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

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 pointed out that it is not mentioned anywhere that the power of the Courts under Section 11(6A) is restricted. He enquired, “Once the Court decides that we will consider it...how can, just because S. 16 also permits, how can the arbitrator again look into that question”.

The Amicus responded that if the final decision is that there is no arbitration agreement then the Court would not go ahead with appointing an arbitrator.

Justice Joseph was of the opinion that while considering the Section 11(6) application, the Court can clarify that there is an agreement, but the other considerations can be gone into by the Arbitrator. The Amicus agreed.

Justice Bose raised an issue pertaining to online transactions -

“If you do an online transaction, offer and acceptance is complete, then goods arrive. In the product description you insert an arbitration clause. That is post contract.”

The Amicus submitted that the said issue might not be relevant as it would be a consumer dispute. He emphasised that the two issues the Constitution Bench ought to conceptually decide on S.11 are -

1. what is the scope of S.11(6)?
2. what is the nature of such intervention?

On issue of stamping, the Amicus averred -

“A non-stamped document at the highest may be incapable of being performed. Even that may not be correct, because it is a curable defect. Certainly, it is not null and void.”

Taking the Bench through the relevant provisions of the Indian Stamp Act, the Amicus submitted that the statutory bar in Section 35 of the Stamp Act (Instruments not duly stamped inadmissible in evidence) would only be triggered if there is a finding that the document is not duly stamped. For the same, there ought to be an inquiry into stamping.

Justice Joseph enquired,

“Yesterday you said an agreement to refer, even if it is a separate independent agreement it has to be stamped. The question is can you act upon it?”

The Amicus responded that only if Section 33(2) of the Stamp Act (Examination and impounding of instruments) is triggered, Section 35 will follow. According to him the examination under Section 33(2) is not to be undertaken by a Court under Section 11(6), but by an arbitrator

“My submission is that S. 33(2) examination is not to be done in S. 11(6)...It is to be done by the arbitrator”

He added that provisions of both the Acts ought to be interpreted in a manner that they become workable.

“‘Your lordship has to give some interpretation to make both workable. I am suggesting that the only way to make both workable is to leave this decision of stamping to the arbitral tribunal. He has the power, the Section says so.”

The Amicus expressed concern that if it is interpreted by the Constitution Bench that under Section 11(6A), the Court can examine the issue of stamping, then later it might be argued to increase the scope further.

“If we over extend or increase the ambit of S.11, then it may be legitimately argued that it would include limitation,x,y,z. Where do you draw the line? That is why I am advocating the narrow meaning.”

Case Status: M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors. CA No. 3802-03/2020