Olympia Industries Limited vs Sumilon Industries Limited
2022 Latest Caselaw 861 Bom

                                       IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                                             ORDINARY ORIGINAL CIVIL JURISDICTION

                                         ARBITRATION APPLICATION NO. 141 OF 2017



                      Olympia Industries Ltd.                                  ...     Applicant
                                 vs.
                      Sumilon Industries Ltd.                                  ...     Respondent


                      Mr. Virat M. Chavda for the Applicant.
                      Mr. Vijay Kantharia i/b. Ms. Shubhada Salvi for the Respondent.


                                                                 CORAM : A. K. MENON, J.

DATED : 24th JANUARY, 2022 [ THROUGH VIDEO CONFERENCE ]

P.C.

1. This is an application for appointment of a Sole Arbitrator pursuant to

an arbitration clause contained in an agreement described as an "Lease

Agreement" dated 1st February, 2013. It is the applicants case that under the

said writing dated 1st February, 2013 the applicant had granted to the

respondent the right of conducting a factory premises situated at Surat

wherein certain coning and dyeing facilities were being carried out. The

agreement is stated to be an operating lease and not one of lease of land as

understood in the customary sense.

RAJESHWARI RAMESH PILLAI Digitally signed by RAJESHWARI RAMESH PILLAI Date: 2022.01.25 1-arbap-141-2017.odt 1/8 11:19:06 +0530 rrpillai

2. It is alleged that the respondent was liable to pay a stipulated amount

every month in advance with escalation over time. However on account of

delays caused by the respondent in paying the licence fees the applicant has

claims against the respondent. There is no dispute about the fact that the

applicant has since recovered possession of the premises inasmuch as the

operating lease no longer subsists because by a letter dated 29 th October,

2016 the operating lease was revoked. Several breaches are alleged to have

been committed by the respondent who has denied these allegations by a

response dated 5th December, 2016.

3. On 8th February, 2017 the applicants Advocate invoked the arbitration

clause. Allegations were traded between the parties and respondents has

denied all of the applicants contentions vide its response dated 2 nd March,

2017. Disputes and difference having arisen and having invoked the

arbitration clause the applicant now seeks the appointment of a sole

Arbitrator. Mr. Chavda for the applicant therefore submits that a Sole

Arbitrator may be appointed to adjudicate disputes between the parties.

4. On behalf of the respondent the application is opposed by Mr.

Kantharia who has submitted that the agreement is unstamped and by virtue

of the decision of the Supreme Court in SMS Tea Estates Private Limited vs.

Chandmari Tea Company Private Ltd 1. And Garware Wall Ropes Limited vs.

Coastal Marine Constructions and Engineering Limited 2 the agreement is 1 (2011) 14 SCC 66 2 (2019) 9 SCC 209

1-arbap-141-2017.odt 2/8 rrpillai liable to be impounded. Even otherwise, the arbitration agreement is alleged

to be vague and invalid. My attention has been drawn to the arbitration

clause which reads as follows :

"18. All disputes, difference, claims and questions whatsoever

arising from this agreement between the parties and/or their

respective representatives touching up on these present or any clause

of thing herein contained or otherwise in any way relating to or

arising from these presents shall be referred to the arbitration of two

arbitrators, one to be appointed by each party to the dispute in case

both the parties here to desire to do so as necessitated by

circumstances and such arbitration shall be in accordance with the

provisions of the Arbitration and Conciliation Act, 1996 or any

statutory modification or reenactment thereof for the time being in

force. Such Arbitration proceedings will be held at Mumbai and all

the matters shall be subject to Mumbai Jurisdiction."

Inviting my attention to Clause no. 18 Mr. Kantharia submits that the clause

proposes reference to arbitration of two arbitrators one to be appointed by

each party and in the circumstances it is not in consonance with the

Arbitration and Conciliation Act, 1996. He submits that under Section 10,

the number of arbitrators should be an odd number and therefore the

arbitration clause is invalid. He therefore submits that even assuming the

agreement is admissible in evidence as being stamped appropriately, there is

no valid arbitration agreement between the parties.

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5. Mr. Chavda has however submitted that the agreement would attract

stamp duty of Rs. 100/- only under clause of Article 5(h)(B)(ii) of the

Schedule of the Maharashtra Stamp Act. He submits that the agreement

which grants an operating lease is effectively only for conducting the factory

premises. It did not transfer or assign any kind of right in the property per se

which could have been valued under Article 5(a) to (g). He submits that the

intention of the parties as can be seen from the agreement is one of

permitting the respondent to occupy the factory and run the plant for a

limited period of time. i.e. since when terminated and the operating lease no

longer subsists. Thus the agreement clearly falls under 5(h)(B) and the duty

payable is only Rs. 100/-. Thus Mr. Chavda submits that this is not a case of

an agreement that is unstamped or insufficiently stamped.

6. Having heard the learned counsel for the parties I am of the view that

two issues are required to be considered. Firstly whether the agreement is

insufficiently stamp and if so, what steps are required to be taken. Secondly,

whether on a fair reading of Clause 18, it constitutes a valid arbitration

clause between the parties and under which a Sole Arbitrator can now be

appointed as sought by the applicant. I will address the second issue first.

7. As far as appointment of the tribunal is concerned, considering the

language of Clause 18 it is clear that the parties have agreed on a two

member tribunal but subject to the provision of Arbitration and Conciliation

Act. The Supreme Court has in the case of Narayan Prasad Lohia vs Nikunj

1-arbap-141-2017.odt 4/8 rrpillai Kumar Lohia and Ors.3 held that although section 10 provides for even

number of arbitrators, the appointment of two arbitrators under the

agreement would render the agreement invalid. The two arbitrators

appointed in terms of the arbitration clause should proceed to appoint a

third arbitrator under section 3. In this view of the matter I find no difficulty

in the applicant proceeding with the arbitrator nominated provided the

respondent also nominates an arbitrator or the court appoints one for the

respondent. The two arbitrators so appointed can then appoint the presiding

arbitrator as contemplated in Narayan Prasad Lohia (supra). However, that

will have to await the stamping of the document. Alternatively an arbitrator

can be appointed subject to the document being stamped and the arbitrator

will not enter the reference till the agreement is so stamped. That is an aspect

which will need further consideration.

8. Prima facie it did appear that Mr. Chavda's contention that the

agreement being an operating lease agreement would fall within the residual

clause of Article 5(h)(B) but on closer scrutiny, the agreement in my view is

clearly in the nature of a licence to occupy the premises, to get the factory

licence transferred to the name of the respondent and to continue in

uninterrupted occupation of portion of the premises, save and accept one

room on the first floor and two rooms on the second floor of the factory

building which will remain in the custody of the applicant for their use and to

store their records.

3    (2002) 3 SCC 572

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9. The agreement in fact assumes the character of a leave and licence

agreement, considering the initial period of 33 months which was renewable

for upto a period of 66 further months, thus in all amounting to 99 months.

This is evident from Clause no. 12. Apart from the security deposit that is in

contemplation, Annexures I and II to the agreement are two letters, the first

of which is dated 1st January, 2013 viz. is one month prior to the execution

date of the agreement and which records that the applicant and the

respondent will renew the lease agreement for further 33 months after the

first three operative periods described in clause 3. After this letter was

executed a second letter of the same date, once again signed by both parties,

records that the lease agreement of 1 st February, 2013 shall not be terminated

for a period of 66 months provided the respondent complies with the

commercial understanding.

10. The parties were therefore ad-idem on the fact that the arrangement

would continue for a period of 66 months and in my view this agreement

would clearly not fall under the residuary clause but under Article 36A of

the Maharashtra Stamps Act. The agreement also could fall under Article

36A(b) which provides for leave and licence agreement for a period

exceeding 60 months without a renewal clause. The period of 66 months

would relate back to Article 36 which contemplates the stamp duty for a

lease unless provided in sub clauses (2), (3) or (4) of Article 36.

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 11.         Considering the fact that      a 66 months lock in period was

contemplated, the agreement is clearly insufficiently stamped. Deficit stamp

duty will have to be paid. In these circumstances I am of the view that it is

only after stamp duty is paid that the agreement will be admissible in

evidence. The agreement will therefore required to be impounded and sent

for adjudication.

12. In view of the agreement being insufficiently stamped and the obvious

question of enforceability of an arbitration agreement within the main

agreement which is insufficiently stamped SMS Tea Estates (supra) and

Garware Wall Ropes (supra) would have to be taken into consideration. As

already noted in M/s. N. N. Global Mercantile Pvt. Ltd. vs. M/s. Indo Unique

Flame Ltd. & Ors.4, a three judge bench of the Supreme Court in has come to

the conclusion that SMS Tea Estates (supra) does not propound the correct

position in law but in view of the decision of a co-ordinate bench of three

judges in Vidya Drolia and Ors. vs. Durga Trading Corporation 5 which has

affirmed the judgment in Garware Wall Ropes (supra) the issue whether non

payment of stamp duty in a commercial contract will invalidate an arbitration

agreement, rendering it non-existent in law and unenforceable is required to

be settled by a Constitution bench. The issue has therefore been referred to a

constitution bench.

5    (2021) 2 SCC 1

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13. In this background the question is whether this petition is required to

be kept pending till a party decides to pay stamp duty. In many cases it has

come to the notice of the court that upon an order of adjudication being

passed, the parties proceed to challenge orders of assessment of duty by the

Collector since there is a statutory Appeal available under the Maharashtra

Stamp Act,1958. Appeals also remain pending for a long time and further

challenges are not ruled out. Numerous applications under Section 11 thus

remain pending for years.

14. In the circumstances I am of the view that this application need not be

kept pending and if the applicant pays stamp duty as adjudicated or as may

be finally found payable after the applicant exhausts his remedy against an

order of adjudication he can be given liberty to revive this application. I

accordingly pass the following order :

(i) The Applicant shall deliver the agreement dated 1 st February, 2013

within two weeks from today to the Prothonotary and Senior Master as it now

stands impounded. The Prothonotary and Senior Master shall send the

document to the Collector of Stamps, Mumbai for adjudication.

(ii) Application disposed with liberty to revive the same after payment of

stamp duty.

(iii)      No costs.

                                                                  (A.K.MENON, J.)



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