If Arbitration Agreement Is Insufficiently Stamped, Can Court Grant Ad-Interim Relief? Kathawalla J Of Bombay HC Refers Question To A Larger Bench

A single bench of the Bombay High Court has referred a significant question of law to be considered by a larger bench. The question is:

Whether Court can grant ad-interim relief when an arbitration agreement is unstamped or insufficiently stamped?

Justice SJ Kathawalla was hearing an arbitration application filed by Gautam Landscapes against respondents Shailesh Shah and Gautam Estate under Section 9 of Arbitration and Conciliation Act seeking protective reliefs pending the final disposal of the arbitration proceedings and the enforcement and implementation of the arbitration award.

Case Background

The dispute arose between the respective parties under a joint venture agreement dated October 27, 2006. Apart from an application filed under Section 9, another application was filed by Gautam Landscapes under Section 11 of the said Act.

When the application under Section 11 came up for hearing on November 9, 2017, respondent’s advocate Tejas Dande submitted that the document was inadequately stamped and hence be impounded and sent to the Collector of Stamps for adjudication. Applicant’s lawyers Priya Rambade and Aniket Worlikar disputed this contention and submitted that the document is adequately stamped.

However, Dande offered to hand over the original document to the prothonotary and senior master for being sent to the Collector of Stamps for adjudication. Then, Justice KR Shriram impounded the document and directed the prothonotary and senior master to forward the same within one week of receiving the agreement to the Superintendent of Stamps/Collector of Stamps, Mumbai, for adjudication. The Collector of Stamps by an order dated March 15, 2018, held that the document was inadequately stamped and an amount of Rs 1.12 crore was due and payable. The applicants filed an appeal against the said order under Section 34B of the Maharashtra Stamp Act.

Submissions and Final Order

Dande relied on a decision of the division bench of Justice Anoop Mohta (retired) and Justice AA Sayed, in the case of Universals Enterprises vs. Deluxe Laboratories Pvt. Ltd., wherein the bench has taken the view that even if an arbitration agreement contained in a document is unstamped or insufficiently stamped, if a case is made out for grant of ad-interim reliefs, the court cannot refuse the same merely on the ground that the agreement in question needs to be adjudicated on the issue of payment of stamp duty.

Whereas, Rambade submitted that said judgment in the case of Universals Enterprises vs Deluxe Laboratories Pvt Ltd is per incurium (bad in law) as it is based on a patent misreading of binding precedents.

Court noted that this question of law was examined by the Supreme Court in SMS Tea Estates (P) Ltd. vs. Chandmari Tea Co. (P) Ltd., in the context of an application under Section 11 of the Act. The Supreme Court held that having regard to the relevant provisions of the Indian Stamp Act, 1899, if the arbitration agreement is contained in a document that is unstamped or insufficiently stamped, the court cannot act upon the document, which means the court cannot act upon the arbitration agreement which is a part of the document.

Another judgment of the High Court in Lakdawala Developers Pvt. Ltd. vs. Badal Mittal & Ors, was referred to by Justice Kathawalla. In this, a division bench was considering the decision of a single judge passed in proceedings under Section 9 of the said Act where it was held that single judge ought to have considered the stamping of the document when the document came before the Court in course of proceedings under Section 9. Also, in paragraph 5 of Lakdawala Developers (supra), the appeal court came to a prima facie conclusion that the document would require stamping and that it was not sufficiently stamped, and directed the impounding of the same.

After examining all the above judgments and provisions of the Stamp Act, Justice Kathawalla noted that the division bench in Universal Enterprises vs. Deluxe Laboratories Pvt. Ltd., arrived at its decision after drawing a distinction between the role of the Court considering an Arbitration Agreement under Section 9 of the Act and Section 11 of the Act.

However, the bench arrived at this reasoning without considering the decision of the Hon’ble Supreme Court in SBP & Co. vs. Patel Engineering Ltd. & Anr., said Kathawalla J.

The court said:

“Therefore, in my view, the decision in Universals Enterprises (supra) has been based on a patent misreading of a binding decision of this Court in Lakdawala (supra) and cannot be considered to be good law, and ought to be referred to a larger bench for consideration.”

Thus, the registry was directed to place the matter before the Acting Chief Justice in order to enable him to refer this question of law to a larger bench.