TMI Blog2021 (1) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions. - Civil Appeal Nos. 3802-3803/2020 (Arising out of SLP (Civil) Nos. 13132-13133 of 2020) - - - Dated:- 11-1-2021 - DR. D.Y. CHANDRACHUD, INDU MALHOTRA AND INDIRA BANERJEE, JJ. For the Appellant : Mr. Dhruv Mehta,Sr.Adv.Mr. Shyam Dewani,Adv.Mr. Gagan Sanghi,Adv.Mr. Sahil Dewani,Adv. Mr. Rameshwar Prasad Goyal, AOR For the Respondent : Mr. Sanjay Kapur, AOR Ms. Megha Karnwal, Adv. Mr. Sambit Panja, Adv. Ms. Charu Ambwani, AOR JUDGMENT Indu Malhotra, J. 1. This case raises interesting issues with respect to the application of the doctrine of separability of an arbitration agreement from the underlying substantive contract in which it is embedded; whether an arbitration agreement would be non-existent in law, invalid or un-enforceable, if the underlying contract was not stamped as per the relevant Stamp Act; and, whether allegations of fraudulent invocation of the bank guarantee furnished under the substantive contract, would be an arbitrable dispute. 1.1. The Respondent No. 1-Indo Unique Flame Ltd. ( Indo Unique ) applied for grant of work of beneficiation/washing of coal to the Karnataka Power Corporation Ltd. ( KPCL ) in an open tender. KPCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... praying inter alia for a declaration that Indo Unique was not entitled to encash the bank guarantee as the Work Order had not been acted upon. It was expressly stated that Indo Unique had not allotted any work under the Work Order, nor were any invoices raised, or payments made by it. Consequently, there was no loss suffered which would justify the invocation of the Bank Guarantee. It was alleged that the invocation of the Bank Guarantee was fraudulent, since it was not in terms of the Work Order, being a conditional guarantee linked to the performance of work. The Commercial Court vide an ex parte ad interim Order dated 15.12.2017 directed status-quo to be maintained with respect to the enforcement of the Bank Guarantee. 1.7. Indo Unique filed an application Under Section 8 of the Arbitration and Conciliation Act, 1996 ( Arbitration Act ) in Civil (Commercial) Suit No. 62 of 2017, seeking reference of disputes to arbitration. Global Mercantile opposed the application Under Section 8 as being not maintainable since the Bank Guarantee was a separate and independent contract, and did not contain any arbitration clause. 1.8. The Commercial Court vide Order dated 18.01.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Judgment and Order dated 30.09.2020, and the Order dated 18.01.2018 passed by the Commercial Court was set aside. On the request of the counsel for the Appellant, the High Court suspended the operation of its Order for a period of one month from 30.09.2020. 1.11. The Review Petition filed by the Appellant was withdrawn vide Order dated 28.10.2020 passed in Review Application (ST) No. 9819 of 2020. On the request by the counsel for the Appellant, the Order of stay was continued till 20.11.2020. 1.12. Aggrieved by the judgment of the High Court, Global Mercantile has filed the present Special Leave Petition before this Court. 2. The issues which have arisen for our consideration are: i. Whether an arbitration agreement would be enforceable and acted upon, even if the Work Order dated 28.09.2015 is unstamped and un-enforceable under the Stamp Act? ii. Whether allegation of the fraudulent invocation of the bank guarantee is an arbitrable dispute? iii. Whether a Writ Petition Under Articles 226 and 227 of the Constitution would be maintainable to challenge an Order rejecting an application for reference to arbitration Under Section 8 of the Arbitration Act? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he House of Lords wherein it was held that English common law had been evolving towards the recognition of an arbitration Clause as a separate contract which survives the termination of the main contract. Lord Wright in his opinion stated that: An arbitration agreement is collateral to the substantial stipulations of the contract. It is merely procedural and ancillary, it is a mode of settling disputes, though the agreement to do so is itself subject to the discretion of the court. Lord MacMillan in his opinion stated that: It survives for the purpose of measuring the claims arising out of the breach, and the arbitration Clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration Clause is not one of the purposes of the contract. 3.6. This Rule has been affirmed in several cases, including Bremer Vulkan Schiffbau und Maschinefabrik v. South India Shipping Corporation [1981] AC 909 in which Lord Diplock cited Heyman as an authority for the assertion that: The arbitration Clause constitutes a self-contained contract collateral or ancillary to the shipbuilding agreement itself. 3.7. In Harbour Assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of it being affected by the possible invalidity of the main contract. 3.11. The doctrine of kompetenz-kompetenz is based on the premise that the arbitration agreement is separate and independent from the substantive underlying contract in which it is embedded. Equally, an arbitration agreement exists and can be acted upon irrespective of whether the main substantive contract is valid or not. The Court of Appeal in the seminal decision rendered in Fiona Trust Holding Corporation v. Privalov [2007] EWCA Civ 20, held that the allegation of invalidity of the underlying contract, would not preclude the arbitral tribunal from determining the said issue in the first instance, even though the alleged illegality would render the contract void from inception. In this case, the arbitration agreement was contained in a charter party agreement, wherein it was alleged that it had been procured through bribery by the owner's agent, and was invalid from its inception. It was held that only if the arbitration agreement is itself directly impeached, and rendered void or unenforceable on grounds which relate to the arbitration agreement itself, and not merely as a consequence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to go to arbitration must be given effect. 3.13. The law as it stands in U.K. today is that if the court while entertaining a plea to refer the parties to arbitration, is satisfied of the existence of the arbitration agreement, it is incumbent to refer the parties to arbitration, even if objections to the validity of the substantive contract are raised. Where the arbitration agreement is embedded in an underlying contract, the court would not entertain the dispute on the issue of jurisdiction until the arbitral tribunal has ruled on this issue. Lord Hoffman opined that: But that is in my opinion exactly the kind of argument which Section 7 was intended to prevent. It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement. The one should fall with the other because they would never have been separately concluded and the arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and is not merely a consequence of the invalidity of the main agreement [2007] 4 ALL ER 951 at 960, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid. Buckeye, 546 U.S., at 444. In a line of cases neither party has asked us to overrule, we held that only the first type of challenge is relevant to a court's determination whether the arbitration agreement at issue is enforceable. See Prima Paint Corporation v. Flood Conklin Mfg. Co., 388 US 395, 403-404 (1967); Buckeye, supra, at 444-446; Preston v. Ferrer, 552 US 346, 353-354 (2008). That is because Section 2 states that a written provision to settle by arbitration a controversy is valid, irrevocable, and enforceable without mention of the validity of the contract in which it is contained. Thus, a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate. [A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Buckeye, 546 U.S., at 445; see also id., at 447 (the severability Rule is based on Section 2). ...... The Court asserts that its holding flows logically from Prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial intervention except as specified in Part I of the Arbitration Act. A conjoint reading of Sections 5 and 16 would indicate that all civil commercial matters, including the issue as to whether the substantive contract was voidable can be resolved through arbitration. 4.2. This Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. (2020) 2 SCC 455, speaking through one of us (Indu Malhotra, J.) discussed the application of the doctrine of kompetenz-kompetenz in the Indian legislation, and observed: 7.7. Based on the recommendations of the Law Commission, Section 11 was substantially amended by the 2015 Amendment Act, to overcome the effect of all previous judgments rendered on the scope of power by a non obstante clause, and to reinforce the kompetenz-kompetenz principle enshrined in Section 16 of the 1996 Act. The 2015 Amendment Act inserted Sub-section (6-A) to Section 11 which provides that: (6-A) The Supreme Court or, as the case may be, the High Court, while considering any application Under Sub-section (4) or Sub-section (5) or Sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecuting the final contract. The draft agreement would be a mere proposal to arbitrate, and not an unequivocal acceptance of the terms of the agreement. Section 7 of the Contract Act, 1872 requires the acceptance of a contract to be absolute and unqualified [Dresser Rand S.A. v. Bindal Agro Chem Ltd., (2006) 1 SCC 751. See also BSNL v. Telephone Cables Ltd., (2010) 5 SCC 213 : (2010) 2 SCC (Civ) 352. Refer to PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 : (2019) 1 SCC (Civ) 1]. If an arbitration agreement is not valid or non-existent, the Arbitral Tribunal cannot assume jurisdiction to adjudicate upon the disputes. Appointment of an arbitrator may be refused if the arbitration agreement is not in writing, or the disputes are beyond the scope of the arbitration agreement. Article V(1)(a) of the New York Convention states that recognition and enforcement of an award may be refused if the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made . 7.13. In view of the provisions of Section 16, and the legislative policy to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st when it is not enforceable by law . It was submitted that the High Court while allowing the application Under Section 8, had enforced a non-existent arbitration clause, which was in violation of Section 34 of the Maharashtra Stamp Act, 1958 and the law laid down by this Court. It was further contended that since 03.01.2018 to date, the Respondent No. 1 had not indicated its willingness to pay the stamp duty, even though the Appellant had raised this objection. There was no justifiable reason to grant any further opportunity to Respondent No. 1 to pay the stamp duty, and enforce the Clause in view of the judgment of this Court in Naina Thakkar v. Annapurna Builders (2013) 14 SCC 354. 5.2. Indo Unique-the Respondent No. 1 submitted that even though the Work Order dated 28.09.2015 is an unstamped agreement, it would be enforceable after it is duly stamped, for which an opportunity must be given to the parties to make up the deficient stamp duty and penalty as may be assessed by the Collector. Non-payment of stamp duty would not render the agreement unenforceable, but was a curable defect. 5.3. Statutory scheme under the Maharashtra Stamp Act, 1958.-- (a) Section 3 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powered 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 whether it is stamped with a stamp of the value and description required by the law for the time being in force in the State when such instrument was executed or first executed: Provided that-- (a) nothing herein contained shall be deemed to require any Magistrate or Judge of Criminal Court to examine or impound, if he does not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter IX or Part D of Chapter X of the Code of Criminal Procedure, 1973; (b) in the case of a Judge of a High Court, the duty of examining and impounding any instrument under this Section may be delegated to such officer as the Court appo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll exceed double the deficient portion of the stamp duty. (b) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp; the contract or agreement shall be deemed to be duly stamped; (c) nothing herein contained shall prevent the admission of any instrument 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. (f) Section 35 provides that: 35. Admission of instrument where not to be questioned.--Where an instrument has been admitted in evidence, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate entries in respect of the instrument of which it was a true copy or an abstract, in the relevant register maintained by him and on an application made in this behalf issue under his signature a certificate to the effect that the proper duty or, as the case may be, the proper duty and penalty (stating the amount of each) have been levied in respect of that instrument, and the name and residence of the person paying such duty and penalty. Once the duty (and penalty, if any) leviable under Schedule I is paid on the instrument, and the instrument is duly endorsed by the Collector, the instrument shall be admissible in evidence, and acted upon as provided by Section 41 of the Maharashtra Stamp Act. (i) Section 41 provides: 41. Endorsement of instruments on which duty has been paid Under Section 34, 39 or 40- (1) When the duty and penalty (if any) leviable in respect of any instrument (not being any instrument referred to in Sub-section (1) of Section 32A), have been paid Under Section 34, Section 39 or Section 40, the person admitting such instrument in evidence or the Collector, as the case may be, shall certify by endorsement thereon that the proper duty or, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i. any person in whose possession or power such instrument then is, to produce the same, and may impound the same when produced. (3) When any declaration has been recorded Under Sub-section (2), the Court recording the same shall send a copy thereof to the Collector, and, where the instrument to which it relates has been impounded or is otherwise in the possession of such Court, shall also send him such instrument. (3A) When the duty and penalty leviable in respect of any instrument in accordance with, the declaration made Under Sub-section (3) and required to be paid thereunder are paid to the Court or to the Collector, then the Court or, as the case may be, the Collector shall certify by endorsement thereon that the proper duty and penalty, stating the amount of each, have been le-vied in respect of such instrument, and the name and residence of the person paying the same. (3B) Every instrument so endorsed shall thereupon be delivered, on an application in this behalf, to the person from whose possession the instrument came in the possession of such Court, or as such person may direct, to any other person authorised by him. (4) The Collector may thereupon, notwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requisite stamp duty, the instrument may be admitted in evidence. The words for any purpose occurring in the Indian Stamp Act was interpreted by the Privy Council in Ram Rattan v. Parma Nand (1945-46) 73 IA 28 : AIR 1946 PC 51, wherein it was held: That the words 'for any purpose' in Section 35 of the Stamp Act, should be given their natural meaning and effect and would include a collateral purpose (and that) an unstamped partition deed cannot be used to corroborate the oral evidence for the purposes of determining even the factum of partition as distinct from its terms. 5.5. Section 41(1) of the Maharashtra Stamp Act, 1958 provides that after the instrument is duly stamped, it would be endorsed by the Collector. Once the object of payment of Stamp Duty is satisfied, the party making a claim on the basis of that instrument, will not be defeated, on the ground of the initial defect or irregularity. Section 41(2) of the said Act provides that upon payment of Stamp Duty and endorsement by the concerned Collector, the defect of admissibility and legality of such instrument would stand cured. 5.6. This Court in SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of disputes arising under or in connection with the contract. 13. Similarly, when an instrument or deed of transfer (or a document affecting immovable property) contains an arbitration agreement, it is a collateral term relating to resolution of disputes, unrelated to the transfer or transaction affecting the immovable property. It is as if two documents--one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registrable--are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Section 38 of the Stamp Act. The court cannot act upon such a document or the arbitration Clause therein. But if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, the document can be acted upon or admitted in evidence. (emphasis supplied) 5.7. The judgment in SMS Tea Estates was passed on an application filed Under Section 11 of the Arbitration Act, for reference of disputes to arbitration prior to the 2016 Amendment being passed. At that time, the law as it prevailed, as expounded in the Constitution Bench decision in SBP Co. v. Patel Engineering Ltd. (2005) 8 SCC 618, and other cases like National Insurance Co. v. Boghara Polyfab (2009) 1 SCC 267, Master Construction Co. v. Union of India 2011) 12 SCC 357 etc. held that at the pre-reference stage in an application Under Section 11(6), the Court may determine certain threshold issues, such as whether the claim was time-barred, a stale claim, or whether there had been accord and satisfaction, which would preclude the necessity of reference to arbitration. 5.8. Section 11 was amended by the 2016 Amendment Act, which inserted Clause (6A), which now provides that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plies 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 when it comes to an unregistered agreement or conveyance. However, the 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(6-A) does not, in any manner, deal with or get over the basis of the judgment in SMS Tea Estates, which continues to apply even after the amendment of Section 11(6-A). ... 22. 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. We have seen how, under the Stamp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, 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 29-A of the 1996 Act. (emphasis supplied) 6. We have carefully perused the provisions of the Maharashtra Stamp Act, 1958 and Schedule I appended thereto, which enlists the instruments specified in Section 3, on which stamp duty is chargeable. We find that an arbitration agreement is not included in the Schedule as an instrument chargeable to Stamp Duty. Item 12 of Schedule I to the Maharashtra Stamp Act, 1958 includes an Award passed by an arbitrator to be chargeable for payment of Stamp Duty, which reads as follows: Description of Instrument Proper Stamp Duty 12. AWARD, that is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. This is for the obvious reason that an arbitration agreement is an agreement to resolve disputes arising out of a commercial agreement, through the mode of arbitration. On the basis of the doctrine of separability, the arbitration agreement being a separate and distinct agreement from the underlying commercial contract, would survive independent of the substantive contract. The arbitration agreement would not be rendered invalid, un-enforceable or non-existent, even if the substantive contract is not admissible in evidence, or cannot be acted upon on account of non-payment of Stamp Duty. 6.5. A three-Judge Bench of this Court in Hindustan Steel Limited v. M/s. Dilip Construction Company (1969) 1 SCC 597 held that: 4. The award, which is an instrument within the meaning of the Stamp Act was required to be stamped. Being unstamped, the award could not be received in evidence by the Court, nor could it be acted upon. But the Court was competent to impound it and to send it to the Collector with a certificate in writing stating the amount of duty and penalty levied thereon. On the instrument so received the Collector may adjudge whether it is duly stamped and he may r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of the initial defect in the instrument. Viewed in that light the scheme is clear. Section 35 of the Stamp Act operates as a bar to an unstamped instrument being admitted in evidence or being acted upon; Section 40 provides the procedure for instruments being impounded, Sub-section (1) of Section 42 provides for certifying that an instrument is duly stamped, and Sub-section (2) of Section 42 enacts the consequences resulting from such certification. (emphasis supplied) 6.6. In our view, there is no legal impediment to the enforceability of the arbitration agreement, pending payment of Stamp Duty on the substantive contract. The adjudication of the rights and obligations under the Work Order or the substantive commercial contract would however not proceed before complying with the mandatory provisions of the Stamp Act. 6.7. The Stamp Act is a fiscal enactment for payment of stamp duty to the State on certain classes of instruments specified in the Stamp Act. Section 40 of the Indian Stamp Act, 1899 provides the procedure for instruments which have been impounded, and Sub-section (1) of Section 42 requires the instrument to be endorsed after it is duly stamped by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arbitration agreement is held to have an independent existence, it can be acted upon, irrespective of the alleged invalidity of the commercial contract. 6.11. We notice that the judgment in Garware Wall Ropes Limited has been cited with approval by a co-ordinate bench of this Court in Vidya Drolia and Ors. v. Durga Trading Corporation Delivered on 14.12.2020 in C.A. No. 2402/2019. Paragraph 92 of the judgment reads thus: 92. We now proceed to examine the question, whether the word 'existence' in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an arbitration agreement. Such interpretation can draw support from the plain meaning of the word existence'. However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Hyundai Engg. case, as followed by us. Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement. 6.12. We doubt the correctness of the view taken in paragraph 92 of the three-judge bench in Vidya Drolia. We consider it appropriate to refer the findings in paras 22 and 29 of Garware Wall Ropes Limited, which has been affirmed in paragraph 92 of Vidya Drolia, to a Constitution Bench of five judges. 7. The next issue which arises is as to which authority would exercise the power of impounding the instrument Under Section 33 read with Section 34 of the Maharashtra Stamp Act, in a case where the substantive contract contains an arbitration agreement. 7.1. In an arbitration agreement, the disputes may be referred to arbitration by three modes. a) The first mode is where the appointment of the arbitrator takes place by the parties consensually in accordance with the terms of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant Stamp Act, within a time-bound period. It is made clear that the payment of Stamp Duty on the substantive contract as assessed by the Collector, would however be subject to the right of revision/appeal available under the relevant Stamp Act. 8. Whether the fraudulent invocation of the Bank Guarantee is arbitrable? 8.1. In the present case, the Appellant-Plaintiff in the Commercial Suit inter alia submitted that the Bank Guarantee was furnished to ensure due execution of the Work Order dated 28.09.2015. It was submitted on behalf of the Appellants that the invocation of the bank guarantee was fraudulent, since the agreement had never been acted upon. There was no invoice raised or payment received under the Work Order. In the absence of any legal liability for payment under the Work Order, the invocation of the bank guarantee was fraudulent. 8.2. The High Court held that the allegations of fraud made in this case are simple, which do not in the normal course constitute any criminal offence, nor are the allegations so complex in nature which would entail extensive evidence being led, hence the disputes could be resolved through arbitration. 8.3. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hra v. Gautam Rasiklal Ashra (2012) 2 SCC 144, a two-judge bench took a different view by holding that at the pre-reference stage Under Section 11, the court is not required to examine the allegations of fraud and forgery. The scope of examination is only the existence of a valid and enforceable arbitration agreement as a condition precedent for making a reference. The ground that allegations of fraud, forgery and fabrication are likely to involve recording of evidence, or involve some delay in disposal, were not relevant grounds to be considered at the pre-reference stage. 8.6. The legislature amended Sub-section (1) of Section 8 to provide that a judicial authority shall refer the parties to arbitration, 'unless it finds that prima facie no valid agreement exists'. The amended Section 8 reads: 8. Power to refer parties to arbitration where there is an arbitration agreement.-(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration 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 substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.8.8. In the subsequent decision of Ameet Lalchand Shah and Ors. v. Rishabh Enterprises and Anr. (2018) 15 SCC 678, allegations of fraud arising from criminal breach of trust and misrepresentation regarding the equipment procured and leased for the setting up and operating of a Photovoltaic solar plant were made. A civil suit was filed praying for a declaration that all the agreements were vitiated by fraud and misrepresentation. An application was filed Under Section 8 seeking reference of the disputes to arbitration under all the four agreements. This Court held that only where the court is satisfied that the allegations of fraud are serious and complicated in nature, would it be more appropriate for the court to deal with the subject matter of the disputes, rather than relegate the parties to arbitration. It is the duty of the court to impart a sense of business efficacy to commercial transactions, and mere allegations of fraud would not be sufficient to decline reference of disputes to arbitration. 8.9. In a recent judgment delivered in Avitel Post Studi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le are penal offences which are visited with criminal sanction; offences pertaining to bribery/corruption; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody and guardianship matters, which pertain to the status of a person; testamentary matters which pertain to disputes relating to the validity of a Will, grant of probate, letters of administration, succession, which pertain to the status of a person, and are adjudicated by civil courts. Certain categories of disputes such as consumer disputes Emaar MGF Land Limited v. Aftab Singh, (2019) 12 SCC 751.; insolvency and bankruptcy proceedings; oppression and mismanagement, or winding up of a company; disputes relating to trusts, trustees and beneficiaries of a trust Vimal Kishor Shah and Ors. v. Jayesh Dinesh Shah and Ors. (2016) 8 SCC 788. are governed by special enactments. This Court in Booz Allen Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532 has recognized some examples of disputes which are not arbitrable, and held that: 36. The well recognized examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ], or to induce him to enter into the contract: (1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent. 8.14. We will now consider whether voidable agreements are arbitrable. Voidable agreements are defined by Section 19 of the Contract Act as: 19. Voidability of agreements without free consent.--When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representation made had been true. Exception.--If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of Section 17, the contract, neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration. In contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc. The ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete, and deserves to be discarded. However, the criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjudicated only by a court of law, since it may result in a conviction, which is in the realm of public law. Malhotra's Commentary on the Law of Arbitration, [4th ed., Wolters Kluwer (2020)], p. 339, Volume I. 8.17. In the present case, the allegations of fraud with respect to the invocation of the Bank Guarantee are arbitrable, since it arises out of disputes between parties inter se, and is not in the realm of public law. 9. Maintainability of the Writ Petition 9.1. We are of the view that the Writ Petition filed by the Respondent No. 1 to challenge the Order dated 18.01.2018 pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the High Court, and even before this Court during oral submissions, parties may either appoint a sole arbitrator consensually; failing which, an application Under Section 11 for appointment of the arbitrator may be made before the High Court. 11. In view of the discussion hereinabove, we hold that: (i) The impugned judgment and order dated 30.09.2020 in W.P. No. 1801 of 2020 passed by the Bombay High Court is set aside; (ii) We direct the Secretary General of this Court to impound the Work Order dated 28.09.2015, and forward it to the concerned Collector in Maharashtra for assessment of the Stamp Duty payable on the said instrument, to be completed within a period of 45 days from receipt of the same; (iii) On determination of the Stamp Duty payable, the Appellant/Plaintiff is directed to make the payment assessed by the Collector Under Section 30(f-a) of the Maharashtra Stamp Act, 1958 within a period of four weeks from the date of receipt of communication of the Order; The Stamp Duty assessed by the Collector will, however, be subject to the statutory right available to file a revision/appeal under the Maharashtra Stamp Act. (iv) With respect to the invo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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