TaxTMI 
TaxTMI 
2019 (4) TMI 716
X X X X Extracts X X X X
X X X X Extracts X X X X
....disputes shall be referred to a sole arbitrator to be appointed by GWRL and COMACOE jointly in agreement." 3. Disputes arose between the parties, and on 02.01.2015, the appellant terminated the sub-contract. As a result, on 20.07.2016, the respondent wrote to the appellant stating that as disputes and differences had arisen between the parties, notice was given of appointment of Mr. Mihir Naniwadekar, Advocate, as sole arbitrator. The appellant replied on 17.08.2016, stating that the appointment of Mr. Naniwadekar as sole arbitrator was not acceptable as invocation of arbitration in pursuance of the agreement is premature. The respondent, therefore, filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 ["1996 Act"] on 10.02.2017 before the Bombay High Court. By the impugned judgment dated 09.03.2018, the Section 11 petition was allowed and Mr. Naniwadekar was appointed as sole arbitrator to adjudicate upon disputes and differences which have arisen between the appellant and the respondent in relation to the sub-contract dated 14.06.2013. 4. The question raised in this appeal is as to what is the effect of an arbitration clause contained in a contract....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an arbitration agreement were to be decided by the Court hearing the Section 11 application instead of by the arbitrator. The focus being on these two judgments, it is clear that it is these two judgments whose basis has been removed, leaving SMS Tea Estates (supra) untouched. According to him, it is clear that if, as a result of operation of law, an instrument is to be impounded, upon which stamp duty and penalty (if any) are then to be paid, must be followed as Section 11(6A) does not seek to interfere with the Indian Stamp Act at all. He relied upon certain judgments to buttress his submissions. 6. Ms. Ridhi Nyati, learned Advocate appearing on behalf of the respondent, referred us to Sections 8, 16, and 45 of the 1996 Act in particular, and made it clear that the object of the Amendment Act, 2015, in introducing Section 11(6A), was to confine the Court hearing the Section 11 application to examination of the existence of an arbitration agreement and nothing more. She made a distinction between "validity" and "existence" of an arbitration agreement, and argued that the provisions of the Indian Stamp Act are a fiscal measure intended merely to collect revenue and, if at all, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in- (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract." Section 8, which speaks of the power to refer parties to arbitration where there is an arbitration agreement is also relevant, and states: "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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party. xxx xxx xxx" Section 16(1) reads as follows: "16. Competence of arbitral tribunal to rule on its jurisdiction.-(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. xxx xxx xxx" Section 45, which speaks of the power of a judicial authority to refer parties to arbitration, when it comes to agreements referred to by the New York Convention of 1958, states as follows: "45. Power of judicial authority to refer parties to arbitration.-Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (V of 1908), a judicial authority, when seized of an action in a matter in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer unless such instrument is duly stamped or if the instrument is written on sheet of paper with impressed stamp such stamp paper is purchased in the name of one of the parties to the instrument: Provided that,- (a) any such instrument shall, subject to all just exceptions, be admitted in evidence on payment of,- (i) the duty with which the same is chargeable, or in the case of an instrument insufficiently stamped, the amount required to make up such duty, and (ii) a penalty at the rate of 2 per cent of the deficient portion of the stamp duty for every month or part thereof, from the date of execution of such instrument: Provided that, in no case, the amount of the penalty shall 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) nothin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce or the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. xxx xxx xxx (xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd. [(2002) 2 SCC 388] is overruled." This position was further clarified in Boghara Polyfab (supra) as follows: "22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. [(2005) 8 SCC 618]. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. 22.1. The issues (first category) which the Chief Justice/his designa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nificant impact on the "conduct" of arbitrations. Section 9, being solely for the purpose of securing interim relief, although having the potential to affect the rights of parties, does not affect the "conduct" of the arbitration in the same way as these other provisions. It is in this context the Commission has examined and deliberated the working of these provisions and proposed certain amendments. 29. The Supreme Court has had occasion to deliberate upon the scope and nature of permissible pre-arbitral judicial intervention, especially in the context of section 11 of the Act. Unfortunately, however, the question before the Supreme Court was framed in terms of whether such a power is a "judicial" or an "administrative" power - which obfuscates the real issue underlying such nomenclature/description as to - the scope of such powers - i.e. the scope of arguments which a Court (Chief Justice) will consider while deciding whether to appoint an arbitrator or not - i.e. whether the arbitration agreement exists, whether it is null and void, whether it is voidable etc.; and which of these it should leave for decision of the arbitral tribunal. the nature of such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to be found in the decision of the Supreme Court in Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234, (in the context of section 45 of the Act), where the Supreme Court has ruled in favour of looking at the issues/controversy only prima facie. 33. It is in this context, the Commission has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the disp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the Court, on sufficient cause; (vi) to provide that a model fee Schedule on the basis of which High Courts may frame rules for the purpose of determination of fees of arbitral tribunal, where a High Court appoints arbitrator in terms of section 11 of the Act; (vii) to provide that the parties to dispute may at any stage agree in writing that their dispute be resolved through fast track procedure and the award in such cases shall be made within a period of six months; (viii) to provide for neutrality of arbitrators, when a person is approached in connection with possible appointment as an arbitrator; (ix) to provide that application to challenge the award is to be disposed of by the Court within one year. 7. The amendments proposed in the Bill will ensure that arbitration process becomes more user-friendly, cost effective and lead to expeditious disposal of cases. xxx xxx xxx" 13. A reading of the Law Commission Report, together with the Statement of Objects and Reasons, shows that the Law Commission felt that the judgments in SBP & Co. (supra) and Boghara Polyfab (supra) required a relook, as a result of which, so far ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m 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 registerable-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. 14. These principles have now found statutory recognition in sub-section (1) of Section 16 of the Arbitration and Conciliation Act, 1996 which is extracted below: "16. Competence of Arbitral Tribunal to rule on its jurisdiction.-(1) The Arbitral Tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose- (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the Arbitral Tribun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....les 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. Section 33 casts a duty upon every court, that is, a person having by law authority to receive evidence (as also every arbitrator who is a person having by consent of parties, authority to receive evidence) before whom an unregistered instrument chargeable with duty is produced, to examine the instrument in order to ascertain whether it is duly stamped. 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. 21. Therefore, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of the Stamp Act. The court cannot act upon such a document or the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respect to the existence or validity of the arbitration agreement. Sub-section (1) also directs that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. It also clarifies that a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Sub-section (2) of Section 16 enjoins that a party wanting to raise a plea that the Arbitral Tribunal does not have jurisdiction, has to raise that objection not later than the submission of the statement of defence, and that the party shall not be precluded from raising the plea of jurisdiction merely because he has appointed or participated in the appointment of an arbitrator. Sub-section (3) lays down that a plea that the Arbitral Tribunal is exceeding the scope of its authority, shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. When the Tribunal decides these two questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court designated by him." In view of the law laid down by seven-Judge Bench, it is difficult to accede to the argument made by the learned counsel on behalf of the respondent that Section 16 makes it clear that an arbitration agreement has an independent existence of its own, and must be applied while deciding an application under Section 11 of the 1996 Act. 16. It will be seen that neither in the Statement of Objects and Reasons nor in the Law Commission Report is there any mention of SMS Tea Estates (supra). This is for the very good reason that the Supreme Court or the High Court, while deciding a Section 11 application, does not, in any manner, decide any preliminary question that arises between the parties. The Supreme Court or the High Court is only giving effect to the provisions of a mandatory enactment which, no doubt, is to protect revenue. SMS Tea Estates (supra) has taken account of the mandatory provisions contained in the Indian Stamp Act and held them applicable to judicial authorities, which would include the Supreme Court and the High Court acting under Section 11. A close look at Section 11(6A) would show that when the Supreme Court or the High Court conside....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ake a proposal; (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; xxx xxx xxx (g) An agreement not enforceable by law is said to be void; (h) An agreement enforceable by law is a contract; xxx xxx xxx" 19. 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 Indian Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates (supra) has, in no manner, been touched by the amendment of Section 11(6A). 20. We now come to some of the judgments cited by both the sides. 21. Learned counsel for the respondent relied heavily upon Enercon (India) Ltd. & Ors. v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in connection with this memorandum of understanding and negotiations relating to IPLA." The focus in Enercon (supra) was as to whether an arbitration clause will apply even if there is no concluded contract entered into between the parties. Since the "Heads of Agreement" provided that disputes which arose out of the Memorandum of Understanding and negotiations relating to the Intellectual Property Licence Agreement (IPLA) were arbitrable, this Court held that the arbitration agreement in the facts of that case was separate from the main contract, making it a case which falls under the second part (and not under the first part) to Section 7(2), namely, that an arbitration agreement may be in the form of a separate agreement. This judgment, therefore, does not take the respondent very much further. It may only be noted that the judgment in Ashapura Mine-Chem Ltd. v. Gujarat Mineral Development Corporation, (2015) 8 SCC 193 merely followed Enercon (supra) and would be inapplicable for the same reasons outlined by us above. 22. The other judgment strongly relied upon by the learned counsel for the respondent is Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 ["Duro ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Bench decision having construed clause similar to the subject clause 7 of the Insurance Policy. In paragraphs 11 & 12 of Vulcan Insurance Co. Ltd. (supra), the Court answered the issue thus: "11. Although the surveyors in their letter dated April 26, 1963 had raised a dispute as to the amount of any loss or damage alleged to have been suffered by Respondent 1, the appellant at no point of time raised any such dispute. The appellant company in its letter dated July 5 and 29, 1963 repudiated the claim altogether. Under clause 13 the company was not required to mention any reason of rejection of the claim nor did it mention any. But the repudiation of the claim could not amount to the raising of a dispute as to the amount of any loss or damage alleged to have been suffered by Respondent 1. If the rejection of the claim made by the insured be on the ground that he had suffered no loss as a result of the fire or the amount of loss was not to the extent claimed by him, then and then only, a difference could have arisen as to the amount of any loss or damage within the meaning of clause 18. In this case, however, the company repudiated its liability to pay any amount of loss or d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 7 as well as the second paragraph of the same clause. In the opening part, it is stated that the "(liability being otherwise admitted)". This is reinforced and re-stated in the second paragraph in the following words: "It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as herein before provided, if the Company has disputed or not accepted liability under or in respect of this Policy." 15. Thus understood, there can be no arbitration in cases where the insurance company disputes or does not accept the liability under or in respect of the policy. 16. The core issue is whether the communication sent on 21st April, 2011 falls in the excepted category of repudiation and denial of liability in toto or has the effect of acceptance of liability by the insurer under or in respect of the policy and limited to disputation of quantum. The High Court has made no effort to examine this aspect at all. It only reproduced clause 7 of the policy and in reference to the dictum in Duro Felguera (supra) held that no other enquiry can be made by the Court in that regard. This is misreading of the said decision and the amended ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub-contract would not "exist" as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6A) deals with "existence", as opposed 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 United India Insurance Co. (supra), as followed by us. 25. Other High Court judgments were relied upon in the context of stamp duty, being the judgments contained in JMD Ltd. v. Celebrity Fitness India Pvt. Ltd., (2019) SCC OnLine Del 6483, B.D. Sharma v. Swastik Infra Estate Pvt. Ltd. & Ors., (2018) SCC OnLine Del 13279, Sandeep Soni v. Sanjay Roy, (2018) SCC OnLine Del 11169, and N.D. Developers Pvt. Ltd. v. Bharathi & Ors., (2018) SCC OnLine Kar 2938. In view of our holding in this judgment, these judgments have not declared the law correctly, and are consequently, overruled. A recent Full Bench judgment of the Bombay High Court in Gautam Landscapes Pvt. Ltd. v. Shailesh Shah and Ors., Ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or 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. 27. The doctrine of harmonious construction of statutes is strongly imbedded in our interpretative canon. In Sri Venkataramana Devaru v. State of Mysore, [1958] SCR 895, Articles 25 and 26 of the Constitution of India were reconciled by applying the rule of harmonious construction thus: "The result then is that there are two provisions of equal authority, neither of them being subject to the other. The question is how the apparent conflict between them is to be resolved. The rule of construction is well settled that when there are in an enactment two provisions which cannot be reconciled with each other, they should be so interpreted that, if possible, effect could be given to both. This is what is known as the rule of harmonious construction. Applying this rule, if the contention of the appellants is to be accepted, then Article 25(2)(b) will become wholly nugatory in its application to denominational temples, though, as stated above, the language....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Mines v. Lala Karam Chand Thapar, (1962) 1 SCR 9, the rule of harmonious construction was used to reconcile Section 31(4) of the Mines Act, 1952 and Section 24 of the General Clauses Act. This Court held: "If the words of Section 31(4) are construed to mean that the regulations became part of the Act to the extent that when the Act is repealed, the regulations also stand repealed, a conflict at once arises between Section 31(4) and the provisions of Section 24 of the General Clauses Act. In other words, the Mines Act, 1923, while saying in Section 31(4) that the repeal of the Act will result in the repeal of the regulations, will be saying, in the provisions of Section 24 of the General Clauses Act as read into it, that on the repeal of the Act, when the Act is repealed and re-enacted, the regulations will not stand repealed but will continue in force till superseded by regulations made under the re-enacted Act. To solve this conflict the courts must apply the rule of harmonious construction. According to Mr Pathak we have perfect harmony if it is held that the provisions of Section 24 of the General Clauses Act will have effect only if the regulations are such as survive....