2011 (7) TMI 1289 - SUPREME COURT

Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument and which is not duly stamped is valid and enforceable - In this case, A lease deed was executed between the respondent and appellant under which respondent granted a lease to the appellant for a term of 30 years in regard to the said two Tea estates with all appurtenances. Clause 35 of the lease deed provided for settlement of disputes between the parties by arbitration. The respondent abruptly and illegally evicted the appellant from the two estates and took over their management. The appellant thereafter wrote a letter to the respondent expressing its willingness to purchase the said two estates for a mutually agreed upon consideration and also discharge the liability towards the bank. Here the dispute is related to the claim of the appellant that the respondent should either sell the estates to the appellant, or permit the appellant to continue in occupation of the estates for 30 years as lessees or reimburse the amounts invested by it in the two estates and the payments made to the Bank.

The Guwahati High Court dismissed the appellant's application. He held that the lease deed was compulsorily registrable u/s 17 of the Registration Act and section 106 of the TP Act; and as the lease deed was not registered, no term in the said lease deed could be relied upon for any purpose and therefore clause 35 could not be relied upon for seeking reference to arbitration. The High Court also held that the arbitration agreement contained in clause 35 could not be termed as a collateral transaction, and therefore, the proviso to section 49 of the Registration Act would not assist the appellant. The said order is challenged in this appeal by special leave.

HELD THAT:- An arbitration agreement does not require registration under the Registration Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to section 49 of Registration Act read with section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.

If the document is found to be not duly stamped, The court should then proceed to impound the document u/s 33 of the Stamp Act and follow the procedure u/s 35 and 38 of the Stamp Act. If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the Court or before the Collector (as contemplated in section 35 or 40 of the Stamp Act) and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.

the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration.

In present case, appeal is allowed, the order of the High Court is set aside and the matter is remitted to the learned Chief Justice of Guwahati High Court to first decide the issue of stamp duty, and if the document is duly stamped, then appoint an arbitrator in accordance with law.