2020 (2) TMI 678 - SC - Indian Laws

Supreme Court overturns High Court ruling, rejects petition under Arbitration Act.

M/s DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY MUDALIAR CHATTRAM & OTHER CHARITIES & ORS. Versus M/s BHASKAR RAJU & BROTHERS & ORS.

The Supreme Court quashed the High Court's judgment and rejected the respondents' petition under Section 11 of the Arbitration Act. The Court held that ... Stamping of Lease deeds - it was the basic contention of the appellants, that the lease deed dated 12.3.1997 being insufficiently stamped had to be mandatorily impounded under Section 33 of the Karnataka Stamp Act, 1957 - invocation of power under Section 11(6) of the Arbitration Act - HELD THAT:- Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction. The Scheme for Appointment of Arbitrators by the Chief Justice of Gauhati High Court, 1996 requires an application under Section 11 of the Act to be accompanied by the original arbitration agreement or a duly certified copy thereof. In fact, such a requirement is found in the scheme/rules of almost all the High Courts. If what is produced is a certified copy of the agreement/contract/instrument containing the arbitration clause, it should disclose the stamp duty that has been paid on the original - If the court comes to the conclusion that the instrument is not duly stamped, it has to impound the document and deal with it as per Section 38 of the Stamp Act. A perusal of the clauses of the lease deed dated 12.3.1997 would also reveal, that the lessee had undertaken all the responsibility of obtaining vacant possession of Schedule ‘B’ property and to secure vacant possession by ejecting the unauthorised occupants. Responsibility of sanctioning the building plans was also undertaken by the respondents. It would further reveal, that it was also agreed between the parties, that in the event of any of the tenants approaching a court of law, such period of litigation shall not in any manner affect the agreed tenure of the lease deed of 38 years - the submission made by Shri Balaji Srinivasan, learned counsel for the respondents, that the agreement was to be registered only after all the tenants were evicted and the building plans were sanctioned is not supported by any of the terms in the lease deed dated 12.3.1997. The High Court has totally erred in relying on the lease deed dated 12.3.1997, which was found to be insufficiently stamped and brushing aside the report of the Registrar (Judicial), when the respondents had failed to pay the insufficient stamp duty and penalty as determined by the Registrar (Judicial) of the High Court of Karnataka - Appeal allowed - decided in favor of appellant. Issues Involved:1. Validity of the arbitration clause in an insufficiently stamped lease deed.2. The High Court's reliance on an insufficiently stamped lease deed.3. The respondent's delay in invoking the arbitration clause.4. The respondent's contradictory stands regarding the nature of the lease deed.Issue-wise Detailed Analysis:1. Validity of the Arbitration Clause in an Insufficiently Stamped Lease Deed:The appellants contended that the lease deed dated 12.3.1997 was insufficiently stamped and therefore, could not be relied upon for appointing an Arbitrator. According to the Karnataka Stamp Act, 1957, instruments not duly stamped are inadmissible in evidence and cannot be acted upon. This principle was reinforced by the Supreme Court in the case of SMS Tea Estates Private Limited vs. Chandmari Tea Company Private Limited, which stated that a court must impound and deal with an insufficiently stamped document as per Section 38 of the Stamp Act, 1899. The Supreme Court held that the High Court erred in relying on the insufficiently stamped lease deed to enforce the arbitration clause.2. The High Court's Reliance on an Insufficiently Stamped Lease Deed:The High Court of Karnataka appointed an Arbitrator based on the lease deed dated 12.3.1997, despite the Registrar (Judicial) determining that the document was insufficiently stamped and directing the respondents to pay a deficit stamp duty and penalty of Rs. 1,01,56,388. The respondents failed to comply with this direction. The Supreme Court found that the High Court's reliance on the lease deed was erroneous, as it was not duly stamped, making it inadmissible for enforcing the arbitration clause.3. The Respondent's Delay in Invoking the Arbitration Clause:The respondents invoked the arbitration clause only after participating in the suit proceedings for about two years and three months. The appellants argued that the respondents belatedly invoked the arbitration clause after a significant delay of almost 16 years from the execution of the lease deed. The Supreme Court noted that the respondents' delay in invoking the arbitration clause and their participation in the suit proceedings indicated a lack of bona fide intent to arbitrate the dispute.4. The Respondent's Contradictory Stands Regarding the Nature of the Lease Deed:The respondents took contradictory positions regarding the nature of the lease deed. Before the City Civil Court at Bangalore, they admitted that the document was a lease deed, whereas before the High Court, they contended that it was an agreement for developing the property after the tenants were evicted. The Supreme Court found that the respondents' contradictory stands were not supported by the terms of the lease deed, which clearly stated that the tenure of the lease was 38 years from the date of signing.Conclusion:The Supreme Court allowed the appeal, quashing the High Court's judgment and order dated 1.12.2014. The petition/application filed by the respondents under Section 11 of the Arbitration Act was rejected. The Court emphasized that the lease deed containing the arbitration clause was insufficiently stamped and could not be acted upon, and the respondents' delay and contradictory stands further weakened their case.