Arbitration and Conciliation Act, 1996: s. 11(4), 11(6) and 11(6A) – Appointment of arbitrator – Arbitration clause contained in a contract not stamped – Effect of – Held: When Supreme Court or the High Court considers an application u/s. 11(4) to 11(6), and comes across an arbitration clause in an agreement or conveyance which is unstamped, the Court must impound the instrument which is unstamped and hand it over to the authority under the Stamp Act, who would decide issues qua payment of stamp duty and penalty as expeditiously as possible, within the stipulated period – As soon as stamp duty and penalty are paid on the instrument, any of the parties can bring the instrument to the notice of the Court, which would then dispose of the application u/s. 11 – Harmonious construction is to be given to the provisions of the Stamp Act and s. 11(13) of the 1996 Act by which, if it is possible, both provisions ought to be subserved – Furthermore, introduction of s. 11(6A) does not, in any manner, deal with or get over the basis of the judgment in SMS Tea Estates’s case that the mandatory provisions contained in the Stamp Act are applicable to judicial authorities acting u/s. 11, continues to apply even after the amendment of s. 11(6A) – On facts, the arbitration clause contained in the sub-contract would not “exist” as a matter of law until the sub-contract is duly stamped – Order passed by the High Court allowing the application u/s. for appointment of the arbitrator, to adjudicate upon the dispute, even though the sub-contract was unstamped, is set aside and matter is remitted back to the High Court – Maharashtra Stamp Act, 1958 – ss. 33 and 34.
Allowing the appeal, the Court
HELD: 1.1 It will be noticed from the *SMS Tea Estates’ case that where an arbitration clause is contained in an agreement or conveyance, different consequences ensue depending on whether the agreement or conveyance is unregistered or unstamped. It is settled by **SBP & Co.’s case that Section 16 of the Arbitration and Conciliation Act, 1996 Act has full play only after the arbitral tribunal is constituted, without intervention of the Court under Section 11. In view of the law laid down by sevenJudge Bench, it is difficult to accept the submission that Section
16 makes it clear that an arbitration agreement has an independent existence of its own, and must be applied while deciding an application under Section 11 of the 1996 Act. It will be seen that neither in the Statement of Objects and Reasons nor in the Law Commission Report is there any mention of SMS Tea Estates’s case. This is for the very good reason that the Supreme Court or the High Court, while deciding a Section 11 application, does not, in any manner, decide any preliminary question that arises between the parties. The Supreme Court or the High Court is only giving effect to the provisions of a mandatory enactment which, no doubt, is to protect revenue. SMS Tea Estates case has taken account of the mandatory provisions contained in the Stamp Act and held them applicable to judicial authorities, which would include the Supreme Court and the High Court acting under Section 11. A close look at Section 11(6A) would show that when the Supreme Court or the High Court considers an application under Section 11(4) to 11(6), and comes across an arbitration clause in an agreement or conveyance which is unstamped, it is enjoined by the provisions of the Stamp Act to first impound the agreement or conveyance and see that stamp duty and penalty (if any) is paid before the agreement, as a whole, can be acted upon. The Stamp Act applies to the agreement or conveyance as a whole. Therefore, it is not possible to bifurcate the arbitration clause contained in such agreement or conveyance so as to give it an independent existence. It is clear, therefore, that the introduction of Section 11(6A) does not, in any manner, deal with or get over the basis of the judgment in SMS Tea Estates’s case, which continues to apply even after the amendment of Section 11(6A). [Para 15, 16][602-G-H; 604-E-H; 605-A-D]
1.2 When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. Under the Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates case has, in no manner, been touched by the amendment of Section 11(6A). [Para 19][606-B-C]
1.3 In the facts of the instant case, it is clear that the arbitration clause that is contained in the sub-contract would not “exist” as a matter of law until the sub–contract is duly stamped. The argument that Section 11(6A) deals with “existence”, as opposed to Section 8, Section 16, and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court’s understanding of the expression “existence” in United India Insurance Co.’s case as followed by this Court. [Para 24] [612-B-C]
United India Insurance Co. Ltd. and Ors. v. Hyundai Engineering and Construction Co. Ltd. and Ors.2018 SCC OnLine SC 1045 – relied on.
1.4 It was submitted that the 60-day period under section 11(13) would be breached if a document were to be impounded at the stage of a section 11(6) application. Stamp duty, when paid with penalty (if any), would require adjudication by the stamp authorities, which would take far more than the 60-day period that is laid down by Section 11(13). Undoubtedly, Section 11(13), which was also introduced by Amendment Act 3 of 2016, was enacted keeping one of the important objectives of the 1996 Act in mind, namely, speedy disposal of disputes by the arbitral tribunal, and appointment of an arbitrator having to be made as expeditiously as possible. Thus, a harmonious construction needs to be given to the provisions of the Maharashtra Stamp Act and Section 11(13) of the 1996 Act by which, if it is possible, both provisions ought to be subserved. Under the Maharashtra Stamp Act, the object of impounding an instrument that is unstamped is to ensure that stamp duty and penalty (if any) must be paid on such instrument before it is acted upon by any authority. Likewise, under Section 11(13) of the 1996 Act, an application made under Section 11 for appointment of an arbitrator should be disposed of as expeditiously as possible, and, in any event, an endeavour shall be made to dispose of such application at least within a period of 60 days from the date of service of notice on the opposite party. [Para 26][613-C-F]
1.5 The doctrine of harmonious construction of statutes is strongly imbedded in the interpretative canon. 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. [Paras 27, 28][613-G; 616-F-H; 617-A-B]
Sri Venkataramana Devaru v. State of Mysore [1958] SCR 895; J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P. [1961] 3 SCR 185 ; Chief Inspector of Mines v. Lala Karam Chand Thapar [1962]
1 SCR 9; Anwar Hasan Khan v. Mohd. Shafi (2001) 8 SCC 540 – referred to.
1.6 The judgment of the High Court is set aside. The matter is remitted to the High Court to dispose of the same in the light of this judgment. [Para 29][617-C]
*SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd. (2011) 14 SCC 66 : [2011] 9 SCR 382 - followed.
Ashapura Mine–Chem Ltd. v. Gujarat Mineral
Development Corporation (2015) 8 SCC 193 : [2015]
4 SCR 880 – held inapplicable.
JMD Ltd. v. Celebrity Fitness India Pvt. Ltd. (2019) SCC OnLine Del 6483 ; B.D. Sharma v. Swastik Infra Estate Pvt. Ltd. & Ors. (2018) SCC OnLine Del 13279 ; Sandeep Soni v. Sanjay Roy (2018) SCC OnLine Del 11169 ; N.D. Developers Pvt. Ltd. v. Bharathi & Ors. (2018) SCC OnLine Kar 2938 ; Gautam Landscapes Pvt. Ltd. v. Shailesh Shah and Ors. Arb. Pet. No. 466 of 2017 – disapproved.
**SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 : [2005] 4 Suppl. SCR 688; National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. (2009)
1 SCC 267 : [2008] 13 SCR 638 ; Konkan Railway Corporation Ltd. v. Mehul Construction Co. (2000) 7 SCC 201 : [2000] 2 Suppl. SCR 563 ; Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd. (2002)
2 SCC 388 : [2002] 1 SCR 728 ; Enercon (India) Ltd. & Ors. v. Enercon GmbH & Anr. (2014) 5 SCC 1 : [2014] 2 SCR 855 ; Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729 : [2017] 10 SCR 285 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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