Andhra Pradesh High Court - Amravati
Vr Commodities Private Limited vs Norvic Shipping Asia Pte. Ltd., on 5 May, 2022
HIGH COURT OF ANDHRA PRADESH
****
ICOMAA No.01 of 2022
Between:
VR Commodities Private Limited
....Appellant
v.
Norvic Shipping Asia Pte. Ltd.
....
Respondent
JUDGMENT PRONOUNCED ON 05.05.2022
HON'BLE MR. JUSTICE PRASHANT KUMAR MISHRA, CHIEF JUSTICE
AND
HON'BLE MR. JUSTICE M. SATYANARAYANA MURTHY
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? -No -
2. Whether the copies of judgment may be
marked to Law Reporters/Journals -Yes-
3. Whether Their Ladyship/Lordship wish to
see the fair copy of the Judgment? -Yes-
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2
* HON'BLE MR. JUSTICE PRASHANT KUMAR MISHRA, CHIEF JUSTICE
AND
HON'BLE MR. JUSTICE M. SATYANARAYANA MURTHY
+ ICOMAA No.01 of 2022
% 05.05.2022
# VR Commodities Private Limited
....Appellant
v.
$ Norvic Shipping Asia Pte. Ltd.
....
Respondent
! Counsel for the Appellant : Mr.Sanjay Suraneni representing
Avanija Inuganti
Counsel for Respondents : Mr. Amitava Majumdar
<Gist :
>Head Note:
? Cases referred:
(1) (2019) 9 SCC 209
(2) AIR 2019 Bom 149
(3) (2021) 4 SCC 379
(4) (2021) 2 SCC 1
(5) JT 1995 (3) SC 186
(6) 1942 AC 356
(7) (2007) UKHL 40
(8) (2012) WLR (D) 148
(9) (1999) Q.B. 785
(10) (2013) EWHC 470 (Comm) at [35]-[36]
(11) (2016) SGHC 249
(12) (2019) SCGA 84
(13) (2014) 5 SCC 68
(14) (2007) 5 SCC 692
(15) (2011) 14 SCC 66
(16) (2009) 2 SCC 134
(17) 2019 SCC OnLine Bom 13047
(18) AIR 2022 SC 797
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3
IN THE HIGH COURT OF ANDHRA PRADESH : AMARAVATI
HON'BLE MR. JUSTICE PRASHANT KUMAR MISHRA, CHIEF JUSTICE
AND
HON'BLE MR. JUSTICE M. SATYANARAYANA MURTHY
ICOMAA No.01 of 2022
VR Commodities Private Limited
.. Appellant/Respondent
Versus
Norvic Shipping Asia Pte. Ltd.
.. Respondent/Petitioner
Counsel for the Appellant : Mr.Sanjay Suraneni representing
Avanija Inuganti
Counsel for respondent : Mr. Amitava Majumdar
JUDGMENT
Dt.05.05.2022
(Per M.Satyanarayana Murthy, J)
1) Aggrieved by the order dated 28.01.2022 passed in
ICOMAOA No.11 of 2021 by the learned single Judge, the present
appeal is preferred under Section 37 of the Arbitration and
Conciliation Act.
2) The parties to the appeal will hereinafter be referred as
arrayed before the learned single Judge for the sake of convenience
and to avoid confusion.
3) The petitioner (respondent herein) before the learned
single Judge, filed an application under Section 9 of the Arbitration
and Conciliation Act, 1996 seeking the following reliefs:
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a) pass an order of interim injunction in favour of the petitioner and against
the respondent, restraining the respondent, from directly or indirectly
through its nominees, agents, associates, affiliates, representatives or
employees, in any manner, acquiring, selling, encumbering, alienating,
transferring, issuing delivery orders getting possession or otherwise
dealing with the cargo of 7,600 MTs out of the
32,770 MTs of coal discharged by the Vessel MV Port Tokyo and currently
lying at the V.O. Chidambaranar Port at Tuticorin in the month of August
2021, till the disposal of the present petition;
b) pass an order appointing a Receiver/Court Commissioner to take custody
of the cargo of 7,600 MTs of coal currently lying at the V.O
Chidambaranar Port at Tuticorin discharged from the vessel MV Port
Tokyo;
c) pass an order directing the respondent to offer security in the form of
cash security or other security as this Hon'ble Court deems fit for a sum
of INR 4,86,97,180.40 ps. equivalent to USD 646,486.11 being the sum
total of the principal claim of USD 566,486.11 in lieu of admitted pending
dues of demurrage payable to the Petitioner and USD 80,000 towards
legal costs
d) Pass an order directing the Respondent to bear all costs, charges,
expenses, levies, of any kind whatsoever which may be incurred by the
petitioner in exercise of its lien over the cargo of 7,600 MTs of coal,
including storage and maintenance costs
e) pass an order permitting the Petitioner to sell the liened cargo of 7,600
MTs of coal in the event of non-payment of sums to the petitioner as set
out in prayer clauses (c) above;
f) for ad interim reliefs in terms of prayer (a) (b) (c) and (d) above.
4) It is alleged that the petitioner (respondent herein) is a
company incorporated under the Companies Act, carrying on
shipping business known as ―Norvic Shipping Asia Pte. Limited‖,
whereas the respondent (appellant herein) is another company
carrying on its business in the name and style of ―VR Commodities
Private Limited‖. The petitioner and respondent entered into fixture
note dated 16.07.2021, Charterparty dated 29.05.2021 and
settlement agreement dated 06.09.2021 for transportation of coal
from ―Muara Bunyuasi‖ to ―Tuticorin‖ and ―New Mangalore, India‖.
But there is a breach of agreement of Charter party allegedly and the
petitioner sustained loss due to default of certain terms under the
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charterparty agreement, requiring the petitioner to have arbitral
proceedings. To make good for the amount possibly to recover from
the respondent, the petitioner sought various interim reliefs under
Section 9 of the Arbitration and Conciliation Act.
5) Learned single Judge ordered ad-interim injunction on
22.10.2021 in favour of the petitioner against the respondent
restraining the respondent, from directly or indirectly through its
nominees, agents, associates, affiliates, representatives or
employees, in any manner, acquiring, selling, encumbering,
alienating, transferring, issuing delivery orders, getting possession or
otherwise dealing with the cargo of 7,600 MTs out of the 32,770 MTs
of coal discharged by the vessel MV Port Tokyo, which is currently
lying at V.O.Chidambaranar Port at Tuticorin, in the event of the
respondent failing to furnish security for US $ 646,500/- within 48
hours of service of notice as well as this order on the respondent.
6) After passing order dated 22.10.2021, final order dated
28.01.2022 was passed in ICOMAOA No.11 of 2021 by the learned
single Judge. Operative portion of the order dated 28.01.2022 is as
follows.
―However, considering the scope of this application under
Section 9 of the Arbitration and Conciliation Act, 1996, no further
steps can as such be ordered pursuant to it. If the petitioner so
desires, it can as well approach the Court for necessary relief.
Purpose of filing the present petition is over and therefore,
this petition is directed to be closed, preserving liberty to the
petitioner to file separate application if so advised in respect of
subject matter in question for necessary reliefs. No costs.‖
7) Aggrieved by the order passed by the learned single
Judge, respondent in the ICOMAOA No.11 of 2021 preferred this
appeal on various grounds.
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8) Though several grounds were raised in the grounds of
appeal, appellant/respondent, limited his contentions as to the
admissibility of charterparty and arbitration clause contained in it in
evidence before the Court or Arbitrator as it was not duly stamped,
leaving the other contentions.
9) In view of the limited contentions urged before this Court,
this Court is not required to adjudicate upon other issues except
about the admissibility of document i.e. charterparty and arbitration
clause imbedded in it in evidence before this Court or before the
Arbitrator, without payment of stamp duty and penalty as it was not
stamped.
10) During hearing, Sri Mr.Sanjay Suraneni representing
Ms.Avanija Inuganti, learned counsel for the appellant would contend
that since Charterparty is inadmissible in evidence and passing of
order under Section 9 of the Arbitration and Conciliation Act based on
arbitration clause in the substantive agreement, is a serious illegality.
The charterparty between the petitioner and respondent is unstamped
and when it is presented before the officer, who is authorised to
receive the document in evidence, unless it is impounded collecting
stamp duty and penalty under Section 35 of the Indian Stamp Act,
1899, the same is inadmissible, thereby the order dated 28.01.2022
passed by the learned single Judge is illegal. In support of his
contentions, he has drawn the attention of this Court to the judgment
of the Apex Court in ―Garware Wall Ropes Limited v. Coastal
Marine Constructions and Engineering Limited1‖. On the strength
of the principle laid down in the above judgment, learned counsel for
the appellant requested to set aside the order dated 28.01.2022
passed in ICOMAOA No.11 of 2021 by the learned single Judge.
(2019) 9 SCC 209
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11) Sri Amitava Majumdar, learned senior counsel for the
respondent, would submit that in proceedings under Section 8 and 11
of the Arbitration and Conciliation Act, the Courts concluded that
such arbitration agreement or substantive agreement consisting of
arbitration clause must be stamped. But in proceedings under
Section 9 of the Arbitration and Conciliation Act, the Full Bench of
the High Court already concluded that the agreement is admissible
though not duly stamped and relied on ―Gautam Landscapes Pvt.
Ltd. v. Shailesh S.Shah2‖. He further submitted that when similar
issue came up for consideration before the Apex Court in various
judgments, the Apex Court dealt with the issue with reference to
object of enacting the Arbitration and Conciliation Act. In ―N.N.Global
Mercantile Private Limited v. Indo Unique Flame Limited3‖ the
Full Bench of the Supreme Court referred the question to the
Constitution Bench. Learned senior counsel placed reliance on
another judgment of the Apex Court in ―Vidya Drolia v. Durga
Trading Corporation4‖. Finally, learned senior counsel would submit
that the issue can be decided by this Court though it is pending in
reference before the Constitution Bench of the Apex Court.
12) Considering rival contentions, perusing the material
available on record, the point need be answered by this Court is as
follows:
Whether the charterparty dated 29.05.2021 consisting
of arbitration clause is admissible in evidence before
this Court or before the Arbitrator as the agreement is
not stamped? If not, whether the order passed by the
learned single Judge closing the arbitration
proceedings as the purpose is served, be set aside?
AIR 2019 Bom 149
(2021) 4 SCC 379
(2021) 2 SCC 1
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P O I N T:
13) It is not in quarrel about the parties entering into
agreement known as Charterparty dated 29.05.2021 for
transportation of coal from Muara Bunyuasi to Tuticorin and New
Mangalore, India subject to conditions contained in the agreement.
Certain clauses are incorporated in the said charterparty. One of the
terms of the charter party is with regard to arbitration. Clause No.5
deals with arbitration and the same is necessary for deciding the
present issue and it is extracted hereunder:
"If any dispute or difference should arise under this Charter, same
to be referred to three parties in the City of Singpore New York, one to
be appointed by each of the parties hereto, the third by the two so
chosen, and their decision, or that any two of them, shall be final and
binding and this agreement may, for enforcing the same, be made a rule
of Court. Said three parties to be commercial men who are members of
the Institute of Arbitrators in Singapore. English Law to apply and
arbitrations and General Average in Singapore"
14) Annexure-B of Charterparty consists of arbitration clause
and seat of arbitration is at ―Singapore‖ governed by English law, but
the Charterparty is not stamped as required under the Indian Stamp
Act.
15) As seen from annexure-B of Charterparty, it was executed
in India. When the Charterparty is executed in India, it must be duly
stamped under the provisions of Indian Stamp Act. The Indian Stamp
Act is a fiscal enactment intended to collect revenue from public, who
entered into transactions. Therefore, it is the duty of every public
officer, who is competent to receive the document, is under obligation
to protect the revenue of the state. It is settled law that no document
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can be admitted in evidence unless it is properly stamped. (Vide:
Shankar Balwant Lokhande (Dead) by L.Rs. vs. Chandrakant
Shankar Lokhande5‖)
16) Undoubtedly, it is true that unless the document is
impounded and collected stamp duty and penalty payable on such
document, it cannot be received in evidence and no Court is
competent to pass any decree or judgment based on such unstamped
document. When the document is executed at a particular State, the
law applicable to particular State for payment of stamp duty alone is
applicable for collection of stamp duty and penalty and to admit the
document in evidence.
17) Chapter - IV of the Indian Stamp Act deals with
Instruments not duly stamped. Section 33 deals with ‗examination
and impounding of instruments', which is 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 public office, except an 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.
(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 of 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
JT 1995 (3) SC 186
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under Chapter XII or Chapter XXXVI of the Code of Criminal
Procedure, 1898;
(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; and
(b) the [State Government] may determine who shall be deemed to be
persons in charge of public offices.
18) Section 35 prohibits receiving instruments not duly
stamped or unstamped in evidence. According to Section 35 of the
Indian Stamps Act, 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.
19) Therefore, there is a clear prohibition against receipt of
unstamped and not duly stamped document in evidence by public
officer, who is entitled to receive such document in evidence and
when it is produced before him, he shall examine the same and
impound the same, collect stamp duty payable on the document.
20) According to Sl.20 of Schedule - I, Charter party, that is
to say, any instrument (except an agreement for the hire of a tug-
steamer) whereby a vessel or some specified principal part thereof is
let for the specified purposes of the character, whether it includes a
penalty clause or not, stamp duty payable is Rs.5/-.
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21) Schedule I-A, which is applicable to the State of Andhra
Pradesh deals with stamp duty payable several instruments or
documents.
22) According to Sl.18 of Schedule-IA, Charter party, that is
to say, any instrument (except an agreement for the hire of a tug-
steamer), whereby a vessel or some specified principal part thereof is
left for the specified purposes of the charter, whether it includes a
penalty clause or not, stamp duty payable is ―one rupee‖.
23) Thus, as per Schedule-I and Schedule-I A, stamp duty is
to be paid on charterparty. Whereas, Schedule - I of the Indian Stamp
Act and Schedule -IA (Andhra Pradesh) did not prescribe any stamp
duty payable on arbitration agreement. When arbitration agreement
though forms part of substantive agreement, it can be separable from
the substantive agreement i.e. charter party. Time and again, this
issue came up for consideration before the Court, but various
countries dealt with this issue in different modes. The doctrine of
separability treats an agreement to arbitrate contained within a
contract as an independent agreement that is deemed to be separable
from the main contract. To put it simply, as per the doctrine of
separability, where a dispute arises concerning the initial validity or
continued existence of a contract, the arbitration clause embedded in
the main contract is seen to be autonomous, and separate. The
doctrine preserves the validity and enforceability of the arbitration
clause in a contract, even when the primary contract is found to be
invalid and unenforceable, providing autonomy to the arbitration
clause. The UNCITRAL Model law on International Commercial
Arbitration, 1985, Article 16[1], integrates the doctrine of separability
as an arbitration clause which forms part of a contract shall be
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treated as an agreement independent of the other terms of the
contract, it runs as follows:
"The arbitral tribunal may rule on its own jurisdiction, including
any objections with respect to the existence or validity of the
arbitration agreement. For that purpose, an arbitration clause which
forms part of a contract shall be treated as an agreement independent
of the other terms of the contract. A decision by the arbitral tribunal
that the contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause. It provides that an arbitral
tribunal's determination that a contract is void does not immediately
render the arbitration provision unenforceable. The same principle is
manifested in Section 7 of the Arbitration Act, 1996 of England,
Singapore's approach to separability provisions and Section 16(1) of
India's Arbitration and Conciliation Act, 1996."
24) As seen from Charterparty, English law alone is
applicable and the seat of the arbitration is at ‗Singapore'. As the law
governing such arbitration is English law, it is necessary to advert to
few decisions under English law relating to separability of arbitration
clause from original agreement.
25) The United Kingdom views separability as reflecting the
presumed intention of the parties that their preferred method of
resolving dispute remain effective. Arbitration agreement is seen
as distinct. Section 7 of the English Arbitration Act, 1996, deals with
the Separability of Arbitration agreement.
26) The Doctrine was first recognised in England, through the
landmark judgment in ―Heyman vs. Darwins Ltd.6‖, which laid down
the principle of separability of arbitration agreement, and was later
incorporated in the Arbitration Act of 1996, based on UNCITRAL
Model Law through legislation.
1942 AC 356
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27) In ―Fiona Trust & Holding Corp v. Privalov7‖ the House
of Lords held that unless otherwise agreed by the parties an
arbitration agreement which forms or was intended to form part of
another agreement shall not be regarded as invalid, non-existent or
ineffective because that other agreement is invalid, or did not come
into existence or has become ineffective, and it shall for that purpose
be treated as a distinct agreement.
28) The House of Lords further stated that the arbitration
agreement must be treated as a distinct agreement and can be void or
voidable only on grounds which relate directly to the arbitration
agreement; the invalidity or rescission of the main contract does not
necessarily entail the invalidity or rescission of the arbitration
agreement.
29) The primary or substantive agreement and the arbitration
agreement may both be declared as illegal for the same reason in rare
situations. For example, if a signature on a contract including an
arbitration clause is forged, the arbitration clause is null and void.
This is because the signature to the arbitration agreement as a
"separate agreement" was forged, not because the primary agreement
is unlawful. However, in other circumstances, if an agent is accused
of transgressing his power by entering into the primary or substantive
agreement on conditions that were not authorised or for improper
reasons, the arbitration agreement is not always under dispute.
30) In ―Sulamrica Cia Nacional de Seguros SA vs
EnesaEngenharia SA8‖ it is observed that the only purpose of the
doctrine of separability is to give legal effect to the parties' intention of
(2007) UKHL 40
(2012) WLR (D) 148
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resolving disputes through arbitration and not to insulate the
arbitration agreement from the substantive contract for all purposes.
Accordingly, it was held that an express choice of law governing the
substantive contract is a strong indication of the parties' intention in
relation to the agreement to arbitrate. The principle of separability of
arbitration agreements from the contracts in which they sit which
means that disputes arising out of the contract are submitted to
arbitration even where the existence of the contract itself is
challenged, was re-emphasised.
31) The House of Lords re-emphasised the doctrine of
―separability‖ of arbitration agreements from the substantive
contracts in which they sit, which means that disputes arising out of
the contract are submitted to arbitration even where the existence of
the contract itself is challenged.
32) In ―Soleimany v. Soleimany9‖ the Court of Appeal
reversed the High Court's decision to enforce an arbitral award
(rendered by the Beth Din in England under Jewish law) which
enforced a contract to smuggle carpets out of Iran, held as follows:
"In our view, an enforcement judge, if there is prima facie evidence
from one side that the award is based on an illegal contract, should
enquire further to some extent.
The judge has to decide whether it is proper to give full faith and
credit to the arbitrator's award. Only if he decides at the preliminary
stage that he should not take that course does he need to embark on a
more elaborate enquiry into the issue of illegality."
33) The Court declined to enforce an award relating to a
dispute arising out of an illegal contract to smuggle carpet out of Iran
holding that 'where the making of the contract will itself be an illegal
(1999) Q.B. 785
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act, the court would be driven nolens volens to hold that the
arbitration was itself void'. It was also specified that the enforcement
court must see whether there is prima facie evidence that the award
is based on an illegal contract.
34) United Kingdom views on doctrine of separability as
reflecting the presumed intention of the parties that their preferred
method of resolving dispute remain effective. Arbitration agreement
seen as distinct. In cases of void ab initio contracts, it should be seen
if the arbitration agreement by itself is void ab initio. However, in case
of illegal contracts, court will find arbitration agreement within it
invalid.
35) Singapore follows a limited ―separability‖ in arbitration
agreements. There are no distinct statutory provisions, but this
doctrine is drawn from Article 16 UNCITRAL model law. The
separability doctrine in the country is seen as a tool for execution of
parties intention or expectation that the arbitration clause should
survive an agreement that has been invalidated by Court. Here, the
doctrine does not imply that arbitration agreement is independent of
the main contract.
36) There are statutory provisions in the country in the
Singapore Arbitration Act 2001, Part VI states Jurisdiction of Arbitral
Tribunal. These are provisions for separability of arbitration clause
and competence of arbitral tribunal to rule its own jurisdiction. When
the jurisdiction is challenged before an arbitral tribunal one of the
most common grounds raised is that the contract which incorporates
the arbitration was never concluded. Before it was a common practice
to determine both the validity of arbitration agreement and existence
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of binding contract together. (Vide: Hyundai Merchant Marine
Company Ltd vs. Americas Bulk Transport Ltd.)10
37) In the case of ―BCY and BCZ11‖ the defendant's case was
a binding ICC arbitration agreement which was concluded before the
conclusion of SPA. In such cases where arbitration clause was
negotiated in the context of a contract such an approach was found
problematic from the perspective of both parties as well as arbitrators.
38) There are decisions of the High Court of the country
where the law governing the arbitration agreement was implied from
the main or substantive contract. The Court held that when the
arbitration clause is a part of the main or substantive contract, then
it is reasonable to presume that the entire relationship is governed by
uniform law, if the intention differed, they must have specified or
entered into different agreements. Further clarity is provided by
Article 16 of the UNCITRAL Model Law on International Commercial
Arbitration.
39) In the recent years there have been perspective judicial
pronouncements which have provided clarity with respect to ―doctrine
of separability‖ of arbitration agreements. The court in the judgment
of ―BNA v. BNB12‖, stated that the root cause behind evolution of the
doctrine of separability is the desire to give effect to the arbitration
agreement even if the substantive contract is ineffective. Court
refused to accept this as limitation of the doctrine following which it
was held that it is legitimate to presume that the parties want the
arbitration clause to survive. The only limitation the court stated was
(2013) EWHC 470 (Comm) at [35]-[36]
(2016) SGHC 249
(2019) SCGA 84
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to only give 'reasonable effect' to this intention. The judgment further
discusses the reason why ―doctrine of separability‖ has a limited
scope, being consistent with the ut res magis principle, it is there just
to give effect to the intention of the parties which is presumed that the
arbitration clause should survive.
40) The Court interpreted this doctrine and held that it has a
limited scope it is broad enough to operate and uphold the arbitration
clause, which is integrated in an agreement, but an operation of the
substantive agreement could operate to nullify the parties manifest
intention to arbitrate their disputes.
41) In India, the statutory provision is present in Chapter IV
of Arbitration and Conciliation Act, 1996. There have been judicial
pronouncements as cases upholding the ―Doctrine of Separability‖ as
well as on Illegal Contracts and Frauds. In the case of ―N.N.Global
Mercantile Private Limited vs. Indo Unique Flame Limited‖
(referred supra), the enforceability of Arbitration agreement embedded
in Unstamped Contract was discussed. It was held that separability of
arbitration agreement from substantive contract in which it is
embedded is well settled law. Invalidity, ineffectiveness or termination
of substantive commercial contract does not effect the validity of the
arbitration agreement.
42) In the case of ―Today Homes & Infrastructure (P) Ltd.
vs. Ludhiana Improvement Trust13‖, the two-judge bench held that
arbitration clause is not invalidated even if the main or substantive
agreement is declared void.
(2014) 5 SCC 68
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43) In the case of ―National Agricultural Coop. Marketing
Federation India Ltd. vs. Gains Trading Ltd.14‖, it was stated Even
if the performance of the contract comes to an end on account of
repudiation, frustration or breach of contract, the arbitration
agreement would survive for the purpose of resolution of disputes
arising under or in connection with the contract.
44) In view of the settled law laid down by the United
Kingdom and in view of separate clause contained in Singapore
Arbitration Act, the clause relating to settlement of disputes by
arbitration shall be an independent and autonomous clause. Though
Charterparty is not stamped, still, in view of separability of arbitration
clause, which does not require any stamp duty payable thereon either
under the Indian Stamp Act or law relating to the State of Andhra
Pradesh, the arbitration clause is independent clause. When once the
arbitration agreement is not liable for stamp duty, based on such
arbitration clause, though the substantive agreement is not duly
stamped, the Court can take into consideration of such clause
independently and pass appropriate orders under Section 9 of the
Arbitration and Conciliation Act, 1996.
45) The law is well settled regarding appointment of arbitrator
despite the arbitration agreement/clause being contained in an
insufficiently stamped document.
46) The Karnataka High Court in the case of ―Malchira C.
Nanaiah v. Messrs Pathak Developers Private Limited, [Civil
Miscellaneous Petition No. 113 of 2019, decided on October 5, 2020]‖
faced with the issue of an application under Section 11 of the Act
(2007) 5 SCC 692
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arising out of an insufficiently stamped arbitration agreement. In
consideration of the peculiar facts and circumstances of the case,
particularly having regard to the joint submission and consent given
by both the parties to proceed with the appointment of the sole
arbitrator upon imposition of necessary conditions with regard to
payment of stamp duty and penalty on the sale agreement by the
petitioners on or before the first date of hearing before the sole
arbitrator, the Court went onto appoint an arbitrator to adjudicate
upon the dispute between the parties despite the arbitration
agreement being contained in an insufficiently stamped document.
However, the Court also enumerated that the instant decision shall
not be treated as a precedent.
47) The law relating to admissibility of a document and
treating the arbitral agreement as separable was discussed in various
judgments.
48) Learned counsel for the appellant placed reliance on the
judgment of the Apex Court in ―Garware Wall Ropes Limited v.
Coastal Marine Constructions and Engineering Limited‖ (referred
supra). In the said judgment, the Apex Court held as follows:
― In view of the above deliberation, we answer the questions as framed by
us as follows:
(1) Whether a court, under the Arbitration and Conciliation Act, 1996,
can entertain and grant any interim or ad-interim relief in an application
Under Section 9 of the said Act when a document containing arbitration
Clause is unstamped or insufficiently stamped?
In the Affirmative
(2) Whether, inter alia, in view of Section 11 (6A) of the Arbitration and
Conciliation Act, 1996, inserted by Arbitration and Conciliation (Amendment)
Act, 2016, it would be necessary for the Court before considering and passing
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final orders on an application Under Section 11(6) of the Act to await the
adjudication by the stamp authorities, in a case where the document objected
to, is not adequately stamped?
In the Negative
Question (2), having been answered contrary to our judgment, is held to
be incorrectly decided.
One reasonable way of harmonising the provisions contained in Sections
33 and 34 of the Maharashtra Stamp Act, which is a general statute insofar as
it relates to safeguarding revenue, and Section 11(13) of the 1996 Act, which
applies specifically to speedy resolution of disputes by appointment of an
arbitrator expeditiously, is by declaring that while proceeding with the Section
11 application, the High Court must impound the instrument which has not
borne stamp duty and hand it over to the authority under the Maharashtra
Stamp Act, who will then decide issues qua payment of stamp duty and
penalty (if any) as expeditiously as possible, and preferably within a period of
45 days from the date on which the authority receives the instrument. As
soon as stamp duty and penalty (if any) are paid on the instrument, any of the
parties can bring the instrument to the notice of the High Court, which will
then proceed to expeditiously hear and dispose of the Section 11 application.
This will also ensure that once a Section 11 application is allowed and an
arbitrator is appointed, the arbitrator can then proceed to decide the dispute
within the time frame provided by Section 29A of the 1996 Act.‖
49) Earlier to the said judgment, when similar issued came
up for consideration in ―SMS Tea Estates Private Limited vs.
Chandmari Tea Company Private Limited15‖. In the facts of the
above case, a lease deed was executed with respect to two tea estates.
Clause 35 of the deed provided for settlement of disputes between the
parties by arbitration. However, the lease deed was unregistered and
unstamped. With respect to the validity of the arbitration clause
contained in an unregistered (but compulsorily registrable)
instrument, the Supreme Court relied upon section 49 of Registration
Act, 1908. The proviso to this section elucidates exceptions in which
such an instrument can be received as evidence of any transaction
affecting such property. The proviso states that it may be received as
(2011) 14 SCC 66
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evidence of any collateral transaction not required to be effected by
registered instrument. Applying the doctrine of separability, the
Supreme Court held that an arbitration clause in a contract is a
collateral term relating to the resolution of disputes and has nothing
to do with the performance of the contract. Therefore, there are two
independent documents:
(a) the substantive contract which requires registration; and
(b) the arbitration agreement which is not compulsorily
registrable.
50) The Supreme Court concluded by stating that an
arbitration agreement does not require registration under the
Registration Act and, thus, can be enforced for the purpose of
arbitration.
51) With respect to the validity of the arbitration clause in an
unstamped instrument, the Supreme Court relied on sections 33 and
35 of the Indian Stamp Act, 1899. Section 33 of the legislation relates
to the examination and impounding of instruments and section 35
provides that instruments not duly stamped are inadmissible in
evidence and cannot be acted upon. The Supreme Court rejected the
application of doctrine of separability to an unstamped instrument
containing an arbitration clause, only for the reason that section 35
did not contain a proviso like the one in section 49 of the Registration
Act, 1908. Therefore, the Supreme Court held that as the arbitration
agreement is also a part of the instrument, it cannot be acted upon
unless the stamp duty and penalty is paid.
52) The judgment of the Apex Court in ―N.N.Global
Mercantile Private Limited v. Indo Unique Flame Limited‖
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(referred supra) signifies a complete overhaul in the approach of the
Court regarding the validity of an arbitration clause in an unstamped
instrument. The Supreme Court held that an arbitration agreement is
separate and distinct from the substantive commercial contract on
the basis of two principles: the doctrine of separability and
kompetenz - kompetenz. While the doctrine of separability has been
discussed earlier, principle of kompetenz - kompetenz is relatively
unexplored. This principle states that the arbitral tribunal is
competent to determine and rule on its own jurisdiction, including
issues of existence, validity and scope of arbitration agreement. The
ruling of the arbitral tribunal is subject to judicial scrutiny by courts
at a later stage. This legislative policy of minimal interference has
been statutorily recognized by the Arbitration and Conciliation Act,
1996 by the following provisions:
(a) Section 5 prohibits judicial intervention except as specified
in Part I of the Arbitration and Conciliation Act, 1996; and
(b) Section 16 explicitly empowers the arbitral tribunal to rule
on its jurisdiction and also recognizes the independent existence of an
arbitration clause.
53) With respect to the specific issue of validity of arbitration
clause contained in an unstamped instrument, the Supreme Court
held that according to Maharashtra Stamp Act, 1958 (which was the
legislation applicable in ―Garware Wall Ropes Limited v. Coastal
Marine Constructions and Engineering Limited‖ (referred supra),
the arbitration agreement is not included as an instrument
chargeable to Stamp duty. Therefore, due to the doctrine of
separability, the arbitration clause will exist independently and would
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not be rendered invalid on account of non-payment of stamp duty as
the same is not chargeable to it.
54) On this basis, the Supreme Court overruled the judgment
in ―SMS Tea Estates Private Limited vs. Chandmari Tea
Company Private Limited‖ (referred supra). Further, the Supreme
Court stated that the judgment in ―Garware Wall Ropes Limited v.
Coastal Marine Constructions and Engineering Limited‖ (referred
supra), was affirmed by a coordinate bench in ―Vidya Drolia v.
Durga Trading Corporation‖ (referred supra). Therefore, the
Supreme Court referred the issue to a constitution bench of five
judges of the Supreme Court.
55) Sri Amitava Majumdar, learned senior counsel for the
respondent, relied on ―Gautam Landscapes Pvt. Ltd. v. Shailesh
S.Shah‖ (referred supra), the Full Bench judgment of Bombay High
Court on detailed consideration of various provisions concluded as
follows:
―Taking an overall view of the scheme of the ACA, judgments delivered by
the Supreme Court, we are of the view that the party need not be put to a
disadvantage merely because an objection has been raised in respect of
insufficiency of the stamp on the agreement presented before the court.
Neither a contesting party could deprive legitimate rights of a litigant in
praying for timely intervention of the court by praying for appointment of an
arbitral tribunal nor for interim reliefs in the fact situation of a case. That
would be rendering a party without any forum and in a given situation the
outcome would be, at times, catastrophic and disastrous and the damage
could be irreparable one. A balanced approach, keeping in view the legislative
intent and the view adopted by the Supreme Court, needs to be adopted, so
that the purpose of enacting the provisions of Sections 11 and 9 of the ACA as
amended by the Amendment Act is not defeated.
If an application under Section 11 or under Section 9 is required to be
postponed till the order of adjudication is passed by the learned Collector of
Stamps with such uncertainty of the time it would take to decide and the
hierarchy of remedies after such order, as it would be subject to an appeal or
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a revision, as the case may be and till such time no order either under Section
11 of under Section 9 should be passed, then the Legislature would not have
provided for speedy disposal of the applications under Section 11 or under
Section 9 of the Act by inserting sub-Section (13) in Section 11 and sub-
Section (2) in Section 9 of the Act.‖
56) Learned Senior counsel for the respondent relied on
―Shakti Bhog Foods Limited v. Kola Shipping Limited16‖, wherein
the Apex Court held as follows:
―Fixtures are frequently recorded in a telex or fax recapitulating the terms
finally agreed (a "recap"). Thus a recap telex or fax may constitute the "charter
Party referred to in another contract. In the case of ―Welex A.G. v. Rosa
Maritime Ltd. (The "Elipson Rosa Case") [2002] EWHC 762 (Comm)‖, it was
decided by the Queen's Bench Division (Commercial Court) that a voyage
charter party of the Elipson Rosa was concluded on the basis of a recap telex
which incorporated by reference a standard form charter. Before any formal
charter was signed, bills of lading were issued referring to the "Charter Party",
without identifying it by date. It was held that the charter party referred to
was the contract contained in or evidenced by the recap telex.
In the present case therefore, we conclude that there existed a charter
party between the parties to the suit which can be identified from the
correspondence between the parties to that effect as also from the fixture note
and the bill of lading signed by the parties.‖
57) In ―Saifee Developers Pvt. Ltd. vs. Shanklesha
Constructions17‖, the High Court of Bombay held that ―the decision
of the Supreme Court in Garware Wall Ropes Limited v. Coastal
Marine Constructions and Engineering Limited‖ (referred supra) is
rendered in the context of Section 11 of the Act and not in a
proceeding under Section 9 of the Act. The decision of the Full Bench
in the context of Section 9 of the Act is subject matter of challenge
before the Supreme Court in "Shailesh S. Shah vs. Gautam
Landscapes Pvt. Ltd.‖ in a Petition for Special leave to Appeal (c) No.
10232 - 10233 of 2019. By an order dated 29th April, 2019, passed by
(2009) 2 SCC 134
2019 SCC OnLine Bom 13047
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the Supreme Court, on the said petition, while issuing notice to the
respondents, the Supreme Court has not stayed the decision of the
Full Bench. The Supreme Court, however, observed that section 9
petition may continue, in the meanwhile judgment delivered thereon
shall not be implemented without leave of the Court. Thus, as the
judgment of the full bench is binding on this Court, and the same
being not stayed by the Supreme Court, it is not possible to accept
the contention as urged on behalf of respondent that this Court
cannot grant any ad-interim relief.‖
58) The judgment of learned single Judge is not binding and
similarly the judgments of other High Courts are also not binding,
however they got persuasive value. Therefore, persuaded by the law
laid down in ―N.N.Global Mercantile Private Limited vs. Indo
Unique Flame Limited‖ (referred supra)‖ and by applying the
doctrine of separability, in the absence of inclusion of arbitration
agreement in Schedule - I of Indian Stamp Act or Schedule-IA
(Andhra Pradesh) and not chargeable with stamp duty, the arbitration
clause is admissible since it is a separate contract.
59) Recently, the Apex Court in ―Intercontinental Hotels
Group (India) Pvt. Ltd. vs. Waterline Hotels Pvt. Ltd.18‖ the Full
Bench after consideration of judgments (referred above) expressed its
opinion as to the admissibility of unstamped or insufficiently stamped
arbitration clause in unstamped substantive agreement, held as
follows:
―Upon reading ―Vidya Drolia v. Durga Trading Corporation‖ (referred
supra), the issue of 'existence' and/or 'validity' of the arbitration clause, would
not be needed to be looked into herein, as payment of stamp duty, sufficient
AIR 2022 SC 797
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or otherwise, has taken place herein. In order to ascertain whether adequate
stamp duty has been paid in terms of the Karnataka Stamp Act, this Court
needs to examine the nature of the substantive agreement, the nature of the
arbitration agreement, and whether a separate stamp fee would be payable for
the arbitration agreement at all. It may be noted that the Petitioners, have
themselves attempted to self-adjudicate the required stamp duty and have
paid, on 29.07.19, a stamp duty of Rs. 2,200/-, describing the HMA as a
"bond". On 10.06.2020, the Petitioners further purchased 11 e-stamps for Rs.
200/- each, describing the HMA as an 'agreement' Under Article 5(j).
Therefore, it falls upon the Court, under the Stamp Act to review the nature of
the agreement in order to ascertain the stamp duty payable. From the above it
is clear, that stamp duty has been paid, whether it be insufficient or
appropriate is a question that maybe answered at a later stage as this Court
cannot review or go into this aspect Under Section 11(6). If it was a question
of complete non stamping, then this Court, might have had an occasion to
examine the concern raised in ―N.N.Global Mercantile Private Limited vs.
Indo Unique Flame Limited‖ (referred supra)‖, however, this case, is not one
such scenario.‖
60) In view of the law laid down by the Apex Court in various
judgments and by applying the principle of separability, the clause
pertaining to settlement of disputes by Arbitration contained in
substantive agreement can be taken into consideration even to decide
an application under Section 9 of the Arbitration and Conciliation Act
leaving it open to the Arbitration Tribunal to record a finding, if any,
on the clause, its admissibility due to failure to pay stamp duty on the
substantive document.
61) In any view of the matter, the issue is pending before the
Constitution Bench of the Apex Court and this finding is only subject
to decision of Constitution Bench in the reference made in
―N.N.Global Mercantile Private Limited vs. Indo Unique Flame
Limited‖ (referred supra)‖.
62) The main contention raised before this Court by the
appellant is that since the document is unstamped, basing on the
principle laid down in ―Garware Wall Ropes Limited v. Coastal
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Marine Constructions and Engineering Limited‖ and ―SMS Tea
Estates Private Limited vs. Chandmari Tea Company Private
Limited‖ (referred supra), the order of the learned single Judge is
liable to be set aside. The same was considered in the later judgment
by the Full Bench in ―N.N.Global Mercantile Private Limited vs.
Indo Unique Flame Limited‖ (referred supra)‖ and referred the issue
to the Constitution Bench. Therefore, basing on the principle laid
down in ―Garware Wall Ropes Limited v. Coastal Marine
Constructions and Engineering Limited‖ and ―SMS Tea Estates
Private Limited vs. Chandmari Tea Company Private Limited‖
(referred supra), it is difficult to uphold the contention of the learned
counsel for the appellant since the same was turned down by the Full
Bench indirectly while referring the matter to the Constitution Bench.
63) In view of our foregoing discussion, we find no merits in
the contention of the learned counsel for the appellant-respondent,
hence the order under challenge cannot be interfered on the ground
that the substantive agreement is not stamped. Consequently, the
appeal is liable to be dismissed.
64) In the result, the appeal is dismissed. No costs.
The miscellaneous petitions pending, if any, shall also stand
closed.
PRASHANT KUMAR MISHRA, CJ M. SATYANARAYANA MURTHY,J
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