Whether Arbitration Agreement Is Duly Stamped Must Be Left To Arbitrator To Decide : Amicus Curiae Tells Supreme Court

A Constitution Bench of the Supreme Court, on Wednesday, continued hearing submissions made by the Amicus Curiae, Senior Advocate, Mr. Gourab Banerji in a 3-Judge reference which raised 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.A 5-Judge Bench comprising Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy and Justice C.T. Ravikumar had appointed an Amicus to assist it, because, at present, there is no contesting respondent in the matter.The petitioner and the respondent in the matter has 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 MarineConstructions 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 ? "On Wednesday, the Amicus essentially argued that while exercising jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996, the Court should confine itself to the examination of the existence of an arbitration agreement. He submitted that the ambit of S. 16, which deals with the competence of an arbitral tribunal to rule on its jurisdiction, was wide enough to allow the arbitrator to make considerations with respect to the stamping of the document. He pointed out that as per Section 16, apart from jurisdiction, the arbitrator is contemplated to rule on objections with respect to the ‘existence and validity of the arbitration agreement’, while under Section 11(6A), which deals with appointment of arbitrators by Courts, the consideration by the arbitrator is ‘confined to the examination of the existence of an arbitration agreement’.Justice Bose asked the Amicus, “So your argument is, today as a matter of practice, S. 11 Court should avoid looking at this particular point?”The Amicus responded, “There is an overlap qua the word ‘existence’.”He submitted that under Section 11(6A) the examination is merely a prima facie examination. Justice Bose put forth a possibility that when a Court exercising powers under Section 11(6A) considers whether an arbitration agreement exists, due to non-stamping of the agreement at that very stage the document would become inadmissible. According to him, the meaning of admissibility ought to be interpreted. Justice Joseph was curious, if the existence of the agreement is a matter that goes to the jurisdiction of the arbitrator, then what would happen at the stage of Section 11.The Amicus’ response was, “I have done a number of cases like that. You say without prejudice you appoint Justice so and so as arbitrator and at the beginning you say there is no concluded contract.”He added that at the Section 11 stage if the court finds that there is no agreement then they can take a final view and throw out the petition. However, if the Court feels that a deeper consideration is required then the same can be left to the Arbitral Tribunal. According to the Amicus this is the way ahead to harmonise the existence of S. 11(6A) and S.16.Justice Ravikumar ...

Whether Arbitration Agreement Is Duly Stamped Must Be Left To Arbitrator To Decide : Amicus Curiae Tells Supreme Court

Sohini Chowdhury

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