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TMI Blog2019 (4) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (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 exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (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 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 Arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... berate 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 - 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 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 decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment 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 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates (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 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 dam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 stamp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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