SC : Court Can't Appoint Arbitrator When The Contract Containing Arbitration Clause Is Insufficiently Stamped

One reasonable way of harmonising the provisions contained in
Sections 33 and 34 of the Maharashtra Stamp Act, which is a general
statute insofar as it relates to safeguarding revenue, and Section
11(13) of the 1996 Act, which applies specifically to speedy resolution
of disputes by appointment of an arbitrator expeditiously, is by

declaring that while proceeding with the Section 11 application, the
High Court must impound the instrument which has not borne stamp
duty and hand it over to the authority under the Maharashtra Stamp
Act, who will then decide issues qua payment of stamp duty and
penalty (if any) as expeditiously as possible, and preferably within a
period of 45 days from the date on which the authority receives the
instrument. As soon as stamp duty and penalty (if any) are paid on the
instrument, any of the parties can bring the instrument to the notice of
the High Court, which will then proceed to expeditiously hear and
dispose of the Section 11 application. This will also ensure that once a
Section 11 application is allowed and an arbitrator is appointed, the
arbitrator can then proceed to decide the dispute within the time frame
provided by Section 29A of the 1996 Act.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3631 OF 2019

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

R.F. NARIMAN, J.
Dated:April 10, 2019.

1. Leave granted.
2. This appeal arises out of a sub-contract given by the appellant to
the respondent in respect of work to be done for installation of a geotextile
tubes embankment with toe mound at village Pentha in Odisha
for protection against coastal erosion. The sub-contract agreement is
dated 14.06.2013, Annexure III of which contains the following
arbitration clause:
“Any and all claims, disputes, questions or controversies
involving the parties and arising in connection with the
Agreement or execution, interpretation, validity,
performance, termination hereof which cannot be finally
1
resolved by such parties [sic through] negotiation shall
be resolved by final and binding arbitration held in Pune.
The disputes shall be referred to a sole arbitrator to be
appointed by GWRL and COMACOE jointly in
agreement.”
3. Disputes arose between the parties, and on 02.01.2015, the
appellant terminated the sub-contract. As a result, on 20.07.2016, the
respondent wrote to the appellant stating that as disputes and
differences had arisen between the parties, notice was given of
appointment of Mr. Mihir Naniwadekar, Advocate, as sole arbitrator.
The appellant replied on 17.08.2016, stating that the appointment of
Mr. Naniwadekar as sole arbitrator was not acceptable as invocation of
arbitration in pursuance of the agreement is premature. The
respondent, therefore, filed a petition under Section 11 of the
Arbitration and Conciliation Act, 1996 [“1996 Act”] on 10.02.2017
before the Bombay High Court. By the impugned judgment dated
09.03.2018, the Section 11 petition was allowed and Mr. Naniwadekar
was appointed as sole arbitrator to adjudicate upon disputes and
differences which have arisen between the appellant and the
respondent in relation to the sub-contract dated 14.06.2013.
4. The question raised in this appeal is as to what is the effect of an
arbitration clause contained in a contract which requires to be
stamped. This Court, in SMS Tea Estates (P) Ltd. v. Chandmari Tea
2
Co. (P) Ltd., (2011) 14 SCC 66 [“SMS Tea Estates”], has held that
where an arbitration clause is contained in an unstamped agreement,
the provisions of the Indian Stamp Act, 1899 [“Indian Stamp Act”]
require the Judge hearing the Section 11 application to impound the
agreement and ensure that stamp duty and penalty (if any) are paid
thereon before proceeding with the Section 11 application. The
question is whether Section 11(6A), which has been introduced by way
of the Arbitration and Conciliation (Amendment) Act, 2015
[“Amendment Act, 2015”], has removed the basis of this judgment, so
that the stage at which the instrument is to be impounded is not by the
Judge hearing the Section 11 application, but by an arbitrator who is
appointed under Section 11, as has been held by the impugned
judgment.
5. Mr. Dhruv Mehta, learned Senior Advocate appearing on behalf
of the appellant, has taken us through the sub-contract as well as the
arbitration clause contained therein. He relied strongly upon the
Maharashtra Stamp Act, 1958 [“Maharashtra Stamp Act”], and
Sections 33 and 34 thereof, in particular. According to him, these are
provisions which are similar to the provisions contained in Sections 33
and 35 of the Indian Stamp Act, which, as held in SMS Tea Estates
(supra), requires judicial authorities to impound such instruments,
3
which cannot be admitted in evidence or cannot be acted upon until
duly stamped. According to him, the judgment in SMS Tea Estates
(supra) continues to apply even after the introduction of Section 11(6A)
to the 1996 Act, by which the Court is now to confine itself to the
examination of the existence of an arbitration agreement. Relying upon
the 246th Law Commission Report, which led to the amendment
contained in Section 11(6A), together with the Statement of Objects
and Reasons appended to the Arbitration and Conciliation
(Amendment) Bill, 2015, Mr. Mehta argued that it was clear that the
amendment was necessitated as a result of two Supreme Court
judgments in particular, namely, SBP & Co. v. Patel Engineering Ltd.,
(2005) 8 SCC 618 [“SBP & Co.”] and National Insurance Co. Ltd. v.
Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 [“Boghara Polyfab”], by
which the door was opened too wide, so that many preliminary issues
which do not relate to the existence of an arbitration agreement were
to be decided by the Court hearing the Section 11 application instead
of by the arbitrator. The focus being on these two judgments, it is clear
that it is these two judgments whose basis has been removed, leaving
SMS Tea Estates (supra) untouched. According to him, it is clear that
if, as a result of operation of law, an instrument is to be impounded,
upon which stamp duty and penalty (if any) are then to be paid, must
4
be followed as Section 11(6A) does not seek to interfere with the
Indian Stamp Act at all. He relied upon certain judgments to buttress
his submissions.
6. Ms. Ridhi Nyati, learned Advocate appearing on behalf of the
respondent, referred us to Sections 8, 16, and 45 of the 1996 Act in
particular, and made it clear that the object of the Amendment Act,
2015, in introducing Section 11(6A), was to confine the Court hearing
the Section 11 application to examination of the existence of an
arbitration agreement and nothing more. She made a distinction
between “validity” and “existence” of an arbitration agreement, and
argued that the provisions of the Indian Stamp Act are a fiscal measure
intended merely to collect revenue and, if at all, will go to “validity” of
an arbitration agreement and not to its “existence”. She relied strongly
upon certain judgments which made it clear that an arbitration
agreement is independent of the agreement in which it is contained. So
long as it is in writing, and therefore, exists in fact, the Court hearing
the Section 11 application is to appoint an arbitrator and thereafter
leave all other preliminary issues to the arbitrator, as is mandated by
Section 11 of the 1996 Act. The whole object of the amendment would
be defeated as otherwise, a mini-trial would be conducted at the
Section 11 stage, requiring impounding of the agreement containing
5
the arbitration clause. She also relied upon Section 11(13) of the 1996
Act, making it clear that the application under Section 11 ought to be
disposed of within a period of 60 days from the date of service of
notice, and that this would not be possible if questions relating to the
Indian Stamp Act were to be decided at the Section 11 stage. Equally,
according to her, no prejudice would be caused to any party if the
arbitrator were to commence the arbitration and then impound the
documents containing the arbitration clause by applying the Indian
Stamp Act. She also argued that, in the present case, it is the appellant
who is to pay stamp duty under the Indian Contract Act, 1872, and
therefore, cannot take advantage of its own wrong in not doing so, as
has been correctly held in the impugned judgment. She also relied
upon several other judgments to buttress her submissions.
7. Having heard learned counsel for both sides, it is important to
first set out the relevant provisions contained in the 1996 Act. Section
2(1)(b) defines “arbitration agreement” as follows:
“2. Definitions.—(1) In this Part, unless the context
otherwise requires,—
xxx xxx xxx
(b) “arbitration agreement” means an agreement
referred to in Section 7;
xxx xxx xxx”
6
Section 7 is important and deals with what is meant by an arbitration
agreement. Section 7 states:
“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
which provide a record of the agreement; or
(c) an exchange of statements of claim and
defence in which the existence of the
agreement is alleged by one party and not
denied by the other.
(5) The reference in a contract to a document containing
an arbitration clause constitutes an arbitration agreement
if the contract is in writing and the reference is such as to
make that arbitration clause part of the contract.”
Section 8, which speaks of the power to refer parties to arbitration
where there is an arbitration agreement is also relevant, and states:
“8. Power to refer parties to arbitration where there is
an arbitration agreement.—(1) A judicial authority,
before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party to the
arbitration agreement or any person claiming through or
under him, so applies not later than the date of
submitting his first statement on the substance of the
dispute, then, notwithstanding any judgment, decree or
7
order of the Supreme Court or any Court, refer the
parties to arbitration 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.”
Section 11(6A), 11(7), and 11(13) are important for decision in this
case and are set out hereinbelow:
“11. Appointment of arbitrators.—
xxx xxx xxx
(6A) The Supreme Court or, as the case may be, the
High Court, while considering any application under subsection
(4) or sub-section (5) or sub-section (6), shall,
notwithstanding any judgment, decree or order of any
court, confine to the examination of the existence of an
arbitration agreement.
xxx xxx xxx
(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
xxx xxx xxx
(13) An application made under this section for
appointment of an arbitrator or arbitrators shall be
disposed of by the Supreme Court or the High Court or
the person or institution designated by such court, as the
case may be, as expeditiously as possible and an
endeavour shall be made to dispose of the matter within
a period of sixty days from the date of service of notice
on the opposite party.
xxx xxx xxx”
Section 16(1) reads as follows:
“16. Competence of arbitral tribunal to rule on its
jurisdiction.—(1) The arbitral tribunal may rule on its
own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration
agreement, and for that purpose,—
(a) an arbitration clause which forms part of a
contract shall be treated as an agreement
independent of the other terms of the
contract; and
(b) a decision by the arbitral tribunal that the
contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.
xxx xxx xxx”
Section 45, which speaks of the power of a judicial authority to refer
parties to arbitration, when it comes to agreements referred to by the
New York Convention of 1958, states as follows:
“45. Power of judicial authority to refer parties to
arbitration.—Notwithstanding anything contained in Part
I or in the Code of Civil Procedure, 1908 (V of 1908), a
judicial authority, when seized of an action in a matter in
respect of which the parties have made an agreement
referred to in Section 44, shall, at the request of one of
the parties or any person claiming through or under him,
refer the parties to arbitration, unless it finds that the said
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agreement is null and void, inoperative or incapable of
being performed.”
8. Sections 33 and 34 of the Maharashtra Stamp Act, with which we
are directly concerned, read as follows:
“33. Examination and impounding of instruments.—
(1) Subject to the provisions of section 32-A, 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 or any other officer,
empowered by law to investigate offences under any law
for the time being in force, 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 duly stamped,
impound the same irrespective whether the instrument is
or is not valid in law.
(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 for the time being in force in the
State 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 IX or Part D of
Chapter X of the Code of Criminal Procedure,
1973;
(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 may appoint in this
behalf.
10
(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.
34. 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 or if the
instrument is written on sheet of paper with impressed
stamp such stamp paper is purchased in the name of
one of the parties to the instrument:
Provided that,—
(a) any such instrument shall, subject to all just
exceptions, be admitted in evidence on
payment of,—
(i) the duty with which the same is
chargeable, or in the case of an
instrument insufficiently stamped, the
amount required to make up such
duty, and
(ii) a penalty at the rate of 2 per cent of
the deficient portion of the stamp duty
for every month or part thereof, from
the date of execution of such
instrument:
Provided that, in no case, the amount
of the penalty shall exceed double the
deficient portion of the stamp duty.
(b) where a contract or agreement of any kind is
effected by correspondence consisting of two or
more letters and any one of the letters bears
the proper stamp; the contract or agreement
shall be deemed to be duly stamped;
11
(c) 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 IX or Part D of
Chapter X of the Code of Criminal Procedure,
1973;
(d) 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;
(e) nothing herein contained shall prevent the
admission of a copy of any instrument or of an
oral admission of the contents of any
instrument, if the stamp duty or a deficient
portion of the stamp duty and penalty as
specified in clause (a) is paid.”
9. The case law under Section 11(6) of the Arbitration Act, as it
stood prior to the Amendment Act, 2015, has had a chequered history.
In Konkan Railway Corporation Ltd. v. Mehul Construction Co.,
(2000) 7 SCC 201 [“Konkan Railway I”], it was held that the powers of
the Chief Justice under Section 11(6) of the 1996 Act are
administrative in nature, and that the Chief Justice or his designate
does not act as a judicial authority while appointing an arbitrator. The
same view was reiterated in Konkan Railway Corporation Ltd. v.
Rani Construction (P) Ltd., (2002) 2 SCC 388 [“Konkan Railway II”].
10. However, in SBP & Co. (supra), a seven-Judge Bench overruled
this view and held that the power to appoint an arbitrator under Section
12
11 is judicial and not administrative. The conclusions of the seven-
Judge Bench were summarised in paragraph 47 of the aforesaid
judgment. We are concerned directly with sub-paragraphs (i), (iv), and
(xii), which read as follows:
“(i) The power exercised by the Chief Justice of the High
Court or the Chief Justice of India under Section 11(6) of
the Act is not an administrative power. It is a judicial
power.
xxx xxx xxx
(iv) The Chief Justice or the designated Judge will have
the right to decide the preliminary aspects as indicated in
the earlier part of this judgment. These will be his own
jurisdiction to entertain the request, the existence of a
valid arbitration agreement, the existence or otherwise of
a live claim, the existence of the condition for the
exercise of his power and on the qualifications of the
arbitrator or arbitrators. The Chief Justice or the
designated Judge would be entitled to seek the opinion
of an institution in the matter of nominating an arbitrator
qualified in terms of Section 11(8) of the Act if the need
arises but the order appointing the arbitrator could only
be that of the Chief Justice or the designated Judge.
xxx xxx xxx
(xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani
Construction (P) Ltd. [(2002) 2 SCC 388] is overruled.”
This position was further clarified in Boghara Polyfab (supra) as
follows:
“22. Where the intervention of the court is sought for
appointment of an Arbitral Tribunal under Section 11, the
duty of the Chief Justice or his designate is defined in
SBP & Co. [(2005) 8 SCC 618]. This Court identified and
segregated the preliminary issues that may arise for
consideration in an application under Section 11 of the
Act into three categories, that is, (i) issues which the
13
Chief Justice or his designate is bound to decide; (ii)
issues which he can also decide, that is, issues which he
may choose to decide; and (iii) issues which should be
left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief
Justice/his designate will have to decide are:
(a) Whether the party making the application
has approached the appropriate High Court.
(b) Whether there is an arbitration agreement
and whether the party who has applied under
Section 11 of the Act, is a party to such an
agreement.
22.2. The issues (second category) which the Chief
Justice/his designate may choose to decide (or leave
them to the decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred)
claim or a live claim.
(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of
their mutual rights and obligation or by receiving
the final payment without objection.
22.3. The issues (third category) which the Chief
Justice/his designate should leave exclusively to the
Arbitral Tribunal are:
(i) 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).
(ii) Merits or any claim involved in the
arbitration.”
11. As a result of these judgments, the door was wide open for the
Chief Justice or his designate to decide a large number of preliminary
aspects which could otherwise have been left to be decided by the
arbitrator under Section 16 of the 1996 Act. As a result, the Law
14
Commission of India, by its Report No. 246 submitted in August 2014,
suggested that various sweeping changes be made in the 1996 Act.
Insofar as SBP & Co. (supra) and Boghara Polyfab (supra) are
concerned, the Law Commission examined the matter and
recommended the addition of a new sub-section, namely, sub-section
(6A) in Section 11. In so doing, the Law Commission recommendations
which are relevant and which led to the introduction of Section 11(6A)
are as follows:
“28. The Act recognizes situations where the intervention
of the Court is envisaged at the pre-arbitral stage, i.e.
prior to the constitution of the arbitral tribunal, which
includes sections 8, 9, 11 in the case of Part I
arbitrations and section 45 in the case of Part II
arbitrations. Sections 8, 45 and also section 11 relating
to “reference to arbitration” and “appointment of the
tribunal”, directly affect the constitution of the tribunal
and functioning of the arbitral proceedings. Therefore,
their operation has a direct and significant impact on the
“conduct” of arbitrations. Section 9, being solely for the
purpose of securing interim relief, although having the
potential to affect the rights of parties, does not affect the
“conduct” of the arbitration in the same way as these
other provisions. It is in this context the Commission has
examined and deliberated the working of these
provisions and proposed certain amendments.
29. The Supreme Court has had occasion to deliberate
upon the scope and nature of permissible pre-arbitral
judicial intervention, especially in the context of section
11 of the Act. Unfortunately, however, the question
before the Supreme Court was framed in terms of
whether such a power is a “judicial” or an “administrative”
power – which obfuscates the real issue underlying such
nomenclature/description as to –
15
 the scope of such powers – i.e. the scope of
arguments which a Court (Chief Justice) will
consider while deciding whether to appoint an
arbitrator or not – i.e. whether the arbitration
agreement exists, whether it is null and void,
whether it is voidable etc.; and which of these it
should leave for decision of the arbitral tribunal.
 the nature of such intervention – i.e. would the
Court (Chief Justice) consider the issues upon a
detailed trial and whether the same would be
decided finally or be left for determination of the
arbitral tribunal.
30. After a series of cases culminating in the decision in
SBP v. Patel Engineering, (2005) 8 SCC 618, the
Supreme Court held that the power to appoint an
arbitrator under section 11 is a “judicial” power. The
underlying issues in this judgment, relating to the scope
of intervention, were subsequently clarified by
RAVEENDRAN J in National Insurance Co. Ltd. v. Boghara
Polyfab Pvt. Ltd., (2009) 1 SCC 267, where the Supreme
Court laid down as follows –
“1. The issues (first category) which Chief
Justice/his designate will have to decide are:
(a) Whether the party making the application
has approached the appropriate High Court?
(b) Whether there is an arbitration agreement
and whether the party who has applied under
section 11 of the Act, is a party to such an
agreement?
2. The issues (second category) which the Chief
Justice/his designate may choose to decide are:
(a) Whether the claim is a dead (long barred)
claim or a live claim?
(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of
their mutual rights and obligation or by receiving
the final payment without objection?
3. The issues (third category) which the Chief
Justice/his designate should leave exclusively to the
arbitral tribunal are:
16
(a) Whether a claim 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)?
(b) Merits of any claim involved in the
arbitration.”
31. The Commission is of the view that, in this context,
the same test regarding scope and nature of judicial
intervention, as applicable in the context of section 11,
should also apply to sections 8 and 45 of the Act – since
the scope and nature of judicial intervention should not
change upon whether a party (intending to defeat the
arbitration agreement) refuses to appoint an arbitrator in
terms of the arbitration agreement, or moves a
proceeding before a judicial authority in the face of such
an arbitration agreement.
32. In relation to the nature of intervention, the exposition
of the law is to be found in the decision of the Supreme
Court in Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre,
(2005) 7 SCC 234, (in the context of section 45 of the
Act), where the Supreme Court has ruled in favour of
looking at the issues/controversy only prima facie.
33. It is in this context, the Commission has
recommended amendments to sections 8 and 11 of the
Arbitration and Conciliation Act, 1996. The scope of the
judicial intervention is only restricted to situations where
the Court/Judicial Authority finds that the arbitration
agreement does not exist or is null and void. In so far as
the nature of intervention is concerned, it is
recommended that in the event the Court/Judicial
Authority is prima facie satisfied against the argument
challenging the arbitration agreement, it shall appoint the
arbitrator and/or refer the parties to arbitration, as the
case may be. The amendment envisages that the judicial
authority shall not refer the parties to arbitration only if it
finds that there does not exist an arbitration agreement
or that it is null and void. If the judicial authority is of the
opinion that prima facie the arbitration agreement exists,
then it shall refer the dispute to arbitration, and leave the
existence of the arbitration agreement to be finally
17
determined by the arbitral tribunal. However, if the
judicial authority concludes that the agreement does not
exist, then the conclusion will be final and not prima
facie. The amendment also envisages that there shall be
a conclusive determination as to whether the arbitration
agreement is null and void. In the event that the judicial
authority refers the dispute to arbitration and/or appoints
an arbitrator, under sections 8 and 11 respectively, such
a decision will be final and non-appealable. An appeal
can be maintained under section 37 only in the event of
refusal to refer parties to arbitration, or refusal to appoint
an arbitrator.”
12. Pursuant to the Law Commission recommendations, Section
11(6A) was introduced first by Ordinance and then by the Amendment
Act, 2015. The Statement of Objects and Reasons which were
appended to the Arbitration and Conciliation (Amendment) Bill, 2015
which introduced the Amendment Act, 2015 read as follows:
“STATEMENT OF OBJECTS AND REASONS
xxx xxx xxx
6. It is proposed to introduce the Arbitration and
Conciliation (Amendment) Bill, 2015, to replace the
Arbitration and Conciliation (Amendment) Ordinance,
2015, which inter alia, provides for the following, namely:
—
(i) to amend the definition of “Court” to provide that in the
case of international commercial arbitrations, the Court
should be the High Court;
(ii) to ensure that an Indian Court can exercise
jurisdiction to grant interim measures, etc., even where
the seat of the arbitration is outside India;
(iii) an application for appointment of an arbitrator shall
be disposed of by the High Court or Supreme Court, as
the case may be, as expeditiously as possible and an
endeavour should be made to dispose of the matter
within a period of sixty days;
18
(iv) to provide that while considering any application for
appointment of arbitrator, the High Court or the Supreme
Court shall examine the existence of a prima facie
arbitration agreement and not other issues;
(v) to provide that the arbitral tribunal shall make its
award within a period of twelve months from the date it
enters upon the reference and that the parties may,
however, extend such period up to six months, beyond
which period any extension can only be granted by the
Court, on sufficient cause;
(vi) to provide that a model fee Schedule on the basis of
which High Courts may frame rules for the purpose of
determination of fees of arbitral tribunal, where a High
Court appoints arbitrator in terms of section 11 of the Act;
(vii) to provide that the parties to dispute may at any
stage agree in writing that their dispute be resolved
through fast track procedure and the award in such
cases shall be made within a period of six months;
(viii) to provide for neutrality of arbitrators, when a person
is approached in connection with possible appointment
as an arbitrator;
(ix) to provide that application to challenge the award is
to be disposed of by the Court within one year.
7. The amendments proposed in the Bill will ensure that
arbitration process becomes more user-friendly, cost
effective and lead to expeditious disposal of cases.
xxx xxx xxx”
13. A reading of the Law Commission Report, together with the
Statement of Objects and Reasons, shows that the Law Commission
felt that the judgments in SBP & Co. (supra) and Boghara Polyfab
(supra) required a relook, as a result of which, so far as Section 11 is
concerned, the Supreme Court or, as the case may be, the High Court,
while considering any application under Section 11(4) to 11(6) is to
19
confine itself to the examination of the existence of an arbitration
agreement and leave all other preliminary issues to be decided by the
arbitrator. The question is as to whether the decision in SMS Tea
Estates (supra) has also been done away with by the expression
“notwithstanding any judgment, decree or order of any Court”
contained in Section 11(6A).
14. In SMS Tea Estates (supra), this Court was confronted with an
arbitration clause, namely, Clause 35 of a lease deed dated
21.12.2006 for a term of 30 years in regard to two tea estates. The
lease deed was neither stamped nor registered. Paragraph 9 of the
judgment set out the questions that arose for consideration as follows:
“9. On the contentions urged the following questions
arise for consideration:
(i) Whether an arbitration agreement contained
in an unregistered (but compulsorily
registerable) 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 the respondent and
whether an arbitrator should be appointed?”
When it came to the question of an arbitration clause contained in an
unregistered lease deed, this Court held:
20
“12. When a contract contains an arbitration agreement,
it is a collateral term relating to the resolution of disputes,
unrelated to the performance of the contract. It is as if
two contracts—one in regard to the substantive terms of
the main contract and the other relating to resolution of
disputes—had been rolled into one, for purposes of
convenience. An arbitration clause is therefore an
agreement independent of the other terms of the contract
or the instrument. Resultantly, even if the contract or its
performance is terminated or comes to an end on
account of repudiation, frustration or breach of contract,
the arbitration agreement would survive for the purpose
of resolution of disputes arising under or in connection
with the contract.
13. Similarly, when an instrument or deed of transfer (or
a document affecting immovable property) contains an
arbitration agreement, it is a collateral term relating to
resolution of disputes, unrelated to the transfer or
transaction affecting the immovable property. It is as if
two documents—one affecting the immovable property
requiring registration and the other relating to resolution
of disputes which is not compulsorily registerable—are
rolled into a single instrument. Therefore, even if a deed
of transfer of immovable property is challenged as not
valid or enforceable, the arbitration agreement would
remain unaffected for the purpose of resolution of
disputes arising with reference to the deed of transfer.
14. These principles have now found statutory
recognition in sub-section (1) of Section 16 of the
Arbitration and Conciliation Act, 1996 which is extracted
below:
“16. Competence of Arbitral Tribunal to rule on its
jurisdiction.—(1) The Arbitral Tribunal may rule on its
own jurisdiction, including ruling on any objections with
respect to the existence or validity of the arbitration
agreement, and for that purpose—
(a) an arbitration clause which forms part of a contract
shall be treated as an agreement independent of the
other terms of the contract; and
21
(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.”
15. But where the contract or instrument is voidable at
the option of a party (as for example under Section 19 of
the Contract Act, 1872), the invalidity that attaches itself
to the main agreement may also attach itself to the
arbitration agreement, if the reasons which make the
main agreement voidable, exist in relation to the making
of the arbitration agreement also. For example, if a
person is made to sign an agreement to sell his property
under threat of physical harm or threat to life, and the
said person repudiates the agreement on that ground,
not only the agreement for sale, but any arbitration
agreement therein will not be binding.
16. An arbitration agreement does not require
registration under the Registration Act. Even if it is found
as one of the clauses in a contract or instrument, it is an
independent agreement to refer the disputes to
arbitration, which is independent of the main contract or
instrument. Therefore having regard to the proviso to
Section 49 of the Registration Act read with Section
16(1)(a) of the Act, an arbitration agreement in an
unregistered but compulsorily registerable document can
be acted upon and enforced for the purpose of dispute
resolution by arbitration.”
However, when it came to an unstamped lease deed which contained
an arbitration clause, this Court, after setting out Sections 33 and 35 of
the Indian Stamp Act held:
“19. Having regard to Section 35 of the Stamp Act,
unless the stamp duty and penalty due in respect of the
instrument is paid, the court cannot act upon the
instrument, which means that it cannot act upon the
arbitration agreement also which is part of the
instrument. Section 35 of the Stamp Act is distinct and
different from Section 49 of the Registration Act in regard
to an unregistered document. Section 35 of the Stamp
22
Act, does not contain a proviso like Section 49 of the
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 Gauhati High Court, 1996 requires an
application under Section 11 of the Act to be
accompanied by the original arbitration agreement or a
duly certified copy thereof. In fact, such a requirement is
found in the scheme/rules of almost all the High Courts.
If what is produced is a certified copy of the
agreement/contract/instrument containing the arbitration
clause, it should disclose the stamp duty that has been
paid on the original. Section 33 casts a duty upon every
court, that is, a person having by law authority to receive
evidence (as also every arbitrator who is a person having
by consent of parties, authority to receive evidence)
before whom an unregistered instrument chargeable with
duty is produced, to examine the instrument in order to
ascertain whether it is duly stamped. If the court comes
to the conclusion that the instrument is not duly stamped,
it has to impound the document and deal with it as per
Section 38 of the Stamp Act.
21. Therefore, when a lease deed or any other
instrument is relied upon as contending the arbitration
agreement, the court should consider at the outset,
whether an objection in that behalf is raised or not,
whether the document is properly stamped. If it comes to
the conclusion that it is not properly stamped, it should
be impounded and dealt with in the manner specified in
Section 38 of the Stamp Act. The court cannot act upon
such a document or the 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
registerable) 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
23
whether it is an instrument which is compulsorily
registerable.
22.2. If the document is found to be not duly stamped,
Section 35 of the 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
Sections 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 Section of the Stamp Act), and the
defect with reference to deficit stamp is cured, the court
may treat the document as duly stamped.
xxx xxx xxx”
In conclusion, this Court held:
“32. In view of the above this appeal is allowed, the order
of the High Court is set aside and the matter is remitted
to the learned Chief Justice of the Gauhati High Court to
first decide the issue of stamp duty, and if the document
is duly stamped, then appoint an arbitrator in accordance
with law.”
15. It will be noticed from the aforesaid judgment that where an
arbitration clause is contained in an agreement or conveyance,
different consequences ensue depending on whether the agreement or
conveyance is unregistered or unstamped. It is settled by SBP & Co.
(supra) that Section 16 of the 1996 Act has full play only after the
arbitral tribunal is constituted, without intervention of the Court under
Section 11. This Court, in the aforesaid judgment, held:
24
“12. Section 16 of the Act only makes explicit what is
even otherwise implicit, namely, that the Arbitral Tribunal
constituted under the Act has the jurisdiction to rule on its
own jurisdiction, including ruling on objections with
respect to the existence or validity of the arbitration
agreement. Sub-section (1) also directs that an
arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms
of the contract. It also clarifies that a decision by the
Arbitral Tribunal that the contract is null and void shall
not entail ipso jure the invalidity of the arbitration clause.
Sub-section (2) of Section 16 enjoins that a party
wanting to raise a plea that the Arbitral Tribunal does not
have jurisdiction, has to raise that objection not later than
the submission of the statement of defence, and that the
party shall not be precluded from raising the plea of
jurisdiction merely because he has appointed or
participated in the appointment of an arbitrator. Subsection
(3) lays down that a plea that the Arbitral Tribunal
is exceeding the scope of its authority, shall be raised as
soon as the matter alleged to be beyond the scope of its
authority is raised during the arbitral proceedings. When
the Tribunal decides these two questions, namely, the
question of jurisdiction and the question of exceeding the
scope of authority or either of them, the same is open to
immediate challenge in an appeal, when the objection is
upheld and only in an appeal against the final award,
when the objection is overruled. Sub-section (5) enjoins
that if the Arbitral Tribunal overrules the objections under
sub-section (2) or (3), it should continue with the arbitral
proceedings and make an arbitral award. Sub-section (6)
provides that a party aggrieved by such an arbitral award
overruling the plea on lack of jurisdiction and the
exceeding of the scope of authority, may make an
application on these grounds for setting aside the award
in accordance with Section 34 of the Act. The question,
in the context of sub-section (7) of Section 11 is, what is
the scope of the right conferred on the Arbitral Tribunal to
rule upon its own jurisdiction and the existence of the
arbitration clause, envisaged by Section 16(1), once the
Chief Justice or the person designated by him had
appointed an arbitrator after satisfying himself that the
25
conditions for the exercise of power to appoint an
arbitrator are present in the case. Prima facie, it would
be difficult to say that in spite of the finality conferred by
sub-section (7) of Section 11 of the Act, to such a
decision of the Chief Justice, the Arbitral Tribunal can still
go behind that decision and rule on its own jurisdiction or
on the existence of an arbitration clause. It also appears
to us to be incongruous to say that after the Chief Justice
had appointed an Arbitral Tribunal, the Arbitral Tribunal
can turn round and say that the Chief Justice had no
jurisdiction or authority to appoint the Tribunal, the very
creature brought into existence by the exercise of power
by its creator, the Chief Justice. The argument of the
learned Senior Counsel, Mr K.K. Venugopal that Section
16 has full play only when an Arbitral Tribunal is
constituted without intervention under Section 11(6) of
the Act, is one way of reconciling that provision with
Section 11 of the Act, especially in the context of subsection
(7) thereof. We are inclined to the view that the
decision of the Chief Justice on the issue of jurisdiction
and the existence of a valid arbitration agreement would
be binding on the parties when the matter goes to the
Arbitral Tribunal and at subsequent stages of the
proceeding except in an appeal in the Supreme Court in
the case of the decision being by the Chief Justice of the
High Court or by a Judge of the High Court designated
by him.”
In view of the law laid down by seven-Judge Bench, it is difficult to
accede to the argument made by the learned counsel on behalf of the
respondent that Section 16 makes it clear that an arbitration
agreement has an independent existence of its own, and must be
applied while deciding an application under Section 11 of the 1996 Act.
26
16. It will be seen that neither in the Statement of Objects and
Reasons nor in the Law Commission Report is there any mention of
SMS Tea Estates (supra). This is for the very good reason that the
Supreme Court or the High Court, while deciding a Section 11
application, does not, in any manner, decide any preliminary question
that arises between the parties. The Supreme Court or the High Court
is only giving effect to the provisions of a mandatory enactment which,
no doubt, is to protect revenue. SMS Tea Estates (supra) has taken
account of the mandatory provisions contained in the Indian Stamp Act
and held them applicable to judicial authorities, which would include
the Supreme Court and the High Court acting under Section 11. A
close look at Section 11(6A) would show that when the Supreme Court
or the High Court considers an application under Section 11(4) to
11(6), and comes across an arbitration clause in an agreement or
conveyance which is unstamped, it is enjoined by the provisions of the
Indian Stamp Act to first impound the agreement or conveyance and
see that stamp duty and penalty (if any) is paid before the agreement,
as a whole, can be acted upon. It is important to remember that the
Indian Stamp Act applies to the agreement or conveyance as a whole.
Therefore, it is not possible to bifurcate the arbitration clause contained
in such agreement or conveyance so as to give it an independent
27
existence, as has been contended for by the respondent. The
independent existence that could be given for certain limited purposes,
on a harmonious reading of the Registration Act, 1908 and the 1996
Act has been referred to by Raveendran, J. in SMS Tea Estates
(supra) when it comes to an unregistered agreement or conveyance.
However, the Indian Stamp Act, containing no such provision as is
contained in Section 49 of the Registration Act, 1908, has been held by
the said judgment to apply to the agreement or conveyance as a
whole, which would include the arbitration clause contained therein. It
is clear, therefore, that the introduction of Section 11(6A) does not, in
any manner, deal with or get over the basis of the judgment in SMS
Tea Estates (supra), which continues to apply even after the
amendment of Section 11(6A).
17. Looked at from a slightly different angle, an arbitration agreement
which is contained in an agreement or conveyance is dealt with in
Section 7(2) of the 1996 Act. We are concerned with the first part of
Section 7(2) on the facts of the present case, and therefore, the
arbitration clause that is contained in the sub-contract in question is the
subject matter of the present appeal. It is significant that an arbitration
agreement may be in the form of an arbitration clause “in a contract”.
28
18. Sections 2(a), 2(b), 2(g) and 2(h) of the Indian Contract Act, 1872
[“Contract Act”] read as under:
“2. Interpretation clause.—In this Act the following
words and expressions are used in the following senses,
unless a contrary intention appears from the context:—
(a) When one person signifies to another his
willingness to do or to abstain from doing
anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said
to make a proposal;
(b) When the person to whom the proposal is
made signifies his assent thereto, the proposal
is said to be accepted. A proposal, when
accepted, becomes a promise;
xxx xxx xxx
(g) An agreement not enforceable by law is said
to be void;
(h) An agreement enforceable by law is a
contract;
xxx xxx xxx”
19. When an arbitration clause is contained “in a contract”, it is
significant that the agreement only becomes a contract if it is
enforceable by law. We have seen how, under the Indian Stamp Act,
an agreement does not become a contract, namely, that it is not
enforceable in law, unless it is duly stamped. Therefore, even a plain
reading of Section 11(6A), when read with Section 7(2) of the 1996 Act
and Section 2(h) of the Contract Act, would make it clear that an
arbitration clause in an agreement would not exist when it is not
enforceable by law. This is also an indicator that SMS Tea Estates
29
(supra) has, in no manner, been touched by the amendment of Section
11(6A).
20. We now come to some of the judgments cited by both the sides.
21. Learned counsel for the respondent relied heavily upon Enercon
(India) Ltd. & Ors. v. Enercon GmbH & Anr., (2014) 5 SCC 1
[“Enercon”], in particular, paragraph 83 thereof, which reads as
follows:
“83. The concept of separability of the arbitration
clause/agreement from the underlying contract is a
necessity to ensure that the intention of the parties to
resolve the disputes by arbitration does not evaporate
into thin air with every challenge to the legality, validity,
finality or breach of the underlying contract. The Indian
Arbitration Act, 1996, as noticed above, under Section 16
accepts the concept that the main contract and the
arbitration agreement form two independent contracts.
Commercial rights and obligations are contained in the
underlying, substantive, or the main contract. It is
followed by a second contract, which expresses the
agreement and the intention of the parties to resolve the
disputes relating to the underlying contract through
arbitration. A remedy is elected by parties outside the
normal civil court remedy. It is true that support of the
national courts would be required to ensure the success
of arbitration, but this would not detract from the
legitimacy or independence of the collateral arbitration
agreement, even if it is contained in a contract, which is
claimed to be void or voidable or unconcluded by one of
the parties.”
Paragraph 83 follows upon paragraph 79 of the judgment, which reads
as follows:
30
“79. In our opinion, all the issues raised by the appellants
about the non-existence of a concluded contract pale
into insignificance in the face of “Heads of Agreement on
the proposed IPLA dated 23-5-2006”. Clause 3 of the
Heads of Agreement provides as under:
“3. Governing law and jurisdiction
3.1 This paragraph is legally binding.
3.2 This Heads of Agreement is (and all
negotiations and any legal agreements
prepared in connection with the IPLA shall be)
governed by and construed in accordance with
the law of Germany.
3.3 The parties irrevocably agree that Clause
18 of the proposed draft IPLA shall apply to
settle any dispute or claim that arises out of or
in connection with this memorandum of
understanding and negotiations relating to the
proposed IPLA.”
A bare perusal of this clause makes it abundantly clear
that the parties have irrevocably agreed that Clause 18
of the proposed IPLA shall apply to settle any dispute or
claim that arises out of or in connection with this
memorandum of understanding and negotiations relating
to IPLA.”
The focus in Enercon (supra) was as to whether an arbitration clause
will apply even if there is no concluded contract entered into between
the parties. Since the “Heads of Agreement” provided that disputes
which arose out of the Memorandum of Understanding and
negotiations relating to the Intellectual Property Licence Agreement
(IPLA) were arbitrable, this Court held that the arbitration agreement in
the facts of that case was separate from the main contract, making it a
case which falls under the second part (and not under the first part) to
31
Section 7(2), namely, that an arbitration agreement may be in the form
of a separate agreement. This judgment, therefore, does not take the
respondent very much further. It may only be noted that the judgment
in Ashapura Mine-Chem Ltd. v. Gujarat Mineral Development
Corporation, (2015) 8 SCC 193 merely followed Enercon (supra) and
would be inapplicable for the same reasons outlined by us above.
22. The other judgment strongly relied upon by the learned counsel
for the respondent is Duro Felguera, S.A. v. Gangavaram Port Ltd.,
(2017) 9 SCC 729 [“Duro Felguera”], and in particular, paragraph 59
of the judgment of Kurian Joseph, J. Paragraph 59 reads as follows:
“59. The scope of the power under Section 11(6) of the
1996 Act was considerably wide in view of the decisions
in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005)
8 SCC 618] and Boghara Polyfab [National Insurance
Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 :
(2009) 1 SCC (Civ) 117]. This position continued till the
amendment brought about in 2015. After the
amendment, all that the courts need to see is whether an
arbitration agreement exists—nothing more, nothing
less. The legislative policy and purpose is essentially to
minimise the Court’s intervention at the stage of
appointing the arbitrator and this intention as
incorporated in Section 11(6-A) ought to be respected.”
This judgment also makes it clear that the mischief that was sought to
be remedied by the introduction of Section 11(6A) was contained in the
judgments of SBP & Co. (supra) and Boghara Polyfab (supra). This
32
judgment does not, in any manner, answer the precise issue that is
before us.
23. Indeed, in United India Insurance Co. Ltd. and Ors. v.
Hyundai Engineering and Construction Co. Ltd. and Ors., 2018
SCC OnLine SC 1045 [“United India Insurance Co.”], a three-Judge
Bench of this Court, while dealing with an arbitration clause that arose
under an insurance policy, distinguished Duro Felguera (supra) as
follows:
“12. The other decision heavily relied upon by the High
Court and also by the respondents in Duro Felguera
[Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9
SCC 729], will be of no avail. Firstly, because it is a two-
Judge Bench decision and also because the Court was
not called upon to consider the question which arises in
the present case, in reference to clause 7 of the subject
Insurance Policy. The exposition in this decision is a
general observation about the effect of the amended
provision and not specific to the issue under
consideration. The issue under consideration has been
directly dealt with by a three-Judge Bench of this Court in
Oriental Insurance Company Limited [Oriental Insurance
Company Ltd. v. Narbheram Power and Steel (P) Ltd.,
(2018) 6 SCC 534], following the exposition in Vulcan
Insurance Co. Ltd. v. Maharaj Singh [Vulcan Insurance
Co. Ltd. v. Maharaj Singh, (1976) 1 SCC 943], which,
again, is a three-Judge Bench decision having construed
clause similar to the subject clause 7 of the Insurance
Policy. In paragraphs 11 & 12 of Vulcan Insurance Co.
Ltd. (supra), the Court answered the issue thus:
“11. Although the surveyors in their letter
dated April 26, 1963 had raised a dispute as to
the amount of any loss or damage alleged to
have been suffered by Respondent 1, the
33
appellant at no point of time raised any such
dispute. The appellant company in its letter
dated July 5 and 29, 1963 repudiated the claim
altogether. Under clause 13 the company was
not required to mention any reason of rejection
of the claim nor did it mention any. But the
repudiation of the claim could not amount to the
raising of a dispute as to the amount of any
loss or damage alleged to have been suffered
by Respondent 1. If the rejection of the claim
made by the insured be on the ground that he
had suffered no loss as a result of the fire or
the amount of loss was not to the extent
claimed by him, then and then only, a difference
could have arisen as to the amount of any loss
or damage within the meaning of clause 18. In
this case, however, the company repudiated its
liability to pay any amount of loss or damage as
claimed by Respondent 1. In other words, the
dispute raised by the company appertained to
its liability to pay any amount of damage
whatsoever. In our opinion, therefore, the
dispute raised by the appellant company was
not covered by the arbitration clause.
12. As per clause 13 on rejection of the
claim by the company an action or suit,
meaning thereby a legal proceeding which
almost invariably in India will be in the nature of
a suit, has got to be commenced within three
months from the date of such rejection;
otherwise, all benefits under the policy stand
forfeited. The rejection of the claim may be for
the reasons indicated in the first part of clause
13, such as, false declaration, fraud or wilful
neglect of the claimant or on any other ground
disclosed or undisclosed. But as soon as there
is a rejection of the claim and not the raising of
a dispute as to the amount of any loss or
damage, the only remedy open to the claimant
is to commence a legal proceeding, namely, a
suit, for establishment of the company's liability.
It may well be that after the liability of the
34
company is established in such a suit, for
determination of the quantum of the loss or
damage reference to arbitration will have to be
resorted to in accordance with clause 18. But
the arbitration clause, restricted as it is by the
use of the words ‘if any difference arises as to
the amount of any loss or damage’, cannot take
within its sweep a dispute as to the liability of
the company when it refuses to pay any
damage at all.”
xxx xxx xxx
14. From the line of authorities, it is clear that the
arbitration clause has to be interpreted strictly. The
subject clause 7 which is in pari materia to clause 13 of
the policy considered by a three-Judge Bench in Oriental
Insurance Company Limited (supra), is a conditional
expression of intent. Such an arbitration clause will get
activated or kindled only if the dispute between the
parties is limited to the quantum to be paid under the
policy. The liability should be unequivocally admitted by
the insurer. That is the precondition and sine qua non for
triggering the arbitration clause. To put it differently, an
arbitration clause would enliven or invigorate only if the
insurer admits or accepts its liability under or in respect
of the concerned policy. That has been expressly
predicated in the opening part of clause 7 as well as the
second paragraph of the same clause. In the opening
part, it is stated that the “(liability being otherwise
admitted)”. This is reinforced and re-stated in the second
paragraph in the following words:
“It is clearly agreed and understood that no
difference or dispute shall be referable to
arbitration as herein before provided, if the
Company has disputed or not accepted liability
under or in respect of this Policy.”
15. Thus understood, there can be no arbitration in
cases where the insurance company disputes or does
not accept the liability under or in respect of the policy.
16. The core issue is whether the communication sent on
21st April, 2011 falls in the excepted category of
repudiation and denial of liability in toto or has the effect
35
of acceptance of liability by the insurer under or in
respect of the policy and limited to disputation of
quantum. The High Court has made no effort to examine
this aspect at all. It only reproduced clause 7 of the
policy and in reference to the dictum in Duro Felguera
(supra) held that no other enquiry can be made by the
Court in that regard. This is misreading of the said
decision and the amended provision and, in particular,
mis-application of the three-Judge Bench decisions of
this Court in Vulcan Insurance Co. Ltd. (supra) and in
Oriental Insurance Company Ltd. (supra).
17. Reverting to the communication dated 21st April,
2011, we have no hesitation in taking the view that the
appellants completely denied their liability and
repudiated the claim of the JV (respondent Nos. 1 & 2)
for the reasons mentioned in the communication. The
reasons are specific. No plea was raised by the
respondents that the policy or the said clause 7 was
void. The appellants repudiated the claim of the JV and
denied their liability in toto under or in respect of the
subject policy. It was not a plea to dispute the quantum
to be paid under the policy, which alone could be
referred to arbitration in terms of clause 7. Thus, the plea
taken by the appellants is of denial of its liability to
indemnify the loss as claimed by the JV, which falls in the
excepted category, thereby making the arbitration clause
ineffective and incapable of being enforced, if not nonexistent.
It is not actuated so as to make a reference to
arbitration. In other words, the plea of the appellants is
about falling in an excepted category and non-arbitrable
matter within the meaning of the opening part of clause 7
and as re-stated in the second paragraph of the same
clause.
18. In view of the above, it must be held that the dispute
in question is non-arbitrable and respondent Nos. 1 & 2
ought to have resorted to the remedy of a suit. The plea
of respondent Nos. 1 & 2 about the final repudiation
expressed by the appellants vide communication dated
17th April, 2017 will be of no avail. However, whether that
factum can be taken as the cause of action for institution
of the suit is a matter which can be debated in those
36
proceedings. We may not be understood to have
expressed any opinion either way in that regard.
(emphasis in original)
24. This judgment is important in that what was specifically under
consideration was an arbitration clause which would get activated only
if an insurer admits or accepts liability. Since on facts it was found that
the insurer repudiated the claim, though an arbitration clause did
“exist”, so to speak, in the policy, it would not exist in law, as was held
in that judgment, when one important fact is introduced, namely, that
the insurer has not admitted or accepted liability. Likewise, in the facts
of the present case, it is clear that the arbitration clause that is
contained in the sub-contract would not “exist” as a matter of law until
the sub-contract is duly stamped, as has been held by us above. The
argument that Section 11(6A) deals with “existence”, as opposed to
Section 8, Section 16, and Section 45, which deal with “validity” of an
arbitration agreement is answered by this Court’s understanding of the
expression “existence” in United India Insurance Co. (supra), as
followed by us.
25. Other High Court judgments were relied upon in the context of
stamp duty, being the judgments contained in JMD Ltd. v. Celebrity
Fitness India Pvt. Ltd., (2019) SCC OnLine Del 6483, B.D. Sharma v.
Swastik Infra Estate Pvt. Ltd. & Ors., (2018) SCC OnLine Del 13279,
37
Sandeep Soni v. Sanjay Roy, (2018) SCC OnLine Del 11169, and
N.D. Developers Pvt. Ltd. v. Bharathi & Ors., (2018) SCC OnLine
Kar 2938. In view of our holding in this judgment, these judgments
have not declared the law correctly, and are consequently, overruled. A
recent Full Bench judgment of the Bombay High Court in Gautam
Landscapes Pvt. Ltd. v. Shailesh Shah and Ors., Arb. Pet. No. 466
of 2017 [decided on 04.04.2019] has also been brought to our notice.
In paragraph 120 thereof, the Full Bench answered two questions
framed by it as follows:
“120. In view of the above deliberation, we answer the
questions as framed by us as follows:
(1) Whether a court, under the Arbitration and
Conciliation Act, 1996, can entertain and grant any
interim or ad-interim relief in an application under Section
9 of the said Act when a document containing arbitration
clause is unstamped or insufficiently stamped?
In the Affirmative
(2) Whether, inter alia, in view of Section 11 (6A) of the
Arbitration and Conciliation Act, 1996, inserted by
Arbitration and Conciliation (Amendment) Act, 2016, it
would be necessary for the Court before considering and
passing final orders on an application under Section
11(6) of the Act to await the adjudication by the stamp
authorities, in a case where the document objected to, is
not adequately stamped?
In the Negative”
Question (2), having been answered contrary to our judgment, is held
to be incorrectly decided.

26. Learned counsel for the respondent relied strongly upon Section
11(13) of the 1996 Act to show that the 60-day period would be
breached if a document were to be impounded at the stage of a
Section 11(6) application. Stamp duty, when paid with penalty (if any),
would require adjudication by the stamp authorities, which would take
far more than the 60-day period that is laid down by Section 11(13).
Undoubtedly, Section 11(13), which was also introduced by
Amendment Act 3 of 2016, was enacted keeping one of the important
objectives of the 1996 Act in mind, namely, speedy disposal of disputes
by the arbitral tribunal, and appointment of an arbitrator having to be
made as expeditiously as possible, therefore. Thus, a harmonious
construction needs to be given to the provisions of the Maharashtra
Stamp Act and Section 11(13) of the 1996 Act by which, if it is possible,
both provisions ought to be subserved. We have already seen that
under the Maharashtra Stamp Act, the object of impounding an
instrument that is unstamped is to ensure that stamp duty and penalty
(if any) must be paid on such instrument before it is acted upon by any
authority. Likewise, under Section 11(13) of the 1996 Act, an
application made under Section 11 for appointment of an arbitrator
should be disposed of as expeditiously as possible, and, in any event,
an endeavour shall be made to dispose of such application at least

within a period of 60 days from the date of service of notice on the
opposite party.
27. The doctrine of harmonious construction of statutes is strongly
imbedded in our interpretative canon. In Sri Venkataramana Devaru
v. State of Mysore, [1958] SCR 895, Articles 25 and 26 of the
Constitution of India were reconciled by applying the rule of
harmonious construction thus:
“The result then is that there are two provisions of equal
authority, neither of them being subject to the other. The
question is how the apparent conflict between them is to
be resolved. The rule of construction is well settled that
when there are in an enactment two provisions which
cannot be reconciled with each other, they should be so
interpreted that, if possible, effect could be given to both.
This is what is known as the rule of harmonious
construction. Applying this rule, if the contention of the
appellants is to be accepted, then Article 25(2)(b) will
become wholly nugatory in its application to
denominational temples, though, as stated above, the
language of that Article includes them. On the other
hand, if the contention of the respondents is accepted,
then full effect can be given to Article 26(b) in all matters
of religion, subject only to this that as regards one aspect
of them, entry into a temple for worship, the rights
declared under Article 25(2)(b) will prevail. While, in the
former case, Article 25(2)(b) will be put wholly out of
operation, in the latter, effect can be given to both that
provision and Article 26(b). We must accordingly hold
that Article 26(b) must be read subject to Article 25(2)
(b).”
(at page 918)

In J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P.,
(1961) 3 SCR 185, this Court applied the rule of harmonious
construction so that both provisions of a legislative instrument be given
effect to thus:
“To remove this incongruity, says the learned Attorney-
General, apply the rule of harmonious construction and
hold that clause 23 of the order has no application when
an order is made on an application under clause 5(a). On
the assumption that under clause 5(a) an employer can
raise a dispute sought to be created by his own
proposed order of dismissal of workmen there is clearly
this disharmony as pointed out above between two
provisions viz. clause 5(a) and clause 23; and
undoubtedly we have to apply the rule of harmonious
construction. In applying the rule, however, we have to
remember that to harmonise is not to destroy. In the
interpretation of statutes the court, always presumes that
the legislature inserted every part thereof for a purpose
and the legislative intention is that every part of the
statute should have effect. These presumptions will have
to be made in the case of rule-making authority also. On
the construction suggested by the learned Attorney-
General it is obvious that by merely making an
application under clause (5) on the allegation that a
dispute has arisen about the proposed action to dismiss
workmen the employer can in every case escape the
requirements of clause 23 and if for one reason or other
every employer when proposing a dismissal prefers to
proceed under clause 5(a) instead of making an
application under clause 23, clause 23 will be a dead
letter. A construction like this which defeats the intention
of the rule-making authority in clause 23 must, if
possible, be avoided.”
(at page 193)
In Chief Inspector of Mines v. Lala Karam Chand Thapar, (1962) 1
SCR 9, the rule of harmonious construction was used to reconcile
Section 31(4) of the Mines Act, 1952 and Section 24 of the General
Clauses Act. This Court held:
“If the words of Section 31(4) are construed to mean that
the regulations became part of the Act to the extent that
when the Act is repealed, the regulations also stand
repealed, a conflict at once arises between Section 31(4)
and the provisions of Section 24 of the General Clauses
Act. In other words, the Mines Act, 1923, while saying in
Section 31(4) that the repeal of the Act will result in the
repeal of the regulations, will be saying, in the provisions
of Section 24 of the General Clauses Act as read into it,
that on the repeal of the Act, when the Act is repealed
and re-enacted, the regulations will not stand repealed
but will continue in force till superseded by regulations
made under the re-enacted Act. To solve this conflict the
courts must apply the rule of harmonious construction.
According to Mr Pathak we have perfect harmony if it is
held that the provisions of Section 24 of the General
Clauses Act will have effect only if the regulations are
such as survive the repeal of the parent Act and at the
same time, construe Section 31(4) to mean that the
regulations became for all purposes part and parcel of
the Act. To harmonise is not however to destroy. The socalled
harmony on the learned counsel's argument is
achieved by making the provisions of Section 24 of the
General Clauses Act nugatory and in effects destroying
them in relation to the Mines Act, 1923. We have to seek
therefore some other means of harmonising the two
provisions. The reasonable way of harmonising that
obviously suggests itself is to construe Section 31(4) to
mean that the regulations on publication shall have for
some purposes, say, for example, the purpose of
deciding the validity of the regulations, the same effect
as if they were part of the Act, but for the purpose of the
continuity of existence, they will not be considered part of
the Act, so that even though the Act is repealed, the

regulations will continue to exist, in accordance with the
provisions of Section 24 of the General Clauses Act. This
construction will give reasonable effect to Section 31(4)
of the Mines Act, 1923 and at the same time not frustrate
the very salutary object of Section 24 of the General
Clauses Act. ……”
(at pp. 19-20)
In Anwar Hasan Khan v. Mohd. Shafi, (2001) 8 SCC 540, this Court
succinctly laid down what is meant by the doctrine of harmonious
construction, thus:
“8. It is settled that for interpreting a particular provision
of an Act, the import and effect of the meaning of the
words and phrases used in the statute have to be
gathered from the text, the nature of the subject-matter
and the purpose and intention of the statute. It is a
cardinal principle of construction of a statute that effort
should be made in construing its provisions by avoiding a
conflict and adopting a harmonious construction. The
statute or rules made thereunder should be read as a
whole and one provision should be construed with
reference to the other provision to make the provision
consistent with the object sought to be achieved. The
well-known principle of harmonious construction is that
effect should be given to all the provisions and a
construction that reduces one of the provisions to a
“dead letter” is not harmonious construction. ……”
One reasonable way of harmonising the provisions contained in
Sections 33 and 34 of the Maharashtra Stamp Act, which is a general
statute insofar as it relates to safeguarding revenue, and Section
11(13) of the 1996 Act, which applies specifically to speedy resolution
of disputes by appointment of an arbitrator expeditiously, is by

declaring that while proceeding with the Section 11 application, the
High Court must impound the instrument which has not borne stamp
duty and hand it over to the authority under the Maharashtra Stamp
Act, who will then decide issues qua payment of stamp duty and
penalty (if any) as expeditiously as possible, and preferably within a
period of 45 days from the date on which the authority receives the
instrument. As soon as stamp duty and penalty (if any) are paid on the
instrument, any of the parties can bring the instrument to the notice of
the High Court, which will then proceed to expeditiously hear and
dispose of the Section 11 application. This will also ensure that once a
Section 11 application is allowed and an arbitrator is appointed, the
arbitrator can then proceed to decide the dispute within the time frame
provided by Section 29A of the 1996 Act.
28. Arguments taken of prejudice, namely, that on the facts of this
case, the appellant had to pay the stamp duty and cannot take
advantage of his own wrong, are of no avail when it comes to the
application of mandatory provisions of law. Even this argument,
therefore, must be rejected.

29. We, therefore, allow the appeal and set aside the judgment of the
Bombay High Court. The matter is remitted to the Bombay High Court
to dispose of the same in the light of this judgment.
……........................... J.
(R.F. NARIMAN)
……........................... J.
(VINEET SARAN)
New Delhi;
April 10, 2019.

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