TMI Blog2019 (4) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, therefore. 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. 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. We have already seen that 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. Arguments taken of prejudice, namely, that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is as to what is the effect of an arbitration clause contained in a contract which requires to be stamped. This Court, in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 [ SMS Tea Estates ], has held that where an arbitration clause is contained in an unstamped agreement, the provisions of the Indian Stamp Act, 1899 [ Indian Stamp Act ] require the Judge hearing the Section 11 application to impound the agreement and ensure that stamp duty and penalty (if any) are paid thereon before proceeding with the Section 11 application. The question is whether Section 11(6A), which has been introduced by way of the Arbitration and Conciliation (Amendment) Act, 2015 [ Amendment Act, 2015 ], has removed the basis of this judgment, so that the stage at which the instrument is to be impounded is not by the Judge hearing the Section 11 application, but by an arbitrator who is appointed under Section 11, as has been held by the impugned judgment. 5. Mr. Dhruv Mehta, learned Senior Advocate appearing on behalf of the appellant, has taken us through the sub-contract as well as the arbitration clause contained therein. He relied strongly upon the Maharashtra Stamp Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mp Act are a fiscal measure intended merely to collect revenue and, if at all, will go to validity of an arbitration agreement and not to its existence . She relied strongly upon certain judgments which made it clear that an arbitration agreement is independent of the agreement in which it is contained. So long as it is in writing, and therefore, exists in fact, the Court hearing the Section 11 application is to appoint an arbitrator and thereafter leave all other preliminary issues to the arbitrator, as is mandated by Section 11 of the 1996 Act. The whole object of the amendment would be defeated as otherwise, a mini-trial would be conducted at the Section 11 stage, requiring impounding of the agreement containing the arbitration clause. She also relied upon Section 11(13) of the 1996 Act, making it clear that the application under Section 11 ought to be disposed of within a period of 60 days from the date of service of notice, and that this would not be possible if questions relating to the Indian Stamp Act were to be decided at the Section 11 stage. Equally, according to her, no prejudice would be caused to any party if the arbitrator were to commence the arbitration and then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that court. (3) Notwithstanding that an application has been made under sub-section (1) and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. 8. Sections 33 and 34 of the Maharashtra Stamp Act, with which we are directly concerned, read as follows: 33. Examination and impounding of instruments.- (1) Subject to the provisions of section 32-A, 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 or any other officer, empowered by law to investigate offences under any law for the time being in force, 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 irrespective whether the instrument is or is not valid in law. (2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him in order to ascertain whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in evidence in any proceeding in a Criminal Court, other than a proceeding under Chapter IX or Part D of Chapter X of the Code of Criminal Procedure, 1973; (d) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of the Government or where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act; (e) nothing herein contained shall prevent the admission of a copy of any instrument or of an oral admission of the contents of any instrument, if the stamp duty or a deficient portion of the stamp duty and penalty as specified in clause (a) is paid. 9. The case law under Section 11(6) of the Arbitration Act, as it stood prior to the Amendment Act, 2015, has had a chequered history. In Konkan Railway Corporation Ltd. v. Mehul Construction Co., (2000) 7 SCC 201 [ Konkan Railway I ], it was held that the powers of the Chief Justice under Section 11(6) of the 1996 Act are administrative in nature, and that the Chief Justice or his designate does not act as a judicial authority while appointing an arbitrator. The same view was reiterated in K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appropriate High Court. (b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement. 22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are: (a) Whether the claim is a dead (long-barred) claim or a live claim. (b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection. 22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are: (i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration). (ii) Merits or any claim involved in the arbitration. 11. As a result of these judgments, the door was wide open for the Chief Justice or his designate to decide a large number of preliminary aspects which could otherwise have been left to be decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be decided finally or be left for determination of the arbitral tribunal. 30. After a series of cases culminating in the decision in SBP v. Patel Engineering, (2005) 8 SCC 618, the Supreme Court held that the power to appoint an arbitrator under section 11 is a judicial power. The underlying issues in this judgment, relating to the scope of intervention, were subsequently clarified by RAVEENDRAN J in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267, where the Supreme Court laid down as follows 1. The issues (first category) which Chief Justice/his designate will have to decide are: (a) Whether the party making the application has approached the appropriate High Court? (b) Whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such an agreement? 2. The issues (second category) which the Chief Justice/his designate may choose to decide are: (a) Whether the claim is a dead (long barred) claim or a live claim? (b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, under sections 8 and 11 respectively, such a decision will be final and non-appealable. An appeal can be maintained under section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator. 12. Pursuant to the Law Commission recommendations, Section 11(6A) was introduced first by Ordinance and then by the Amendment Act, 2015. The Statement of Objects and Reasons which were appended to the Arbitration and Conciliation (Amendment) Bill, 2015 which introduced the Amendment Act, 2015 read as follows: STATEMENT OF OBJECTS AND REASONS xxx xxx xxx 6. It is proposed to introduce the Arbitration and Conciliation (Amendment) Bill, 2015, to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015, which inter alia, provides for the following, namely: - (i) to amend the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of an arbitration agreement and leave all other preliminary issues to be decided by the arbitrator. The question is as to whether the decision in SMS Tea Estates (supra) has also been done away with by the expression notwithstanding any judgment, decree or order of any Court contained in Section 11(6A). 14. In SMS Tea Estates (supra), this Court was confronted with an arbitration clause, namely, Clause 35 of a lease deed dated 21.12.2006 for a term of 30 years in regard to two tea estates. The lease deed was neither stamped nor registered. Paragraph 9 of the judgment set out the questions that arose for consideration as follows: 9. On the contentions urged the following questions arise for consideration: (i) Whether an arbitration agreement contained in an unregistered (but compulsorily registerable) instrument is valid and enforceable? (ii) Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable? (iii) Whether there is an arbitration agreement between the appellant and the respondent and whether an arbitrator should be appointed? When it came to the question of an arbitration clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract Act, 1872), the invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement, if the reasons which make the main agreement voidable, exist in relation to the making of the arbitration agreement also. For example, if a person is made to sign an agreement to sell his property under threat of physical harm or threat to life, and the said person repudiates the agreement on that ground, not only the agreement for sale, but any arbitration agreement therein will not be binding. 16. 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 the Registration Act read with Section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registerable document can be acted upon and enforced for the purpose of dispute resolution by arbitration. However, when it came to an unstamped lease deed which contained an arbitration clause, thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted where the arbitration clause is contained in a document which is not registered (but compulsorily registerable) and which is not duly stamped: 22.1. The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registerable. 22.2. If the document is found to be not duly stamped, Section 35 of the Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Sections 35 and 38 of the Stamp Act. 22.3. 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 Section of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped. xxx xxx xxx In conclusion, this Court held: 32. In view of the above this appeal is allowed, the order of the High Court is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itral proceedings and make an arbitral award. Sub-section (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the Arbitral Tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the Arbitral Tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an Arbitral Tribunal, the Arbitral Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty (if any) is paid before the agreement, as a whole, can be acted upon. It is important to remember that the Indian 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, as has been contended for by the respondent. The independent existence that could be given for certain limited purposes, on a harmonious reading of the Registration Act, 1908 and the 1996 Act has been referred to by Raveendran, J. in SMS Tea Estates (supra) when it comes to an unregistered agreement or conveyance. However, the Indian Stamp Act, containing no such provision as is contained in Section 49 of the Registration Act, 1908, has been held by the said judgment to apply to the agreement or conveyance as a whole, which would include the arbitration clause contained therein. 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 (supra), which continues to apply even after the amendment of Section 11(6A). 17. Looked at from a slightly different angle, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes by arbitration does not evaporate into thin air with every challenge to the legality, validity, finality or breach of the underlying contract. The Indian Arbitration Act, 1996, as noticed above, under Section 16 accepts the concept that the main contract and the arbitration agreement form two independent contracts. Commercial rights and obligations are contained in the underlying, substantive, or the main contract. It is followed by a second contract, which expresses the agreement and the intention of the parties to resolve the disputes relating to the underlying contract through arbitration. A remedy is elected by parties outside the normal civil court remedy. It is true that support of the national courts would be required to ensure the success of arbitration, but this would not detract from the legitimacy or independence of the collateral arbitration agreement, even if it is contained in a contract, which is claimed to be void or voidable or unconcluded by one of the parties. Paragraph 83 follows upon paragraph 79 of the judgment, which reads as follows: 79. In our opinion, all the issues raised by the appellants about the non-existence of a concluded contract pal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists-nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected. This judgment also makes it clear that the mischief that was sought to be remedied by the introduction of Section 11(6A) was contained in the judgments of SBP Co. (supra) and Boghara Polyfab (supra). This judgment does not, in any manner, answer the precise issue that is before us. 23. Indeed, in United India Insurance Co. Ltd. and Ors. v. Hyundai Engineering and Construction Co. Ltd. and Ors., 2018 SCC OnLine SC 1045 [ United India Insurance Co. ], a three-Judge Bench of this Court, while dealing with an arbitration clause that arose under an insurance policy, distinguished Duro Felguera (supra) as follows: 12. The other decision heavily relied upon by the High Court and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company an action or suit, meaning thereby a legal proceeding which almost invariably in India will be in the nature of a suit, has got to be commenced within three months from the date of such rejection; otherwise, all benefits under the policy stand forfeited. The rejection of the claim may be for the reasons indicated in the first part of clause 13, such as, false declaration, fraud or wilful neglect of the claimant or on any other ground disclosed or undisclosed. But as soon as there is a rejection of the claim and not the raising of a dispute as to the amount of any loss or damage, the only remedy open to the claimant is to commence a legal proceeding, namely, a suit, for establishment of the company's liability. It may well be that after the liability of the company is established in such a suit, for determination of the quantum of the loss or damage reference to arbitration will have to be resorted to in accordance with clause 18. But the arbitration clause, restricted as it is by the use of the words if any difference arises as to the amount of any loss or damage , cannot take within its sweep a dispute as to the liability of the company when it refuses to pay any da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repudiated the claim of the JV (respondent Nos. 1 2) for the reasons mentioned in the communication. The reasons are specific. No plea was raised by the respondents that the policy or the said clause 7 was void. The appellants repudiated the claim of the JV and denied their liability in toto under or in respect of the subject policy. It was not a plea to dispute the quantum to be paid under the policy, which alone could be referred to arbitration in terms of clause 7. Thus, the plea taken by the appellants is of denial of its liability to indemnify the loss as claimed by the JV, which falls in the excepted category, thereby making the arbitration clause ineffective and incapable of being enforced, if not nonexistent. It is not actuated so as to make a reference to arbitration. In other words, the plea of the appellants is about falling in an excepted category and non-arbitrable matter within the meaning of the opening part of clause 7 and as re-stated in the second paragraph of the same clause. 18. In view of the above, it must be held that the dispute in question is non-arbitrable and respondent Nos. 1 2 ought to have resorted to the remedy of a suit. The plea of respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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. 26. Learned counsel for the respondent relied strongly upon Section 11(13) of the 1996 Act to show that the 60-day period 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be put wholly out of operation, in the latter, effect can be given to both that provision and Article 26(b). We must accordingly hold that Article 26(b) must be read subject to Article 25(2) (b). (at page 918) In J.K. Cotton Spinning Weaving Mills Co. Ltd. v. State of U.P., (1961) 3 SCR 185, this Court applied the rule of harmonious construction so that both provisions of a legislative instrument be given effect to thus: To remove this incongruity, says the learned Attorney- General, apply the rule of harmonious construction and hold that clause 23 of the order has no application when an order is made on an application under clause 5(a). On the assumption that under clause 5(a) an employer can raise a dispute sought to be created by his own proposed order of dismissal of workmen there is clearly this disharmony as pointed out above between two provisions viz. clause 5(a) and clause 23; and undoubtedly we have to apply the rule of harmonious construction. In applying the rule, however, we have to remember that to harmonise is not to destroy. In the interpretation of statutes the court, always presumes that the legislature inserted every part thereof for a purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the Mines Act, 1923. We have to seek therefore some other means of harmonising the two provisions. The reasonable way of harmonising that obviously suggests itself is to construe Section 31(4) to mean that the regulations on publication shall have for some purposes, say, for example, the purpose of deciding the validity of the regulations, the same effect as if they were part of the Act, but for the purpose of the continuity of existence, they will not be considered part of the Act, so that even though the Act is repealed, the regulations will continue to exist, in accordance with the provisions of Section 24 of the General Clauses Act. This construction will give reasonable effect to Section 31(4) of the Mines Act, 1923 and at the same time not frustrate the very salutary object of Section 24 of the General Clauses Act. (at pp. 19-20) In Anwar Hasan Khan v. Mohd. Shafi, (2001) 8 SCC 540, this Court succinctly laid down what is meant by the doctrine of harmonious construction, thus: 8. It is settled that for interpreting a particular provision of an Act, the import and effect of the meaning of the words and phrases used in the statute have to be gathered f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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