Having regard to Section 35 of Stamp Act, unless the stamp duty
and penalty due in respect of the instrument is paid, the court cannot act
upon the instrument, which means that it cannot act upon the arbitration
agreement also which is part of the instrument. Section 35 of Stamp Act is
distinct and different from Section 49 of Registration Act in regard to an
unregistered document. Section 35 of Stamp Act, does not contain a
proviso like to Section 49 of Registration Act enabling the instrument to
be used to establish a collateral transaction.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL NO. 45 OF 2013
ALONGWITH
CIVIL APPLICATION NO. 41 OF 2013
IN
ARBITRATION APPEAL NO.45 OF 2013
DISTRICT : THANE
Shri Jayraj Devidas, Vs Shri Nilesh Shantilal Tank,
CORAM : R.D. DHANUKA, J.
PRONOUNCED ON : 22nd AUGUST, 2014
Citation;2014(6) MHLJ 156
This appeal is directed against the order and judgment dated 30th August,
2013 delivered by the learned Principal District Judge Thane allowing application
filed by the respondents under section 9 of the Arbitration and Conciliation Act,
1996. The appellants have challenged the said orders on various grounds raised in
the memorandum of appeal.
2. Mr.Madon learned senior counsel for the appellants however raises an issue
of maintainability of application under section 9 of the Arbitration and Conciliation
Act, 1996 itself filed by the respondents on the ground of the memorandum of
understanding executed by and between the parties dated 6th August, 2008 being
insufficiently stamped. Since both the learned senior counsel have addressed this
court on this issue, without going into the other issues raised in the appeal memo
and since decision on this issue will have bearing on the disposal of the appeal
itself, I will deal with this issue raised by the appellants.
Some of the relevant facts for the purpose of deciding this issue are as
under:-
3. It was case of the respondents herein (original applicants) in their application
under section 9 of the Arbitration and Conciliation Act, 1996 that the appellants
and the respondents entered into an agreement (MOU) in respect of the suit
property by which the appellants granted the developments rights of the suit
property inter alia to construct building on certain part of the said property and to
obtain TDR in respect of certain area affected as road in development plan of Mira
Bhayander Municipal Corporation and other rights in respect of the said property
including right to sell the premises in such buildings to be constructed on the said
property on the terms and conditions recorded in the said memorandum of
understanding dated 6th November, 2008.
4. The appellants however disputed this contention on the part of the
respondents and contended that no rights of any nature whatsoever was created by
the appellants in favour of the respondents under the said MOU. The appellants
however in their reply to the application under section 9 before the learned
Principal District Judge opposed the said application on various grounds including
the ground that the alleged memorandum of understanding dated 6th November
2008 could not be read in evidence for non payment of proper stamp duty and the
same was also not registered with the office of Sub Registrar of Assurances.
5. Mr.Madon, learned Senior counsel for the appellants invited my attention to
various part of pleadings filed by both parties and also the prima facie finding
rendered by the learned Principal District Judge in order and judgment dated 30th
August, 2013. It is submitted that the learned Principal District Judge has rendered
a prima facie finding that the MOU dated 6th November, 2008 was not a bare
agreement to execute another agreement or that simply it was an expression of the
desire on the part of the respondents but it was a concluded contract to render
services on the part of the respondents herein towards proposed development of the
suit land. It is also held that the intention and purpose to execute full-fledged
agreement as contemplated under clause 10 was for the purpose of earmarking the
portions of the suit land and to demarcate the same for individual construction after
apportionment of the FSI/TDR amongst both the parties. The Principal District
Judge also gave a prima facie finding that the alleged MOU was a valid contract
enforceable within the ambit of law.
6. Mr.Madon, learned senior counsel submits that though the appellants had
raised a specific plea that such MOU was required to be stamped under schedule I
of the Bombay Stamp Act and not having been stamped sufficiently and not having
been registered, such document cannot be acted upon and thus no interim measures
could be considered by the learned Principal District Judge in such application
filed by the respondents herein under section 9 of the Arbitration and Conciliation
Act, 1996, the learned principal District Judge did not decide this crucial issue in
the impugned order and judgment and granted interim measures.
7. Learned senior counsel submits that the learned Principal District Judge
having accepted the submission of the respondents herein that the said MOU was
not a bare agreement to execute another agreement but was a concluded contract to
render services on the part of the respondents herein towards the proposed
development of the suit lands and the intention and purpose to execute the fullfledged
agreement as contemplated under clause 10 was for the purpose of
earmarking the portion of the suit land and to demarcate the same for individual
construction after apportion of the FSI/TDR, the learned Principal District Judge
could not have granted any interim measures and ought to have impounded the said
documents and ought to have referred the document for adjudication for the
purpose of payment of proper stamp duty and penalty.
8. Mr.Madon, learned senior counsel placed reliance on the judgment of
Supreme Court in case of SMS Tea Estates Private Limited vs. Chandmari Tea
Company Private Limited (2011) 14 SCC 66 in support of the submission that
since the MOU attracted the payment of stamp duty under article 5(g-a) of
Schedule I of the Bombay Stamps Act and the document not having been duly
stamped, the Principal District Judge could not act upon such agreement including
the arbitration agreement forming part of such agreement. Paragraph 3, 7, 8, 9, 17 to
22.6 of the said judgment read thus :
“3. Prior to the execution of the said lease deed, on 29.11.2006 the
Respondent had offered to sell the two Tea estates to the Appellant for a
consideration of Rupees four crores. The Appellant agreed to purchase
them subject to detailed verification. The Appellant wrote a letter dated
27.6.2007 to the Respondent agreeing to purchase the said two Tea estates.
7. The Respondent denied that they had agreed to sell the two tea
estates to the Respondent for a consideration of Rupees four crores. The
Appellant also denied that the Respondent had invested any amount in the
tea estates. It contended that as the lease deed itself was invalid, the
Appellant could not claim appointment of an arbitrator under the
arbitration agreement forming part of the said deed.
8. The learned Chief Justice of Guwahati High Court dismissed the
Appellant's application by order dated 28.5.2010. He held that the lease
deed was compulsorily registrable under Section 17 of the Registration
Act and Section 106 of the TP Act; and as the lease deed was not
registered, no term in the said lease deed could be relied upon for any
purpose and therefore Clause 35 could not be relied upon for seeking
reference to arbitration. The High Court also held that the arbitration
agreement contained in Clause 35 could not be termed as a collateral
transaction, and therefore, the proviso to Section 49 of the Registration
Act would not assist the Appellant. The said order is challenged in this
appeal by special leave.
9. On the contentions urged the following questions arise for
consideration:
(i) Whether an arbitration agreement contained in an unregistered (but
compulsorily registrable) instrument is valid and enforceable?
(ii) Whether an arbitration agreement in an unregistered instrument which
is not duly stamped, is valid and enforceable?
(iii) Whether there is an arbitration agreement between the Appellant and
Respondent and whether an Arbitrator should be appointed?
17. What if an arbitration agreement is contained in an unregistered (but
compulsorily registrable) instrument which is not duly stamped? To find
an answer, it may be necessary to refer to the provisions of the Indian
Stamp Act, 1899 ('Stamp Act' for short). Section 33 of the Stamp Act
relates to examination and impounding of instruments. The relevant
portion thereof is extracted below:
“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 pubic
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, if it
appears to him that such instrument is not dull stamped,
impound the same.
(2) For that purpose every such person shall examine every
instrument so chargeable and so produced or coming before
him in order to ascertain whether it is stamped with a stamp
of the value and description required by the law in force in
India when such instrument was executed or first executed:”
18. Section 35 of Stamp Act provides that instruments not duly
stamped is inadmissible in evidence and cannot be acted upon. The
relevant portion of the said section is extracted below:
“35. Instruments not duly stamped inadmissible in evidence,
etc. -- No instrument chargeable with duty shall be admitted
in evidence for any purpose by any person having by law or
consent of parties authority to receive evidence, or shall be
acted upon, registered or authenticated by any such person or
by any public officer, unless such instrument is duly stamped:
Provided that--
(a) any such instrument shall be admitted in evidence on
payment of the duty with which the same is chargeable, or, in
the case of an instrument insufficiently stamped, of the
amount required to make up such duty, together with a
penalty of five rupees, or, when ten times the amount of the
proper duty or deficient portion thereof exceeds five rupees,
of a sum equal to ten times such duty or portion.”
19. Having regard to Section 35 of Stamp Act, unless the stamp duty
and penalty due in respect of the instrument is paid, the court cannot act
upon the instrument, which means that it cannot act upon the arbitration
agreement also which is part of the instrument. Section 35 of Stamp Act is
distinct and different from Section 49 of Registration Act in regard to an
unregistered document. Section 35 of Stamp Act, does not contain a
proviso like to Section 49 of Registration Act enabling the instrument to
be used to establish a collateral transaction.
20. The scheme for appointment of arbitrators by the Chief Justice of
Guwahati High Court 1996 requires an application under Section 11 of the
Act to be accompanied by the original arbitration agreement or a duly
certified copy thereof. In fact, such a requirement is found in the
scheme/rules of almost all the High Courts. If what is produced is a
certified copy of the agreement/contract/instrument containing the
arbitration clause, it should disclose the stamp duty that has been paid on
the original. Section 33 casts a duty upon every court, that is a person
having by law authority to receive evidence (as also every arbitrator who
is a person having by consent of parties, authority to receive evidence)
before whom an unregistered instrument chargeable with duty is
produced, to examine the instrument in order to ascertain whether it is
duly stamped. If the court comes to the conclusion that the instrument is
not duly stamped, it has to impound the document and deal with it as per
Section 38 of the Stamp Act.
21. Therefore, when a lease deed or any other instrument is relied upon
as contending the arbitration agreement, the court should consider at the
outset, whether an objection in that behalf is raised or not, whether the
document is properly stamped. If it comes to the conclusion that it is not
properly stamped, it should be impounded and dealt with in the manner
specified in Section 38 of Stamp Act. The court cannot act upon such a
document or the arbitration clause therein. But if the deficit duty and
penalty is paid in the manner set out in Section 35 or Section 40 of the
Stamp Act, the document can be acted upon or admitted in evidence.
22. We may therefore sum up the procedure to be adopted where the
arbitration clause is contained in a document which is not registered (but
compulsorily registrable) and which is not duly stamped:
22.1. The court should, before admitting any document into evidence or
acting upon such document, examine whether the instrument/document is
duly stamped and whether it is an instrument which is compulsorily
registrable.
22.2. If the document is found to be not duly stamped, Section 35 of
Stamp Act bars the said document being acted upon. Consequently, even
the arbitration clause therein cannot be acted upon. The court should then
proceed to impound the document under Section 33 of the Stamp Act and
follow the procedure under Section 35 and 38 of the Stamp Act.
22.3. If the document is found to be duly stamped, or if the deficit stamp
duty and penalty is paid, either before the Court or before the Collector (as
contemplated in Section 35 or 40 of the Stamp Act), and the defect with
reference to deficit stamp is cured, the court may treat the document as
duly stamped.
22.4. Once the document is found to be duly stamped, the court shall
proceed to consider whether the document is compulsorily registrable. If
the document is found to be not compulsorily registrable, the court can act
upon the arbitration agreement, without any impediment.
22.5. If the document is not registered, but is compulsorily registrable,
having regard to Section 16(1)(a) of the Act, the court can de-link the
arbitration agreement from the main document, as an agreement
independent of the other terms of the document, even if the document
itself cannot in any way affect the property or cannot be received as
evidence of any transaction affecting such property. The only exception is
where the Respondent in the application demonstrates that the arbitration
agreement is also void and unenforceable, as pointed out in para 8 above.
If the Respondent raises any objection that the arbitration agreement was
invalid, the court will consider the said objection before proceeding to
appoint an arbitrator.
22.6. Where the document is compulsorily registrable, but is not
registered, but the arbitration agreement is valid and separable, what is
required to be borne in mind is that the Arbitrator appointed in such a
matter cannot rely upon the unregistered instrument except for two
purposes, that is (a) as evidence of contract in a claim for specific
performance and (b) as evidence of any collateral transaction which does
not require registration.”
9. Mr.Madon, learned senior counsel also placed reliance on the order and
judgment of the Division Bench of this court delivered on 25th June, 2013 in
Appeal (L) No. 272 of 2013 in case of Lakadawala Developers Pvt. Ltd. Vs. Badal
Mittal and Ors., Paragraph 1 to 6 of the said order/judgment read thus :
“1. At the hearing of the application under Section 9 of the Arbitration
and Conciliation Act, 1996, an objection was raised on behalf of the
Appellant on the ground that the Memorandum of Understanding
(MOU) dated 29 July 2011 was insufficiently stamped and that in
consequence, the document could not be acted upon unless the stamp
duty and penalty, if any, payable thereon was adjudicated upon.
Reliance was placed on the decision of the Supreme Court in SMS Tea
Estates Pvt. Ltd. Vs. Chandmari Tea Co. Pvt.Ltd., 2011(4)-Arb.L.R. -
265(S.C.) - At paragraphs 10 and 11 where the Supreme Court held as
follows :
"10. ... ... ... ... … ... ... ... ... …
Having regard to Section 35 of the Stamp Act, unless the
stamp duty and penalty due in respect of the instrument is
paid, the court cannot act upon the instrument, which
means that it cannot act upon the arbitration agreement
also which is part of the
instrument. ... ... ... ..."
"11. ... ... ... ... Therefore, when a lease deed or any other
instrument is relied upon as contending the arbitration
agreement, the court should consider at the outset,
whether an objection in that behalf is raised or not,
whether the document is properly stamped. If it comes to
the conclusion that it is not properly stamped, it should be
impounded and dealt with in the manner specified in
Section 38 of the Stamp Act. The court cannot act upon
such a document or the arbitration clause therein. But if
the deficit duty and penalty is paid in the manner set out
in Section 35 or Section 40 of the Stamp Act, the
document can be acted upon or admitted in evidence."
2. The learned Single Judge in the judgment which is impugned in
appeal held that the question as to whether the MOU was
insufficiently stamped, could be decided in the arbitral proceedings
before the arbitrator and the arbitration agreement could be delinked
from the other provisions of the MOU so as to enable the Court to
grant interim measures. This view of the learned Single Judge is
prima facie contrary to the judgment of the Supreme Court.
3. On behalf of the Respondents it has been submitted that the MOU
dated 29 July 2011 contemplates in Clause-15 that parties would enter
into a final agreement with respect to the development and
construction of the rehabilitation and free sale buildings for each part
of each phase of the property. Hence, it has been urged by the learned
counsel for the Respondents that the stamp duty would be payable
only on the execution of the final agreement for each phase.
4. The agreement between the parties which is contained in the MOU
dated 29 July 2011, prima facie, does contemplate that the
Respondents will finance the construction of and construct the
rehabilitation and free sale buildings on the property in question. In
consideration thereof, Clause-4 stipulates that the Appellant would
hand over to the Respondents a certain proportion of the constructed
area of the free sale buildings. Clause-6 required the Respondents to
pay a sum of Rs.1.50 crores to the Appellant to enable the Appellant
to finance transit accommodation for the slum dwellers which was
payable every month on and from 1 April 2011 till the completion of
the development of the entire property. In the event of default on the
part of the Respondents in making the said payment, the Appellant
was required to repay the entire amount received and the cost of
construction incurred by the Respondents on the property till the date
of default. Clause-11 of the MOU cast specific obligations on the
Respondents to construct the rehabilitation and free sale buildings;
work being required to be commenced after requisite permissions
were received. The construction was required to be completed within
36 months after receipt of requisite permissions for each building.
5. The objection in regard to the document being insufficiently
stamped ought to have been considered by the learned Single Judge
when the document came before the Court in the course of the
proceedings under Section 9. A consideration of the issue could not
have been deferred to the arbitration proceedings having regard to the
provisions of Section 33(1) of the Bombay Stamp Act, 1958. Article
5(ga) of the Schedule relates to the stamp duty payable on an
agreement or MOU where it relates to giving authority or power to a
promoter or a developer by whatever name called for construction on,
development of or sale or transfer (in any manner whatsoever) of any
immovable property. Prima facie, the document would require
stamping and has been insufficiently stamped having regard to the
provisions of Article 5(ga) of the Schedule to the Bombay Stamp Act,
1958.
6. In the circumstances, we pass the following order :
(i) The MOU dated 29 July 2011 (Exhibit-D) is impounded. An
authenticated copy of the MOU shall be forwarded by the
Prothonotary and Senior Master to the Collector of Stamps, Mumbai
Suburban District, for adjudication of the stamp duty and penalty, if
any, payable on the document under the provisions of the Bombay
Stamp Act, 1958;
(ii) The Collector of Stamps, Mumbai Suburban District shall
expedite the determination in terms of clause (i) above and complete
the exercise within a period of four weeks of the receipt of a duly
authenticated copy of the document together with an authenticated
copy of this order from the Prothonotary & Senior Master;
(iii) Pending further orders, the direction contained in the impugned
order of the learned Single Judge dated 29 April 2013 shall remain
stayed;
(iv) The further hearing of the appeal shall stand over to 19 August
2013.”
10. Mr.Jahagirdar, learned senior counsel for the respondents herein submits that
under section 9 of the Arbitration and Conciliation Act, court does not act on any
part of the contract entered into between the parties but exercises independent
power to grant interim measures. It is submitted by the learned senior counsel that
the requisite conditions of section 11 for appointment of an arbitrator cannot be
applied to the powers of court under section 9 and if such requirement is extended
to application under section 9, the very purpose of section 9 would be frustrated. It
is submitted that even if the proper stamp duty is not paid on the document
containing arbitration agreement, application filed under section 9 of the
Arbitration and Conciliation Act, 1996 would be still maintainable. Mr.Jahagirdar
learned senior counsel placed reliance on the judgment of Supreme Court in case
of Ashok Traders (Firm) and Another vs. Gurumukh Das Sanuja and others
AIR 2004 SC 1433. Reliance is placed on paragraphs 6, 13 and 17. It is submitted
by the learned senior counsel that the supreme court after considering the
provisions under section 69 (2) of the Indian Partnership Act, 1932 which provides
for effect of non registration of a partnership firm has held that an unregistered
partnership firm is not prevented from filing an application under section 9 of the
Arbitration and Conciliation Act, 1996. The court while granting interim measures
has to prima facie come to the conclusion that the arbitration agreement exist
between the parties. Court has to see that the applicant has locus standi to file such
application and is party to an arbitration agreement. Paragraphs 6, 13 and 17 of the
said judgment in case of Ashok Traders (supra) reads thus :-
6. Disputes arose giving rise to complaints by the members
of Group 'A' complaining of the violation of their rights as
partners at the hands of Group 'B'. Group 'A' complained of
their being denied access to accounts of Group 'B' indulging in
mismanagement of affairs and siphoning off of the funds and
so on. Ajay Arora (of Group "A") filed a civil suit which was
held to be not-maintainable in view of Section 69(3) of the
Indian Partnership Act, 1932; the name of Ajay Arora having
not been shown in the Register of Firms as a partner of the
firm. According to Group "A", a notice was issued on 2.6.2003
to the other partners invoking the arbitration clause and calling
upon them to join in the appointment of arbitrator/s
consistently with the arbitration clause so as to adjudicate upon
the disputes between the partners. The contesting respondents
do not admit the receipt of the notice. On 22.7.2003,
Gurumukh Das Saluja of Group "A" filed an application under
Section 9 of The Arbitration and Conciliation Act, 1996
wherein the principal relief sought for is the appointment of a
receiver under Section 9(ii)(d) of the Act to take charge of the
entire business of the firm. Other incidental injunctions are
also sought for. Group "B" contested the application on very
many grounds and mainly by submitting that the application
was not maintainable in view of the bar enacted by Section
69(3) of the Partnership Act as the name of the applicant does
not figure in the Register of Firms as partner of the firm. The
plea has prevailed with the learned Additional District Judge
resulting in dismissal of the application. Gurumukh Das Saluja
preferred an appeal before the High Court under Section 37(1)
(a) of the A & C Act. During the pendency of the appeal an
application under Section 9 pleading similar facts and seeking
similar reliefs, as was done before the Trial Court, was filed.
Group "8" contested the application on all possible grounds.
The factum of Group "A" being partners of the firm so far as
the contract for the year 2003-04 is concerned was vehemently
denied. It was reiterated that the application was hit by Section
69(3) of the Partnership Act and hence was liable to be
dismissed. The High Court has allowed the appeal. It has held
that the applicability of Section 69(3) is not attracted to an
application under Section 9 of A & C Act. But on merits the
High Court has found substance in the grievance raised by
Group "A". The High Court has also held that the business in
the year 2003-04 was continuing under the Partnership Deed
dated 5.3.2002, i.e., Partnership - II; and that prima facie the
existence of the Partnership Deed dated 6.3.2003 (Partnership -
III) was doubtful and accompanied by suspicious
circumstances raising doubts about the genuineness of any
new partnership having come into existence on 6.3.2003
superseding the Partnership -II. The High Court seems to have
made efforts at resolving the controversy and finding out at
least some such solution as would take care of the disputes for
the moment and protect the interests of all the parties and then
concluded as under:-
"Various options were explored at the time of hearing of the
appeal. It was suggested that the Excise Commissioner may
be appointed as a receiver. But that does not appear to be
feasible. Further, the running of liquor business requires an
expertise of its own and as such it would not be proper to
entrust the management of the business to third person who
might not be aware of its Intricacies. therefore, it would be
proper that the partners themselves should manage the
business as receivers. It is found that the contesting
respondents No. 2, 6 and 7 have run this business in March,
2003 and also from 1.4.2003 and they are still doing so. The
present liquor contract is upto 31.3.2004. It would be proper
to appoint the respondents No. 2, 6 and 7 to continue to run
this business as receivers subject to their complying with
the provisions given in Order 40 Rules 1 to 4 CPC. They
shall submit their accounts before the court in which the
application under section 9 of the Act was considered i.e.
Court of Vth Additional District Judge, Bhopal. Further,
from 1.1.2004 it would be just and equitable to entrust the
management and running, of the business by the appellant*
and the respondents No. 8 and 9* who together have 20%
share in the firm. therefore, they are appointed as receivers
from 1.1.2004 to 31,3.2004 and they will take over the
management of the business of this firm as receivers from
that date. The other respondents will hand over the
management of the business of this firm to them from
1.1.2004. The appellant and respondents No. 8 and 9 will
submit full accounts to the court of Vth Additional District
Judge, Bhopal every month and will abide by the Order 40
Rules 1 to 4 CPC. In case of any difficulty the parties will
be free to approach the court of Vth Additional District
Judge, Bhopal for necessary orders. The Court of Vth
Additional District Judge, Bhopal will monitor the
functioning of the receivers and issue necessary directions
from time to time. This direction is as per decision of the
Supreme Court in V.T. Sipahimalani v. Kanta
MANU/SC/0067/2000 : (2000)2SCC498 . The Applicant
will take steps for the appointment of arbitrator as early as
possible. This direction is being given as per decision of
Supreme court in Sundaram Finance Ltd. v. NEPC India
Ltd. MANU/SC/0012/1999 : [1999]1SCR89 .
13. The A & C Act, 1996 is a long leap in the direction of
alternate dispute resolution systems. It is based on UNCITRAL
Model. The decided cases under the preceding Act of 1940
have to be applied with caution for determining the issues
arising for decision under the new Act. An application under
Section 9 under the scheme of A & C Act is not a suit.
Undoubtedly, such application results in initiation of civil
proceedings but can it be said that a party filing an application
under Section 9 of the Act is enforcing a right arising from a
contract? "Party" is defined in Clause (h) of Sub-section (1) of
Section 2 of A & C Act to mean a party to an arbitration
agreement'. So, the right conferred by Section 9 is on a party to
an arbitration agreement. The time or the stage for invoking
the jurisdiction of Court under Section 9 can be (i) before, or
(ii) during arbitral proceedings, or (iii) at any time after the
making of the arbitral award but before it is enforced in
accordance with Section 36. With the pronouncement of this
Court in Sundaram Finance Ltd. v. NEPC India Ltd . -
MANU/SC/0012/1999 : [1999]1SCR89 the doubts stand
cleared and set at rest and it is not necessary that arbitral
proceedings must be pending or at least a notice invoking
arbitration clause must have been issued before an application
under Section 9 is filed. A little later we will revert again to
this topic. For the moment suffice it to say that the right
conferred by Section 9 cannot be said to be one arising out of a
contract. The qualification which the person invoking
jurisdiction of the Court under Section 9 must possess is of
being a "party' to an arbitration agreement, A person not party
to an arbitration agreement cannot enter the Court for
protection under Section 9. This has relevance only to his
locus standi as an applicant. This has nothing to do with the
relief which is sought for from the Court or the right which is
sought to be canvassed in support of the relief. The reliefs
which the Court may allow to a party under Clauses (i) and (ii)
of Section 9 flow from the power vesting in the Court
exercisable by reference to 'contemplated', 'pending' or
'completed' arbitral proceedings. The Court is conferred with
the same power for making the specified orders as it has for
the purpose of and in relation to any proceedings before it
though the venue of the proceedings in relation to which the
power under Section 9 is sought to be exercised is the arbitral
tribunal. Under the scheme of A & C Act, the arbitration clause
is separable from other clauses of the Partnership Deed. The
arbitration clause constitutes an agreement by itself. In short,
filing of an application by a party by virtue of its being a party
to an arbitration agreement is for securing a relief which the
Court has power to grant before, during or after arbitral
proceedings by virtue of Section 9 of the A & C Act. The relief
sought for in an application under Section 9 of A & C Act is
neither in a suit nor a right arising from a contract. The right
arising from the partnership deed or conferred by the
Partnership Act is being enforced in the arbitral tribunal; the
Court under Section 9 is only formulating interim measures so
as to protect the right under adjudication before the arbitral
tribunal from being frustrated. Section 69 of the Partnership
Act has no bearing on the right of a party to an arbitration
clause to file an application under Section 9 of A & C Act.
17. There are two other factors which are weighing heavily
with us and which we proceed to record. As per the law laid
'down by this Court in M/s. Sundaram Finance Ltd. an
application under Section 9 seeking interim relief is
maintainable even before commencement of arbitral
proceedings. What does that mean? In M/s. Sundaram
Finance Ltd., itself the Court has said :
It is true that when an application under Section 9 is filed
before the commencement of the arbitral proceedings there has
to be manifest intention on the part of the applicant to take
recourse to the arbitral proceedings.
Section 9 permits application being filed in the Court before
the commencement of the arbitral proceedings but the
provision does not give any indication of how much before.
The word 'before' means, inter alia, "ahead of; in presence or
sight of; under the consideration or cognizance of. The two
events sought to be interconnected by use of the term 'before'
must have proximity of relationship by reference to
occurrence; the later event proximately following the
preceding event as a foreseeable or 'within sight' certainty. The
party invoking Section 9 may not have actually commenced
the arbitral proceedings but must be able to satisfy the Court
that the arbitral proceedings are actually contemplated or
manifestly intended (as M/s Sundaram Finance Ltd. puts it)
and are positively going to commence within a reasonable
time. What is a reasonable time will depend on the facts and
circumstances of each case and the nature of Interim relief
sought for would itself give an indication thereof. The distance
of time must not be such as would destroy the proximity of
relationship of the two events between which it exists and
elapses. The purpose of enacting Section 9, read in the light of
the Model Law and UNCITRAL Rules is to provide 'interim
measures of protection'. The order passed by the Court should
fall within the meaning of the expression 'an interim measure
of protection' as distinguished from an all-time or permanent
protection.
11. Without prejudice to this submission, Mr.Jahagirdar learned senior counsel
submits that if clauses 6, 9, 10 and 15 of the MOU are considered, it would be
clear that the stage for payment of stamp duty had not arisen and only when the
possession was earmarked, further agreement was to be executed and at that stage
it would have attracted payment of stamp duty on execution of such further
document.
12. By a separate order passed by this court in arbitration petition no.9 of 2013
filed by the respondents herein under section 11 of the Arbitration and Conciliation
Act, 1996, it is prima facie held that the said document required payment of stamp
duty under Article 5(g-a) of Schedule I of the Bombay Stamp Act, 1958 and the
said document is impounded. By the said order, the registrar of this court has been
directed to send a certified copy of the said document to the Collector of Stamp,
Thane for adjudication of stamp duty and penalty.
13. In my view the respondents herein having taken a stand that the said MOU
was not a bare agreement to enter into another agreement but had been created
rights in favour of the respondents for development on the suit plot and to sell the
premises, respondents cannot be permitted to take a stand now that the said
document did not create any right at this stage and the stamp duty could have been
attracted only in future on happening of certain eventualities. In case any further
instrument is executed in future in furtherance of the MOU, respondents can pay
the difference of stamp duty payable by the respondents on such document. The
respondents have not impugned the findings of the learned Principal District Judge
on this issue.
14. On perusal of the memorandum of understanding I am of the prima facie
view that the said instrument is required to be stamped under Article 5(g-a) of
Schedule 1 of Bombay Stamps Act, 1958. Though the appellants had specifically
raised this issue before the learned Principal District Judge in the affidavit in reply
filed opposing application under section 9, a perusal of the order and judgment of
the learned Principal District Judge clearly indicates that this issue raised by the
appellants has not been considered at all in the impugned order and judgment.
Supreme Court in case of SMS Tea Estates Private Limited (supra) has after
construing section 33 and 35 of the Stamp Act which are in parimateria with
section 33 and 34 of the Bombay Stamp Act, 1958 has held that unless the stamp
duty and penalty due in respect of a instrument is paid, the court cannot act upon
such instrument and held that it cannot act upon the arbitration agreement also
which is the part of the instrument. It is held that when such document is relied
upon as containing the arbitration agreement, the court should consider at the
outset though an objection in that regard is raised or not whether the document is
properly stamped and if it comes to the conclusion that it is not properly stamped,
it should be impounded and dealt with in the manner specified in section 38 of the
Stamp Act. The court cannot act upon such a document or the arbitration clause
therein.
15. Division Bench of this court in case of Lakdawala Developers Pvt. Ltd.
(supra) after adverting to the judgment of Supreme Court in case of SMS Tea
Estates Private Limited (supra), in the appeal arising out of an order passed by the
learned Single Judge in arbitration petition filed under section 9 of the Arbitration
and Conciliation Act, 1996 after considering similar provisions in the
memorandum of understanding held that the objection with regard to the document
being insufficiently stamped ought to have been considered by the learned Single
Judge when the document came before the court in the course of the proceedings
under section 9 and such issue could not have been deferred to the arbitration
proceedings having regard to the provisions of section 33(1) of the Bombay
Stamps Act, 1958. Division Bench has also held that article (g-a) of the schedule I
relates to giving authority or power to a promoter or a developer by whatever name
called for construction of, development of, or sale or transfer in any manner
whatsoever of any immoveable property. The Division Bench passed an order for
impounding of the memorandum of understanding and directed the Prothonotary
and Senior Mater of Collector of Stamp to adjudication of the stamp duty and
penalty if any payable on the document under the provisions of the Bombay
Stamps Act, 1958. The Division Bench stayed the operation of the directions
contained in the order passed by the learned Single Judge till then. In my view both
these judgments are squarely applicable to the facts of this case.
16. In so far as judgment of the Supreme Court in case of Firm Ashok Traders
(supra) relied upon by Mr.Jahagirdar, learned senior counsel is concerned, the
Supreme Court has considered the provisions of section 69 of the Indian
Partnership Act while considering an maintainability of an application under
section 9 of the Arbitration and Conciliation Act, 1996. It is held by the Supreme
Court that under the scheme of the Arbitration and Conciliation Act, the arbitration
clause is separable from other clauses of the partnership deed. Section 69 of the
Partnership Act has no bearing on the right of a party to an arbitration clause to file
an application under section 9 of the Arbitration and Conciliation Act, 1996. It is
held that the right conferred by section 9 cannot said to be one arising out of a
contract. In the said judgment the Supreme Court has held that an application
under section 9 under the scheme of the Arbitration and Conciliation Act, 1996 is
not a suit.
17. On conjoint reading of section 69 of the Indian Partnership Act with section
33 and 34 of the Bombay Stamps Act makes it clear that effect of non registration
of a partnership firm would be on the suit to enforce a right arising from a contract
or conferred by the Indian Partnership Act filed on or behalf of any person showing
as a partner in a firm against the firm or any person alleged to be or have been a
partner in the firm however there is a complete bar under sections 33 and 34 of the
Bombay Stamps Act from admitting an insufficiently stamped instrument in
evidence or even acted upon by any public officer or any authority empower to
receive such document in evidence.
18. Be that as it may, the Supreme Court in case of SMS Tea Estates Private
Limited (supra) which judgment is delivered at subsequent point of time has
interpreted the provisions of Stamp Act which are in parimateria with sections 33
and 34 of the Bombay Stamp Act and has held that insufficiently paid instrument
cannot be acted upon by the court including the arbitration agreement. Division
Bench of this court has specifically held that single judge while hearing application
under section 9 of the Arbitration and Conciliation Act has to consider whether
such an instrument containing arbitration agreement attracts payment of stamp
duty and if so whether it is sufficiently paid and if not paid shall impound such
document. I am respectfully bound by the judgment of the Supreme Court in case
of SMS Tea Estates Private Limited (supra) and order and judgment of Division
Bench of this court which is taken after adverting to the judgment of Supreme
Court in case of SMS Tea Estates Private Limited (supra) and dealing with
sections 33 and 34 of the Bombay Stamps Act while dealing with an application
under section 9 of the Arbitration and Conciliation Act, 1996. In my view the
judgment of Supreme Court in case of Firm Ashok Traders (supra) is clearly
distinguishable and is of no assistance to the respondents.
19. In my view the memorandum of understanding attracted payment of stamp
duty under Article 5(g-a) of Schedule I of Bombay Stamp Act and thus the learned
Principal District Judge ought to have considered this issue and ought to have
impounded the instrument and should have issued directions for adjudication of the
instrument for the purpose of payment of stamp duty and penalty. Till such process
was over, the learned Principal District Judge could not have acted upon such
instrument including the arbitration agreement. Though this issue was raised
specifically by the appellants in the affidavit in reply, the same has not been
considered by the learned Principal District Judge.
20. Since I am inclined to allow this appeal on the ground that the instrument
containing arbitration agreement is insufficiently stamped and thus the learned
Principal District Judge could not have acted upon such instrument and could not
have granted interim measures under section 9 of the Arbitration and Conciliation
Act, 1996, I need not deal with the other issues raised in the memorandum of
appeal. I therefore pass the following order :-
(a) Arbitration Appeal No.45 of 2013 is allowed.
(b) Order dated 30th August, 2013 passed by the learned
Principal District Judge in Civil Misc. Application No.21 of
2013 is set aside. Civil Misc. Application No.21 of 2013 filed
by the respondents is dismissed.
(c) The respondents would be at liberty to seek interim
measures after adjudication of the stamp duty and penalty by
the Collector of Stamps, Thane and after such payment is
effected by the respondents. If any such application is made
by the respondents under section 9 for interim measures after
the instrument is sufficiently stamped and penalty is paid, the
learned District Judge shall dispose of such application for
interim measures on its own merits.
(d) In view of the disposal of the arbitration appeal, Civil
Application No.41 of 2013 does not survive and is accordingly
disposed of.
(e) There shall be no order as to costs.
[R.D. DHANUKA, J.]
On the oral application made by the learned counsel appearing for the
respondents, order passed by the learned Principal District Judge in Civil Misc.
Application No. 21 of 2013 is continued for a period of six weeks from today.
[R.D. DHANUKA, J.]
Print Page
and penalty due in respect of the instrument is paid, the court cannot act
upon the instrument, which means that it cannot act upon the arbitration
agreement also which is part of the instrument. Section 35 of Stamp Act is
distinct and different from Section 49 of Registration Act in regard to an
unregistered document. Section 35 of Stamp Act, does not contain a
proviso like to Section 49 of Registration Act enabling the instrument to
be used to establish a collateral transaction.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL NO. 45 OF 2013
ALONGWITH
CIVIL APPLICATION NO. 41 OF 2013
IN
ARBITRATION APPEAL NO.45 OF 2013
DISTRICT : THANE
Shri Jayraj Devidas, Vs Shri Nilesh Shantilal Tank,
CORAM : R.D. DHANUKA, J.
PRONOUNCED ON : 22nd AUGUST, 2014
Citation;2014(6) MHLJ 156
This appeal is directed against the order and judgment dated 30th August,
2013 delivered by the learned Principal District Judge Thane allowing application
filed by the respondents under section 9 of the Arbitration and Conciliation Act,
1996. The appellants have challenged the said orders on various grounds raised in
the memorandum of appeal.
2. Mr.Madon learned senior counsel for the appellants however raises an issue
of maintainability of application under section 9 of the Arbitration and Conciliation
Act, 1996 itself filed by the respondents on the ground of the memorandum of
understanding executed by and between the parties dated 6th August, 2008 being
insufficiently stamped. Since both the learned senior counsel have addressed this
court on this issue, without going into the other issues raised in the appeal memo
and since decision on this issue will have bearing on the disposal of the appeal
itself, I will deal with this issue raised by the appellants.
Some of the relevant facts for the purpose of deciding this issue are as
under:-
3. It was case of the respondents herein (original applicants) in their application
under section 9 of the Arbitration and Conciliation Act, 1996 that the appellants
and the respondents entered into an agreement (MOU) in respect of the suit
property by which the appellants granted the developments rights of the suit
property inter alia to construct building on certain part of the said property and to
obtain TDR in respect of certain area affected as road in development plan of Mira
Bhayander Municipal Corporation and other rights in respect of the said property
including right to sell the premises in such buildings to be constructed on the said
property on the terms and conditions recorded in the said memorandum of
understanding dated 6th November, 2008.
4. The appellants however disputed this contention on the part of the
respondents and contended that no rights of any nature whatsoever was created by
the appellants in favour of the respondents under the said MOU. The appellants
however in their reply to the application under section 9 before the learned
Principal District Judge opposed the said application on various grounds including
the ground that the alleged memorandum of understanding dated 6th November
2008 could not be read in evidence for non payment of proper stamp duty and the
same was also not registered with the office of Sub Registrar of Assurances.
5. Mr.Madon, learned Senior counsel for the appellants invited my attention to
various part of pleadings filed by both parties and also the prima facie finding
rendered by the learned Principal District Judge in order and judgment dated 30th
August, 2013. It is submitted that the learned Principal District Judge has rendered
a prima facie finding that the MOU dated 6th November, 2008 was not a bare
agreement to execute another agreement or that simply it was an expression of the
desire on the part of the respondents but it was a concluded contract to render
services on the part of the respondents herein towards proposed development of the
suit land. It is also held that the intention and purpose to execute full-fledged
agreement as contemplated under clause 10 was for the purpose of earmarking the
portions of the suit land and to demarcate the same for individual construction after
apportionment of the FSI/TDR amongst both the parties. The Principal District
Judge also gave a prima facie finding that the alleged MOU was a valid contract
enforceable within the ambit of law.
6. Mr.Madon, learned senior counsel submits that though the appellants had
raised a specific plea that such MOU was required to be stamped under schedule I
of the Bombay Stamp Act and not having been stamped sufficiently and not having
been registered, such document cannot be acted upon and thus no interim measures
could be considered by the learned Principal District Judge in such application
filed by the respondents herein under section 9 of the Arbitration and Conciliation
Act, 1996, the learned principal District Judge did not decide this crucial issue in
the impugned order and judgment and granted interim measures.
7. Learned senior counsel submits that the learned Principal District Judge
having accepted the submission of the respondents herein that the said MOU was
not a bare agreement to execute another agreement but was a concluded contract to
render services on the part of the respondents herein towards the proposed
development of the suit lands and the intention and purpose to execute the fullfledged
agreement as contemplated under clause 10 was for the purpose of
earmarking the portion of the suit land and to demarcate the same for individual
construction after apportion of the FSI/TDR, the learned Principal District Judge
could not have granted any interim measures and ought to have impounded the said
documents and ought to have referred the document for adjudication for the
purpose of payment of proper stamp duty and penalty.
8. Mr.Madon, learned senior counsel placed reliance on the judgment of
Supreme Court in case of SMS Tea Estates Private Limited vs. Chandmari Tea
Company Private Limited (2011) 14 SCC 66 in support of the submission that
since the MOU attracted the payment of stamp duty under article 5(g-a) of
Schedule I of the Bombay Stamps Act and the document not having been duly
stamped, the Principal District Judge could not act upon such agreement including
the arbitration agreement forming part of such agreement. Paragraph 3, 7, 8, 9, 17 to
22.6 of the said judgment read thus :
“3. Prior to the execution of the said lease deed, on 29.11.2006 the
Respondent had offered to sell the two Tea estates to the Appellant for a
consideration of Rupees four crores. The Appellant agreed to purchase
them subject to detailed verification. The Appellant wrote a letter dated
27.6.2007 to the Respondent agreeing to purchase the said two Tea estates.
7. The Respondent denied that they had agreed to sell the two tea
estates to the Respondent for a consideration of Rupees four crores. The
Appellant also denied that the Respondent had invested any amount in the
tea estates. It contended that as the lease deed itself was invalid, the
Appellant could not claim appointment of an arbitrator under the
arbitration agreement forming part of the said deed.
8. The learned Chief Justice of Guwahati High Court dismissed the
Appellant's application by order dated 28.5.2010. He held that the lease
deed was compulsorily registrable under Section 17 of the Registration
Act and Section 106 of the TP Act; and as the lease deed was not
registered, no term in the said lease deed could be relied upon for any
purpose and therefore Clause 35 could not be relied upon for seeking
reference to arbitration. The High Court also held that the arbitration
agreement contained in Clause 35 could not be termed as a collateral
transaction, and therefore, the proviso to Section 49 of the Registration
Act would not assist the Appellant. The said order is challenged in this
appeal by special leave.
9. On the contentions urged the following questions arise for
consideration:
(i) Whether an arbitration agreement contained in an unregistered (but
compulsorily registrable) instrument is valid and enforceable?
(ii) Whether an arbitration agreement in an unregistered instrument which
is not duly stamped, is valid and enforceable?
(iii) Whether there is an arbitration agreement between the Appellant and
Respondent and whether an Arbitrator should be appointed?
17. What if an arbitration agreement is contained in an unregistered (but
compulsorily registrable) instrument which is not duly stamped? To find
an answer, it may be necessary to refer to the provisions of the Indian
Stamp Act, 1899 ('Stamp Act' for short). Section 33 of the Stamp Act
relates to examination and impounding of instruments. The relevant
portion thereof is extracted below:
“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 pubic
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, if it
appears to him that such instrument is not dull stamped,
impound the same.
(2) For that purpose every such person shall examine every
instrument so chargeable and so produced or coming before
him in order to ascertain whether it is stamped with a stamp
of the value and description required by the law in force in
India when such instrument was executed or first executed:”
18. Section 35 of Stamp Act provides that instruments not duly
stamped is inadmissible in evidence and cannot be acted upon. The
relevant portion of the said section is extracted below:
“35. Instruments not duly stamped inadmissible in evidence,
etc. -- No instrument chargeable with duty shall be admitted
in evidence for any purpose by any person having by law or
consent of parties authority to receive evidence, or shall be
acted upon, registered or authenticated by any such person or
by any public officer, unless such instrument is duly stamped:
Provided that--
(a) any such instrument shall be admitted in evidence on
payment of the duty with which the same is chargeable, or, in
the case of an instrument insufficiently stamped, of the
amount required to make up such duty, together with a
penalty of five rupees, or, when ten times the amount of the
proper duty or deficient portion thereof exceeds five rupees,
of a sum equal to ten times such duty or portion.”
19. Having regard to Section 35 of Stamp Act, unless the stamp duty
and penalty due in respect of the instrument is paid, the court cannot act
upon the instrument, which means that it cannot act upon the arbitration
agreement also which is part of the instrument. Section 35 of Stamp Act is
distinct and different from Section 49 of Registration Act in regard to an
unregistered document. Section 35 of Stamp Act, does not contain a
proviso like to Section 49 of Registration Act enabling the instrument to
be used to establish a collateral transaction.
20. The scheme for appointment of arbitrators by the Chief Justice of
Guwahati High Court 1996 requires an application under Section 11 of the
Act to be accompanied by the original arbitration agreement or a duly
certified copy thereof. In fact, such a requirement is found in the
scheme/rules of almost all the High Courts. If what is produced is a
certified copy of the agreement/contract/instrument containing the
arbitration clause, it should disclose the stamp duty that has been paid on
the original. Section 33 casts a duty upon every court, that is a person
having by law authority to receive evidence (as also every arbitrator who
is a person having by consent of parties, authority to receive evidence)
before whom an unregistered instrument chargeable with duty is
produced, to examine the instrument in order to ascertain whether it is
duly stamped. If the court comes to the conclusion that the instrument is
not duly stamped, it has to impound the document and deal with it as per
Section 38 of the Stamp Act.
21. Therefore, when a lease deed or any other instrument is relied upon
as contending the arbitration agreement, the court should consider at the
outset, whether an objection in that behalf is raised or not, whether the
document is properly stamped. If it comes to the conclusion that it is not
properly stamped, it should be impounded and dealt with in the manner
specified in Section 38 of Stamp Act. The court cannot act upon such a
document or the arbitration clause therein. But if the deficit duty and
penalty is paid in the manner set out in Section 35 or Section 40 of the
Stamp Act, the document can be acted upon or admitted in evidence.
22. We may therefore sum up the procedure to be adopted where the
arbitration clause is contained in a document which is not registered (but
compulsorily registrable) and which is not duly stamped:
22.1. The court should, before admitting any document into evidence or
acting upon such document, examine whether the instrument/document is
duly stamped and whether it is an instrument which is compulsorily
registrable.
22.2. If the document is found to be not duly stamped, Section 35 of
Stamp Act bars the said document being acted upon. Consequently, even
the arbitration clause therein cannot be acted upon. The court should then
proceed to impound the document under Section 33 of the Stamp Act and
follow the procedure under Section 35 and 38 of the Stamp Act.
22.3. If the document is found to be duly stamped, or if the deficit stamp
duty and penalty is paid, either before the Court or before the Collector (as
contemplated in Section 35 or 40 of the Stamp Act), and the defect with
reference to deficit stamp is cured, the court may treat the document as
duly stamped.
22.4. Once the document is found to be duly stamped, the court shall
proceed to consider whether the document is compulsorily registrable. If
the document is found to be not compulsorily registrable, the court can act
upon the arbitration agreement, without any impediment.
22.5. If the document is not registered, but is compulsorily registrable,
having regard to Section 16(1)(a) of the Act, the court can de-link the
arbitration agreement from the main document, as an agreement
independent of the other terms of the document, even if the document
itself cannot in any way affect the property or cannot be received as
evidence of any transaction affecting such property. The only exception is
where the Respondent in the application demonstrates that the arbitration
agreement is also void and unenforceable, as pointed out in para 8 above.
If the Respondent raises any objection that the arbitration agreement was
invalid, the court will consider the said objection before proceeding to
appoint an arbitrator.
22.6. Where the document is compulsorily registrable, but is not
registered, but the arbitration agreement is valid and separable, what is
required to be borne in mind is that the Arbitrator appointed in such a
matter cannot rely upon the unregistered instrument except for two
purposes, that is (a) as evidence of contract in a claim for specific
performance and (b) as evidence of any collateral transaction which does
not require registration.”
9. Mr.Madon, learned senior counsel also placed reliance on the order and
judgment of the Division Bench of this court delivered on 25th June, 2013 in
Appeal (L) No. 272 of 2013 in case of Lakadawala Developers Pvt. Ltd. Vs. Badal
Mittal and Ors., Paragraph 1 to 6 of the said order/judgment read thus :
“1. At the hearing of the application under Section 9 of the Arbitration
and Conciliation Act, 1996, an objection was raised on behalf of the
Appellant on the ground that the Memorandum of Understanding
(MOU) dated 29 July 2011 was insufficiently stamped and that in
consequence, the document could not be acted upon unless the stamp
duty and penalty, if any, payable thereon was adjudicated upon.
Reliance was placed on the decision of the Supreme Court in SMS Tea
Estates Pvt. Ltd. Vs. Chandmari Tea Co. Pvt.Ltd., 2011(4)-Arb.L.R. -
265(S.C.) - At paragraphs 10 and 11 where the Supreme Court held as
follows :
"10. ... ... ... ... … ... ... ... ... …
Having regard to Section 35 of the Stamp Act, unless the
stamp duty and penalty due in respect of the instrument is
paid, the court cannot act upon the instrument, which
means that it cannot act upon the arbitration agreement
also which is part of the
instrument. ... ... ... ..."
"11. ... ... ... ... Therefore, when a lease deed or any other
instrument is relied upon as contending the arbitration
agreement, the court should consider at the outset,
whether an objection in that behalf is raised or not,
whether the document is properly stamped. If it comes to
the conclusion that it is not properly stamped, it should be
impounded and dealt with in the manner specified in
Section 38 of the Stamp Act. The court cannot act upon
such a document or the arbitration clause therein. But if
the deficit duty and penalty is paid in the manner set out
in Section 35 or Section 40 of the Stamp Act, the
document can be acted upon or admitted in evidence."
2. The learned Single Judge in the judgment which is impugned in
appeal held that the question as to whether the MOU was
insufficiently stamped, could be decided in the arbitral proceedings
before the arbitrator and the arbitration agreement could be delinked
from the other provisions of the MOU so as to enable the Court to
grant interim measures. This view of the learned Single Judge is
prima facie contrary to the judgment of the Supreme Court.
3. On behalf of the Respondents it has been submitted that the MOU
dated 29 July 2011 contemplates in Clause-15 that parties would enter
into a final agreement with respect to the development and
construction of the rehabilitation and free sale buildings for each part
of each phase of the property. Hence, it has been urged by the learned
counsel for the Respondents that the stamp duty would be payable
only on the execution of the final agreement for each phase.
4. The agreement between the parties which is contained in the MOU
dated 29 July 2011, prima facie, does contemplate that the
Respondents will finance the construction of and construct the
rehabilitation and free sale buildings on the property in question. In
consideration thereof, Clause-4 stipulates that the Appellant would
hand over to the Respondents a certain proportion of the constructed
area of the free sale buildings. Clause-6 required the Respondents to
pay a sum of Rs.1.50 crores to the Appellant to enable the Appellant
to finance transit accommodation for the slum dwellers which was
payable every month on and from 1 April 2011 till the completion of
the development of the entire property. In the event of default on the
part of the Respondents in making the said payment, the Appellant
was required to repay the entire amount received and the cost of
construction incurred by the Respondents on the property till the date
of default. Clause-11 of the MOU cast specific obligations on the
Respondents to construct the rehabilitation and free sale buildings;
work being required to be commenced after requisite permissions
were received. The construction was required to be completed within
36 months after receipt of requisite permissions for each building.
5. The objection in regard to the document being insufficiently
stamped ought to have been considered by the learned Single Judge
when the document came before the Court in the course of the
proceedings under Section 9. A consideration of the issue could not
have been deferred to the arbitration proceedings having regard to the
provisions of Section 33(1) of the Bombay Stamp Act, 1958. Article
5(ga) of the Schedule relates to the stamp duty payable on an
agreement or MOU where it relates to giving authority or power to a
promoter or a developer by whatever name called for construction on,
development of or sale or transfer (in any manner whatsoever) of any
immovable property. Prima facie, the document would require
stamping and has been insufficiently stamped having regard to the
provisions of Article 5(ga) of the Schedule to the Bombay Stamp Act,
1958.
6. In the circumstances, we pass the following order :
(i) The MOU dated 29 July 2011 (Exhibit-D) is impounded. An
authenticated copy of the MOU shall be forwarded by the
Prothonotary and Senior Master to the Collector of Stamps, Mumbai
Suburban District, for adjudication of the stamp duty and penalty, if
any, payable on the document under the provisions of the Bombay
Stamp Act, 1958;
(ii) The Collector of Stamps, Mumbai Suburban District shall
expedite the determination in terms of clause (i) above and complete
the exercise within a period of four weeks of the receipt of a duly
authenticated copy of the document together with an authenticated
copy of this order from the Prothonotary & Senior Master;
(iii) Pending further orders, the direction contained in the impugned
order of the learned Single Judge dated 29 April 2013 shall remain
stayed;
(iv) The further hearing of the appeal shall stand over to 19 August
2013.”
10. Mr.Jahagirdar, learned senior counsel for the respondents herein submits that
under section 9 of the Arbitration and Conciliation Act, court does not act on any
part of the contract entered into between the parties but exercises independent
power to grant interim measures. It is submitted by the learned senior counsel that
the requisite conditions of section 11 for appointment of an arbitrator cannot be
applied to the powers of court under section 9 and if such requirement is extended
to application under section 9, the very purpose of section 9 would be frustrated. It
is submitted that even if the proper stamp duty is not paid on the document
containing arbitration agreement, application filed under section 9 of the
Arbitration and Conciliation Act, 1996 would be still maintainable. Mr.Jahagirdar
learned senior counsel placed reliance on the judgment of Supreme Court in case
of Ashok Traders (Firm) and Another vs. Gurumukh Das Sanuja and others
AIR 2004 SC 1433. Reliance is placed on paragraphs 6, 13 and 17. It is submitted
by the learned senior counsel that the supreme court after considering the
provisions under section 69 (2) of the Indian Partnership Act, 1932 which provides
for effect of non registration of a partnership firm has held that an unregistered
partnership firm is not prevented from filing an application under section 9 of the
Arbitration and Conciliation Act, 1996. The court while granting interim measures
has to prima facie come to the conclusion that the arbitration agreement exist
between the parties. Court has to see that the applicant has locus standi to file such
application and is party to an arbitration agreement. Paragraphs 6, 13 and 17 of the
said judgment in case of Ashok Traders (supra) reads thus :-
6. Disputes arose giving rise to complaints by the members
of Group 'A' complaining of the violation of their rights as
partners at the hands of Group 'B'. Group 'A' complained of
their being denied access to accounts of Group 'B' indulging in
mismanagement of affairs and siphoning off of the funds and
so on. Ajay Arora (of Group "A") filed a civil suit which was
held to be not-maintainable in view of Section 69(3) of the
Indian Partnership Act, 1932; the name of Ajay Arora having
not been shown in the Register of Firms as a partner of the
firm. According to Group "A", a notice was issued on 2.6.2003
to the other partners invoking the arbitration clause and calling
upon them to join in the appointment of arbitrator/s
consistently with the arbitration clause so as to adjudicate upon
the disputes between the partners. The contesting respondents
do not admit the receipt of the notice. On 22.7.2003,
Gurumukh Das Saluja of Group "A" filed an application under
Section 9 of The Arbitration and Conciliation Act, 1996
wherein the principal relief sought for is the appointment of a
receiver under Section 9(ii)(d) of the Act to take charge of the
entire business of the firm. Other incidental injunctions are
also sought for. Group "B" contested the application on very
many grounds and mainly by submitting that the application
was not maintainable in view of the bar enacted by Section
69(3) of the Partnership Act as the name of the applicant does
not figure in the Register of Firms as partner of the firm. The
plea has prevailed with the learned Additional District Judge
resulting in dismissal of the application. Gurumukh Das Saluja
preferred an appeal before the High Court under Section 37(1)
(a) of the A & C Act. During the pendency of the appeal an
application under Section 9 pleading similar facts and seeking
similar reliefs, as was done before the Trial Court, was filed.
Group "8" contested the application on all possible grounds.
The factum of Group "A" being partners of the firm so far as
the contract for the year 2003-04 is concerned was vehemently
denied. It was reiterated that the application was hit by Section
69(3) of the Partnership Act and hence was liable to be
dismissed. The High Court has allowed the appeal. It has held
that the applicability of Section 69(3) is not attracted to an
application under Section 9 of A & C Act. But on merits the
High Court has found substance in the grievance raised by
Group "A". The High Court has also held that the business in
the year 2003-04 was continuing under the Partnership Deed
dated 5.3.2002, i.e., Partnership - II; and that prima facie the
existence of the Partnership Deed dated 6.3.2003 (Partnership -
III) was doubtful and accompanied by suspicious
circumstances raising doubts about the genuineness of any
new partnership having come into existence on 6.3.2003
superseding the Partnership -II. The High Court seems to have
made efforts at resolving the controversy and finding out at
least some such solution as would take care of the disputes for
the moment and protect the interests of all the parties and then
concluded as under:-
"Various options were explored at the time of hearing of the
appeal. It was suggested that the Excise Commissioner may
be appointed as a receiver. But that does not appear to be
feasible. Further, the running of liquor business requires an
expertise of its own and as such it would not be proper to
entrust the management of the business to third person who
might not be aware of its Intricacies. therefore, it would be
proper that the partners themselves should manage the
business as receivers. It is found that the contesting
respondents No. 2, 6 and 7 have run this business in March,
2003 and also from 1.4.2003 and they are still doing so. The
present liquor contract is upto 31.3.2004. It would be proper
to appoint the respondents No. 2, 6 and 7 to continue to run
this business as receivers subject to their complying with
the provisions given in Order 40 Rules 1 to 4 CPC. They
shall submit their accounts before the court in which the
application under section 9 of the Act was considered i.e.
Court of Vth Additional District Judge, Bhopal. Further,
from 1.1.2004 it would be just and equitable to entrust the
management and running, of the business by the appellant*
and the respondents No. 8 and 9* who together have 20%
share in the firm. therefore, they are appointed as receivers
from 1.1.2004 to 31,3.2004 and they will take over the
management of the business of this firm as receivers from
that date. The other respondents will hand over the
management of the business of this firm to them from
1.1.2004. The appellant and respondents No. 8 and 9 will
submit full accounts to the court of Vth Additional District
Judge, Bhopal every month and will abide by the Order 40
Rules 1 to 4 CPC. In case of any difficulty the parties will
be free to approach the court of Vth Additional District
Judge, Bhopal for necessary orders. The Court of Vth
Additional District Judge, Bhopal will monitor the
functioning of the receivers and issue necessary directions
from time to time. This direction is as per decision of the
Supreme Court in V.T. Sipahimalani v. Kanta
MANU/SC/0067/2000 : (2000)2SCC498 . The Applicant
will take steps for the appointment of arbitrator as early as
possible. This direction is being given as per decision of
Supreme court in Sundaram Finance Ltd. v. NEPC India
Ltd. MANU/SC/0012/1999 : [1999]1SCR89 .
13. The A & C Act, 1996 is a long leap in the direction of
alternate dispute resolution systems. It is based on UNCITRAL
Model. The decided cases under the preceding Act of 1940
have to be applied with caution for determining the issues
arising for decision under the new Act. An application under
Section 9 under the scheme of A & C Act is not a suit.
Undoubtedly, such application results in initiation of civil
proceedings but can it be said that a party filing an application
under Section 9 of the Act is enforcing a right arising from a
contract? "Party" is defined in Clause (h) of Sub-section (1) of
Section 2 of A & C Act to mean a party to an arbitration
agreement'. So, the right conferred by Section 9 is on a party to
an arbitration agreement. The time or the stage for invoking
the jurisdiction of Court under Section 9 can be (i) before, or
(ii) during arbitral proceedings, or (iii) at any time after the
making of the arbitral award but before it is enforced in
accordance with Section 36. With the pronouncement of this
Court in Sundaram Finance Ltd. v. NEPC India Ltd . -
MANU/SC/0012/1999 : [1999]1SCR89 the doubts stand
cleared and set at rest and it is not necessary that arbitral
proceedings must be pending or at least a notice invoking
arbitration clause must have been issued before an application
under Section 9 is filed. A little later we will revert again to
this topic. For the moment suffice it to say that the right
conferred by Section 9 cannot be said to be one arising out of a
contract. The qualification which the person invoking
jurisdiction of the Court under Section 9 must possess is of
being a "party' to an arbitration agreement, A person not party
to an arbitration agreement cannot enter the Court for
protection under Section 9. This has relevance only to his
locus standi as an applicant. This has nothing to do with the
relief which is sought for from the Court or the right which is
sought to be canvassed in support of the relief. The reliefs
which the Court may allow to a party under Clauses (i) and (ii)
of Section 9 flow from the power vesting in the Court
exercisable by reference to 'contemplated', 'pending' or
'completed' arbitral proceedings. The Court is conferred with
the same power for making the specified orders as it has for
the purpose of and in relation to any proceedings before it
though the venue of the proceedings in relation to which the
power under Section 9 is sought to be exercised is the arbitral
tribunal. Under the scheme of A & C Act, the arbitration clause
is separable from other clauses of the Partnership Deed. The
arbitration clause constitutes an agreement by itself. In short,
filing of an application by a party by virtue of its being a party
to an arbitration agreement is for securing a relief which the
Court has power to grant before, during or after arbitral
proceedings by virtue of Section 9 of the A & C Act. The relief
sought for in an application under Section 9 of A & C Act is
neither in a suit nor a right arising from a contract. The right
arising from the partnership deed or conferred by the
Partnership Act is being enforced in the arbitral tribunal; the
Court under Section 9 is only formulating interim measures so
as to protect the right under adjudication before the arbitral
tribunal from being frustrated. Section 69 of the Partnership
Act has no bearing on the right of a party to an arbitration
clause to file an application under Section 9 of A & C Act.
17. There are two other factors which are weighing heavily
with us and which we proceed to record. As per the law laid
'down by this Court in M/s. Sundaram Finance Ltd. an
application under Section 9 seeking interim relief is
maintainable even before commencement of arbitral
proceedings. What does that mean? In M/s. Sundaram
Finance Ltd., itself the Court has said :
It is true that when an application under Section 9 is filed
before the commencement of the arbitral proceedings there has
to be manifest intention on the part of the applicant to take
recourse to the arbitral proceedings.
Section 9 permits application being filed in the Court before
the commencement of the arbitral proceedings but the
provision does not give any indication of how much before.
The word 'before' means, inter alia, "ahead of; in presence or
sight of; under the consideration or cognizance of. The two
events sought to be interconnected by use of the term 'before'
must have proximity of relationship by reference to
occurrence; the later event proximately following the
preceding event as a foreseeable or 'within sight' certainty. The
party invoking Section 9 may not have actually commenced
the arbitral proceedings but must be able to satisfy the Court
that the arbitral proceedings are actually contemplated or
manifestly intended (as M/s Sundaram Finance Ltd. puts it)
and are positively going to commence within a reasonable
time. What is a reasonable time will depend on the facts and
circumstances of each case and the nature of Interim relief
sought for would itself give an indication thereof. The distance
of time must not be such as would destroy the proximity of
relationship of the two events between which it exists and
elapses. The purpose of enacting Section 9, read in the light of
the Model Law and UNCITRAL Rules is to provide 'interim
measures of protection'. The order passed by the Court should
fall within the meaning of the expression 'an interim measure
of protection' as distinguished from an all-time or permanent
protection.
11. Without prejudice to this submission, Mr.Jahagirdar learned senior counsel
submits that if clauses 6, 9, 10 and 15 of the MOU are considered, it would be
clear that the stage for payment of stamp duty had not arisen and only when the
possession was earmarked, further agreement was to be executed and at that stage
it would have attracted payment of stamp duty on execution of such further
document.
12. By a separate order passed by this court in arbitration petition no.9 of 2013
filed by the respondents herein under section 11 of the Arbitration and Conciliation
Act, 1996, it is prima facie held that the said document required payment of stamp
duty under Article 5(g-a) of Schedule I of the Bombay Stamp Act, 1958 and the
said document is impounded. By the said order, the registrar of this court has been
directed to send a certified copy of the said document to the Collector of Stamp,
Thane for adjudication of stamp duty and penalty.
13. In my view the respondents herein having taken a stand that the said MOU
was not a bare agreement to enter into another agreement but had been created
rights in favour of the respondents for development on the suit plot and to sell the
premises, respondents cannot be permitted to take a stand now that the said
document did not create any right at this stage and the stamp duty could have been
attracted only in future on happening of certain eventualities. In case any further
instrument is executed in future in furtherance of the MOU, respondents can pay
the difference of stamp duty payable by the respondents on such document. The
respondents have not impugned the findings of the learned Principal District Judge
on this issue.
14. On perusal of the memorandum of understanding I am of the prima facie
view that the said instrument is required to be stamped under Article 5(g-a) of
Schedule 1 of Bombay Stamps Act, 1958. Though the appellants had specifically
raised this issue before the learned Principal District Judge in the affidavit in reply
filed opposing application under section 9, a perusal of the order and judgment of
the learned Principal District Judge clearly indicates that this issue raised by the
appellants has not been considered at all in the impugned order and judgment.
Supreme Court in case of SMS Tea Estates Private Limited (supra) has after
construing section 33 and 35 of the Stamp Act which are in parimateria with
section 33 and 34 of the Bombay Stamp Act, 1958 has held that unless the stamp
duty and penalty due in respect of a instrument is paid, the court cannot act upon
such instrument and held that it cannot act upon the arbitration agreement also
which is the part of the instrument. It is held that when such document is relied
upon as containing the arbitration agreement, the court should consider at the
outset though an objection in that regard is raised or not whether the document is
properly stamped and if it comes to the conclusion that it is not properly stamped,
it should be impounded and dealt with in the manner specified in section 38 of the
Stamp Act. The court cannot act upon such a document or the arbitration clause
therein.
15. Division Bench of this court in case of Lakdawala Developers Pvt. Ltd.
(supra) after adverting to the judgment of Supreme Court in case of SMS Tea
Estates Private Limited (supra), in the appeal arising out of an order passed by the
learned Single Judge in arbitration petition filed under section 9 of the Arbitration
and Conciliation Act, 1996 after considering similar provisions in the
memorandum of understanding held that the objection with regard to the document
being insufficiently stamped ought to have been considered by the learned Single
Judge when the document came before the court in the course of the proceedings
under section 9 and such issue could not have been deferred to the arbitration
proceedings having regard to the provisions of section 33(1) of the Bombay
Stamps Act, 1958. Division Bench has also held that article (g-a) of the schedule I
relates to giving authority or power to a promoter or a developer by whatever name
called for construction of, development of, or sale or transfer in any manner
whatsoever of any immoveable property. The Division Bench passed an order for
impounding of the memorandum of understanding and directed the Prothonotary
and Senior Mater of Collector of Stamp to adjudication of the stamp duty and
penalty if any payable on the document under the provisions of the Bombay
Stamps Act, 1958. The Division Bench stayed the operation of the directions
contained in the order passed by the learned Single Judge till then. In my view both
these judgments are squarely applicable to the facts of this case.
16. In so far as judgment of the Supreme Court in case of Firm Ashok Traders
(supra) relied upon by Mr.Jahagirdar, learned senior counsel is concerned, the
Supreme Court has considered the provisions of section 69 of the Indian
Partnership Act while considering an maintainability of an application under
section 9 of the Arbitration and Conciliation Act, 1996. It is held by the Supreme
Court that under the scheme of the Arbitration and Conciliation Act, the arbitration
clause is separable from other clauses of the partnership deed. Section 69 of the
Partnership Act has no bearing on the right of a party to an arbitration clause to file
an application under section 9 of the Arbitration and Conciliation Act, 1996. It is
held that the right conferred by section 9 cannot said to be one arising out of a
contract. In the said judgment the Supreme Court has held that an application
under section 9 under the scheme of the Arbitration and Conciliation Act, 1996 is
not a suit.
17. On conjoint reading of section 69 of the Indian Partnership Act with section
33 and 34 of the Bombay Stamps Act makes it clear that effect of non registration
of a partnership firm would be on the suit to enforce a right arising from a contract
or conferred by the Indian Partnership Act filed on or behalf of any person showing
as a partner in a firm against the firm or any person alleged to be or have been a
partner in the firm however there is a complete bar under sections 33 and 34 of the
Bombay Stamps Act from admitting an insufficiently stamped instrument in
evidence or even acted upon by any public officer or any authority empower to
receive such document in evidence.
18. Be that as it may, the Supreme Court in case of SMS Tea Estates Private
Limited (supra) which judgment is delivered at subsequent point of time has
interpreted the provisions of Stamp Act which are in parimateria with sections 33
and 34 of the Bombay Stamp Act and has held that insufficiently paid instrument
cannot be acted upon by the court including the arbitration agreement. Division
Bench of this court has specifically held that single judge while hearing application
under section 9 of the Arbitration and Conciliation Act has to consider whether
such an instrument containing arbitration agreement attracts payment of stamp
duty and if so whether it is sufficiently paid and if not paid shall impound such
document. I am respectfully bound by the judgment of the Supreme Court in case
of SMS Tea Estates Private Limited (supra) and order and judgment of Division
Bench of this court which is taken after adverting to the judgment of Supreme
Court in case of SMS Tea Estates Private Limited (supra) and dealing with
sections 33 and 34 of the Bombay Stamps Act while dealing with an application
under section 9 of the Arbitration and Conciliation Act, 1996. In my view the
judgment of Supreme Court in case of Firm Ashok Traders (supra) is clearly
distinguishable and is of no assistance to the respondents.
19. In my view the memorandum of understanding attracted payment of stamp
duty under Article 5(g-a) of Schedule I of Bombay Stamp Act and thus the learned
Principal District Judge ought to have considered this issue and ought to have
impounded the instrument and should have issued directions for adjudication of the
instrument for the purpose of payment of stamp duty and penalty. Till such process
was over, the learned Principal District Judge could not have acted upon such
instrument including the arbitration agreement. Though this issue was raised
specifically by the appellants in the affidavit in reply, the same has not been
considered by the learned Principal District Judge.
20. Since I am inclined to allow this appeal on the ground that the instrument
containing arbitration agreement is insufficiently stamped and thus the learned
Principal District Judge could not have acted upon such instrument and could not
have granted interim measures under section 9 of the Arbitration and Conciliation
Act, 1996, I need not deal with the other issues raised in the memorandum of
appeal. I therefore pass the following order :-
(a) Arbitration Appeal No.45 of 2013 is allowed.
(b) Order dated 30th August, 2013 passed by the learned
Principal District Judge in Civil Misc. Application No.21 of
2013 is set aside. Civil Misc. Application No.21 of 2013 filed
by the respondents is dismissed.
(c) The respondents would be at liberty to seek interim
measures after adjudication of the stamp duty and penalty by
the Collector of Stamps, Thane and after such payment is
effected by the respondents. If any such application is made
by the respondents under section 9 for interim measures after
the instrument is sufficiently stamped and penalty is paid, the
learned District Judge shall dispose of such application for
interim measures on its own merits.
(d) In view of the disposal of the arbitration appeal, Civil
Application No.41 of 2013 does not survive and is accordingly
disposed of.
(e) There shall be no order as to costs.
[R.D. DHANUKA, J.]
On the oral application made by the learned counsel appearing for the
respondents, order passed by the learned Principal District Judge in Civil Misc.
Application No. 21 of 2013 is continued for a period of six weeks from today.
[R.D. DHANUKA, J.]
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