2019 (4) TMI 716 - SC - Indian Laws

Arbitration clause in unstamped contract unenforceable until stamp duty paid under Section 11(13) Arbitration Act

GARWARE WALL ROPES LTD. Versus COASTAL MARINE CONSTRUCTIONS & ENGINEERING LTD.

GARWARE WALL ROPES LTD. Versus COASTAL MARINE CONSTRUCTIONS & ENGINEERING LTD. - 2019 AIR 2053, 2019 (5) SCR 579, 2019 (9) SCC 209, 2019 (6) SCALE 250 Issues Involved:1. Effect of an arbitration clause in an unstamped agreement.2. Applicability of the Indian Stamp Act and Maharashtra Stamp Act to arbitration agreements.3. Interpretation of Section 11(6A) of the Arbitration and Conciliation Act, 1996.4. Judicial intervention in the appointment of arbitrators.5. Harmonious construction of statutes.Issue-wise Detailed Analysis:1. Effect of an Arbitration Clause in an Unstamped Agreement:The primary question in this appeal was the effect of an arbitration clause contained in an agreement that requires stamping. The Court referred to the precedent set in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., which held that an arbitration clause in an unstamped agreement cannot be acted upon until the stamp duty and penalty are paid. This principle was reaffirmed, emphasizing that an arbitration agreement in an unstamped contract does not legally exist until the document is duly stamped.2. Applicability of the Indian Stamp Act and Maharashtra Stamp Act to Arbitration Agreements:The Court examined the provisions of the Indian Stamp Act, 1899, and the Maharashtra Stamp Act, 1958, particularly Sections 33 and 34, which mandate that unstamped documents must be impounded and cannot be admitted in evidence or acted upon until properly stamped. The Court held that these provisions apply to arbitration agreements, and judicial authorities must ensure compliance with stamp duty requirements before proceeding with arbitration-related applications.3. Interpretation of Section 11(6A) of the Arbitration and Conciliation Act, 1996:Section 11(6A) confines the Court's role to examining the existence of an arbitration agreement. The Court clarified that this does not override the requirement to impound unstamped documents under the Indian Stamp Act. The existence of an arbitration agreement, as per Section 7(2) of the 1996 Act, is contingent upon the agreement being enforceable by law, which includes being duly stamped.4. Judicial Intervention in the Appointment of Arbitrators:The Court discussed the judicial intervention in the context of appointing arbitrators, referencing the judgments in SBP & Co. v. Patel Engineering Ltd. and National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. The introduction of Section 11(6A) aimed to minimize judicial intervention, limiting it to the examination of the existence of an arbitration agreement. However, the Court held that this does not negate the requirement to comply with the Indian Stamp Act.5. Harmonious Construction of Statutes:The Court applied the doctrine of harmonious construction to reconcile the provisions of the Maharashtra Stamp Act and Section 11(13) of the 1996 Act. It held that while the High Court must impound unstamped documents, the stamp authorities should expedite the adjudication of stamp duty and penalty, preferably within 45 days. This ensures compliance with both the Stamp Act and the objective of speedy arbitration under the 1996 Act.Conclusion:The appeal was allowed, and the Bombay High Court's judgment was set aside. The matter was remitted to the Bombay High Court to dispose of the application in light of the Supreme Court's judgment, ensuring that the unstamped agreement is impounded and stamp duty and penalty are paid before proceeding with the appointment of an arbitrator.