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2020 DIGILAW 188 (ORI)

Sukanti Bank v. Bedabyas Barik

2020-11-13

MOHAMMAD RAFIQ

body2020
ORDER : Mohammad Rafiq, J. 1. This petition has been filed by Smt. Sukanti Barik, under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short, "the Act, 1996") seeking appointment of an independent Arbitrator to arbitrate the disputes between the petitioner and the opposite parties. 2. The case of the petitioner as set out in the petition in brief is that the opposite party took loan of Rs. 2,60,53,175/- (two crore sixty lakhs fifty-three thousand one hundred seventy five rupees) from the petitioner on 11.10.2014 and in this regard an agreement under Annexure-1 was executed between the parties. As per clause 6 of the said agreement, any dispute arising out of the agreement is to be referred to the sole Arbitrator within the jurisdiction of Bhubaneswar, whose decisions shall be final and binding on the parties. It is contended by the petitioner that as the opposite party fails to repay the loan amount as per the terms and conditions of the agreement, the petitioner sent number of letters through her Advocate to the opposite party. Since the opposite party did not turn up, the petitioner appointed the sole Arbitrator to adjudicate the matter. The opposite party appeared before the Arbitration Tribunal and participated in the proceeding, but when the matter was posted for recording of evidence, opposite party filed ARBA No. 2/2019 before the District Judge, Khurda, whereby the learned District Judge terminated the Arbitration Tribunal by allowing the appeal of the opposite party. Challenging the said order of the District Judge, Khurda petitioner preferred ARBA No. 18 of 2019 before this Court wherein this Court by order dated 02.08.2019 while dismissing the said appeal as not maintainable, observed that if the appellant is interested for arbitration of the dispute involved herein, she may approach the High Court under the provision contained in Section 11(5) of the Act for appointment of Arbitrator. In terms of the said order, the petitioner sent notices on 20.08.2019 and 01.10.2019 to the opposite party for appointment of Arbitrator, but the opposite party did not respond. Hence this petition. 3. Mr. B.B. Mishra, learned counsel for the opposite party opposed the prayer for appointment of Arbitrator by raising a preliminary objection that the agreement dated 11.10.2014 containing arbitration clause, relied upon by the petitioner is not sufficiently stamped and is merely engrossed on a Stamp Paper worth Rs. Hence this petition. 3. Mr. B.B. Mishra, learned counsel for the opposite party opposed the prayer for appointment of Arbitrator by raising a preliminary objection that the agreement dated 11.10.2014 containing arbitration clause, relied upon by the petitioner is not sufficiently stamped and is merely engrossed on a Stamp Paper worth Rs. 100/-, which is inadmissible in evidence under Section 35 of the Stamp Act and hence it cannot be treated to be a valid agreement and confers no enforceable right. It is contended that when the agreement, which is insufficiently stamped, cannot be given effect to in law, the arbitration clause contained therein also cannot have any validity and enforceable effect. Hence the question of appointment of Arbitrator, on the basis an invalid agreement in the eye of law, does not arise. 4. Mr. Janmejaya Ray, learned counsel for the petitioner submitted that even if the agreement has not been sufficiently stamped, the arbitration clause contained therein can still be acted upon for collateral purpose to make reference to the arbitration. Since there is an arbitration clause in the agreement and certain disputes have arisen between the parties, this Court can refer the matter for Arbitration. It is further contended by the learned counsel for the petitioner that the question with regard to insufficiency of stamp duty in view of Section 16 of the Act, 1996 should be left to be decided by the Arbitrator. 5. I have given my thoughtful consideration to rival submissions and perused the materials on record. 6. In the instant case no doubt there is an arbitration clause in the agreement, but it is also the undisputed fact that the agreement containing such arbitration clause has not been sufficiently stamped as per the requirement under the Indian Stamp Act, 1899. 7. A similar question in the context of appointment of an Arbitrator under the scope of Section 11 of the Act of 1996 fell for consideration before the Supreme Court in SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Company Pvt. Ltd. (2011) 14 SCC 66 : (2011 AIR SCW 4484), wherein, a lease deed was executed between the parties under which the respondent agreed to lease to the appellant two tea estates with all appurtenances for a term of 30 years. Clause 35 of the said lease deed provided for settlement of the dispute between the parties by arbitration. Clause 35 of the said lease deed provided for settlement of the dispute between the parties by arbitration. However, certain disputes arose between the parties for which the appellant issued notice calling upon the respondent to refer the matter to arbitration under Clause 35 of the lease deed, which the respondent failed to comply. The appellant then approached the Gauhati High Court by filing the application under Section 11 of the Act for appointment of the Arbitrator. The respondent therein contended that the unregistered lease deed was invalid, unenforceable and not binding upon the parties having regard to Section 107 of the Transfer of Property Act, 1882 and Sections 17 and 49 of the Registration Act, 1908 and that the said lease deed was also not duly stamped and therefore having regard to Section 35 of the Stamp Act, 1899, it was invalid, unenforceable and not binding and further that clause 35 providing for arbitration being part of the said lease deed, was also invalid and unenforceable. The High Court dismissed the application filed by the applicant holding that the lease deed was compulsorily registrable under Section 17 of the Registration Act and Section 106 of the Transfer of Property Act and as the lease deed was not registered, no term in the said lease deed could be relied for any purpose and, therefore, Clause 35 could not be relied for seeking reference to arbitration. The High Court also held that the arbitration agreement contained in Clause 35 could not be termed as a collateral transaction, and therefore, the proviso to Section 49 of the Registration Act would also not assist the appellant. The Supreme Court having regard to the facts aforesaid, formulated the following three questions: "(i) Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable? (ii) Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable? (iii) Whether there is an arbitration agreement between the appellant and respondent and whether an Arbitrator should be appointed?" While answering question no. (i), it was held by the Supreme Court that 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. (iii) Whether there is an arbitration agreement between the appellant and respondent and whether an Arbitrator should be appointed?" While answering question no. (i), it was held by the Supreme Court that 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. 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 registrable - are rolled into a single instrument. 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. Therefore, having regard to the proviso to Section 49 of Registration Act read with Section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration, held the Supreme Court in answer to question no. (i) so posed. Therefore, having regard to the proviso to Section 49 of Registration Act read with Section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration, held the Supreme Court in answer to question no. (i) so posed. While dealing with question No. (ii), which is very relevant in the instant case that as to whether an arbitration agreement which is unregistered and/or which is not duly stamped, is valid or enforceable, the Supreme Court in SMS Tea Estates Pvt. Ltd., supra analysed the provisions of Sections 33 and 35 of the Stamp Act, 1899 and held that when a lease deed or any other instrument is relied upon as containing 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. 8. The Rajasthan High Court, dealt with a similar issue in the case of Nakoda Granite and Marmo Pvt. Ltd. v. Yogendra Singhvi, ADR. 2014 Raj. 91, in which application under section 11 of the Act was filed for appointment of Arbitrator. Application was founded on lease deed executed on non-judicial stamp of Rs. 100/-. Lease deed was held to be not sufficiently stamped for invoking arbitration clause. Relying on the judgment of Supreme Court in SMS Tea Estates Pvt. Ltd., supra, the Court dismissed the application, however, with liberty to the applicant to move afresh after getting the instrument in question duly stamped. 9. In Aeren R. Entertainment Pvt. Ltd. v. National Engineering India Ltd., 2014 (2) WLN 546 (Raj.), the Rajasthan High Court was dealing with application under Section 11 of the Arbitration and Conciliation Act for appointment of the Arbitrator. An objection was raised by the opposite party that the agreement to sale has been executed on a stamp of Rs. 9. In Aeren R. Entertainment Pvt. Ltd. v. National Engineering India Ltd., 2014 (2) WLN 546 (Raj.), the Rajasthan High Court was dealing with application under Section 11 of the Arbitration and Conciliation Act for appointment of the Arbitrator. An objection was raised by the opposite party that the agreement to sale has been executed on a stamp of Rs. 100/- only and, is therefore, insufficiently stamped and inadmissible in evidence as per Section 3 read with Article 5 of the Schedule appended to the Indian Stamp Act, 1899. Such agreement, therefore, cannot be acted upon as per Section 35 of the Indian Stamp Act, 1899. While dismissing the matter, it was observed by the Court that when the agreement to sale being not sufficiently stamped, the arbitration application is not maintainable under Section 11 of the Act. Additionally, the Court in the aforesaid judgment also held that the arbitration clause in the agreement also illegal on account of pendency of land ceiling proceedings. The said judgment of the Rajasthan High Court was challenged before the Supreme Court in Civil Appeal No. 6977/2016. The Supreme Court was informed that Collector (Stamps) has passed the order with regard to inadequate stamp duty on the agreement, which has been assailed in the revision petition. As far as proceedings under the Rajasthan Imposition of Ceiling on Agriculture Holdings Act, 1973 is concerned, it was informed that separate litigation with regard thereof was pending. The Supreme Court held that the High Court should not have declared the agreement void as it was subject to paying adequate stamp duty under the Stamp Act and also getting cleared of the proceedings initiated under the Ceiling Act. The Supreme Court therefore held that if the appellant stands cleared of those proceedings, it will be entitled to file a fresh application under Section 11 of the Act of 1996. 10. In Naina Thakkar v. Annapurna Builders, (2013) 14 SCC 354 : (ATR Online 2012 SC 539) the Supreme Court was dealing with a case where an application was filed under Section 8 of the Act of 1996. 10. In Naina Thakkar v. Annapurna Builders, (2013) 14 SCC 354 : (ATR Online 2012 SC 539) the Supreme Court was dealing with a case where an application was filed under Section 8 of the Act of 1996. While reiterating its earlier judgment in SMS Tea Estates Pvt. Ltd., supra, the Supreme Court in the context of application under Section 8 filed before the Civil Court held that the lease deed in that case entered into between the parties was an unregistered and prepared on a non-judicial stamp of Rs. 100/-. It was required to be registered and also suffered from deficit stamp duty. While pressing the application under Section 8 of the Act, the petitioner did not show any inclination to pay the deficit stamp duty, nor to pay the penalty as may be imposed by the Collector if the document was impounded and stamp duty payable thereon was determined. The order of the trial court rejecting the application under Section 8 of the Act was held to be valid. The Supreme Court in that case held that the Court while dealing with Section 11 of the Act cannot wait endlessly for the applicant to comply with its obligations to pay the stamp duty. The Supreme Court in Naina Thakkar, supra has reiterated the law propounded in SMS Tea Estates Pvt. Ltd., supra and held in para 6 as under: "6. In the light of above legal position, when we look at the facts of the present case, we find that while pressing the application under Section 8 of the Act, the petitioner did not show any inclination to pay the deficit stamp duty on the lease deed dated 19.12.2005 nor expressed her desire that she was willing to pay the penalty as may be imposed by the Collector if the document was impounded and stamp duty payable thereon was determined." 11. The Supreme Court recently in the case of Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram and other Charities and others v. Bhaskar Raju and Brothers and others, reported in (2020) 4 SCC 612 : (AIR Online 2020 SC 212) has again reiterated this law that an Arbitration agreement contained in the document is compulsorily required to be stamped. If any such agreement containing arbitration clause is improperly or insufficiently stamped, the same cannot be acted upon for appointment of Arbitrator till such defect is cured. If any such agreement containing arbitration clause is improperly or insufficiently stamped, the same cannot be acted upon for appointment of Arbitrator till such defect is cured. When an instrument compulsorily required to be stamped, is relied upon as containing the Arbitration agreement, on a petition filed under Section 11 (6) of the Act, the Court is required to consider at the outset, whether the document is properly stamped or not and the Court cannot be acted upon an arbitration clause in a document if the document is not properly stamped. However, if the deficit stamp duty and penalty is paid, the document can be acted upon. 12. The Supreme Court in Avinash Kumar Chauhan v. Vijay Krishna Mishra (2009) 2 SCC 532 : ( AIR 2009 SC 1489 ), relying on the judgment of Privy Council in Ram Ratan v. Parma Nand, AIR 1946 PC 51 interpreted the phraseology "for any purpose whatsoever" used in Section 35 of the Indian Stamp Act, and it was held in paragraphs 25 and 26 of the judgment as under: "25. Section 35 of the Act, however, rules out applicability of such provision as it is categorically provided therein that a document of this nature shall not be admitted for any purpose whatsoever. If all purposes for which the document is sought to be brought in evidence are excluded, we fail to see any reason as to how the document would be admissible for collateral purposes. 26. The view we have taken finds support from the decision of the Privy Council in Ram Rattan v. Parmananad, [ AIR 1946 PC 51 ] wherein it was held:- "That the words 'for any purpose' in Section 35 of the Stamp Act should be given their natural meaning and effect and would include a collateral purpose and that an unstamped partition deed cannot be used to corroborate the oral evidence for the purpose of determining even the factum of partition as distinct from its terms." 13. In view of the afore-discussed enunciation of law by the Supreme Court, the argument of the learned counsel for the petitioner in the instant case that even though the agreement is not sufficiently stamped, the arbitration clause contained therein can still be acted upon for collateral purpose to make reference to the arbitration, cannot be accepted. 14. The Rajasthan High Court in Trade Swift Developers Private Ltd. Vs. 14. The Rajasthan High Court in Trade Swift Developers Private Ltd. Vs. Gopal Prasad Kanoria (2017) 2 CDR 987 (Raj.), while dealing with a case of similar nature to that of instant case, relying on the various decisions on the Supreme Court and High Courts, including the decisions discussed above, held that the application under Section 11 of the Act of 1996 for seeking appointment of the Arbitrator to be not maintainable in view of the dictum of Supreme Court in SMS Tea Estates Pvt. Ltd., supra because the agreement/MoU containing the arbitration clause was not duly stamped. However, while dismissing the petition, the Court gave liberty to the applicant to file a fresh application for appointment of Arbitrator as and when it makes payment of stamp duty payable as per law. 15. Contention of the learned counsel for the petitioner that the question as to insufficiency of stamp duty in view of Section 16 of the Act should be left to be decided by the Arbitrator cannot be countenanced and has to be rejected in view of authoritative pronunciation of law by the Supreme Court in SMS Tea Estates Pvt. Ltd., supra which mandates that such an issue has to be decided in the application under Section 11 of the Act itself. The Supreme Court in Javer Chand and Ors. v. Pukhraj Surana, AIR 1965 SC 1655 , observed that where a question as to the admissibility of a document is raised on the ground that it has not been stamped, or has not been properly stamped, it has to be decided then and there when the document is tendered in evidence. 16. In view of the above settled position, the prayer made in this Arbitration Petition cannot be granted. However, the petitioner is set at liberty to file a fresh application for appointment of Arbitrator if she gets the agreement duly stamped making the actual stamp duty payable in accordance with law. The ARBP stands dismissed with the aforesaid liberty. As pandemic situation is continuing for COVID-19, learned counsel for the parties may utilize the soft copy of this order available in the High Court's website or print out thereof at par with certified copies in the manner prescribed, vide Court's Notice No. 4587, dated 25.03.2020.