ruling on any objections with respect to existence or validity of the arbitration agreement. Sub-sections (2), (3) and (4) lay down procedure of raising plea as to the jurisdiction of the Arbitral Tribunal and entertaining such plea. Sub-section (5) mandates that the Arbitral Tribunal “shall decide” such plea and, “where the Arbitral Tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award”. Sub-section (6) is equally important and expressly enacts that a party aggrieved by an arbitral award may invoke Section 34 of the Act for setting aside such award.

Page 31 of 78 The provision appears to have been made to prevent dilatory tactics and abuse of immediate right to approach the court. If an aggrieved party has right to move the court, it would not have been possible to preclude the court from granting stay or interim relief which would bring the arbitration proceedings to a grinding halt. The provisions of Section 16(6) read with Section 5 now make the legal position clear, unambiguous and free from doubt.

96. Section 16(1) incorporates the well-known doctrine of Kompetenz-Kompetenz or competence de la competence. It recognises and enshrines an important principle that initially and primarily, it is for the Arbitral Tribunal itself to determine whether it has jurisdiction in the matter, subject of course, to ultimate court-

control. It is thus a rule of chronological priority. Kompetenz- Kompetenz is a widely accepted feature of modern international arbitration, and allows the Arbitral Tribunal to decide its own jurisdiction including ruling on any objections with respect to the existence or validity of the arbitration agreement, subject to final review by a competent court of law i.e. subject to Section 34 of the Act.”

48. The above line of reasoning in Justice Thakkar’s dissent resonates with the

internationally recognized principle of Kompetenz Komptenz and the doctrine of

separability. The majority opinion in SBP (supra) suggests that a Section 11

Court could conduct a mini-trial at the pre-referral stage. The jurisprudential

correctness of SBP(supra) has been doubted and was considered as excessive

judicial intervention by the 246th LCI Report(supra). It has been legislatively

overruled by subsequent amendments in the Arbitration Act,1996 which will be

discussed later in this judgment.

49. Thereafter, a two-judge bench in Boghara Polyfab (supra) which followed

SBP(supra), allowed the court to examine, inter alia, the following issues:

“22.2. (a) Whether the claim is a dead (long barred) claim or a live claim.

(b) Whether the parties have concluded the contract/ transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.”

Page 32 of 78

50. The 246th LCI report(supra), discussing both SBP(supra) and Boghara(supra)

significantly noted that the real issue is the “scope” and “nature” of judicial

intervention:

“29. The Supreme Court has had occasion to deliberate upon the scope and nature of permissible pre-arbitral judicial intervention, especially in the context of section 11 of the Act. Unfortunately, however, the question before the Supreme Court was framed in terms of whether such a power is a “judicial” or an “administrative” power – which obfuscates the real issue underlying such nomenclature/description as to:

-the scope of such powers – i.e. the scope of arguments which a Court (Chief Justice) will consider while deciding whether to appoint an arbitrator or not – i.e. whether the arbitration agreement exists, whether it is null and void, whether it is voidable etc; and which of these it should leave for decision of the arbitral tribunal.

-the nature of such intervention – i.e. would the Court (Chief Justice) consider the issues upon a detailed trial and whether the same would be decided finally or be left for determination of the arbitral tribunal” [emphasis supplied]

51. As regards nature, the 246th LCI Report(supra) noted that the exposition of

law on the point is to be found in Shin Etsu (supra) where this Court while

interpreting Section 45 of the Arbitration Act,1996 held that the issue should be

looked at on a “prima facie” basis only. On scope, it was recommended that the

Court should restrict to the examination of whether the agreement is “null and

void” and if the Court finds that the agreement does not exist, that decision

would be final. It made the following recommendation as regards Section 8 and

11 of the Arbitration Act,1996:

“33. …The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be.”

Page 33 of 78

52. The 2015-Amendment significantly restricted the scope of intervention even

further as we will notice below.

ii) Post-2015 Regime: Insertion of Section 11(6A)

53. There has been a major shift post-2015 amendment with the insertion of

Section 11(6A) in the Arbitration Act,1996. The legislative intent is clear from

the plain reading of Section 11(6A) as extracted below:

"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, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.” [emphasis supplied]

54. The basis for this amendment, as explained in 246th LCI Report(supra), was

to undo the effect of SBP(supra) and Boghara(supra) which widened the scope

of inquiry and intervention by a Court under Section 11(6) of the Arbitration

Act,1996. Section 11(6A) uses the phrase “notwithstanding any judgment,

decree or order of any Court” and effectively overrules judgments which

widened the scope of inquiry. Section 11(6A) does not use the word “null and

void” as recommended by the Law Commission. Thus, the legislature went one

step further and confined the examination to the “existence” of the arbitration

agreement.

55. Now let us notice the language used in Sections 8,11 and 45 of the

Arbitration Act,1996, all of which deal with the power of Courts at the pre-

arbitral stage.

55.1. Section 8 of the Arbitration Act,1996 titled “Power to refer parties to

arbitration where there is an arbitration agreement” has been amended in 2015

Page 34 of 78 with the following language: “unless it finds that prima facie no valid arbitration

agreement exists” .

55.2. Section 45 in Part II titled “Power of judicial authority to refer parties to

arbitration” has also been amended and notified in 2019. The amendment in

Section 45 was made after the judgment of three judges in Shin Etsu(supra)

where in a case of international arbitration, the question before this Court was

when an application under Section 45 is moved, is the Court required to pass a

prima facie finding or a final-finding based on the merits of the case, which

would result in a full-fledged trial? In the majority opinion, it was held as

under:

“105. …the object of the Act would be defeated if proceedings remain pending in the court even after commencing of the arbitration. It is precisely for this reason that I am inclined to the view that at the pre- reference stage contemplated by Section 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the Arbitral Tribunal or before the court at the post-award stage” 55.3. Pursuant to Shin Etsu(Supra), the 2019 Amendment to Section 45 states:

“…unless it prima facie finds that the said agreement is null and void,

inoperative or incapable of being performed”. Thus, from the above discussion it

is clear that Section 8 uses the word “validity” and Section 45 uses the phrase

“null and void, inoperative or incapable of being performed”. In that sense,

Section 11(6A) is a unique provision which is confined to the “existence” of the

arbitration agreement and not its “validity”. The amended provision also does

not find place in the UNCITRAL Model Law. Learned Amicus Curiae pointed to

Page 35 of 78 the definition of confine in P. Ramanatha Aiyar’s Advanced Law Lexicons47

which states: “imprison; hold in custody. To keep within circumscribing limits”.

56. On reading the language in Section 11(6A) with Section 5 of the Arbitration

Act1996, and an interpretation based on legislative intent, it is apparent that

the scope under Section 11(6A) is very narrow.

iii)Post- 2019 Amendment and the Report of the High- Level Committee to Review the Institutionalisation of Arbitration Mechanism in India.

57. The Committee led by Justice Srikrishna48 had recommended further

changes to the Arbitration Act, 1996. It had recommended for the deletion of

Section 11(6A) with the power of appointment of arbitrators being left entirely to

the arbitral institutions. Drawing inspiration from Singapore, Hong Kong,

United Kingdom etc., the Committee recommended that this would prevent

further delays and set the momentum for institutional arbitration in India.

Under the amended Section 11(6), the appointment of arbitrators is to be done

by the arbitral institution:

“…the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be.”

58. Insertion of Section 6(B) by Act 3 of 2016 which is yet to notified reads as

under:

47

P. Ramanatha Aiyar, The Encyclopaedic Law Dictionary with Words and Phrases, Legal Maxims and Latin terms(5th Edition); P. 1037 48 Government of India, ‘Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India (HLC Report, July 2017) Available at https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf <Last accessed on 19.3.2023>

Page 36 of 78 “(6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.]”

[emphasis supplied]

Even though the amendments are not notified yet and there is limited clarity

on the process, we may take a cue about the intention of the legislature which

seems to be to ensure minimal judicial intervention at the pre-referral stage of

appointment of arbitrator.

59. It would be apposite to refer now to the prevalent position amongst the

most-preferred arbitral institutions i.e. the International Chamber of

Commerce Court (ICC Court), the London Court of International Arbitration

(LCIA), the Hong Kong International Arbitration Centre (HKIAC), the Singapore

International Arbitration Centre (SIAC) and the Arbitration Institute of the

Stockholm Chambers of Commerce (SCC) which were mentioned in the report

of the High-level Committee and those can be broadly noted as under:-

1.ICC Arbitration Rules, 2021:

“Article 6. Effect of the Arbitration Agreement.— (4) In all cases referred to the Court under Article 6(3)…The arbitration shall proceed if and to the extent that the Court is prima facie satisfied that an arbitration agreement under the Rules may exist.

(5) In all matters decided by the Court under Article 6(4), any decision as to the jurisdiction of the arbitral tribunal, except as to parties or claims with respect to which the Court decides that the arbitration cannot proceed, shall then be taken by the arbitral tribunal itself.”

2. HKIAC Arbitration Rules:

“Article 11 – HKIAC’s Prima Facie Power to Proceed 11.1 The arbitration shall proceed if and to the extent that HKIAC is satisfied, prima facie, that an arbitration agreement under these Procedures may exist. Any question as to the jurisdiction of the arbitral tribunal shall be decided by the arbitral tribunal once constituted.

Page 37 of 78 11.2 HKIAC’s decision pursuant to Article 11.1 is without prejudice to the admissibility or merits of any party’s pleas.”

3. LCIA Arbitration Rules:

“Article 23. Jurisdiction and Authority 23.1 The Arbitral Tribunal shall have the power to rule upon its own jurisdiction and authority, including any objection to the initial or continuing existence, validity, effectiveness or scope of the Arbitration Agreement.”

4. SIAC International Arbitration Centre Rules, 2016:

“Article 28. Jurisdiction of the Tribunal 28.1 If any party objects to the existence or validity of the arbitration agreement or to the competence of SIAC to administer an arbitration, before the Tribunal constituted,the Registrar shall determine if such objection shall be referred to the Court. If the Registrar so determines, the Court shall decide if it is prima facie satisfied that the arbitration shall proceed.

The arbitration shall be terminated if the Court is not so satisfied. Any decision by the Registrar or the Court that the arbitration shall proceed is without prejudice to the power of the Tribunal to rule on its own jurisdiction.

28.2 The Tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, validity or scope of the arbitration agreement. An arbitration agreement which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.”

5. Arbitration Institute of SCC Rules:

“Article 11. Decisions by the Board The Board takes decisions as provided under these Rules, including deciding:

(i) whether the SCC manifestly lacks jurisdiction over the dispute pursuant to Article 12 (i);

Article 12(i). Dismissal The Board shall dismiss a case, in whole or in part, if:

(i) the SCC manifestly lacks jurisdiction over the dispute;…”

60. Thus, the approach of the reputed arbitral institutions worldwide would

show that there is express recognition of the principle of Kompetenz-

Kompetenz and role of Courts is limited to preliminary prima facie examination.

A reading of the above rules would also show that arbitral institutions have

recognized the prima- facie test to determine the existence of the arbitration

agreement. Discussing the rules of the major international arbitral institutions,

Page 38 of 78 William Park in an article titled “Challenging Arbitral Jurisdiction: The Role of

Institutional Rules”49 writes:

“ On occasion, however, arbitrations have been filed without even minimal indicia of consent to the arbitral process. No document seems to exist saying the respondent actually agreed to arbitrate with the claimant. In such instances, efficiency will be served by early consideration of a respondent’s argument that the case should not proceed. To this end, the ICC Rules permit the ICC Court to consider obvious jurisdictional defects, with arbitration going forward only to the extent the ICC Court is prima facie satisfied that an arbitration agreement may exist.”

61. Thus, the objective behind the prima-facie test while referring a party to

arbitration, is to also ensure that a non-consenting party is not bound to the

process of arbitration and the doctrine of party autonomy is upheld with

minimal intervention of Courts.

62. Chandrachud J.(as he then was) in the concurring opinion in A.

Ayyasamy vs A. Paramasivam & Ors50 (for short “Ayyasamy”) noted, inter

alia, that jurisprudence in India must strengthen institutional efficacy of

arbitration with minimal intervention of Courts:

“53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle.” [emphasis supplied]

49 Park, William. "Challenging Arbitral Jurisdiction: The Role of Institutional Rules", Boston University School of Law, Public Law Research Paper (2015).

50 (2016) 10 SCC 386

Page 39 of 78

63. It upheld the one-stop arbitration principle propounded by the House of

Lords in Fiona Trust and Holding Corporation v. Privalov51 .

“46. In Fiona Trust and Holding Corpn. v. Privalov [Fiona Trust and Holding Corpn. v. Privalov, (2007) 1 All ER (Comm) 891 : 2007 Bus LR 686 (CA)] , the Court of Appeal emphasised the need to make a fresh start in imparting business efficacy to arbitral agreements. The Court of Appeal held that : (Bus LR pp. 695 H-696 B & F, paras 17 & 19) “17. … For our part we consider that the time has now come for a line of some sort to be drawn and a fresh start made at any rate for cases arising in an international commercial context. Ordinary businessmen would be surprised at the nice distinctions drawn in the cases and the time taken up by argument in debating whether a particular case falls within one set of words or another very similar set of words. If businessmen go to the trouble of agreeing that their disputes be heard in the courts of a particular country or by a tribunal of their choice they do not expect (at any rate when they are making the contract in the first place) that time and expense will be taken in lengthy argument about the nature of particular causes of action and whether any particular cause of action comes within the meaning of the particular phrase they have chosen in their arbitration clause. If any businessman did want to exclude disputes about the validity of a contract, it would be comparatively simple to say so.

***

19. One of the reasons given in the cases for a liberal construction of an arbitration clause is the presumption in favour of one-stop arbitration. It is not to be expected that any commercial man would knowingly create a system which required that the court should first decide whether the contract should be rectified or avoided or rescinded (as the case might be) and then, if the contract is held to be valid, required the arbitrator to resolve the issues that have arisen. This is indeed a powerful reason for a liberal construction.” Arbitration must provide a one-stop forum for resolution of disputes. The Court of Appeal held that if arbitrators can decide whether a contract is void for initial illegality, there is no reason why they should not decide whether a contract is procured by bribery, just as much as they can decide whether a contract has been vitiated by misrepresentation or non- disclosure.

[Emphasis supplied]

64. Thus, the one-stop arbitration approach would ensure that all issues on

initial illegality or whether a contract is void can be decided by the arbitral

institutions subject, of course, to the ultimate supervisory jurisdiction of the

Courts. An arbitral award can be set aside by Courts as per the legislative

51 (2007) 1 All ER(Comm) 891 (Paras 17-18)

Page 40 of 78 mandate in Section 34 of the Arbitration Act,1996. This would prevent

multiplicity of proceedings in Courts and tribunals and ensure minimal

judicial intervention.

H. Discussion on SMS Tea:

65. Having broadly discussed the legislative scheme of the Stamp Act,1899 and

the Arbitration Act,1996, let us now examine the correctness of the decisions

referred to in NN Global(supra).

66. The judicial position on the enforceability of an arbitration agreement

contained in an unstamped or insufficiently stamped agreement can be traced

from this Court’s 2011 decision in SMS Tea (supra). The facts of the case were

that the appellant was granted lease of two tea estates for a term of 30 years.

The leases deed contained an arbitration clause. On abrupt eviction by the

respondent from the tea estates, the appellant filed an application under

Section 11 of the Arbitration Act, 1996 for the appointment of arbitrator. The

learned Chief Justice of Guwahati High Court dismissed the Section 11

application and held that the lease deed was compulsorily registrable under

Section 17 of the Registration Act,1908 and Section 106 of the Transfer of

Property Act,1882 ; and as the lease deed was not registered, even the

arbitration clause would be rendered invalid. The matter reached this Court

where one of the questions was whether an arbitration agreement in an

unregistered instrument which is not duly stamped, is valid and enforceable. It

was observed that the arbitration agreement in an unstamped or insufficiently

stamped instrument is invalid, given that Section 35 of the Stamp Act, 1899

expressly bars the authority before which such unstamped or insufficiently

Page 41 of 78 stamped instrument is presented to act on such an instrument. At this stage, it

is important to keep in mind that decision in SMS (supra)came at a time when

SBP (supra) and Boghara Polyfab (supra) continued to hold the field i.e. prior to

the insertion of Section 11(6A) to the Act. Thus, even at the Section 11 stage,

under the law which existed before the 2015 Amendment, the Court had wide

powers and could also conduct detailed adjudication. Even though this Court

in SMS Tea(supra) succinctly recognized the doctrine of separability in the

context of Registration Act, 1908, it held that strict and mandatory provisions

of the Stamp Act,1899 on non-payment of Stamp duty could not be read

harmoniously with the relevant provisions of the Arbitration Act, 1996. It was

held as under:

“22.1. The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registerable.

22.2. If the document is found to be not duly stamped, Section 35 of the Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Sections 35 and 38 of the Stamp Act.”

67. The judgment in SMS Tea(supra) has been upheld in Naina Thakkar(supra)

and Black Pearl Hotels v Planet M. Retail Ltd.52 (for short “Black Pearl Hotels”). It has also been cited with approval in a recent judgement by 3 judges of this

Court in Dharmaratnakara (supra). As noted earlier, the Court in Garware

(supra) also followed SMS Tea (supra) which has been cited with approval in

Vidya Drolia (supra). This legal proposition is doubted by this Court in NN

Global (supra) and referred to us.

52

(2017) 4 SCC 498

Page 42 of 78

68. Section 11(6A) as we have noted above begins with a non-obstante clause

viz. “notwithstanding any judgment, decree or order of any Court” and

effectively overrules all judgments which widened the ambit of examination.

69. The first submission before us by Mr. Gagan Sanghi, learned Counsel for

the Appellant on this aspect was that the observations of two different three-

Judge Bench decisions in Dharmaratnakara (supra) and Black Pearl

Hotels(supra) have not been considered in NN Global (supra) which is another

three-judge bench and that this seriously calls into question the finding of NN

Global (supra).

70. It is significant to note here that the above two judgments did not consider

the recent 11(6A) Amendment. Black Pearl Hotels (supra) was delivered pre-

11(6A) and hence stands legislatively overruled. In Dharmaratnakara (supra), it

appears that the amendment to Section 11(6A) was not brought to the notice of

the Court and the earlier judgment in Garware (supra) was not considered.

This could also be because the Court considered the order which was passed

prior to introduction of Section 11(6A). In Dharmaratnakara (supra), the issue

before the Court was whether a document executed between parties was a

lease deed or an “agreement to lease”, and whether arbitration could be

invoked under the said document. Even after determination by the Registrar

(Judicial) of the Karnataka High Court that the concerned document was a

lease deed, the deficit stamp duty was not paid. The Court relied on SMS

Tea(supra), to hold that the arbitration agreement could not be acted upon,

unless stamp duty is paid.

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71. From the discussion above, it is clear that Dharmaratnakara (supra) does

not lay down the correct position in light of the post-2015 amendment regime. Through the Amending Act, SMS Tea (supra) stands legislatively overruled.

72. The correct exposition of law after the insertion of Section 11(6A) is to be

found in Duro Felguera, S.A. v. Gangavaram Port Ltd53 (for short “Duro

Felguera”) where it was held that, "(a)fter the (2015) amendment, all that the

courts need to see is whether an arbitration agreement exists--nothing more,

nothing less. The legislative policy and purpose is essentially to minimise the

Court's intervention at the stage of appointing the arbitrator and this intention as

incorporated in Section 11(6-A) ought to be respected." This has been re-affirmed

by a 3-judge bench in Mayavati Trading Private Limited v. Pradyuat Deb

Burman54 where it was held as under:

“10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment as Section 11(6A) is confined to the 15 examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment Duro Felguera, S.A. (supra) – see paras 48 & 59.”

73.The following extract from Pravin Electricals (P) Ltd. v. Galaxy Infra & Engg.

(P) Ltd.55 is equally pertinent where the Court interpreted Section 11 (6A) to

conclusively hold that a Section 11 judge cannot conduct a mini-trial at that

stage:

“29. The facts of this case remind one of Alice in Wonderland. In Chapter II of Lewis Caroll’s classic, after little Alice had gone down the Rabbit hole, she exclaims “Curiouser and curiouser!” and Lewis Caroll states “(she was so much surprised, that for the

53 (2017) 9 SCC 729 54 (2019) 8 SCC 714 55 (2021) 5 SCC 671

Page 44 of 78 moment she quite forgot how to speak good English)”. This is a case which eminently cries for the truth to come out between the parties through documentary evidence and cross-examination.

Large pieces of the jigsaw puzzle that forms the documentary evidence between the parties in this case remained unfilled. The emails dated 22nd July, 2014 and 25th July, 2014 produced here for the first time as well as certain correspondence between SBPDCL and the Respondent do show that there is some dealing between the Appellant and the Respondent qua a tender floated by SBPDCL, but that is not sufficient to conclude that there is a concluded contract between the parties, which contains an arbitration clause. Given the inconclusive nature of the finding by CFSL together with the signing of the agreement in Haryana by parties whose registered offices are at Bombay and Bihar qua works to be executed in Bihar; given the fact that the Notary who signed the agreement was not authorised to do so and various other conundrums that arise on the facts of this case, it is unsafe to conclude, one way or the other, that an arbitration agreement exists between the parties. The prima facie review spoken of in Vidya Drolia (supra) can lead to only one conclusion on the facts of this case - that a deeper consideration of whether an arbitration agreement exists between the parties must be left to an Arbitrator who is to examine the documentary evidence produced before him in detail after witnesses are cross-examined on the same. For all these reasons, we set aside the impugned judgment of the Delhi High Court in so far as it conclusively finds that there is an Arbitration Agreement between the parties.”

[emphasis supplied]

74. At this point, it would suffice to note that the Court in SMS Tea(supra) held

that an arbitral agreement would be rendered inadmissible in evidence if the

underlying contract is not stamped. It did not, however, state that an

unstamped arbitration agreement would be rendered void as held in

Garware(supra) in the later decision. While SMS Tea(supra) extended the

separability presumption in the context of the Registration Act, 1908 we will

notice below that this presumption can also be extended in the context of

Stamp Act,1899 through harmonious construction.

I. Discussion on Garware

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75. The facts in Garware(supra) were that a sub-contract, for the installation of

geo-textile tubes embankment with toe mound at village Pentha in Odisha, was

provided by the employer for prevention from coastal erosion. Owing to

disputes between parties, the sub-contract was terminated. The Respondent

filed a petition under Section 11 which was allowed by the Bombay High Court

and sole arbitrator was appointed. On appeal, this Court primarily relied on

SMS Tea(supra) to hold that the arbitration agreement in an unstamped

document cannot be acted upon and hence, an arbitrator could not be

appointed until the unstamped agreement in question was impounded. Despite

considering the amended Section 11(6A) and the 246th LCI Report(supra) to note

that SBP(supra) and Boghara(supra) have been overruled, the Court held that

"SMS Tea Estates ha(d), in no manner, been touched by the amendment of

Section 11(6-A)" since it was not excluded by either the 246th LCI Report(supra)

or the Statement of Object and Reasons of the 2015 Amendment. It was further

held that as per Section 2(h) of the Indian Contract Act1872, an agreement

becomes a contract only if it is enforceable by law and hence, an unstamped

document would be unenforceable due to the bar under Section 35 of the

Stamp Act,1899. The following paragraph has been doubted by NN

Global(supra):

“22. When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6-A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates has, in no manner, been touched by the amendment of Section 11(6-A).”

Page 46 of 78

76. The above proposition of law in Garware(supra) appears to be incorrect. As

noted earlier, the judgment in SMS Tea(supra) stands legislatively overruled as

it was delivered in the pre-2015 amendment regime. Even though there is no

express mention in the 246th LCI Report(supra), the non-obstante clause

effectively overrules it.

77. Now let us consider Section 2(g) and 2(h) of the Indian Contract Act,1872

which read as under:

“(g) An agreement not enforceable by law is said to be void;

(h) An agreement enforceable by law is a contract;” Incorporating the principle in Garware(supra) would mean that as per Section

2(g) and (h) of the Contract Act, 1872, an agreement would be rendered void-

ab-initio, if it is not stamped. This would however be contrary to the

legislative scheme of the Stamp Act,1899 as per which non-

stamping/insufficient stamping is a curable defect as discussed earlier.

Moreover, stamp duty is levied on the instrument and not the transaction.56

77.1. In Gulzari Lal Malwari v Ram Gopal57 Lord Williams J while discussing

Section 35 of the Stamp Act, 1899 noted that there is no provision in the

Stamp Act,1899 which renders a document invalid:

“There is a clear distinction to be drawn between invalidity and inadmissibility of documents. Certain statutes and sections render documents invalid if they are not stamped. No section of the Indian Stamp Act has this effect but an instance of a document being rendered invalid by the omission of stamps is contained in the English Stamp Act, s. 93, which provides:— A contract for sea insurance (other than such insurance as is referred to, in the fifty-fifth section of the Merchant Shipping Act, Amendment Act, 1862) shall not be valid unless the same is expressed in a policy of sea insurance”

56 Board of Revenue v N. Narasimhan AIR 1961 Mad 504; A. Bapiraju v District Registrar AIR 1968 AP 142 57 AIR 1937 Cal 765

Page 47 of 78 [emphasis supplied]

77.2. Moreover, the language of Section 11(6A) confines the scope of enquiry to

only “existence.” and not even whether a contract is null and void, as

recommended by the 246th LCI Report(supra). The question on validity and

existence can be gone into by the arbitrator under Section 16 of the Arbitration

Act,1996 and not by the Court under Section 11 of the Arbitration Act, 1996.

J. Interplay between the Stamp Act 1899, Contract Act 1872 and the Arbitration

Act,1996

i) Arbitration Act,1996 is a special legislation

78. In order to understand the interplay between the three Acts, reference to

the relevant provisions is necessary.

i) Stamp Act,1899:

The residuary entry in Article 5(c) of Schedule I of the Indian Stamp Act,1899

with the title “Agreements” as noted earlier, states “if not otherwise provided

for” which, as held by us, brings under its ambit even an Arbitration

Agreement.

Now, Instrument is defined under Section 2(14) as under:

“(14) “Instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or record.”

Section 17 provides for the timing of stamping:

“ Instruments executed in India.—All instrument chargeable with duty and executed by any person in [India] shall be stamped before or at the time of execution.”

Page 48 of 78 “Execution” is defined in Section 2(12):

“Executed” or “Execution” used with reference to instruments, mean “signed” and “signature”

ii) Indian Contract Act,1872:

An agreement under the Indian Contract Act,1872 is defined in Section 2(e) as under:

“Every promise and every set of promises, forming the consideration for each other, is an agreement”. Sections 2(g), 2(h) and 2(j) and Section 10 of the Indian Contract Act,1872 state:

“(g) An agreement not enforceable by law is said to be void;

(h) An agreement enforceable by law is a contract;”

(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable (10) All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

iii) Arbitration Act,1996:

Section 2(b) provides as under:

“(b) arbitration agreement” means an agreement referred to in section 7” Let us now consider Section 7 of the Arbitration Act, 1996 which specifically

defines Arbitration agreement:

“7 Arbitration agreement. — (1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or [any other electronic means] other means of telecommunication which provide a record of the agreement; or

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