Supreme Court Bench comprising of CJI SA Bobde, Justice Justice B.R. Gavai and Justice Surya Kant expounded that, “when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not. It has been held, that even when an objection in that behalf is not raised, it is the duty of the Court to consider the issue. It further held, that if the Court comes to the conclusion, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899".
Section 35 of the Stamp Act provides that instruments not duly stamped are inadmissible in evidence and cannot be acted upon.
Facts of the case are such that the appellant is a registered Charitable Trust. It desired to develop the land owned by it and construct a multipurpose community hall with office complex. The respondent offered to develop the said property and also to renovate the Samadhi of the founder of the Trust existing on the said piece of land. Negotiations were held between the appellant– Trust and the respondent. As an outcome of the negotiations, a lease deed was executed between the appellant-Trust and the respondent – lessee for a period of 38 years. As per the said lease deed, the respondent – lessee was required to pay an amount of Rs.55,00,000/ (Rupees Fifty five lakh only) as an interest free deposit, which was to be refunded to it at the end of the period of 38 years, if the lease was not extended between the parties. The respondent – lessee had also undertaken to obtain vacant possession of property mentioned in Schedule ‘B’ subject to all cooperations being extended to it, by the lessor for ejectment of the existing tenants of the lessor. The said lease deed was executed on 31.5.1996 on the basis of the resolution of the appellant – Trust dated 30.4.1996. A subsequent lease deed dated 12.3.1997 came to be executed between the appellant and the respondent. Most of the terms and conditions in the subsequent/fresh lease deed dated 12.3.1997 are identical with the terms and conditions as are found in the first lease deed dated 31.5.1996. In the year 2008 certain renegotiations took place between the appellants and the respondents. However, the same failed to materialize. It is the case of the appellants, that except paying initial amount of Rs.25 lakhs towards the security deposit, the balance amount towards the security deposit was not paid by the respondents. It was also the case of the appellants that the respondents were trying to interfere with the possession of the trust property in collusion with one of the trustees. In this background, the appellant – Trust filed Original Suit being O.S. No.8952 of 2010 before the City Civil Court at Bangalore. The Respondent, after participating in the suit proceedings for almost a period of about two years and three months, issued a notice to the appellants on 6.9.2013 thereby, invoking arbitration clause in the lease deed dated 31.5.1996 and 12.3.1997.
On 11.10.2013, the respondent filed a petition under Section 11(6) of the Arbitration Act before the High Court of Karnataka. The High Court of Karnataka without consideration of the report of the Registrar (Judicial) passed the impugned order thereby, allowing the petition filed by the respondent and invoking power under Section 11(6) of the Arbitration Act, appointed an Arbitrator to decide the dispute between the appellants and the respondents.
Supreme Court bench comprising Chief Justice S.A. Bobde and Justice B.R. Gavai and Justice Surya Kant said “when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not. It has been held, that even when an objection in that behalf is not raised, it is the duty of the Court to consider the issue. It further held, that if the Court comes to the conclusion, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899.
SC Bench further enunciated that, "Court cannot act upon such a document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, they can be acted upon or admitted in evidence. It is needless to state, that the provisions that fell for consideration before this Court are analogous with the provisions of Sections 33 and 34 of the Karnataka Stamp Act, 1957.”
In that view of the matter, Supreme Court held that the High Court has totally erred in relying on the lease deed dated 12.3.1997, which was found to be insufficiently stamped and brushing aside the report of the Registrar (Judicial), when the respondents had failed to pay the insufficient stamp duty and penalty as determined by the Registrar (Judicial) of the High Court of Karnataka.
Apex Court Bench quashed the impugned judgment and order passed by the High Court of Karnataka and rejected the petition/application filed by the respondents under Section 11 of the Arbitration Act.
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