TaxTMI 
TaxTMI 
2023 (12) TMI 897
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............... 22 i. Overview ........................................................................................................................ 22 ii. The consequences of the failure to stamp an instrument .......................................... 27 a. The procedure under the Stamp Act ............................................................................................ 27 b. The difference between inadmissibility and voidness .................................................................. 32 c. Section 35 of the Stamp Act renders a document inadmissible and not void .............................. 34 iii. The purpose of the Stamp Act ...................................................................................... 38 E. The Arbitration and Conciliation Act 1996 ........................................................... 40 i. Arbitral autonomy ......................................................................................................... 42 ii. Principle of minimum judicial interference ................................................................. 45 iii. The Arbit....
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....................................... 101 b. Section 5 of the Arbitration Act ................................................................................................... 104 c. Parliament was aware of the Stamp Act when it enacted the Arbitration Act ............................. 106 ii. Harmonious construction of the three statutes under consideration ..................... 106 a. The effect of the competence-competence doctrine .................................................................. 106 b. The effect of the word "shall" in Sections 33 and 35 of the Stamp Act ...................................... 111 c. The object of the Stamp Act is preserved .................................................................................. 113 d. The interpretation of the law must give effect to the purpose of the Arbitration Act in addition to the Stamp Act ............................................................................................................................. 114 J. SMS Tea Estates and Garware Wall Ropes were wrongly decided.................. 115 i. SMS Tea Estates .....................
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....v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 In SMS Tea Estates (supra), a two-Judge Bench of this Court held that an arbitration agreement in an unstamped contract could not be acted upon. A two-Judge Bench of this Court in Garware Wall Ropes (supra) relied on SMS Tea Estates (supra) to hold that an arbitration agreement in an unstamped commercial contract would not "exist" as a matter of law and could not be acted upon until the underlying contract was duly stamped: "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 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(6-A), 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 [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 77....
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.... valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of "existence" requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law. 147. We would proceed to elaborate and give further reasons: 147.1. (i) In Garware Wall Ropes Ltd. [Garware Wall Ropes Ltd. v. Coastal Marine Construc....
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....t exist in law. The arbitration agreement in such an instrument can be acted upon only after it is duly stamped; c. The "existence" of an arbitration agreement contemplated under Section 11(6A) of the Arbitration Act is not merely a facial existence or existence in fact, but also "existence in law"; d. The Court acting under Section 11 of the Arbitration Act cannot disregard the mandate of Sections 33 and 35 of the Stamp Act requiring it to examine and impound an unstamped or insufficiently stamped instrument; and e. The certified copy of an arbitration agreement must clearly indicate the stamp duty paid. 5. The minority judgment adopted a different legal approach. Justice Ajay Rastogi noted that the scope of the referral court under Section 11 is limited to the examination of the "existence" of an arbitration agreement. He held that all the other debatable issues, including the issue of stamping, must be left for the arbitral tribunal to decide in view of Section 16 of the Arbitration Act. 6. Justice Hrishikesh Roy relied on the scheme of the Stamp Act to hold that an unstamped or insufficiently stamped document is not rendered invalid or void ab i....
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.... "1. One of the objections which has been raised on behalf of the respondent in response to the petition under Section 11(6) and 11(9) of the Arbitration and Conciliation Act, 1996, is that the arbitration agreement is not stamped. 2. Notice has already been issued by this Court on Curative Petition (Civil) No 44 of 2023 which has been directed to be listed in the open Court on 24 August 2023. 3. These proceedings shall be accordingly listed on 24 August 2023 together with the Curative Petition. 4. Counter affidavit, if any, be filed in the meantime." 9. On 26 September 2023, a Bench of five Judges took up the arbitration petition along with the curative petition. Considering the larger ramifications and consequences of the decision in N N Global 2 (supra), the Court referred the proceedings to a seven-Judge Bench. The relevant portion of the order is extracted below: PART B "2. Having regard to the larger ramifications and consequences of the view of the majority in N N Global Mercantile Private Limited vs Indo Unique Flame Limited and Others, we are of the considered view that the proceedings should be placed before a seven-Judge Bench t....
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.... a. The deficiency in stamping is a curable defect, the effect of which ceases to operate as soon as the revenue interest of the state is secured; b. The non-payment of stamp duty, being a temporary affliction, cannot affect the validity of an arbitration agreement; and c. Mandating the courts at the Section 8 or Section 11 stage of the Arbitration Act to examine the issue of stamping will defeat the legislative purpose of minimal judicial interference enshrined in Section 5 of the Arbitration Act. 14. Mr Darius J Khambata, learned senior counsel, made the following submissions: a. The doctrine of separability recognizes that an arbitration agreement is a self-contained agreement, distinct from the underlying contract; b. An arbitration agreement contained within an underlying contract would be a "distinct matter" in terms of Section 5 of the Stamp Act, and would therefore continue to remain valid and enforceable notwithstanding the non-stamping or inadequate stamping of the contract; c. The majority in N N Global 2 (supra) failed to give full effect to the doctrine of separability by incorrectly holding that non-stamping of the und....
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....r the entertainability of a lis, except where the statute specifically so prescribes. The Stamp Act does not prescribe a bar on the entertainability of a lis. 17. The respondents largely contend that N N Global 2 (supra) is correct and is in line with the consistent position adopted by this Court in SMS Tea Estates (supra) and Garware Wall Ropes (supra), which ought not to be disturbed. The submissions of the learned counsel for the respondents and intervenors are summarized below. 18. Mr Shyam Divan, learned senior counsel, made the following submissions: a. The curative petition is not maintainable because none of the pleaded grounds meet the requirements set out in Rupa Ashok Hurra v. Ashok Hurra., (2002) 4 SCC 388 Since the curative petition is not maintainable, the reference to a seven-Judge Bench is without jurisdiction; b. The examination by the court under Section 11(6A) of the Arbitration Act is not confined to mere facial existence of an arbitration agreement. The referral court has to prima facie examine both the existence and validity of an arbitration agreement; c. Section 33 of the Stamp Act casts a mandatory legal requirement on....
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....ion 11 application for the appointment of arbitrators, directed the proceedings to be listed along with the curative petition. On 26 September 2023, the five-Judge Bench differed with the view taken in N N Global 2 (supra) and referred the issue to a seven-Judge Bench. Thus, it is important to note that along with the curative petition, a Section 11 petition is also listed before this Court in the present proceedings. 23. The maintenance of judicial discipline is important for ensuring consistency and certainty in the development of law. The rule of judicial discipline demands that a Bench of lower strength is bound by the decision of a larger Bench., Bharat Petroleum Corporation v. Mumbai Shramik Sangha, (2001) 4 SCC 448 Judicial discipline also dictates that generally, a Bench of the same strength can question the correctness of a decision rendered by a co-ordinate Bench. In such a situation, the matter is placed before a Bench of larger strength., Pradip Chandra Parija v. Pramod Chandra Patnaik, (2002) 1 SCC 1 24. However, there have been situations where a Bench of lower strength has differed with the decision rendered by a Bench of larger strength. In Union of Indi....
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.... comprehensive term giving widest freedom to a court of law to do justice to the parties in the case. Accordingly, it was held that review petitions also fall within the purview of the expression "other proceeding." In view of the decision in Kantaru Rajeevaru (supra), the term "other proceeding" under Order VI Rule 2 of the Supreme Court Rules, 2013 will also include curative petitions. Therefore, we find no impropriety in the reference made to this Bench. 27. Moreover, the reference raises important issues on points of law, which require immediate consideration. In Central Board of Dawoodi Bohra Community (supra), this Court laid down two exceptions to the rules mentioned above: "12. (3) The above rules are subject to two exceptions: (i) the abovesaid rules do not bind the discretion of the Chief Justice in whom vests the power of framing the roster and who can direct any particular matter to be placed for hearing before any particular Bench of any strength; and (ii) in spite of the rules laid down hereinabove, if the matter has already come up for hearing before a Bench of larger quorum and that Bench itself feels that the view of the law taken by a Bench of lesser q....
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....mentioned in Schedule I, but does not include such instruments as may be specified by the Government, by notification in the Official Gazette" 30. The term "instrument" is defined broadly, in an inclusive sense. It includes electronic documents. Schedule I to the Stamp Act contains descriptions of various instruments along with the stamp duty payable on each of them. Stamp-duty is liable to be paid under Section 3, which provides as follows: "3. Instrument chargeable with duty.-Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore, respectively, that is to say- (a) every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July, 1899; (b) every bill of exchange payable otherwise than on demand, or promissory note drawn or made out of India on or after that day and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and (c) every instrum....
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....ment relates to several distinct matters with each such matter covered by a distinct entry in Schedule I. Section 6 is applicable only when an instrument relates to a single matter which is covered by two or more descriptions in Schedule I, or when a single matter in an instrument relating to several distinct matters is covered by two or more descriptions in that schedule. 32. Sections 13 and 14 indicate the mode of stamping. In terms of Section 13, every instrument written upon paper stamped with an impressed stamp shall be written in such manner that the stamp may appear on the face of the instrument and cannot be used for or applied to any other instrument. Section 14 stipulates that no second instrument chargeable with duty shall be written upon a piece of stamped paper upon which an instrument chargeable with duty has already been written., The proviso to Section 14 provides as follows "Provided that nothing in this section shall prevent any endorsement which is duly stamped or is not chargeable with duty being made upon any instrument for the purpose of transferring any right created or evidenced thereby, or of acknowledging the receipt of any money or goods the payment or....
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....upon which an endorsement has been made under Section 32 shall be deemed to be duly stamped or not chargeable with duty, as the case may be., Section 32(3), Stamp Act The proviso to Section 32 lists three categories of instruments which the Collector is not authorised to endorse under the same section. 36. Chapter IV of the Stamp Act details with the procedure to be followed by various authorities if instruments which are liable to be stamped are not duly stamped. The provisions of this Chapter are examined in detail in the subsequent segment. Chapter V provides for allowances for stamps (such as spoiled or misused stamps) in certain cases and Chapter VI provides for reference of cases arising under the enactment to authorities including the High Courts as well as for the revision of certain decisions of courts regarding the sufficiency of stamps. Chapter VII of the Stamp Act indicates the penalties for non-compliance with its provisions and finally, Chapter VIII contains certain supplementary provisions in relation to the statute. ii. The consequences of the failure to stamp an instrument a. The procedure under the Stamp Act 37. Section 17 of the Stamp Act provides tha....
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....oming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed: Provided that- (a) nothing herein contained shall be deemed to require any Magistrate or Judge of a 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 XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898); (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 appoints in this behalf. (3) For the purposes of this section, in cases of doubt,- (a) the State Government may determine what offices shall be deemed to be public offices; and (b) the State Government may determine who shall be deemed to be persons in charge of public offices." 39. Section 35 is of particular significance to the issue before this Court - it renders instruments which are not duly stamped inadmissible in evidence. Sec....
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....receive evidence by law or by consent of parties. Section 35 is significant because it gives teeth to the Stamp Act by ensuring that stamp-duty is paid before rights and obligations arising from an agreement are enforced. 40. Section 38(1) indicates how an instrument which is impounded is to be dealt with: "38. Instruments impounded how dealt with.- (1) Where the person impounding an instrument under Section 33 has by law or consent of parties authority to receive evidence and admits such instrument in evidence upon payment of a penalty as provided by Section 35 or of duty as provided by Section 37, he shall send to the Collector an authenticated copy of such instrument, together with a certificate in writing, stating the amount of duty and penalty levied in respect thereof, and shall send such amount to the Collector, or to such person as he may appoint in this behalf. (2) In every other case, the person so impounding an instrument shall send it in original to the Collector." 41. The Collector is conferred with the power to impound an instrument under Section 33. If any other person or authority impounds an instrument, it must be forwarded to the C....
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....e by law is said to be void. The admissibility of a particular document or oral testimony, on the other hand, refers to whether or not it can be introduced into evidence. P Ramanatha Aiyar's The Law Lexicon defines 'admissible' thus: "Admissible Proper to be received, capable and worthy of being admitted. As applied to evidence, the term means that it is of such a character that the court or judge is bound to receive it, that is, allow it to be introduced in evidence", P Ramanatha Aiyar, The Law Lexicon (Second edition, 1997) Many statutes have rules on the admissibility of documents, with the Indian Evidence Act 1872, "Evidence Act" being one of them. 45. An agreement can be void without its nature as a void agreement having an impact on whether it may be introduced in evidence. Similarly, an agreement can be valid but inadmissible in evidence. For instance, A and B may enter into an agreement by which B is restrained from undertaking a particular trade. This agreement would be void under Section 27 of the Contract Act, "27. Agreement in restraint of trade void.- Every agreement by which any one is restrained from exercising a lawful p....
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....r it. It bears mentioning that there is no procedure by which a void agreement can be "cured." 49. In Thiruvengadam Pillai v. Navaneethammal, (2008) 4 SCC 530 this Court noted that the trial court and the High Court had doubted the authenticity of an agreement for the sale of certain immoveable property because it was written on two stamp papers purchased on different dates. This Court held that this by itself would not invalidate the agreement. It noticed the distinction between the legal validity of the agreement and its admissibility: "13. The Stamp Act is a fiscal enactment intended to secure revenue for the State. In the absence of any rule requiring consecutively numbered stamp papers purchased on the same day, being used for an instrument which is not intended to be registered, a document cannot be termed as invalid merely because it is written on two stamp papers purchased by the same person on different dates. Even assuming that use of such stamp papers is an irregularity, the court can only deem the document to be not properly stamped, but cannot, only on that ground, hold the document to be invalid. Even if an agreement is not executed on requisite stam....
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....s fortification from Section 2(j) of the Contract Act which renders a contract which ceases to be enforceable void." (emphasis in original) 52. The above observation of this Court is incorrect. Section 2(j) of the Contract Act provides as follows: "(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable." 53. Section 2(j) is not attracted when an instrument is rendered inadmissible under Section 35 of the Stamp Act. The effect of the latter is not to render an unstamped agreement unenforceable. If it was unenforceable, it would imply that it was void. We have already discussed why an unstamped or inadequately stamped agreement is not void in the preceding paragraphs. Indeed, the approach of the majority in N N Global 2 (supra) to the Contract Act would render unstamped agreements void ab initio and not void. 54. In N N Global 2 (supra), this Court also relied on Section 11(6A) of the Arbitration Act to reach its conclusion: "104. What Section 11(6-A) contemplates is a contract and it is not an agreement which cannot be treated as a contract. This is despite the use of the words "arbitration agreement" in Secti....
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..... It is a mandatory statute. In Hindustan Steel Ltd. v. Dilip Construction Co., (1969) 1 SCC 597 this Court dealt with the import of Sections 35, 36 and 42 of the Stamp Act. One of the parties relied on the difference in the phraseology between Sections 35 and 36 to argue that an instrument which was insufficiently stamped or not stamped could be admitted in evidence upon the payment of duty and a penalty (if any) but that it could not be acted upon, once admitted. It was argued that Section 35 operates as a bar in two respects, namely, the admission of an instrument into evidence as well as acting upon that instrument. It was argued that Section 36, in contrast to Section 35, removed the bar in one respect alone - the admissibility of the instrument into evidence. This Court rejected this argument and held that the provisions of the Stamp Act clearly provide that an instrument could be admitted into evidence as well as acted upon once the appropriate duty has been paid and the instrument is endorsed: "6. ... The argument ignores the true import of Section 36. By that section an instrument once admitted in evidence shall not be called in question at any stage of the ....
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.... Convention) Act 1937, and Foreign Awards (Recognition and Enforcement) Act 1961. In 1978, the Law Commission of India suggested substantial amendments to the 1940 Act to make it more responsive to the contemporary legal and economic requirements. In the meanwhile, the United Nations Commission on International Trade Law, "UNCITRAL" 1 adopted the Model Law in 1985 to foster the development of a unified legal framework for the fair and efficient settlement of disputes arising in international commercial arbitration. The General Assembly of the United Nations recommended to all states to give due consideration to the Model Law in view of the desirability of achieving uniformity of the law of arbitral procedure and the specific needs of international commercial arbitration practice., General Assembly of the United Nations, 'Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law' 40/72 112th Plenary Session, 11 December 1985. 63. The Arbitration Act was enacted to "consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to defi....
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....tion of the parties to achieve a speedy and efficient resolution of their disputes. The internationalization of trade and commerce in the middle of the nineteenth century necessitated the regulation and institutionalization of arbitration. In the process, arbitration was also detached from the national legal systems, with the growth of arbitral institutions such as the London Chamber of Arbitration and International Chamber of Commerce. This new regime of arbitration law paved the way for greater recognition of the mutual intention of parties and the authority of arbitral tribunals to resolve disputes without being bogged down by the intricacies of national legal systems. This was commended and reflected in various international instruments such as the New York Convention and the UNCITRAL Model Law. Accordingly, national laws were changed to reflect the principle of judicial non-interference in arbitration proceedings. The demands of commerce and business efficiency meant that control by national courts became subordinate to the intention of the parties and the authority of the arbitral tribunal., Ibid, at 185 66. The principle of arbitral autonomy is an integral element ....
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.... may conduct the proceedings in any manner it deems appropriate if the parties fail to agree on the procedure to be followed by the tribunal. Although arbitral tribunals have autonomy in the procedural and substantive sense, they are not completely independent of the law of the country in which the arbitral tribunal has its juridical seat, as discussed in the following segments. ii. Principle of minimum judicial interference 69. The principle of judicial non-interference in arbitral proceedings is fundamental to both domestic as well as international commercial arbitration. The principle entails that the arbitral proceedings are carried out pursuant to the agreement of the parties or under the direction of the tribunal without unnecessary interference by the national courts., Gary Born, The Principle of Judicial Non-Interference in International Arbitration Proceedings' (2009) 30 University of Pennsylvania Journal of International Law 999, 1002. This principle serves to proscribe judicial interference in arbitral proceedings, which would undermine the objective of the parties in agreeing to arbitrate their disputes, their desire for less formal and more flexible procedu....
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....in the law (e.g., capacity of parties to conclude arbitration agreement; impact of state immunity; competence of arbitral tribunal to adapt contracts; enforcement by courts of interim measures of protection ordered by arbitral tribunal; fixing of fees or request for deposit, including security for fees or costs; time-limit for enforcement of awards)." 72. This indicates that Article 5 of the Model Law emphasizes on arbitral tribunal being the first instance to determine all issues relating to matters of law or construction as well as issues of jurisdiction and scope of authority., Rio Algam v. Sammi Steel Co., Ontario Court of Justice, Canada, 1 March 1991, [1991] O.J. No. 268 It exclusively determines the manner and form of judicial intervention in the arbitration process. National courts can intervene with respect to matters not expressly governed by the Model Law., Richard Garnett, 'Article 5 of the Model Law: Protector of the Arbitral Process?' (2021) 38(2) Journal of International Arbitration 127-146. 73. Section 5 of the Arbitration Act is based on Article 5 of the Model Law. However, Section 5 also incorporates a non-obstante clause setting out the scope o....
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....Act ought to be given full effect and operation irrespective of any other law for the time being in force. It is now an established proposition of law that the legislature uses non-obstante clauses to remove all obstructions which might arise out of the provisions of any other law, which stand in the way of the operation of the legislation which incorporates the non-obstante clause., State of Bihar v. Bihar Rajya M.S.E.S.K.K. Mahasangh, (2005) 9 SCC 129 76. A non-obstante clause is appended in a provision to give such provision overriding effect over other provisions of the law., Owners and Parties Interested in the Vessel M.V. Polaris Galaxy v. Banque Cantonale De Geneva, 2022 SCC OnLine SC 1293 In Chandavarkar Sita Ratna Rao v. Ashalata S. Guram, (1986) 4 SCC 447 Justice Sabyasachi Mukharji explained the purport of non-obstante clause in the following terms: "67. A clause beginning with the expression "notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract" is more often than not appended to a section in the beginning with a view to g....
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....thorities to refer parties to arbitration when prima facie there is a valid arbitration agreement; (ii) Section 9 which allows courts to issue interim measures on an application made by a party to an arbitration agreement; (iii) Section 11 which empowers the Supreme Court or the High Courts to appoint arbitrators on an application made by parties to an arbitration agreement; (iv) Section 27 which allows the arbitral tribunal to request the court for assistance in taking evidence; and (v) Section 34 which empowers the court to set aside an arbitral award on the basis of the limited grounds mentioned therein. 80. Section 5 has two facets - positive and negative. The positive facet vests judicial authorities with jurisdiction over arbitral proceedings in matters expressly allowed in or dealt with under Part I of the Arbitration Act. The flip side to this approach is that judicial authorities are prohibited from intervening in arbitral proceedings in situations where the arbitral tribunal has been bestowed with exclusive jurisdiction. This is the negative facet of Section 5. The non-obstante clause limits the extent of judicial intervention in respect of matters expressly provided u....
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....to be achieved by that law and its dependence on other legislations is either absent or minimal. 84. A two-Judge Bench of this Court, in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd, (2011) 8 SCC 333 explained the nature of the Arbitration Act in the following terms: "89. It is, thus, to be seen that Arbitration Act, 1940, from its inception and right through to 2004 (in P.S. Sathappan [(2004) 11 SCC 672]) was held to be a self-contained code. Now, if the Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration, the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lucid expression of Tulzapurkar, J., that it carries with it "a negative import that only such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done". In other words, a letters patent appeal would be excluded b....
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....x, and interminable. Most legal jurisdictions have also recognized and adopted legal approaches that favor arbitration at both the domestic and international level. In the process, national courts have given effect to principles such as the separability presumption and jurisdictional competence of the arbitral tribunal. Modern arbitration law does not completely restrict the role of national courts in the arbitration process, but gives priority to the arbitral tribunal to decide on disputes and issues pertaining to arbitration agreements as well as the substantive rights of the parties. The Arbitration Act reflects these aspects of modern arbitration law. It PART F is the duty of this Court to interpret the Arbitration Act in a manner which gives life to the principles of modern arbitration in India. F. The law on the arbitration agreement 88. An arbitration agreement is the foundation of arbitration as it records the consent of the parties to submit their disputes to arbitration., Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) 49 In Bihar State Mineral Development Corporation v. Encon Builders, (2003) 7 SCC 418 this....
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....istinguish the underlying contract, which captures the substantive rights and obligations of the parties, from an arbitration agreement which provides a procedural framework to resolve the disputes arising out of the underlying contract. This presumption has various consequences in theory and practice, the most important being that an arbitration agreement survives the invalidity or termination of the underlying contract. 91. Schwebel, Sobota and Manton explain in a book on International Arbitration that the separability presumption, Stephen Schwebel, Luke Sobota, and Ryan Manton, International Arbitration: Three Salient Problems (Cambridge University Press, 2nd edn, 2020) 4. is based on four factors: first, the intention of the parties to require arbitration of any dispute arising between them, including disputes over the validity of the contract; second, preventing an unwilling party from avoiding its earlier commitment by alleging the invalidity of the underlying contract; third, since the arbitration agreement and the underlying contract are considered as two separate agreements, the insufficiency in fulfilling formalities in the underlying contract would not result in....
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.... AC 356 The issue before the House of Lords was whether an arbitration agreement contained in an underlying contract could survive the termination of such contract for a repudiatory breach. It was held that an arbitration agreement is collateral to the substantive contract and could survive its termination. Lord Macmillan observed that an arbitration agreement is materially different from other ordinary contracts, the reason being that breach of obligations under ordinary contracts cannot (in general) be specifically enforced and breach of them results only in damages, but an arbitration agreement can be specifically enforced by the machinery of the arbitration Acts. Lord Macmillan concluded that repudiation or breach of a contract does not extinguish the arbitration agreement, because it survives for the purpose of resolving the outstanding claims arising out of the breach: "I am, accordingly, of the opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the....
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....t contained in an underlying contract which was allegedly procured by fraud and bribery. Lord Hoffman, writing for the House of Lords, held that it could be enforced in view of the separability presumption. The Law Lord held that an arbitration agreement in terms of Section 7 of the UK Arbitration Act is a "distinct agreement" from the underlying contract and, therefore, can be void or voidable only on grounds which relate directly to the arbitration agreement. Lord Hoffman, built on his past decision in Harbour Assurance (supra), by holding that Section 7 protects an arbitration agreement from any indirect challenge. e. United States of America 99. The US Federal Arbitration Act presupposes that an arbitration agreement can be separate and distinct from the underlying contract., Gary Born (n 62) 382 The separability presumption was subsequently reiterated by US courts with respect to both international and domestic arbitration. In Prima Paint Corporation v. Flood & Conklin Mfg. Co., 388 US 395 (1967) the Supreme Court of the United States affirmed the separability presumption by observing that "arbitration clauses as a matter of federal law are 'separable' from t....
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....al rules than the underlying contract, and, therefore, an arbitration agreement is presumptively separate from the underlying contract. According to Gary Born, Article II and Article V(1)(a) of the New York Convention indicate that the Convention treats an arbitration agreement as being different from the underlying contract., Gary Born (n 62) 378 102. Article 16 of the Model Law deals with the competence of an arbitral tribunal to rule on its own jurisdiction. Article 16(1) provides: "The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall entail ipso jure the invalidity of the arbitration clause." (emphasis supplied) 103. Rule 23 of the UNCITRAL Arbitration Rules, 2021 also provides that "an arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms of the contract." In contrast to ....
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....f competence over jurisdictional disputes. However, the Digest of Case Laws on UNCITRAL Model Law states that "the language used in the second sentence does not prevent the application of the separability presumption when a jurisdictional question is raised before a court.", Ibid. Gary Born suggests that the better view is that the separability presumption contained in Article 16(1) states a general rule of contractual validity "which is applicable for all purposes.", Gary Born (n 62) 403 The judicial view that emerges from the Indian courts also seems to suggest that an arbitration agreement is treated as distinct and separate from the underlying contract as a general rule of substantive validity. 107. The separability presumption has undergone a significant evolution in India. Initially, the Indian courts viewed an arbitration agreement as an integral part of the underlying contract without any existence beyond such contract. For instance, in Union of India v. Kishorilal Gupta,, 1959 SCC OnLine SC 6 the issue before this Court was whether an arbitration clause in the original contract survived after the enactment of a subsequent contract. Justice K Subba Rao (as th....
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.... Firms was maintainable in view of Section 69(3) of the Indian Partnership Act, 1932. Section 69(3) creates a bar against the institution of a suit to enforce a right arising from a contract unless the firm is registered and the person suing is or has been shown in the Register of Firms as partner. This Court considered the overall scheme of the Arbitration Act to hold that an "arbitration clause is separable from the other clauses of the partnership deed" and "constitutes an agreement by itself." 110. In National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Co., (2007) 5 SCC 692 the issue before this Court in an application under Section 11 was whether an arbitration clause comes to an end if the contract containing such clause is repudiated. While answering this in negative, this Court observed that even if the underlying contract comes to an end, the arbitration agreement contained in such contract survives for the purpose of the resolution of disputes between the parties. Similarly, in P Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corp., (2009) 2 SCC 494 this Court referred to Buckeye Check Cashing Inc. (supra) to observ....
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.... of an arbitration agreement, in the face of the invalidity of the underlying contract, allows the arbitral tribunal to assume jurisdiction and decide on its own jurisdiction by determining the existence and validity of the arbitration agreement. In the process, the separability presumption gives effect to the doctrine of competence-competence. 113. In view of the legal position, we now proceed to analyze the correctness of the decision in N N Global 2 (supra). The Constitution Bench acknowledged the separability presumption, but refused to apply it in the context of Sections 33 and 35 of the Stamp Act. The relevant observation of the Court is as follows: "157. [...] The evolution of the principle that an arbitration is a separate and distinct agreement from the contract, would indicate that it would have no play in the context of the duty of a Court, within the meaning of Sections 33 and 35 of the Stamp Act, to act in consonance therewith." PART G 114. The above position of law is contrary to the separability presumption which treats an arbitration agreement as separate from the underlying contract. G. The doctrine of competence-competence 115. The doctrine....
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....start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute rising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal." In Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46 the United Kingdom Supreme Court held that the tribunal's own view of its jurisdiction has no legal or evidential value when the issue pertains to the exercise of legitimate authority by the tribunal. Thus, the UK position is that although the arbitral tribunal is empowered to consider whether it has jurisdiction, its determination is subject to the examination of the courts. 118. The courts in the United States have considered the principle of competence-competence to be intertwined with the separability presumption. In Prima Paint (supra), the United States Supreme Court held that if a claim is made to the effect that the underlying contract was induced fraudulently, then the issue should be determined by the courts. The Supreme Court concluded that all the other issues should be left for the determination of the arbitral ....
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....India 120. Under the previous arbitration regime in India, that is the 1940 Act, the issue of determining the existence or validity of arbitration agreement was exclusively within the domain of the courts. To that effect, Section 33 of the 1940 Act allowed any party to the arbitration agreement to file an application before the courts challenging the existence or validity of an arbitration agreement. In view of this, this Court consistently held that the question as to the existence or validity of an arbitration agreement was to be decided only by application to courts and not by the arbitral tribunal., Dhanrajamal Gobindram v. Shamji Kalidas & Co., 1961 SCC OnLine SC 28; Khardah Co. Ltd. v. Raymon & Co. (India) Private Ltd., 1962 SCC OnLine SC 28. This position has now undergone a complete metamorphosis in the present legislation. Section 16 of the Arbitration Act, which is based on Article 16 of the Model Law, recognizes the doctrine of competence-competence in Indian arbitration law. Section 16 empowers the arbitral tribunal to rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of arbitration agreement. Importantly....
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....unless such agreement was in conflict with a provision of Part I from which the parties cannot derogate, or, failing such agreement, was not in accordance with Part I. Moreover, the court can set aside an arbitral award if it finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or (ii) the arbitral award is in conflict with the public policy of India. 122. Under Section 34, the grounds for setting aside an arbitral award are specific. The provision requires a party challenging an award to plead and prove the existence of one or more such grounds., Fiza Developers and Inter-Trade (P) Ltd. v. Amci (I) (P) Ltd., (2009) 17 SCC 796 The scheme of the Arbitration Act shows that although an arbitral tribunal is given priority to determine all issues pertaining to its jurisdiction based on the principle of competence-competence, the tribunal's decision is subject to judicial review at the stage when an award is challenged. Moreover, one of the grounds on which an arbitral award can be set aside is that the arbitration agreement is not valid under law. This indicates that the Arbitr....
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....ied) 125. In view of the above discussion, the issue that comes up for our consideration is whether an issue of stamping is a jurisdictional issue. Jurisdiction is generally defined as the power of a court or tribunal to hear and determine a cause, and to adjudicate or exercise any judicial power in relation to such cause., Sukh Lal Sheikh v. Tara Chand Ta, 1905 SCC OnLine Cal 164 Jurisdiction refers to the authority of a court or tribunal to decide matters that are litigated before it or to take cognizance of matters presented before it in a formal way for its decision. In Official Trustee, West Bengal v. Sachindra Nath Chatterjee, (1969) 3 SCR this Court held that for a court to have jurisdiction to decide a particular matter, it must not only have jurisdiction to try the suit brought but must also have the authority to pass the orders sought. In NTPC v. Siemens Atkeingesllchaft, (2007) 4 SCC 451 this Court observed that any refusal to go into the merits of a claim may be in the realm of jurisdiction. Accordingly, it was observed that the issue of limitation goes to jurisdiction because if a claim is barred by limitation, a tribunal can refuse to exercise its juris....
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....ourts to determine if the tribunal exercised its powers properly safeguards both the power and authority of the arbitral tribunal as well as the courts. The negative aspect of the doctrine has been expressly recognized by Indian courts. Considering both the positive and negative facets, the principle can be defined as a rule whereby arbitrators must have the first opportunity to hear challenges relating to their jurisdiction, which is subject to subsequent review by courts., Fouchard (n 116) 401 130. In Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 one of the issues before this Court was whether the court at the referral stage under Section 45 is required to determine the validity of an arbitration agreement. This Court recognized that the doctrine of competence-competence has both the positive and the negative aspects. It was observed that while the positive aspect enables the arbitrator to rule on its own jurisdiction, the negative aspect deprives the courts of their jurisdiction. However, this Court noted the absence of a provision similar to Section 16 in Part II to conclude that the referral court is required to test f....
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....For instance, Article 11(2) of the Model Law states that parties to an arbitration agreement are free to agree on a procedure for appointing the arbitrator or arbitrators. In a situation where the agreed procedure of the parties fails, the Model Law permits the national courts to appoint arbitrators on a request of a party. The recourse to judicial appointment of arbitrators is often invoked as a last resort by the parties when their agreed procedure becomes unworkable. The power of appointment of arbitrators is vested with national courts to resolve the deadlock in appointment of an arbitrator., Digest of Case Law on the Model Law on International Commercial Arbitration (2012) 60 134. As discussed in the preceding segments of this judgment, Section 5 of the Arbitration Act disallows a judicial authority from intervening unless expressly provided under Part I. In the present proceedings, the exercise of the powers by the courts or judicial authorities as provided under Section 8 and 11 becomes particularly relevant for our consideration. 135. According to Fouchard, an arbitration agreement has both a positive and negative effect. The positive effect is that the parties....
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....n, A/CN.9/264 (25 March 1985) 38. Moreover, Article 8 gives effect to the intention of the parties to submit their disputes to arbitration to the exclusion of courts, irrespective of whether such exclusion is expressed in the agreement. Similar legislation has also been incorporated under the English, Article 9(1) of UK Arbitration Act: It reads: "(1)A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter. [...] (4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed." and French, Article 1458 of French Code of Civil Procedure, 1981. It reads: "If a dispute pending before an arbitral tribunal on the basis of an arbitration agreement is brought before a State court, it shall declare itself incompetent. If the dispute is not yet ....
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....pon a procedure for appointment of an arbitrator or arbitrators. Section 11 requires the intervention of the court only when there is a deadlock or failure of the parties to follow the appointment procedure. In the process, Section 11 is meant to give effect to the mutual intention of the parties to settle their disputes by arbitration in situations where the parties fail to appoint an arbitrator or arbitrators. In an arbitration with three arbitrators, each party is required to appoint one arbitrator each, and subsequently the two arbitrators will appoint the third arbitrator. Section 11(6) confers powers on the Supreme Court and the High Court, as the case may be, on the failure of the parties to comply with the agreed arbitration procedure. Section 11(6) enlists three possible defects in the appointment procedure, namely: first, a party fails to act as required by the agreed procedure; second, the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure; or third, a person, including an institution, fails to perform any function entrusted to them or under the agreed procedure. 140. Section 11(6) has had a long and chequered his....
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....the party who has applied under Section 11 of the Act, is a party to such an agreement; (ii) The issues which the Chief Justice or his designate may choose to decide or leave them to the decision of the arbitral tribunal. These issues were: first, whether the claim is a dead (long-barred) claim or a live claim; and second, whether the parties have concluded the contract/ transaction by recording the satisfaction of their mutual rights and obligations or by receiving the final payment without objection; and (iii) The issues which the Chief Justice or their designate should leave exclusively to the arbitral tribunal. These issues were: first, 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); and second, merits or any claim involved in the arbitration. 142. The decisions of this Court in Patel Engineering (supra) and Boghara Polyfab (supra) allowed for greater judicial interference at the pre-arbitral stage. In effect, the referral courts were encouraged to conduct mini-trials instead of summarily dealing with the preliminar....
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....new position of law, which takes away the basis of the position laid down by the previous decisions of this Court in Patel Engineering (supra) and Boghara Polyfab (supra). It is also important to note that Parliament did not incorporate the expression "or is null and void" as was suggested by the Law Commission. This indicates that Parliament intended to confine the jurisdiction of the courts at the prearbitral stage to as minimum a level as possible. 145. The effect and impact of the 2015 Amendment Act was subsequently clarified by this Court. In Duro Felguera, S A v. Gangavaram Port Ltd., (2017) 9 SCC 729 Justice Kurien Joseph noted that the intention of the legislature in incorporating Section 11(6A) was to limit the scope of the referral court's jurisdiction to only one aspect - the existence of an arbitration agreement. To determine the existence of an arbitration agreement, the court only needs to examine whether the underlying contract contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. This Court further held that Section 11(6A) incorporates the principle of minimal judicial interventio....
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.... pre-arbitral stage to the bare minimum. 148. Thereafter, in Vidya Drolia (supra), another three-Judge Bench of this Court, affirmed the ruling in Mayavati Trading (supra) that Patel Engineering (supra) has been legislatively overruled. In Vidya Drolia (supra), one of the issues before this Court was whether the court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability. This Court began its analysis by holding that an arbitration agreement has to satisfy the mandate of the Contract Act, in addition to satisfying the requirements stipulated under Section 7 of the Arbitration Act to qualify as an agreement. 149. In the course of the decision, one of the questions before this Court in Vidya Drolia (supra) was the interpretation of the word "existence" as appearing in Section 11. It was held that existence and validity are intertwined. Further, it was observed that an arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Therefore, this Court read the mandate of valid arbitration agreement contained in Section 8 into the mandate of Section 11, that is, "exis....
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....ction 11. Where Section 8 requires the referral court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the court's jurisdiction to the examination of the existence of an arbitration agreement. Although the object and purpose behind both Sections 8 and 11 is to compel parties to abide by their contractual understanding, the scope of power of the referral courts under the said provisions is intended to be different. The same is also evident from the fact that Section 37 of the Arbitration Act allows an appeal from the order of an arbitral tribunal refusing to refer the parties to arbitration under Section 8, but not from Section 11. Thus, the 2015 Amendment Act has legislatively overruled the dictum of Patel Engineering (supra) where it was held that Section 8 and Section 11 are complementary in nature. Accordingly, the two provisions cannot be read as laying down a similar standard. 154. The legislature confined the scope of reference under Section 11(6A) to the examination of the existence of an arbitration agreement. The use of the term "examination" in itself connotes that the scope of the power is limited to a prima facie determinat....
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....on (Second edition, 1997) 666 On the other hand, Section 16 provides that the arbitral tribunal can "rule" on its jurisdiction, including the existence and validity of an arbitration agreement. A "ruling" connotes adjudication of disputes after admitting evidence from the parties. Therefore, it is evident that the referral court is only required to examine the existence of arbitration agreements, whereas the arbitral tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement. A similar view was adopted by this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234 157. In Shin-Etsu (supra), this Court was called upon to determine the nature of adjudication contemplated by unamended Section 45 of the Arbitration Act when the objection with regards to the arbitration agreement being "null and void, inoperative or incapable of being performed" is raised before a judicial authority. Writing for the majority, Justice B N Srikrishna held that Section 45 does not require the judicial authority to give a final determination. The court observed that: "74. There are dist....
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.... be interpreted, but also the entirety of the statute. The legislature often enacts a statute to give effect to legislative policy. When enacting a statute, the legislature often endeavors to ensure that the provisions of a statute do not contradict the provisions of the same statute or provisions of another statute. However, inconsistencies or contradictions may nonetheless arise between statutes. In such situations, it is left to the court to bring about a harmony between the working of such statutes. 160. In Sultana Begum v. Prem Chand Jain, (1997) 1 SCC 373 this Court analysed the relevant decisions of this Court and laid down the following principles pertaining to the harmonious construction of statutes: a. It is the duty of the courts to avoid a head-on clash between two sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonise them; b. The provisions of one section of a statute cannot be used to defeat the other provisions unless the court, in spite of its efforts, finds it impossible to effect reconciliation between them; c. When there are two conflicting provisions ....
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....nable in arbitration proceedings initiated under Section 18(3) of the Micro, Small and Medium Enterprises Development Act 2006. Section 18(3) provides that where the conciliation proceedings initiated by any party are not successful and stand terminated without any settlement between the parties, the Micro and Small Enterprises Facilitation Council shall either take up the dispute for arbitration or refer it to any institution or centre. The said provision further states that the provisions of the Arbitration Act shall then apply to the disputes as if the arbitration was in pursuance of an arbitration agreement referred to in Section 7(1) of the Arbitration Act. 164. This Court noted that Section 23(2A) of the Arbitration Act gives the respondent a right to submit a counter-claim or plead a set-off, which shall be adjudicated upon by the arbitral tribunal. It was held that since Section 18(3) of the MSME Act expressly provides that proceedings initiated under Section 18(3) shall be carried out as if they were in pursuance of an arbitration agreement under Section 7(1) of the Arbitration Act, the right to make a counter-claim before the statutory authorities exists under the MSME....
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....ee whether there is ouster of jurisdiction in terms or compliance with the procedure under the special statute. The general law should yield to the special law-generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court." 169. The following position of law emerges from these precedents: a. The principal subject-matter as well as the particular perspective or focus illuminate the path to ascertain whether a law is a general law or a special law; and b. The court should examine whether its jurisdiction has been ousted in terms of the procedure prescribed by a special law. 170. To determine which of the three statutes that this Court is faced with is a special law, it is necessary to first refer to their subject-matter: a. The Stamp Act is a law governing the payment of stamp-duty for all manner of instruments. Schedule I to the Stamp Act sets out various types instruments which fall ....
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....d., (2007) 14 SCC 680; Associate Builders v. DDA, (2015) 3 SCC 49; Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., (2022) 1 SCC 75 The non-obstante clause in this provision is of particular significance. It indicates that the rule in Section 5 (and consequently, the provisions of the Arbitration Act) must take precedence over any other law for the time being in force. Any intervention by the courts (including impounding an agreement in which an arbitration clause is contained) is, therefore, permitted only if the Arbitration Act provides for such a step, which it does not. Sections 33 and 35 cannot be allowed to operate in proceedings under Section 11 (or Section 8 as the case may be), in view of the non-obstante clause in Section 5. This being the case, we are unable to agree with the decision in N N Global 2 (supra), that the court in a proceeding under section 11 must give effect to Sections 33 and 35 of the Stamp Act despite the interdict in Section 5. The court held: "129. Section 5 no doubt provides for a non obstante clause. It provides against judicial interference except as provided in the Act. The non obstante clause purports to proclaim so despit....
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....tamp Act which also uses the word "examine." Section 33(2) requires the person before whom an instrument is produced, to examine whether it is stamped with a stamp of the value and description required by the law when such instrument was executed or first executed. Although Parliament was aware of the mandate of Section 33(2), it did not require the court acting under Section 11 to also undertake the examination required by Section 33(2). ii. Harmonious construction of the three statutes under consideration a. The effect of the competence-competence doctrine 178. In A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386 a two-judge Bench of this Court of which one of us, DY Chandrachud, J, was a part emphasized that arbitration must provide a "one-stop forum" for the resolution of disputes and held that (a) Courts must give effect to the commercial understanding of parties to arbitration agreements that arbitration is efficacious; and (b) This can be done by minimising judicial intervention: "48. The basic principle which must guide judicial decisionmaking is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve ....
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..... It is the arbitral tribunal and not the court which may test whether the requirements of a valid contract and a valid arbitration agreement are met. If the tribunal finds that these conditions are not met, it will decline to hear the dispute any further. If it finds that a valid arbitration agreement exists, it may assess whether the underlying agreement is a valid contract. 184. By enacting Section 16 of the Arbitration Act, Parliament has (in a manner of speaking) permitted an agreement to arbitrate to be preliminarily enforced even if it is only an agreement. After parties have been referred to arbitration under Section 8 of the Arbitration Act or after the appointment of arbitrators under Section 11 of the Arbitration Act the arbitral tribunal will have jurisdiction to determine all questions and issues in dispute between the parties. The legitimate concerns of the revenue in the realization of stamp duty are not defeated because the arbitral tribunal has the jurisdiction to act in pursuance of the provisions of the Stamp Act. 185. The corollary of the doctrine of competence-competence is that courts may only examine whether an arbitration agreement exists on the basis ....
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....ect of the word "shall" in Sections 33 and 35 of the Stamp Act 189. Sections 33 and 35 of the Stamp Act use the word "shall." While this ordinarily indicates that the provision is mandatory, it may be read as directory. In Sainik Motors v. State of Rajasthan, 1961 SCC OnLine SC 15 this Court held: "The word 'shall' is ordinarily mandatory, but it is sometimes not so interpreted if the context or the intention otherwise demands." 190. In State of U.P. v. Babu Ram Upadhya, 1960 SCC OnLine SC 5 this Court held that the principles for the construction of statutes which used the mandatory word "shall" were as follows: "29. The relevant rules of interpretation may be briefly stated thus : When a statute uses the word "shall", prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the Legislature the Court may consider, inter alia, the nature and the design of the statute, and the consequences which would follow from construing it the one way or the other, the impact of other provisions whereby the necessity of comply....
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....st be to adopt an interpretation which results in the enforcement of the law, rather than allowing the law to be flouted with impunity. Once this principle is borne in mind, the task of the Court becomes less difficult." 194. The interpretation accorded to the Stamp Act by this Court in the present judgment does not allow the law to be flouted. The arbitral tribunal continues to be bound by the provisions of the Stamp Act, including those relating to its impounding and admissibility. The interpretation of the law in this judgment ensures that the provisions of the Arbitration Act are given effect to while not detracting from the purpose of the Stamp Act. 195. The interests of revenue are not jeopardised in any manner because the duty chargeable must be paid before the agreement in question is rendered admissible and the lis between the parties adjudicated. The question is at which stage the agreement would be impounded and not whether it would be impounded at all. The courts are not abdicating their duty but are instead giving effect to: a. The principle of minimal judicial intervention in Section 5 of the Arbitration Act; b. The prima facie standard applica....
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....ble, and not binding. The High Court dismissed the appellant's application for the appointment of an arbitrator. On appeal, inter alia the following issues came for consideration before this Court: first, whether an arbitration agreement contained in an unregistered (but compulsorily registerable) instrument is valid and enforceable; and second, whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable. 198. With regard to the first issue, the Court analysed Section 49 of the Registration Act. Section 49 of the Registration Act provides that an unregistered document cannot be received as evidence of any transaction affecting such property or conferring such power unless it has been registered. However, the proviso to Section 49 provides that an unregistered instrument can be used as evidence of any collateral transaction not required to be effected by such instrument. In view of the aforesaid provision, this Court held that an arbitration agreement contained in an unregistered instrument is a collateral term relating to the resolution of disputes, which was unrelated to the performance of the contract. Therefore, it was he....
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.... agreements. As discussed in the segments above, the Law Commission of India recommended amendments to Sections 8 and 11 with a view to restrict the scope of the judicial intervention "to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void." 201. Pursuant to the recommendations of the Law Commission of India, Parliament incorporated Section 11(6A) which clarified that the scope of judicial intervention was limited to the examination of the existence of an arbitration agreement. The legislative note on Clause 11(6A) states that "[s]ub-section (6A) is inserted to provide that the Supreme Court or the High Court while considering applications under sub-section (4) to (6) shall confine to the examination of an arbitration agreement." More importantly, the said provision contains a non-obstante clause which reads: "notwithstanding any judgment, decree or order of any Court." 202. In Emmar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751 this Court was examining the purport of Section 8 which included a similar non-obstante clause as contained in Section 11(6A). This Court explained the purpose of the nonobstant....
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.... SMS Tea Estates (supra) to the extent that an unstamped instrument could be impounded not by the referral court under Section 11 but by the arbitrator. This Court held that the referral court under Section 11(6A) would be bound by the mandatory provisions of the Stamp Act to examine and impound the unstamped instrument. It was further observed that since the Stamp Act applied to the instrument as a whole, it was not possible to bifurcate the arbitration clause contained in such instrument and give it an independent existence. 205. This Court in Garware Wall Ropes (supra) further analysed the purport of the word "existence" contained in Section 11 of the Arbitration Act. It was held that an arbitration agreement contained in an unstamped instrument would not exist in law. The relevant paragraph is extracted below: "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 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(6-A), when rea....
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....amine the existence of a prima facie arbitration agreement and not other issues." 209. The above extract indicates that the Supreme Court or High Court at the stage of the appointment of an arbitrator shall "examine the existence of a prima facie arbitration agreement and not other issues". These other issues not only pertain to the validity of the arbitration agreement, but also include any other issues which are a consequence of unnecessary judicial interference in the arbitration proceedings. Accordingly, the "other issues" also include examination and impounding of an unstamped instrument by the referral court at the Section 8 or Section 11 stage. The process of examination, impounding, and dealing with an unstamped instrument under the Stamp Act is not a timebound process, and therefore does not align with the stated goal of the Arbitration Act to ensure expeditious and time-bound appointment of arbitrators. Therefore, even though the Law Commission of India Report or the Statement of Objects and Reasons of the 2015 Amendment Act do not specifically refer to SMS Tea Estates (supra), it nevertheless does not make any difference to the position of law as has been set out abov....
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....trument does not render it invalid or nonexistent. Therefore, paragraphs 22 and 29 of Garware Wall Ropes (supra), which held that an arbitration agreement contained in an unstamped or insufficiently stamped contract would be non-existent in law, does not set forth the correct position of law. PART K K. The Appointment of Arbitrators by the Chief Justice of India Scheme, 1996 214. In N N Global 2 (supra), the majority considered the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996., "1996 Scheme" Para 2 of the 1996 Scheme reads as follows: "2. Submission of request.- The request to the Chief Justice under sub-section (4) or sub-section (5) or sub-section (6) of section 11 shall be made in writing and shall be accompanied by- (a) the original arbitration agreement or a duly certified copy thereof; The 1996 Scheme provides that an application under Section 11 for the appointment of an arbitrator shall be accompanied by the original arbitration agreement or a duly certified copy. 215. In SMS Tea Estates (supra), it was observed that a certified copy of the agreement/ contract/ instrument containing the arbitration clause shoul....
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....in a referral court at Section 11 stage (as well as Section 8 stage) from acting upon a certified copy of an arbitration agreement and referring the parties to arbitral tribunal. 218. The discussion in preceding segments indicates that the referral court at Section 11 stage should not examine or impound an unstamped or insufficiently stamped instrument, but rather leave it for the determination by the arbitral tribunal. When a party produces an arbitration agreement or its certified copy, the referral court only has to examine whether an arbitration agreement exists in terms of Section 7 of the Arbitration Act. The referral court under Section 11 is not required to examine whether a certified copy of the agreement/ instrument/ contract discloses the fact of payment of stamp duty on the original. Accordingly, we hold that the holding of this Court in SMS Tea Estate (supra), as reiterated in N N Global 2 (supra), is no longer valid in law. L. Vidya Drolia does not deal with the issue of stamping 219. The genesis of these proceedings lies in N N Global 1 (supra) doubting the correctness of the finding in Vidya Drolia (supra). N N Global 1 (supra) doubted the correctness of th....
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....agreement can be said to exist" The two-Judge Bench further clarified that Vidya Drolia (supra) did not decide the issue of the effect of an unstamped or insufficiently stamped underlying contract on the arbitration clause. The relevant extract is as follows: "3. The judgement in Vidya Drolia v. Durga Trading Corporation did not examine and decide the issue of effect of unstamped or under-stamped underlying contract on the arbitration agreement. As this issue and question has not been decided in Vidya Drolia (supra), the decision is not a precedent on this question." 223. We agree with these observations in Career Institute Educational Society (supra). Vidya Drolia (supra) did not deal with the issue of the effect of an unstamped or insufficiently stamped instrument on the existence or validity of an arbitration agreement. Therefore, the reasoning in Vidya Drolia (supra) does not lead to the conclusion that Garware Wall Ropes (supra) was rightly PART M decided either on the aspect of examination and impounding of unstamped or insufficiently stamped instrument with respect to arbitration proceedings, or the validity of on arbitration agreement contained in an unsta....
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....bitration 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 the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. or 11, 11. Appointment of arbitrators.-(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. (2) Subject to sub-section (6), the par....
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....es of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court. (7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision. (8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to- (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Supreme Court or the person or institution designated by that Court] may appoint an arbitrator of a nationality other than....
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....l arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution. of the Arbitration and Conciliation Act, 1996, For short, "the Arbitration Act".; and an objection as to insufficient stamping of the underlying agreement can be examined and decided by the arbitral tribunal. Accordingly, the majority decision of the Constitution Bench in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2023) 7 SCC 1 should be overruled. 2. The judgment authored by Hon'ble the Chief Justice, under the heading 'D. Indian Stamp Act, 1899', gives an overall view of the Stamp Act, and the procedures it prescribes. It also refers to Sections 33, 35 and 36 of the Stamp Act, which I would like to elaborate on and elucidate. 3. Sections 33 and 35 of the Stamp Act are reproduced for reference: "33. Examination and impounding of instruments.-(1) 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, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, ....
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....r 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; (d) 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 XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898); (e) 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." 4. Section 33 of the Stamp Act is cautiously worded, to not overexpand its ambit and scope. The section applies on production of an instrument before a person who by law or consent of the parties has the authority to receive evidence., Hereinafter also referred to as 'such person' It also applies when an instrument is produced before a person in charge of a public office. Production of the instrument must be during the course of performance of functions by such....
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....nd 35 do not apply when an instrument is produced or is acted upon by the parties themselves, or by a person who does not have authority by law or by consent of the parties to receive evidence, or a person who is not a public officer. Sections 33 does not authorise a police officer to examine and impound an instrument, even when insufficiently stamped. A Magistrate or a Judge of a criminal court may not examine or impound an instrument coming before him, and can admit an insufficiently stamped instrument in evidence, other than in the proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (Chapter X(D) and Chapter IX of the Code of Criminal Procedure, 1973). Thus, the same instrument may be admissible and acted upon before a criminal court, while being inadmissible before a civil court, public officer etc. 11. The negative stipulations in Sections 33 and 35 are specific, albeit not so absolute as to make the instrument invalid in law. A "void ab initio" instrument, which is stillborn, has no corporeality in the eyes of law. It cannot confer or give rights, or create obligations. However, an instrument which is "inadmissible" exists in law, albeit c....
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....tion. It does not matter whether the court has wrongly decided to admit the document in evidence. Section 35 is in the nature of a penal provision which has far reaching effects. The parties to the litigation have to be circumspect and have to be alert so as to challenge the admissibility of an instrument before it is admitted in evidence. 16. A five Judges' Bench in The State of Bihar v. M/s Karam Chand Thapar and Brothers Ltd. AIR 1962 SC 110, has held that the instrument that can be validated under Section 35 is only the original, when it is unstamped or insufficiently stamped. A copy cannot be validated and acted upon, albeit where multiple copies are prepared and signed and sent to respective parties, each one would be an original instrument. 17. In Jupudi Kesava Rao v. Pulavarthi Venkata Subbarao and Others, (1971) 1 SCC 545, a two Judges' Bench of this Court observed that The Indian Evidence Act, 1872 does not purport to deal with admissibility of the documents which are required to be stamped under the provisions of the Stamp Act. Thereafter, it is observed: "13. The first limb of Section 35 clearly shuts out from evidence any instrument chargeable with duty ....
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....fficiently stamped." This judgment also holds that a copy of the instrument cannot be validated. It overruled the dictum that Section 36 will also apply where secondary evidence of an instrument unduly stamped, has been wrongly admitted. 18. In Hameed Joharan (DEAD) and Others v. Abdul Salam (DEAD) by LRs. and Others, (2001) 7 SCC 573, this Court observed that applicability of the Stamp Act stands restricted to the scheme of the Stamp Act. The Stamp Act being a true fiscal statute in nature, strict construction and not liberal interpretation is required to be effected . Section 2(15) includes a decree of partition and Section 35 lays down a bar on unstamped or insufficient stamp being admitted in evidence or being acted upon. The law however does not prescribe that the period for filing appeal shall remain suspended still stamp paper is furnished and the partition decree is drawn thereon and signed by the judge. The whole purport of the Stamp Act is to make available certain dues and collect revenue, but it does not mean and imply an overriding effect on another statute operating in a completely different sphere. Enforceability of a decree cannot be a subject matter of Sectio....
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....h Kumar Chauhan v. Vijay Krishna Mishra, (2009) 2 SCC 532 expounds the meaning of the words 'for any purpose' used in Section 35 of the Stamp Act. These words are to be given natural meaning and effect. They would include collateral purpose, as was held in the decision of the Privy Council in Ram Rattan v. Parma Nand, AIR 1946 PC 51. Distinction was drawn between non-effect of registration of a document in terms of Section 49 of the Registration Act, 1908, which does not bar use of an unregistered document for a collateral purpose. Section 35 is differently worded, and when applicable, bars use of insufficiently stamped instrument for a collateral purpose. 23. It is necessary to affirm this legal position, as we enter into contracts or agreements several times in our interactions with others during the course of the day. Even written documents in the form of invoices, receipts or standard format agreements are often exchanged, and form the terms of the interactions. An unstamped or under-stamped contract or agreement cannot be impounded, except when it is produced for being received in evidence before a person authorised to do so or a public officer in terms of Section 33 of the....
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....y the originator himself; (b) by a person who had the authority to act on behalf of the originator in respect of that electronic record; or (c) by an information system programmed by or on behalf of the originator to operate automatically.. I shall now analyse the relevance of execution or 'signature', with reference to an arbitration agreement as defined in Section 7 of the Arbitration Act. 26. Section 7 of the Arbitration Act reads: "7. Arbitration agreement.-(1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration 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 w....
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....ion, 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. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) 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. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a plea referred to....
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.... be void, and an agreement enforceable by law is a contract., 2 (g) An agreement not enforceable by law is said to be void; (h) An agreement enforceable by law is a contract A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable., 2 (j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. 32. The requirements of Section 10 of the Contract Act, 10. What agreements are contracts.-All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents. are that the contract should be made by parties competent to contract, for lawful consideration and with lawful object. Consent of the parties should be free. The contract should not be expressly declared to be void. Section 2 has to be read with Section 10 an....
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....is not voidable because it is caused by mistake as to law enforced in India, Section 21, The Indian Contract Act, 1872, and a contract where mistake of fact is made by one party is also not voidable as per Section 22, Section 22, The Indian Contract Act, 1872. 36. According to Section 23 of the Contract Act, the consideration or object of an agreement is lawful unless it is forbidden by law or is of such nature as to defeat the provisions of law, or is fraudulent. Neither are these provisions applicable in case of unstamped or insufficiently stamped instruments, nor is the consideration or object unlawful as it involves or implies injury to a person or property of another. The last clause of Section 23 applies when the consideration or object of an agreement is regarded as immoral or opposed to public policy. An instrument whether unstamped or insufficiently stamped will not fall foul on the ground of consideration or object of the agreement being immoral, neither will it fall foul as opposed to public policy. 37. In B.O.I. Finance Ltd. v. Custodian and Others, (1997) 10 SCC 488 this Court after examining the case law on the subject of public policy, observed that in pursuant....
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....ith v. Hughes LR (1871) 6 QB 597 and Solle v. Butcher (1950) 1 KB 671. The judgment in ITC Ltd.(supra) was under the Arbitration Act,1940 and should not be applied to interpret the Arbitration and Conciliation Act, 1996. 40. The judgment in Vidya Drolia and Others v. Durga Trading Corporation, (2021) 2 SCC 1, after referring to Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713, draws a distinction between contract obtained through fraud, and post contract fraud or cheating. The latter falls outside the scope of Section 17 of the Contract Act. It observes that the fraud may permeate the entire contract and above all the agreement of arbitration, rendering it void. However, it may not be so when the allegations of fraud touch upon the internal affairs of the parties inter se, having no implication in the public domain. 41. There are also two aspects of the judgment in Vidya Drolia (supra), which need to be noticed. First, I agree to and accept the error made by me in the judgment which observes that Section 11(6A) of the Arbitration Act has ceased to be operative in view of the enforcement of Section 3 of the Arbitration and Conciliation (Am....