Arbitration Agreements Liable To Stamp Duty : Amicus Curiae Tells Supreme Court Constitution Bench

A Constitution Bench of the Supreme Court, on Tuesday, commenced with the hearing of reference, which pertains to the issue - whether the arbitration clause in a contract, which is required to be registered and stamped, but is not registered and stamped, is valid and enforceable.On a previous occasion, a 5-Judge Bench comprising Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy and Justice C.T. Ravikumar had passed directions to appoint Senior Advocate, Mr. Gourab Banerji as an Amicus Curiae to assist it, as there is no contesting respondent in the matter. The petitioner and the respondent in the matter had entered into a sub-contract which contained an arbitration clause. Certain disputes arose and the respondent invoked the Bank Guarantee furnished by the petitioner. A suit was filed regarding the said invocation. The respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 in the suit and sought for reference of disputes to arbitration. However, the Commercial Court rejected the application. A revision petition was filed by the respondent before the Bombay High Court. Considering objections on maintainability the Court granted liberty to the respondent to withdraw the review and file a writ petition. Subsequently, in the writ petition filed by the respondent, the High Court held that the Section 8 application was maintainable. One of the issues before the High Court was that the arbitration agreement was unenforceable since the sub-contract was unregistered and unstamped. It noted that the said issue can be raised in application under Section 11 or before the Arbitral Tribunal. In appeal, the Apex Court noted that the view taken in SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co Pvt. Ltd. and Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited 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, is not the correct position in law. Considering that Garware was affirmed by Vidya Drolia And Ors. v. Durga Trading Corporation, which is a coordinate Bench, the 3-Judge Bench of the Apex Court thought it fit to refer the matter to a Constitution Bench. The issue framed is as under -"Whether the statutory bar contained in Section 35 of the Indian 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, un- enforceable, or invalid, pending payment of stamp duty on the substantive contract / instrument ? "As per the statutory bar under Section 35, 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.On Tuesday, the Amicus apprised the Bench that in all other jurisdictions, the issue of stamp duty would be decided by the Arbitrator. He stated - “In every other jurisdiction there is an Article 16 appeal. All these questions go to the arbitrator. If the arbitrator gets it wrong, the Court may or may not intervene. But we have footballed it right to the beginning to the courts.”The Amicus pointed out that in an application under Section 11 of the Arbitration and Conciliation Act, 1996 the Courts are confined merely to the examination of the existence of the agreement. He argued that the issue of stamp duty can be left to be decided by the Arbitrator who has full power under Section 35 of the Stamp Act to impound if required. According to him the error in the reference order is that it holds that an arbitration agreement is not liable to stamp duty. He submitted that he would demonstrate from the schedule of the Stamp Act that arbitration agreements ought to be stamped. He referred to judgments wherein it has been held that arbitration agreements even separately require to be stamped. Justice Bose enquired, “ In 11(6) application, court is to see if there is an agreement or not. That agreement is annexed. Wouldn’t it assume the character of an evidence.”The Amicus responded that while exercising jurisdiction under Section 11, the Court is not required to admit, decide or act upon the arbitration agreement, they are merely required to examine the existence of the same. He emphasised that though the arbitration agreement has to be stamped it need not be decided by the Court, but by the arbitrator when the substantive dispute comes before them. From the submissions, Justice Joseph identified the crux of the matter as - “Therefore it boils down to one thing. In S. 11 application when the agreement is produced and the court takes a look at it and finds the...

Arbitration Agreements Liable To Stamp Duty : Amicus Curiae Tells Supreme Court Constitution Bench

Sohini Chowdhury

Tags