Arbitration is seen as a speedy remedy but if applicants and
respondents who may have counter-claims, have to await the fate of adjudication of documents for stamping and conclusion of the statutory challenge, the purpose of arbitration may be defeated. In my view, once parties are ad-idem on the fact that they have signed the writing containing an arbitration clause, the parties having acknowledged that an arbitration clause was embodied in the substantive contract, cannot prevent the court from disposing an application under Section 11 and the High Court, in my view, need not await the decision of the claimant in the case at hand as to whether or not to pay stamp-duty, as adjudicated. If this is not to be so, a large number of arbitration proceedings will be held up right at the inception, which is not desirable. {Para 38}
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO.225 OF 2016
Pigments & Allieds Vs. Carboline (India) Pvt. Ltd.
CORAM : A. K. MENON, J.
DATE : 28TH FEBRUARY, 2022.
1. By this application, filed under Section 11 of the Arbitration and
Conciliation Act, 1996, the applicant seeks appointment of a Sole Arbitrator to
adjudicate upon disputes between the applicant and the respondents under a
Tripartite Agreement dated 6th February 2013. The application is opposed by
the 1st respondent-Carboline. The 2nd respondent-Octamec had not appeared
at the initial stages. Later, it was learnt that the 2nd respondent is in liquidation
and accordingly, the Official Liquidator of the 2nd respondent has been
impleaded as respondent no.2.
2. At the outset, it is to be noted that the original Tripartite Agreement dated 6th February 2013 is not presently available with any of the parties.
When this matter was taken up for hearing, notice was issued to the
Liquidator, calling upon the Liquidator to confirm whether he was in
possession of the original agreement. The learned Company Prosecutor
appearing on behalf of the Liquidator on 24th January 2022, on scrutiny of
the record, has confirmed that the original agreement was not found in the
records of the 2nd respondent-company.
3. As and way of background, the following facts are relevant.
3.1 The applicant is a partnership firm. The 1st and 2nd
respondents were limited companies and it is seen from
the record that pursuant to the tripartite agreement, the
applicant was required to carry out certain work
including construction and maintenance for Vodafone
Shared Services Limited pursuant to a subcontractor
agreement. The sub-contractor agreement is dated 18th
September 2012 and that is between the respondents inter
se. Essentially the work involved supply and application of
intumescent paint fire protection system and anticorrosive
paint to steel columns, fire and rust protection
systems for the Vodafore Data Centre. The respondent
no.2 (“Octamec”) is believed to have placed a work order
and a purchase order on respondent no.1 (“Carboline”) for
the aforesaid supply and application. A purchase order
came to be issued under the Subcontractor Agreement on
8th October 2012.
3.2 The purchase order was placed by the 1st respondent on
the applicant for supply of paint, as aforesaid. The total
consideration was Rs.18,00,77,644=20. Payment was to be
made by a Letter of Credit of 90 days. The applicant
thereafter claims to have placed a purchase order with a
company in Jordan for supply of the paint for an agreed
consideration. The applicant is believed to have made
payments to the said company in Jordan for supply of the
paint. Several meetings were held between the parties to
this application in the interregnum, but Carboline
continued to default in making payments. Carboline
apparently entered into negotiations with the applicant to
revise payment terms and as a result of these negotiations,
a New Purchase Order dated 26th December 2012 (NPO)
came to be issued reflecting negotiated terms for supply of
3,32,597 ltrs. of paint for a consideration of
Rs.19,19,13,125/-. The applicant has received a Letter of
Credit only for Rs.3.14 crores from Octamec.
3.3 It is the applicant’s case that pursuant to the earlier
purchase order, it had ordered 21 full container loads of
the paint from Jordan. The consignments began arriving
at Nhava Sheva Port on or around 6th January 2013 and
the applicant was incurring demurrage charges and port
charges. Meanwhile, Carboline apparently, facing a
financial crisis, did not make payments under the NPO.
Carboline then suggested that Octamec would open the
requisite Letters of Credit in favour of the applicant and
that Octamec should accept a combination of advances
payable by post-dated cheques as guarantee against the
Sight Letters of Credits being issued to the applicant by
Octamec. Discussions ensued between the parties and as a
result, the tripartite agreement forming subject matter of
the present application came to be executed on 6th
February 2013. The applicant thereafter awaited
payments, which were not forthcoming. It is the
contention of the applicant that the payments being
irregular, the director of Carboline assured the applicant
that the remaining payments would be made at the
earliest. After much follow-up, some part payments were
made on 15th February 2013, 23rd February 2013, 19th
March 2013, 20th March 2013 and 23rd March 2013 by
way of RTGS. Corresponding quantity of paint was
released after payment of a total sum of Rs.13,29,190=41
towards detention charges and demurrage and
Rs.72,72,187/- towards customs duty. The first shipment
was then delivered at Vodafone site on 26th February
2013. The applicant reminded Octamec of the fact that
they were incurring huge costs by way of customs duty,
demurrage charges since the paint had not been collected
due to the default of Carboline.
3.4 Under clause 10(b) of the tripartite agreement, disputes
between the parties were to be referred to arbitration.
Clause 10 is reproduced below for ease of reference :-
“10. Dispute Resolution
(a) Negotiation
Any dispute, difference, controversy or claim
between parties arising out of or relating to this
Agreement or the construction, interpretation,
breach, termination or validity thereof
(“Dispute”) shall, upon the written request
(“Request”) of either Disputing Party served be
referred to the authorized representatives of the
Disputing Parties for resolution. The authorized
representatives shall promptly meet and
attempt to negotiate in good faith a resolution
of the Dispute. In the event that the Disputing
Parties are unable to resolve the Dispute
through negotiations within 30 (thirty) days
after service by a Disputing Party of a request,
then the dispute shall be resolved in accordance
with the provisions mentioned below.
(b) Arbitration
In the event that the Disputing Parties are
unable to resolve a dispute as provided in clause
above, the dispute shall be finally settled under
the Arbitration and Conciliation Act, 1996 (the
“Rules”) by a panel of three arbitrators, one to be
appointed by the claimant, the second to be
appointed by the defendant and the third to be
appointed by the two arbitrators so appointed.
(Emphasis Supplied)
(c) Place, Enforcement and Proper Law of the
Arbitration
(i) The place of arbitration shall be
Mumbai and all the arbitration
proceedings shall be conducted in
the English language.
(ii) Judgment upon any arbitral award
rendered hereunder may be entered
in any court having jurisdiction or
application may be made to such
court for a judicial acceptance of
the award and an order of
enforcement, as the case may be.
(iii) The proper law of the arbitration
shall be Indian law and the award
will be made under the laws of
India.
(d) Costs
The costs of the arbitration shall be borne by
the Disputing Parties in such manner as the
arbitrators shall direct in their arbitral award.”
4. It is the applicant’s case that both Carboline and Octamec have avoided
interacting with the applicant and that they have jointly and severally failed
to make payments for a shipment. The 3rd and 4th consignments were awaiting
clearance and this has caused enormous loss to the applicant. A claim for a
sum of Rs.8,92,97,690=09 has been made along with Rs.1,24,04,618=30
towards demurrage, detention and other port charges. Interest has also been
claimed @ 18% p.a. In these circumstances, the applicant has invoked
arbitration vide its letter-cum-demand notice dated 2nd June 2016, and a Sole
Arbitrator has been nominated.
5. Carboline has since appeared and filed an affidavit-in-reply of one
Sandeep Sarda dated 3rd February 2017. Carboline has relied upon the
affidavit-in-reply of one Sandeep Sarda dated 3rd February 2017 and has
taken up various contentions on merits. It is the contention of Mr. Kamat that
the tripartite agreement has not been followed and that the obligation to make
payment is not of Carboline alone. The obligation was equally of Octamec,
which has now been ordered to be wound-up. According to Mr. Kamat, there
is no dispute that exists and the question of appointment of an Arbitrator does
not arise. Inviting my attention to the Dispute Resolution clause, he submitted
that good faith negotiations contemplated under Section 10(a) of the tripartite
agreement had not taken place. There has been no attempt to explore such
negotiations and prior to arbitration being invoked, it was necessary that the
parties engage in good faith negotiations. This not having been done, Mr.
Kamat submits that it is not possible to now invoke arbitration under clause
10(b) of the tripartite agreement. Thus, it is Mr. Kamat’s case that invocation
of the arbitration clause is premature.
6. Furthermore, it is contended that Octamec was also required to
nominate an Arbitrator and it is not only Carboline that is required to
nominate an Arbitrator. Since Octamec is now under liquidation, it is
Carboline’s case that an arbitration cannot proceed only against Carboline.
Arbitration, if any, can only proceed as amongst the three parties and if the
applicant has a claim, it has to proceed against both the respondents –
Carboline and Octamec. Mr. Kamat submits that the arbitration agreement is
a non-starter and no reference may be made.
7. On perusal of the record, it revealed that on 9th November 2017, the
court ordered impounding of the tripartite agreement since it was found to be
inadequately stamped. On 21st November 2018, the court found that the
original document was not available and the applicant submitted that
although the document is not available, its existence was not disputed by the
respondents. Hence, a copy of the tripartite agreement was directed to be
deposited with the Prothonotary and Senior Master, who then forwarded the
same to the Superintendent of Stamp, Mumbai for determining the stampduty
payable upon adjudication. This has remained pending for a long time
and finally on 10th December 2019, the Superintendent of Stamps has issued
a demand notice for payment of duty amounting to Rs.10,72,140/- and
penalty of Rs.15,01,000/-. According to the Superintendent of Stamps, duty
was payable under Article 5(h)(A)(iii)(b) @ 0.5% on a contract value of
Rs.21,43,88,000/-. Further, a sum of Rs.200/- was payable towards indemnity
and on this basis, an order was passed directing payment of the aforesaid
amount. This has now been produced before the court and yet another issue
has been raised on behalf of the respondents inasmuch as, in the absence of
the original document-tripartite agreement, whether it was possible to
impound a copy of the agreement and have the copy stamped with advalorem
duty payable. The issues that have been canvassed before me are,
firstly, whether a copy of an instrument can be impounded and stamped with
stamp-duty. Secondly, whether in the arbitration agreement providing for
three arbitrators, a Sole Arbitrator can be appointed and; thirdly, whether on
account of insufficiency of stamps, there is a prohibition against appointing
an Arbitrator in view of the decision in InterContinental Hotels Group (India)
Pvt. Ltd. & Anr. Vs. Waterline Hotels Pvt. Ltd.1 and lastly whether no reference
should be made because this is a case of ‘deadwood’ and no purpose is served
by appointing an Arbitrator.
8. It is the applicant’s case that an instrument can be stamped even if it is
1 Arbitration Petition (Civil) No.12 of 2019
a copy and the original is unavailable. Secondly, Mr. Ankhad submits that by
virtue of the decision in InterContinental Hotels Group (Supra) , when a court
is faced with an issue of insufficient stamping, there is no bar against
proceeding and appointing an Arbitrator and, thirdly, he states that the
stamp-duty payable can be considered at a later stage after a statutory appeal
against adjudication is filed. It is Mr. Ankhad’s case that as on date, it is not
possible to file statutory appeal since only a notice of demand has been issued,
to which the applicant intends to respond. After such response, an order is
expected to be passed, which can be challenged by way of a statutory appeal
under Section 40 of the Maharashtra Stamp Act, 1958.
9. Per contra, Mr. Kamat has disputed the proposition that a photocopy
can be stamped though the original is not available. He also submits that the
court ought not to proceed and appoint an Arbitrator for the reason that the
instrument is not sufficiently stamped and therefore is inadmissible in
evidence. Mr. Kamat goes one step further. He submits that the document is,
in fact, unstamped and would have to subject itself to the decision of the
Supreme Court in N.N. Global Mercantile Private Ltd. Vs. Indo Unique Flame
Ltd. and Ors.2 According to Mr. Kamat, stamp-duty on the document has been
paid in Tamil Nadu and in a sum of Rs.100/- only. According to him, no duty
whatsoever is paid under the Maharashtra Stamp Act. This he submits on the
basis of Carboline’s belief that the stamp-paper purchased in Tamil Nadu
would be of no relevance when the agreement is executed in Mumbai. He has
2 (2021) 4 SCC 379
invited my attention to Exhibit-A to the application, which reveals that the
tripartite agreement was printed on India Non-Judicial stamp paper of
Rs.100/- purchased in Tamil Nadu from a stamp vendor by the 1st
respondent-Carboline, but the agreement is shown to have been executed in
Mumbai on 6th February 2013. According to Mr. Kamat, ad-valorem stamp
duty would have to be paid under the Maharashtra Stamp Act and no stampduty
having been paid after it was brought into the State of Maharashtra, the
tripartite agreement is not stamped at all.
10. Mr. Ankhad has however controverted this by contending that the
stamp paper was purchased by Carboline and it is Carboline which has
caused the tripartite agreement to be prepared, showing it to be executed in
Mumbai. It was executed by Carboline in Chennai and then by the other
parties in Mumbai. Thus, merely referring to the place of execution as
Mumbai would not be of any consequence since Carboline was the author of
the document and since both Octamec and the applicant were located in
Maharashtra, the tripartite agreement refers to the place of execution as
Mumbai. That alone, according to Mr. Ankhad, will not invalidate the
agreement and would not render the agreement an unstamped document.
11. Relying upon the decision of Pradeep Shyamrao Kakirwar Vs. Dr.
Seema Arun Mankar and Ors.3, Mr. Ankhad has canvassed his case in support
of stamping of a photocopy of the tripartite agreement. He seeks to urge that
3 (2020) SCC OnLine Bom 799
the court had considered all aspects of the matter and the finding that the
photocopy is not an instrument does not come into way of stamp-duty being
paid pursuant to an order impounding the same pursuant to an order of this
court. Mr. Ankhad places much reliance on the decision in Intercontinental
Hotels Group (Supra) in support of his plea that when a document bears some
stamp-duty, it is a matter of paying the difference in stamp-duty. He submits
that the dispute needs to be narrowed down and as contemplated in Vidya
Drolia Vs. Durga Trading Corporation4, to which reference is made by the
Supreme Court in Intercontinental Hotels Group (Supra) , the courts could
adjudicate upon the lis between the parties only to the extent to cut-out the
deadwood, but when there is a doubt, one should refer the disputes to
arbitration. In this behalf, he has placed reliance on the observations of the
Supreme Court in Intercontinental Hotels Group (Supra) and in particular
paragraph 18 thereof.
12. Mr. Ankhad has also invited me to consider observations in paragraphs
22 and 23 of the judgment in Intercontinental Hotels Group (Supra) , where
the court has held that until the larger bench decides the issue of existence of
the arbitration agreement by virtue of reference made to the larger bench in
N.N. Global Mercantile Pvt. Ltd. (Supra) , the court should ensure that the
arbitrations are carried on, unless the issue before the court patently indicates
existence of deadwood. The issue of insufficient stamping also considered in
that judgment and in this behalf, Mr. Ankhad has placed reliance on
4 (2021) 2 SCC 1
paragraphs 23, 24 and 25 of the judgment in InterContinental Hotels Group
(Supra). In conclusion, it is his case that an Arbitrator must be appointed.
13. Having heard the learned counsel for the parties, I find that the
opposition to the appointment of the Arbitrator is mainly on three grounds :
(i) The agreement is not stamped in accordance with the
Maharashtra Stamp Act, 1958, as amended, and no credit
can be claimed for duty paid in Tamil Nadu.
(ii) The disputes are not arbitrable since it qualifies as
‘deadwood’.
(iii) Disputes, if any, are between the applicant, Carboline and
Octamec.
14. Firstly, on the issue of stamping, according to Mr. Kamat, the document
is unstamped. He has invited my attention to the provisions of Sections 33 and
34 of the Maharashtra Stamp Act and contended that the copy of the
agreement cannot be stamped and that no secondary evidence can be led in
relation to the agreement. He has also taken up the plea that even assuming
the issue of stamping is resolved, the Dispute Resolution clause between the
parties provides for a pre-arbitral negotiation and in this behalf, the
provisions of clause 10 of the agreement are required to be gone into.
According to Mr. Kamat, unless the negotiations were held and had failed,
arbitration could not have been invoked. Thirdly, he submits that the Octamec
having been ordered to be wound-up, the arbitral reference cannot proceed.
According to Mr. Kamat, the reference is in respect of what he describes as
“deadwood” and therefore no reference can be made at all.
15. The original agreement is still unavailable. Thus, the instrument, which
is required to be stamped, being unavailable, the authorities cannot proceed
with stamping of the instrument and lastly that the original being unavailable,
the copy cannot be tendered in evidence and hence clearly a non-starter and
deadwood.
16. The document is inadmissible in evidence, because it is unstamped and
hence hit by the decisions in Garware Wall Ropes Ltd. Vs. Coastal Marine
Constructions and Engineering Ltd.5 and as set out in Vidya Drolia Vs. Durga
Trading Corporation6. Even assuming the agreement could be stamped, he has
relied upon the decision of the Supreme Court in Hariom Agrawal Vs.
Prakash Chand Malviya7, and in N.N. Global Mercantile Private Ltd. Vs. Indo
Unique Flame Ltd. and Ors.8 in support of his contention that unless the
agreement is stamped with ad valorem stamp duty, the court cannot proceed
to appoint an Arbitrator and in the instant case, ought not to proceed to
appoint an Arbitrator since there is no substance in the claim. The claim is
being made against an agent and is unsustainable.
5 (2019) 9 SCC 209
6 (2021) 2 SCC 1
7 (2007) 8 SCC 514
8 (2021) 4 SCC 379
17. Chapter III of the Arbitration Act dealing with the composition of the
arbitral tribunal requires the court to act on behalf of a party to a arbitration
agreement when the party fails to act as required under Section 11(5) and
11(6). In the present case, failure to act is under sub-section 6 inasmuch as
Carboline has failed to appoint an Arbitrator although the applicant has
nominated an Arbitrator. Therefore, the court is called upon to act and make
an appointment pursuant to Section 11(6)(a).
18. The relevant provision of the Arbitration Act in this application having
been considered, I proceed to consider the effect of the provisions of the
Maharashtra Stamp Act, 1958. In this behalf, the relevant provisions are the
definitions in Section 2(d) in respect of the expression “chargeable”; Section
2(h) in relation to the expression “duly stamped”; Section 2(l) in relation to the
expression “instrument”. For ease of reference, these definitions are
reproduced below :-
“2(d). “Chargeable” means, as applied to an instrument,
executed or first executed after the commencement of
this Act, chargeable under this Act, and as applied to any
other instruments, chargeable under the law in force in
the State when such instrument was executed or where
several persons executed the instrument at different
times, first executed. (Emphasis supplied)
2(h). “Duly Stamped” as applied to an instrument means that
the instrument bears an adhesive or impressed stamp of
not less than the proper amount and that such stamp has
been affixed or used in accordance with the law for the
time being in force in the State.
2(l). “Instrument” includes every document by which any
right or liability is, or purports to be created, transferred,
limited, extended, extinguished or recorded, but does not
include a bill of exchange, cheque, promissory note, bill
of lading, letter of credit, policy of insurance, transfer of
share, debenture, proxy and receipt.
Explanation – The term “document” also includes any
electronic record, as defined in clause (t) of sub-section
(l) of Section 2 of the Information Technology Act, 2000.”
19. The next provision that is relevant is Section 3, which provides for
liability of Instruments to Duty. The relevant provisions of Section 3 are
Sections 3(a), 3(b) and its proviso, which are reproduced below :-
“3. Instrument Chargeable with Duty :-
Subject to the provisions of this Act and the exemptions
contained in Schedule I, the following instruments shall be
chargeable with duty of the amount indicated in Schedule I as
the proper duty therefor respectively, that is to say -
(a) every instrument mentioned in Schedule I, which, not
having been previously executed by any person, is
executed in the State on or after the date of
commencement of the Act;
(b) every instrument mentioned in Schedule I, which, not
having been previously executed by any person, is
executed out of the State on or after the said date, relates
to any property situate, or to any matter or thing done
or to be done in this State and is received in the State.
Provided that, a copy or extract, whether certified to be a true
copy or not and whether a facsimile image or otherwise of the
original instrument on which stamp duty is chargeable under
the provisions of this Section, shall be chargeable with full
stamp duty indicated in the Schedule I if the proper duty
payable on such original instrument is not paid:
Provided further that, no duty shall be chargeable in respect
of-
(1) any instrument executed by or on behalf of, or in favour
of, the Government in cases where, but for this
exemption, the Government would be liable to pay the
duty chargeable in respect of such instrument or where
the Government has undertaken to bear the expenses
towards the payment of the duty.
(2) any instrument, for the sale, transfer or other
disposition, either absolutely or by way of mortgage or
otherwise of any ship or vessel, or any part, interest,
share or property of or in any ship or vessel registered
under the Bombay Coasting Vessels Act, 1838 (XIX of
1838) or Merchant Shipping Act, 1958.”
20. Section 7 is also relevant since it relates to the nature of the instrument
to be stamped with applicable duty. Section 7 reads thus :
“7. Payment of higher duty in respect of certain instruments :-
(1) Notwithstanding anything contained in Section 4 or 6 or
in any other enactment, unless it is proved that the duty
chargeable under this Act has been paid,
(a) on the principal or original instrument, as
the case may be, or
(b) in accordance with the provisions of this
section,
the duty chargeable on an instrument of sale, mortgage
or settlement other than a principal instrument or on a
counterpart, duplicate or copy of any instrument shall, if
the principal or original instrument would, when
received in this State have been chargeable under this Act
with a higher rate of duty, be the duty with which the
principal or original instrument would have been
chargeable under Section 19.
(2) Notwithstanding anything contained in any enactment
for the time being in force, no instrument, counterpart,
duplicate or copy chargeable with duty under this
Section shall be received in evidence unless the duty
chargeable under this section has been paid thereon :
Provided that, any Court before which any such
instrument, duplicate or copy is produced may permit the
duty chargeable under this Section to be paid thereon and
may then receive it in evidence.
(3) The provisions of this Act and the rules made thereunder,
in so far as they relate to the recovery of duties
chargeable on instruments under Section 3 shall, so far as
may be, apply to the recovery of duties chargeable on a
counterpart, duplicate or a copy of an instrument under
sub-section (1).”
21. Considering Mr. Kamat’s objection that the document is to be treated as
an unstamped document since the stamp paper is issued in the State of Tamil
Nadu, it becomes necessary to consider provisions of Chapter IV dealing with
“Instruments Not Duly Stamped”. Section 33 deals with Examination and
Impounding of Instruments; whereas Section 34 deals with Instruments
which are inadmissible in evidence.
22. Applying the above provisions to the case at hand, we find that when
the document was first executed, it should have been stamped with duty
chargeable. This is evident from Section 2(d), which sets out that when the
instrument was executed or where several persons executed the instrument at
different times, duty would be chargeable when it was first executed. In the
instant case therefore it appears that the document was first executed in
Chennai. Since Carboline has purchased the stamp paper from a vendor in
Chennai in its own name, it appears to have been executed by Carboline in
Chennai and thereafter sent to the two other parties being the applicant and
Octamec in Mumbai. No doubt, the agreement mentions that the agreement is
executed in Mumbai, but that does not take away the possibility that first
execution appears to be in Chennai. It is not the case of the respondent that
Carboline also executed the agreement in Mumbai. Thus, it would be upto the
arbitral tribunal and not for this court to consider this aspect of the case.
Suffice it to say that when the agreement was first executed, it appears to have
been executed by Carboline - a Chennai based company, on a stamp paper
purchased in its name from a vendor in Chennai. All indications therefore are
that the agreement was first executed in Chennai and duty chargeable in
Chennai would be applicable.
23. Section 2(h) deals with “duly stamped” and contemplates affixation of
adhesive stamps or impressed stamps of an amount in law required to be paid
for the “time being” in force in the State. Obviously, the reference to “the State”
in that context read with Section 2(d) would mean the State of Tamil Nadu.
24. Section 2(l) defines “instrument”. When we take into consideration the
current agreement, the fact that the photocopy could not have been treated to
be an instrument for the purposes of impounding is the view taken by our
court in the case of Pradeep Shyamrao Kakirwar Vs. Dr. Seema Arun Mankar
and Ors.9. As far as liability of duty on the instrument is concerned, one finds
from Section 3 that every instrument mentioned in Schedule-I of the Act,
which is not previously executed by any person and is executed in the State
on and after the commencement of the Act, shall be chargeable with duty, as
set out in Schedule-I.
25. Section 3(b) deals with the situation where an instrument is executed
out of the State relating to any matter or thing to be done in the State and is
received in Maharashtra. The proviso clarifies that a copy, whether true copy
or not, including a facsimile image of the original instrument, on which duty
is chargeable under the provisions of this section, shall also be chargeable
with full stamp duty, as set out in Schedule-I, if proper duty is not paid on
such original instrument.
26. In the instant case, we are faced with a situation where the original
agreement is not to be found. None of the parties are in possession of the
9 2020 SCC OnLine Bom 799
original, but none of them dispute the existence of the agreement and a copy
as annexed to this application. Chargeablity of a copy to duty is obvious from
Section 7 of the Stamp Act and this has been considered in the case of Hariom
Agrawal Vs. Prakash Chand Malviya10, in which the challenge to the
constitutional validity of the provision, which required a copy to be stamped
when brought into the State of Maharashtra, has been repelled. In the case of
Hariom Agrawal (Supra) , documents evidencing security created in favour of
banks and financial institutions outside the State of Maharashtra and in
Gujarat were sought to be made chargeable to duty in Mumbai since the
borrower companies had their registered office in Mumbai and were required
to register a charge with the Registrar of Companies in relation to such
property based on a copy of the agreement. The original, no doubt, had been
stamped, as required under the Stamp Act as applicable in the State of
Gujarat, where the duty was lower, but when the document was brought into
the State of Maharashtra, the copy was found to be chargeable with additional
stamp duty. That challenge has been repelled, as seen from paragraphs 4 and
5, read with paragraphs 14, 17 and 19, of the decision in Hariom Agrawal .
Thus, it is evident that under Section 7 of the Maharashtra Stamp Act, unless
it is proved that stamp duty paid on the principal agreement, being the
original instrument in the instant case, has been paid is established, duty
chargeable under the Act would have to be paid on a copy of the instrument.
It is evident that if the duty payable in Maharashtra was higher, then the
10 (2007) 8 SCC 514
higher duty would have to be paid. While it is the applicant’s case that it
would be entitled to credit to the extent of the amount paid on the instrument
in the first place or that would seem to have been paid on the instrument
from the copy thereof, this aspect is sought to be contested by Mr. Kamat, who
states that the duty should have been paid under the Maharashtra Stamp Act
since the document is executed in Mumbai and could not have been executed
on a stamp paper issued in Tamil Nadu. According to Mr. Kamat therefore no
credit can be claimed.
27. I am unable to accept the proposition that no credit can be claimed in
respect of duty paid in Tamil Nadu. In New Central Jute Mills Co. Ltd. and
Ors. Vs. State of West Bengal and Ors.11, the Supreme Court was considering
an instrument executed in Uttar Pradesh and consequently liable to stampduty
under the Indian Stamp Act, as amended in Uttar Pradesh, but relating to
property in West Bengal. It was bearing stamps overprinted with the name
West Bengal and came before a public officer in U.P. The officer held that the
instrument is not duly stamped since it does not bear stamps overprinted with
the name of Uttar Pradesh. The question was considered under Article 32 of
the Constitution of India and the court concluded in paragraph 20 as
follows :-
“20. The result of this will be that if an instrument after
becoming liable to duty in one State on execution there
becomes liable to duty also in another State on receipt
there, it must first be stamped in accordance with the law
11 (1964) 1 SCR 535
of the first State and it will not require to be further
stamped in accordance with the law of the second State
when the rate of that second State is the same or lower;
and where the rate of the second State is higher, it will
require to be stamped only with the excess amount and
that in accordance with the law and the rules in force in
the second State.”
The Stamp Authorities will therefore be required to take this aspect into
consideration.
28. Mr. Ankhad canvassed the point that the document was executed first
in the State of Tamil Nadu and hence the duty was certainly payable as
provided in that State. Even it is contemplated under the Act. I am of the view
that by virtue of Section 3 of the Act, the agreement is seen to be executed on
stamp paper by Carboline prior to its execution. It is not Carboline’s case that
when it executed the agreement, insufficient duty was paid in the State of
Tamil Nadu. Its only submission and objection is that the duty should have
been paid in Maharashtra and till such duty is paid, the application cannot
proceed. Furthermore, such duty ought to have been paid on the instrument,
original of which is missing, and hence no reference can be made to
arbitration, no stamp-duty can be paid on the copy. The logical consequence
would be that no duty would have to be paid on the copy and hence no valid
reference can be made to arbitration and hence the application be dismissed.
29. In N.N. Global (Supra) , in paragraph 4, the court considered the
validity of the arbitration agreement in an unstamped document holding that
on the basis of the doctrine of separability, the arbitration agreement need not
be stamped. Mr. Kamat had contended that the decision in N.N. Global
considers in detail the statutory scheme of the Maharashtra Stamp Act and in
particular, Sections 3, 30, 32A, 33, 34 and 35, he invites me to hold that in
the present case, the document is clearly an unstamped document, but what
that submission overlooks is the fact that N.N. Global also dealt with the
Supreme Court’s decision in Hindustan Steel Ltd. Vs. Dilip Construction Co.12,
which observed in paragraph 7 that the Stamp Act is a fiscal measure enacted
to secure revenue of the State on certain classes of instrument. It was not
enacted to arm a litigant with a weapon of technicality to meet the case of his
opponent. The judgment reiterates that the stringent provisions of the Act are
in the interest of the revenue and once that object is secured in accordance
with law, the party’s taking his claim on the instrument will not be defeated
on the ground of the initial defect in the instrument. Thus, I am unable to
accept Mr. Kamat’s contention that the tripartite agreement is unstamped and
that we have a case of deadwood at hand.
30. I now proceed to consider the issue pertaining to the non-availability
of the original and the fact that Octamec is now in liquidation and whether
either of these can affect the reference being made. In this behalf, I am of the
view that there is no impediment caused by these two objections in
proceeding with the application and appointing an Arbitrator. Perusal of the
Dispute Resolution clause, clause 10(b) of the agreement, reveals that the
12 (1969) 1 SCC 597
disputes are to be resolved by a panel of three arbitrators; one to be appointed
by the claimant and the second to be appointed by the defendant and the third
to be appointed by the two arbitrators so appointed. In the present case,
Octamec is not a claimant, nor is it a defendant. Assuming it to be a
defendant, it is not a contesting defendant. At best, the applicant would have
had to seek leave under the Companies Act before proceeding against the
company in liquidation and that has been done.
31. In view of the appointment of the Liquidator of Octamec vide an order
dated 24th February 2016, the applicant is seen to have approached the
Company Court in Company Application No.501 of 2016 in Company
Petition No.229 of 2015, whereby leave under Section 446(1) of the
Companies Act was sought to proceed with the arbitration application and in
that matter, pursuant to an affidavit dated 24th October 2016 filed by the
partner of the applicant, the court has passed the following order :-
“Company Application is allowed to the extent that the
applicant is granted leave under Section 446(1) to proceed
only against Carboline (India) Pvt. Ltd. on the basis of a
statement made by the applicant its affidavit and that no
relief is being sought against the company in liquidation.
The learned counsel for the applicant also states that the
liquidator is not expected to appear in the arbitration
application or any arbitration proceedings that may ensue.
Accordingly, the presence of liquidator is executed from
such proceedings. Application is disposed of.”
32. The enquiry that this court is required to make is to ascertain whether
an agreement exists between the parties and in that behalf, the dispute in the
present case clearly appears to be between the Applicant and Carboline. Thus,
the Applicant is the claimant and the defendant is Carboline. I find no
substance in the objection that under clause 10(a) of the agreement,
negotiations had not been held. Clause 10(a), as we have seen, provides for
authorized representatives to promptly make an attempt in negotiation in
good faith. The question is, if negotiations are not initiated by either party,
whether reference to arbitration can be bad. In my view, the answer must be
in the negative. It was open to both sides to seek a meeting for holding
negotiations, as contemplated, and this could have been done prior to filing of
the application. In any event, upon receipt of the notice invoking arbitration
dated 2nd June 2016 (Exhibit-FF to the application), it was open to the
respondent to state that the parties should engage in negotiations prior to
acting on the invocation. However, I find from the averment in paragraph
5.30 in the application that after the notice dated 7th June 2016 was served,
neither Carboline nor Octamec had replied. Carboline and Octamec have not
contended that the invocation was invalid by virtue of not having held
negotiations. In the event that they did, they have failed to establish that
negotiations were proposed and they were denied by the applicant.
33. In my view, upon receipt of the notice invoking arbitration, it was
appropriate that the respondents raise this objection however from the
affidavit-in-reply dated 3rd February 2017 filed on behalf of Carboline, in
paragraph 22 thereof, I find the only averment is that the parties were under
an obligation to attempt to resolve disputes by negotiations and only if such
negotiation was unsuccessful, the parties can refer disputes to arbitration.
Paragraph 23 admits that negotiations, as contemplated under the tripartite
agreement, did not take place. There is nothing to show that Carboline has
attempted negotiations or have suggested that negotiations be initiated first. In
the absence of such an attempt, there is no substance in this objection.
Furthermore, in paragraph 24, the contention of Carboline is that Octamec
and Carboline are required to appoint an Arbitrator and it was a joint
nomination and not solely of Carboline. That I am unable to accept, since the
provisions of the agreement clearly state that where there is a claimant and a
defendant , the claimant would appoint one arbitrator and the defendant the
other. Merely because Octamec is in liquidation does not mean that the
application is rendered ineffective or deadwood. Octamec is not the
defendant . Pursuant to the order passed in Company Application No.501 of
2016, the contesting party, as I see, is only Carboline. It was upto the
applicant to decide whether it has a claim against the Liquidator or not and
proceed in accordance with law. The applicant has chosen not to proceed
against the company in liquidation.
34. I am therefore not satisfied that the objection on account of failure to
refer to negotiations reduct the course under clause 10(a) is fatal to this
application. I also find that a limited additional affidavit has been filed on
behalf of respondent no.1, in which the objections under Sections 33 and 34
of the Maharashtra Stamp Act have been reiterated. That affidavit also seeks
to lay emphasis on the fact that the claims of the applicant are mainly against
Octamec, which is in liquidation, and that the application cannot be decided
without the presence of the Liquidator. In the instant case the Liquidator has
appeared and clearly stated that it does not have a copy of the agreement. The
Liquidator has not contended that it seeks to defend the claim and if that is to
proceed against the company in liquidation, necessary leave would have to be
sought by the applicant, that as I have observed earlier is not within the scope
of this application especially since the application is amended records that the
applicant has no claim against the company in liquidation. While the
applicant has relied upon compilation of documents, including copy of ledger
account of Octamec and that of Carboline, I am of the view that these are not
relevant for the purposes of considering the present application since I am not
concerned with the merits of the case. I must be mindful of the fact that we
are not dragged into the merits of the case or material aspects which may
relate to the merits of the claim and the defence or the counter-claim, if any.
Thus, in my view, the court should restrict itself to the objections that do not
allude to the merits of the case. Suffice it to say that a demand notice dated
10th December 2019 has now been received and the applicant has contended
that it now seeks to proceed to show cause against the demand and challenge
the adjudication, if any.
35. That brings me to the question of impounding of the document in the
first place and this court has vide its order of 21st November 2018 found that
the court had impounded the document. A copy of the agreement was
deposited with the Prothonotary and Senior Master. Superintendent of Stamps
has been directed to adjudicate stamp duty on the document. This I believe
was done in anticipation of the original instrument being lodged. That has not
been done. It is fairly clear from the decision of this court in the case of
Pradeep Shyamrao Kakirwar (Supra) , which holds that the copy of a
document cannot be impounded and only the instrument can be impounded.
Notwithstanding that, the Stamp Authorities have now acted on the direction
of this court to ascertain duty payable on the instrument. It is not known as to
where the original agreement is and in that view of the matter, the law on the
subject appears to be that a copy cannot be impounded but then a copy is
liable to be stamped in view of Section 7 and Hariom Agrawal (Supra). In this
behalf, I find that Section 7(2) is relevant and that is extracted below for ease
of reference.
“7. Payment of higher duty in respect of certain instruments :-
(1) Notwithstanding anything contained in Section 4 or 6
or in any other enactment, unless it is proved that the
duty chargeable under this Act has been paid,
(a) on the principal or original instrument, as
the case may be, or
(b) in accordance with the provisions of this
section,
the duty chargeable on an instrument of sale, mortgage
or settlement other than a principal instrument or on a
counterpart, duplicate or copy of any instrument shall,
if the principal or original instrument would, when
received in this State have been chargeable under this
Act with a higher rate of duty, be the duty with which
the principal or original instrument would have been
chargeable under Section 19.
(2) Notwithstanding anything contained in any enactment
for the time being in force, no instrument, couterpart,
duplicate or copy chargeable with duty under this
Section shall be received in evidence unless the duty
chargeable under this section has been paid thereon :
Provided that, any Court before which any such
instrument, duplicate or copy is produced may permit
the duty chargeable under this Section to be paid
thereon and may then receive it in evidence.”
The proviso to Section 7(2) would therefore be the basis of the order
dated 21st November 2018.
36. This once again is an aspect that need not detain this court in view of
the observations of the Supreme Court in InterContinental Hotels Group
(Supra). Paragraphs 18, 20, 22 and 23 to 26 of InterContinental Hotels Group
is relevant for our purposes and the Supreme Court has considered the
jurisdiction of this court to adjudicate on existence of the agreement at the
pre-appointment stage and the fact that case by case, courts have restricted
themselves in occupying the space provided for the arbitrators in line with
party autonomy. Furthermore, the court observed that notwithstanding the
decision in Vidya Drolia (Supra) , which clearly expounds that courts had
limited jurisdiction under Section 11(6) and are required to take a prima facie
view. The narrow exception carved was that court could adjudicate to cut out
the deadwood. Ultimately, as InterContinental Hotels Group reiterates the
watchword for the courts viz. “when in doubt, do refer”. The conclusions in
Vidya Drolia in paragraphs 225.1 to 225.4 and the observations of the
Supreme Court in paragraph 244 have also been reiterated. The judgment in
InterContinental Hotels Group also makes reference to the decision in N.N.
Global (Supra), which deals with the issue of non-stamping and understamping.
In the present case, the document is, at best, insufficiently stamped,
since I am unable to accept the contention of Mr. Kamat that the document is
“unstamped”. Clearly, Carboline had purchased the stamp paper and
Carboline did proceed to execute the agreement on the basis that the stamp
paper was of sufficient value when it executed the agreement. In paragraph
23 of InterContinental Hotels Group , the Supreme Court contemplates
ascertaining whether the case presented an unworkable arbitration
agreement or whether there were deeper issues to be resolved at a later stage
and in this behalf, I am of the view that in the facts at hand, the reference
cannot clearly be stated in respect of deadwood. While the fact situation in
InterContinental Hotels Group was that the petitioners had paid requisite
stamp duty and penalty upon realizing insufficiency of stamps, the objection
on behalf of the respondent was that the duty was paid under a wrong
classification, that aspect the Supreme Court found, need not await any
further deliberation in court and in paragraph 26, the Supreme Court
observed that if it is a case of a complete non-stamping, the court might have
occasion to examine the concerns raised in N.N. Global.
37. In the present case, on a fair reading of provisions of the Maharashtra
Stamp Act, as applicable in Maharashtra, it is evident under definition 2(d)
that the agreement in question was required to be stamped when it was first
executed. The agreement was first executed, it was executed by Carboline
presumably with appropriate stamp duty since it is not the case of Carboline
that it was under-stamped in Chennai. The only contention is that the
agreement is executed in Mumbai, as seen from the face of the document.
Thus, clearly, when the document was first executed, stamp duty was payable,
that has been paid. The only issue now remains whether it was insufficiently
stamped and whether a copy could be stamped with the duty payable. That
aspect Mr. Ankhad has submitted is not for this court to go into now since the
decision in InterContinental Hotels Group (Supra) clearly states that, when in
doubt, one must refer the matter to arbitration. I have already dealt with the
effect of Section 3(7) and the provisions of Sections 33 and 34 of the Act and
taking an overall view, I have no doubt that an Arbitrator would have to be
appointed. The notice invoking arbitration has nominated an Arbitrator. It
now seeks appointment of an Arbitrator on behalf of the respondent and
accordingly, the application must succeed, reserving all rights and
contentions of the parties on merits.
38. Arbitration is seen as a speedy remedy but if applicants and
respondents who may have counter-claims, have to await the fate of
adjudication of documents for stamping and conclusion of the statutory challenge, the purpose of arbitration may be defeated. In my view, once
parties are ad-idem on the fact that they have signed the writing containing
an arbitration clause, the parties having acknowledged that an arbitration
clause was embodied in the substantive contract, cannot prevent the court
from disposing an application under Section 11 and the High Court, in my
view, need not await the decision of the claimant in the case at hand as to
whether or not to pay stamp-duty, as adjudicated. If this is not to be so, a large
number of arbitration proceedings will be held up right at the inception,
which is not desirable.
39. Pending the decision of the Collector of Stamps, I am of the view that
the non-availability of the original agreement at this stage will not prevent
this court from appointing an Arbitrator. It is possible that the document is
still lying undiscovered with either of one of the parties. If it is with any of the
parties, it could surface tomorrow and the agreement and its contents having
been accepted and relied upon by both sides, there is no merit in contending
that absent the original agreement, no reference can be made. As to whether
secondary evidence can be led or not, Mr. Kamat has canvassed the
respondents’ view that no secondary evidence can be led in respect of this
agreement. That is once again an aspect that this court need not go into under
Section 11 and is left to the arbitral tribunal to decide since it pertains to
admissibility of the document.
40. In view thereof, I pass the following order :-
(i) Mr. Rajendra M. Savant, Former Judge of this court, is
appointed as Sole Arbitrator for and on behalf of the
respondent no.1-Carboline (India) Pvt. Ltd.
(ii) It is clarified that in view of the order dated 26th
October 2016 passed by Company Court in Company
Application No.501 of 2016 in Company Petition
No.229 of 2015, the disputes and differences to be
adjudicated are those as between the applicant and the
1st respondent.
(iii) The learned Arbitrator is requested to file his disclosure
statement under Section 11(8) and Section 12(1) of the
Arbitration and Conciliation Act, 1996, within a period
of four weeks from today with the Prothonotary and
Senior Master, High Court, Bombay and provide copies
thereof to the parties.
(iv) Parties to appear before the Sole Arbitrator on a date to
be fixed by him at the earliest possible.
(v) Fees payable to the Sole Arbitrator will be in accordance
with the Bombay High Court (Fee Payable to
Arbitrators) Rules, 2018.
(vi) Arbitration Application is disposed in the above terms.
(vii) No costs.
(A.K. MENON, J.)
No comments:
Post a Comment