M/S. N.N. GLOBAL MERCANTILE PVT. LTD. versus M/S. INDO UNIQUE FLAME LTD. & OTHERS on 11 January 2021

1. The Stamp Act is a fiscal measure enacted to secure therevenue of the State on certain classes of instruments specifiedin Schedule I of the Act. The stringent provisions of the StampAct have been framed to protect the interest of the revenue ofthe State. Section 34 of the Maharashtra Stamp Act, 1958 operatesas a statutory bar to an unstamped instrument being admitted inevidence, or being acted upon, for any purpose, by any authorityhaving by law or consent of parties, the power to receive evidence,unless such instrument is duly stamped. The proviso to Section34 states that upon payment of the requisite stamp duty, theinstrument may be admitted in evidence. The words “for anypurpose” occurring in the Indian Stamp Act was interpreted bythe Privy Council in Ram Rattan v. Parma Nand. [Para 5.4][969-F-H]

2. The arbitration agreement contained in the Work Orderis independent and distinct from the underlying commercialcontract. The arbitration agreement is an agreement whichprovides the mode of dispute resolution. Section 3 of theMaharashtra Stamp Act does not subject an arbitration agreementto payment of Stamp Duty, unlike various other agreements A

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Aenlisted in the Schedule to the Act. This is for the obvious reasonthat an arbitration agreement is an agreement to resolve disputesarising out of a commercial agreement, through the mode ofarbitration. On the basis of the doctrine of separability, thearbitration agreement being a separate and distinct agreementfrom the underlying commercial contract, would surviveBindependent of the substantive contract. The arbitrationagreement would not be rendered invalid, un-enforceable or non-existent, even if the substantive contract is not admissible inevidence, or cannot be acted upon on account of non-payment ofStamp Duty. [Para 6.4][977-G-H; 978-A-B]C

3. In view of this Court, there is no legal impediment to theenforceability of the arbitration agreement, pending payment ofStamp Duty on the substantive contract. The adjudication of therights and obligations under the Work Order or the substantivecommercial contract would however not proceed beforeDcomplying with the mandatory provisions of the Stamp Act. [Para6.6][979-G-H; 980-A]

4. The Stamp Act is a fiscal enactment for payment of stampduty to the State on certain classes of instruments specified inthe Stamp Act. Section 40 of the Indian Stamp Act,1899 providesEthe procedure for instruments which have been impounded, andsub-section (1) of Section 42 requires the instrument to beendorsed after it is duly stamped by the concerned Collector.Section 42(2) provides that after the document is duly stamped,it shall be admissible in evidence, and may be acted upon. [Para6.7][980-B-C]F

5. In view of this Court, the decision in SMS Tea Estatesdoes not lay down the correct position in law on two issues i.e. (i)that an arbitration agreement in an unstamped commercialcontract cannot be acted upon, or is rendered un-enforceable inlaw; and (ii) that an arbitration agreement would be invalid whereGthe contract or instrument is voidable at the option of a party,such as u/S. 19 of the Indian Contract Act, 1872. This Court holdsthat since the arbitration agreement is an independent agreementbetween the parties, and is not chargeable to payment of stampduty, the non-payment of stamp duty on the commercial contract,Hwould not invalidate the arbitration clause, or render it un- enforceable, since it has an independent existence of its own.The view taken by the Court on the issue of separability of thearbitration clause on the registration of the substantive contract,ought to have been followed even with respect to the Stamp Act.The non-payment of stamp duty on the substantive contract wouldnot invalidate even the main contract. It is a deficiency which iscurable on the payment of the requisite Stamp Duty. [Para6.8][980-C-F]

6. The Garware judgment has followed the judgment in SMSTea Estates. The Counsel for the Appellant has placed relianceon paragraph 22 of the judgment to contend that the arbitrationclause would be non- existent in law, and unenforceable, till StampDuty is adjudicated and paid on the substantive contract. ThisCourt holds that this finding is erroneous, and does not lay downthe correct position in law. This Court has already held that anarbitration agreement is distinct and independent from theunderlying substantive commercial contract. Once the arbitrationagreement is held to have an independent existence, it can beacted upon, irrespective of the alleged invalidity of the commercialcontract. [Para 6.10][980-B-D]

7. This Court doubt the correctness of the view taken inparagraph 92 of the three-judge bench in Vidya Drolia. This Courtconsiders it appropriate to refer the findings in paras 22 and 29of Garware Wall Ropes Limited, which has been affirmed inparagraph 92 of Vidya Drolia, to a Constitution Bench of fivejudges. [Para 6.12][983-B]

8. The next issue which arises is as to which authority wouldexercise the power of impounding the instrument under Section33 read with Section 34 of the Maharashtra Stamp Act, in a casewhere the substantive contract contains an arbitration agreement.[Para 7][983-C]

9. In an arbitration agreement, the disputes may be referredto arbitration by three modes.

a) The first mode is where the appointment of the arbitratortakes place by the parties consensually in accordance with theterms of the arbitration agreement, or by a designated arbitralinstitution, without the intervention of the court. In such a case, AB

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Athe arbitrator / tribunal is obligated by Section 33 of the IndianStamp Act, 1899 (or the applicable State Act) to impound theinstrument, and direct the parties to pay the requisite Stamp Duty(and penalty, if any), and obtain an endorsement from theconcerned Collector. This would be evident from the provisionsof Section 34 of the Stamp Act which provides that “any personBhaving by law or consent of parties authority to receive evidence”is mandated by law to impound the instrument, and direct theparties to pay the requisite stamp duty.

b) The second mode of appointment is where the partiesfail to make the appointment in accordance with the arbitrationCagreement, and an application is filed under Section 11 beforethe Court to invoke the default power for making the appointment.In such a case, the High Court, or the Supreme Court, as thecase may be, while exercising jurisdiction under Section 11, wouldimpound the substantive contract which is either unstamped or Dinadequately stamped, and direct the parties to cure the defectbefore the arbitrator / tribunal can adjudicate upon the contract.

c) The third mode is when an application is filed underSection 8 before a judicial authority for reference of disputes toarbitration, since the subject matter of the contract is covered byEan arbitration agreement. In such a case, the judicial authoritywill make the reference to arbitration. However, in the meanwhile,the parties would be directed to have the substantive contractstamped in accordance with the provisions of the relevant StampAct, so that the rights and obligations emanating from thesubstantive contract can be adjudicated upon. [Para 7.1][983-D-FH]

Whether the fraudulent invocation of the Bank Guaranteeis arbitrable?

10. In view of this Court, all civil or commercial disputes,Geither contractual or non- contractual, which can be adjudicatedupon by a civil court, in principle, can be adjudicated and resolvedthrough arbitration, unless it is excluded either expressly bystatute, or by necessary implication. The Arbitration andConciliation Act, 1996 does not exclude any category of disputesas being non arbitrable. Section 2(3) of the Arbitration ActH

however recognizes that certain categories of disputes by lawmay not be submitted to arbitration. In all jurisdictions, certaincategories of disputes are reserved by the legislature, as a matterof public policy, to be adjudicated by a court of law, since they liein the realm of public law. [Para 8.10][988-F-G; 989-A]

11. Traditionally, disputes relating to rights in rem arerequired to be adjudicated by courts and / or statutory tribunals.A right in rem is a right exercisable against the world at large.Actions in rem refer to actions which create a legal status suchas citizenship, divorce, testamentary and probate issues, etc. Alis in rem is not arbitrable by a private tribunal constituted by theconsent of parties. Actions in personam determine the rights andinterests of parties to the subject matter of the dispute, whichare arbitrable. The broad categories of disputes which areconsidered to be non arbitrable are penal offences which arevisited with criminal sanction; offences pertaining to bribery /corruption; matrimonial disputes relating to divorce, judicialseparation, restitution of conjugal rights, child custody andguardianship matters, which pertain to the status of a person;testamentary matters which pertain to disputes relating to thevalidity of a Will, grant of probate, letters of administration,succession, which pertain to the status of a person, and areadjudicated by civil courts. [Para 8.11][989-B-D]

12. The civil aspect of fraud is considered to be arbitrablein contemporary arbitration jurisprudence, with the onlyexception being where the allegation is that the arbitrationagreement itself is vitiated by fraud or fraudulent inducement, orthe fraud goes to the validity of the underlying contract, andimpeaches the arbitration clause itself. Another category of casesis where the substantive contract is “expressly declared to bevoid” under Section 10 of the Indian Contract Act, 1872 wherethe agreement is entered into by a minor (without following theprocedure prescribed under the Guardian and Wards Act, 1890)or a lunatic, which would be with a party incompetent to enterinto a contract. [Para 8.12][990-B-D]

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A13. The ground on which fraud was held to be non arbitrableearlier was that it would entail voluminous and extensiveevidence, and would be too complicated to be decided inarbitration. In contemporary arbitration practice, arbitral tribunalsare required to traverse through volumes of material in variouskinds of disputes such as oil, natural gas, construction industry,Betc. The ground that allegations of fraud are not arbitrable is awholly archaic view, which has become obsolete, and deservesto be discarded. However, the criminal aspect of fraud, forgery,or fabrication, which would be visited with penal consequencesand criminal sanctions can be adjudicated only by a court of law,Csince it may result in a conviction, which is in the realm of publiclaw. [Para 8.16][992-E-G]

14. In the present case, the allegations of fraud with respectto the invocation of the Bank Guarantee are arbitrable, since itarises out of disputes between parties inter se, and is not in theDrealm of public law. [Para 8.17][993-A]

Maintainability of the Writ Petition

15. This Court is of the view that the Writ Petition filed bythe Respondent No. 1 to challenge the Order dated 18.01.2018passed by the Special Commercial Court / District Judge-I inECommercial Dispute No. 62/2017 was not maintainable, since astatutory remedy under the amended Section 37 of the ArbitrationAct is available. [Para 9.1][993-B-C]

16. Since the judgment and order of the Commercial Courtdated 18.01.2018 refusing to refer the parties to arbitration wasFan appealable order under Section 37(1)(a) of the Arbitration Act,the Writ Petition was not maintainable. The appeal would lie beforethe Commercial Appellate Division of the High Court underSection 13(1A) of the Commercial Courts Act, 2015. [Para9.2][993-E-F]G17. This Court considers it appropriate to refer the followingissue, to be authoritatively settled by a Constitution bench offive judges of this Court :

“Whether the statutory bar contained in Section 35 of theIndian Stamp Act, 1899 applicable to instruments H

chargeable to Stamp Duty under Section 3 read with theSchedule to the Act, would also render the arbitrationagreement contained in such an instrument, which is notchargeable to payment of stamp duty, as being non-existent,un-enforceable, or invalid, pending payment of stamp dutyon the substantive contract/instrument?’’ [Para 12][995-C-E]

Vidya Drolia & Ors. v. Durga Trading Corporation[2019] SCR 465; Garware Wall Ropes Limited v.Coastal Marine Constructions and Engineering Limited(2019) 9 SCC 209 : [2019] 5 SCR 579 – referred toConstitution Bench.

SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co.Pvt. Ltd. (2011) 14 SCC 66 : [2011] 9 SCR 382 – partlyoverruled.

Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. NorthernCoal Field Ltd. (2020) 2 SCC 455; A. Ayyasamy v.Parmasivam & Ors. (2016) 10 SCC 386 : [2016] 11SCR 521; Hindustan Steel Limited v. M/s. DilipConstruction Company (1969) 1 SCC 597 : [1969] 3SCR 736 – relied on.

SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618: [2005] 4 Suppl. SCR 688; National Insurance Co. v.Boghara Polyfab (2009) 1 SCC 267 : [2008] 13 SCR638; Mayavati Trading Private Limited v. Pradyuat DebBurman. (2019) 8 SCC 714 : [2019] 12 SCR 123;Shriram EPC Limited v. Rioglass Solar SA (2018) 18SCC 313 : [2018] SCR 749; Duro Felguera v.Gangavaram Port Ltd. (2017) 9 SCC 729 : [2017] 10SCR 285; N. Radhakrishnan v. Maestro Engineers.(2010) 1 SCC 72 : [2009] 15 SCR 371; Abdul Kadir v.Madhav Prabhakar AIR 1962 SC 406 : [1962] 3 SCR702; Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra(2012) 2 SCC 144 : [2011] 10 SCR 685; Ameet LalchandShah & Ors. v. Rishabh Enterprises & Anr. (2018) 15SCC 678 : [2018] 6 SCR 1001; Rashid Raza v. SadafAkhtar (2019) 8 SCC 710 : [2019] 12 SCR 460; Avitel A

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SUPREME COURT REPORTS

Post Studioz Ltd. & Ors. v. HSBC PI Holdings(Mauritius Limited) (2020) SCC OnLine SC 656; NainaThakkar v. Annapurna Builders. (2013) 14 SCC 354;Deccan Paper Mills v. Regency Mahavir (2020) SCCOnLine SC 655; Booz Allen & Hamilton Inc. v. SBIHome Finance Ltd. (2011) 5 SCC 532 : [2011]7 SCR 310; Swiss Timing Ltd. v. Commonwealth Games2010 Organising Committee (2014) 6 SCC 677 : [2014]6 SCR 514; State of West Bengal v. AssociatedContractors (2015) 1 SCC 32 : [2014] 10 SCR 426;Swiss Timing Ltd. Avitel Post Studioz Ltd. & Ors. v.HSBC PI Holdings (Mauritius Limited) (2020) SCCOnLine SC 656; Avinash Kumar Chauhan v. VijayKrishna Mishra (2009) 2 SCC 532; Black Pearl Hotels(P) Ltd. v. Planet M. Retail Ltd. (2017) 4 SCC 498;Master Construction Company v. Union of India (2011)12 SCC 357; A. Ayyasamy v. A. Paramasivam & Ors.(2016) 10 SCC 386 : [2016] 11 SCR 521; Emaar MGFLand Limited v. Aftab Singh (2019) 12 SCC 751; VimalKishor Shah & Others v. Jayesh Dinesh Shah & Others.(2016) 8 SCC 788 – referred to.

Ram Rattan v. Parma Nand (1945-46) 73 IA 28 : AIR1946 PC 51 – referred to.

Heyman v. Darwins Ltd. [1942] AC 356; Bremer VulkanSchiffbau und Maschinefabrik v. South India ShippingCorporation [1981] AC 909; Harbour Assurance v.Kansa General International Insurance [1993] 1Lloyd’s Rep.455 (CA); Lesotho HighlandsDevelopment Authority v. Impregilo SpA and Others :[2005] UKHL 43 : [2006] 1 A.C. 221; Gosset v.Caparelli, Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963),545; Fiona Trust & Holding Corporation v. Privalov[2007] EWCA Civ 20; Fili Shipping Co. Ltd. and Othersv. Premium Nafta Products Ltd. and Others [2007]UKHL 40; Prima Paint Corporation v. Flood & ConklinMFG. CO. 388 US 395 (1967); Buckeye CheckCashing, Inc v. Cardegna et. al US SC 440 (2006); PrimaPaint and Southland Corp. v. Keating. 79 L Ed 2d: 465

M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDOUNIQUE FLAME LTD. & OTHERS

US 1 (1984); Rent-A- Center, West, Inc. v. Jackon 561US 63 (2010); Russel v. Russel [1880] 14 Ch. D 471 –referred to.

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Ivory Properties & Hotels Pvt. Ltd. v. Nusli Neville Wadia2011 (2) Arb LR 479 (Bom); RRB Energy Ltd. v. VestasWind System & Ors. (2015) 219 DLT 516 – referredto.

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Malhotra’s Commentary on the Law of Arbitration,[4[th] ed., Wolters Kluwer (2020)], p.339, Volume I.

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From the Judgment and Order dated 30.09.2020 in WP No. 1801/D2020 and dated 28.10.2020 in RAST No. 9819/2020 passed by the HighCourt of Judicature at Bombay Bench at Nagpur.

Dhruv Mehta, Sr. Adv., Shyam Dewani, Gagan Sanghi andRameshwar Prasad Goyal, Advs. for the Appellant.

Siddharth Dave, Sr. Adv., Rajul Shrivastava, Ms. Charu Ambwani,EAmit Khare, Sanjay Kapur, Sambit Panja and Ms. Megha Karnwal,Advs. for the Respondents.

The Judgment of the Court was delivered by

INDU MALHOTRA, J.

F1. This case raises interesting issues with respect to the applicationof the doctrine of separability of an arbitration agreement from theunderlying substantive contract in which it is embedded; whether anarbitration agreement would be non-existent in law, invalid or un-enforceable, if the underlying contract was not stamped as per therelevant Stamp Act; and, whether allegations of fraudulent invocation ofGthe bank guarantee furnished under the substantive contract, would bean arbitrable dispute.

1.1 The Respondent No.1-Indo Unique Flame Ltd. (“Indo Unique”)applied for grant of work of beneficiation/washing of coal to the KarnatakaPower Corporation Ltd. (“KPCL”) in an open tender. KPCL awardedH

the Work Order vide letter of Award No.A1M1B3/Washed Coal/1052dated 18.09.2015 to Indo Unique.

In pursuance of the Work Order dated 18.09.2015, the RespondentNo.1 Company furnished Bank Guarantees for Rs.29.29 crores in favourof KPCL through its bankers, State Bank of India (“SBI”), theRespondent No.2 herein.

1.2 Indo Unique, the Respondent No.1 herein, subsequently enteredinto a sub-contract termed as a Work Order dated 28.09.2015 with theAppellant Company – M/s. N.N. Global Mercantile Pvt. Ltd. (“GlobalMercantile”), for the transportation of coal from its washery at VillagePunwat, District Yavatmal to the stockyard, siding, coal handling andloading into the wagons at Pandharpaoni siding, District Chanderpur,Maharashtra.

Clause 9 of the Work Order provided for furnishing a securitydeposit which reads as :

“9. Security Deposit : You will submit the Bank Guarantee forRs.5.00 crores for the average stock of washed coal lying at yourstockyard. This Bank Guarantee can be issued from anynationalised Bank/first class bank, initially valid for a period of 18(eighteen) months.”

Clause 10 of the Work Order incorporates an arbitration clause,which reads as:

“10. Arbitration : In case of any dispute due to difference of opinionin interpretation of any clause or terms and conditions or meaningof the work or language the decision of the arbitrator appointedwith mutual consent shall be treated as final and binding on boththe parties.”

1.3 As per Clause 9 of the Work Order, Global Mercantile furnisheda Bank Guarantee for Rs.3,36,00,000/- on 30.09.2015, in favour of SBI-the banker of Indo Unique.

The Bank Guarantee was extended from time to time, and waslast extended on 10.11.2017.

1.4 Under the principal contract with KPCL dated 18.09.2015,certain disputes and differences arose with Indo Unique, which led tothe invocation of the Bank Guarantee by KPCL on 06.12.2017.

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A1.5 Indo Unique, on 07.12.2017, invoked the Bank Guaranteefurnished by Global Mercantile under the Work Order.

It is the invocation of this Guarantee which has led to the presentproceedings.

1.6 Global Mercantile filed a Civil (Commercial) Suit No.62 ofB2017 against Indo Unique, and its banker SBI, as also the banker of theAppellant i.e. the Union Bank of India (Respondent No.3 herein), beforethe Commercial Court, Nagpur praying inter alia for a declaration thatIndo Unique was not entitled to encash the bank guarantee as the WorkOrder had not been acted upon. It was expressly stated that Indo UniqueChad not allotted any work under the Work Order, nor were any invoicesraised, or payments made by it. Consequently, there was no loss sufferedwhich would justify the invocation of the Bank Guarantee. It was allegedthat the invocation of the Bank Guarantee was fraudulent, since it wasnot in terms of the Work Order, being a conditional guarantee linked tothe performance of work.DThe Commercial Court vide an ex parte ad interim Order dated15.12.2017 directed status-quo to be maintained with respect to theenforcement of the Bank Guarantee.

1.7 Indo Unique filed an application under Section 8 of theArbitration and Conciliation Act, 1996 (“Arbitration Act”) in CivilE(Commercial) Suit No.62 of 2017, seeking reference of disputes toarbitration.

Global Mercantile opposed the application under Section 8 as beingnot maintainable since the Bank Guarantee was a separate andindependent contract, and did not contain any arbitration clause.F1.8 The Commercial Court vide Order dated 18.01.2018 rejected F1.8 The Commercial Court vide Order dated 18.01.2018 rejectedthe application under Section 8, and held that the arbitration clause in theWork Order dated 28.09.2015 was not a general arbitration clause, whichwould cover the Bank Guarantee. The Bank Guarantee was anindependent contract between SBI and Union Bank of India for dueperformance of the contract. The Court noted the contention of GlobalGMercantile that neither of the parties had performed any part of theWork Order dated 28.09.2015, and consequently held that the jurisdictionof the Commercial Court was not ousted by the arbitration agreement.

1.9 Indo Unique then filed Civil Revision Petition No.9 of 2018before the Bombay High Court challenging the Order passed by theHCommercial Court.

On an objection being raised on the maintainability of the CivilRevision Petition, the High Court vide Order dated 09.07.2020 permittedthe withdrawal of the Civil Revision Petition, with liberty to file a petitionunder Articles 226 and 227 of the Constitution of India.

1.10 Indo Unique filed W.P. No.1801 of 2020 before the BombayHigh Court to quash and set aside the Order dated 18.01.2018 passedby the Commercial Court/District Judge-I, Nagpur in Civil (Commercial)Suit No.62/2017.

The High Court vide the Impugned Judgment dated 30.09.2020held that it was the admitted position that there was an arbitrationagreement between the parties, and therefore the application underSection 8 was maintainable. With respect to the contention that theinvocation of the Bank Guarantee was fraudulent, it was held that theallegations of fraud did not constitute a criminal offence which wouldentail recording of voluminous evidence. The disputes could be resolvedthrough arbitration, and the filing of the Suit before the Commercial Courtwas not justified. The Commercial Court was not justified in restrainingthe invocation of the bank guarantee in the absence of any finding onfraud or special equities.

On the issue of the arbitration agreement being unenforceablesince the Work Order was unstamped, it was held that the plaintiff/Appellant herein, could raise the issue either under Section 11 of theArbitration Act, or before the arbitral tribunal at the appropriate stage.The Writ Petition was held to be maintainable, since there is no absolutebar to entertain a Writ Petition even if an alternate remedy is available.The Writ Petition was allowed vide Judgment and Order dated 30.09.2020,and the Order dated 18.01.2018 passed by the Commercial Court wasset aside.

On the request of the counsel for the Appellant, the High Courtsuspended the operation of its Order for a period of one month from30.09.2020.

1.11 The Review Petition filed by the Appellant was withdrawnvide Order dated 28.10.2020 passed in Review Application (ST) No.9819 of 2020.

On the request by the counsel for the Appellant, the Order of staywas continued till 20.11.2020.

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A1.12 Aggrieved by the judgment of the High Court, GlobalMercantile has filed the present Special Leave Petition before this Court.

2. The issues which have arisen for our consideration are :

i.Whether an arbitration agreement would be enforceable andacted upon, even if the Work Order dated 28.09.2015 isBunstamped and un-enforceable under the Stamp Act?

ii.Whether allegation of the fraudulent invocation of the bankguarantee is an arbitrable dispute?

iii. Whether a Writ Petition under Articles 226 and 227 of theCConstitution would be maintainable to challenge an Orderrejecting an application for reference to arbitration underSection 8 of the Arbitration Act?

We will now deal with each of these issues.

3. Validity of an arbitration agreement in an unstampedDagreement 3.1It is well settled in arbitration jurisprudence that anarbitration agreement is a distinct and separate agreement,which is independent from the substantive commercialcontract in which it is embedded. This is based on theEpremise that when parties enter into a commercial contractcontaining an arbitration clause, they are entering into twoseparate agreements viz. (i) the substantive contract whichcontains the rights and obligations of the parties arising fromthe commercial transaction; and, (ii) the arbitrationagreement which contains the binding obligation of theFparties to resolve their disputes through the mode ofarbitration.

3.2The autonomy of the arbitration agreement is based onthe twin concepts of separability and kompetenz –kompetenz. The doctrines of separability and kompetenzG– kompetenz though inter-related, are distinct, and play animportant role in promoting the autonomy of the arbitralprocess.

3.3The doctrine of separability of the arbitration agreementconnotes that the invalidity, ineffectiveness, or termination H

of the substantive commercial contract, would not affectthe validity of the arbitration agreement, except if thearbitration agreement itself is directly impeached on theground that the arbitration agreement is void ab initio.

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The doctrine of kompetenz – kompetenz implies thatthe arbitral tribunal has the competence to determine andrule on its own jurisdiction, including objections with respectto the existence, validity, and scope of the arbitrationagreement, in the first instance, which is subject to judicialscrutiny by the courts at a later stage of the proceedings.Under the Arbitration Act, the challenge before the Courtis maintainable only after the final award is passed asprovided by sub-section (6) of Section 16.

The stage at which the order of the tribunal regardingits jurisdiction is amenable to judicial review, varies fromjurisdiction to jurisdiction. The doctrine of kompetenz –kompetenz has evolved to minimize judicial intervention atthe pre-reference stage, and reduce unmeritoriouschallenges raised on the issue of jurisdiction of the arbitraltribunal.

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The doctrine of separability was expounded in thejudgment of Heyman v. Darwins Ltd[1] by the House ofLords wherein it was held that English common law hadbeen evolving towards the recognition of an arbitrationclause as a separate contract which survives the terminationof the main contract.

Lord Wright in his opinion stated that :

“An arbitration agreement is collateral to the substantialstipulations of the contract. It is merely procedural andancillary, it is a mode of settling disputes, though theagreement to do so is itself subject to the discretion ofthe court.”

Lord MacMillan in his opinion stated that :

“It survives for the purpose of measuring the claimsarising out of the breach, and the arbitration clause ABC

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survives for determining the mode of their settlement.The purposes of the contract have failed, but thearbitration clause is not one of the purposes of thecontract.”

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3.6This rule has been affirmed in several cases, includingBBremer Vulkan Schiffbau und Maschinefabrik v. SouthIndia Shipping Corporation[2] in which Lord Diplock citedHeyman as an authority for the assertion that :

“The arbitration clause constitutes a self-contained contractcollateral or ancillary to the shipbuilding agreement itself.”

C3.7In Harbour Assurance v. Kansa GeneralInternational Insurance,[3]the Court of Appeal held that ifthe arbitration clause is not directly impeached, an arbitrationagreement is capable of surviving the invalidity of thecontract, so that the arbitrator has the jurisdiction toDdetermine the initial validity of the contract. It was opinedthat:

“Once it became accepted that the arbitration clause is aseparate agreement, ancillary to the contract, the logicalimpediment to referring an issue of the invalidity of thecontract to arbitration disappears. Provided that thearbitration clause itself is not directly impeached (eg by anon-est factum plea), the arbitration agreement is as amatter of principled legal theory capable of surviving theinvalidity of the contract.”

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F3.8In Lesotho Highlands Development Authority v.Impregilo SpA and others,[4] the House of Lords affirmedthe view taken in Harbour Assurance (supra), wherein itwas held that an arbitration agreement is a distinct andseparable agreement from the underlying or principalcontract.

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“21. It is part of the very alphabet of arbitration law asexplained in Harbour Assurance Co v. Kansa General 2 [1981] AC 909.

3 [1993] 1 Lloyd’s Rep. 455 (CA).

H4 [2005] UKHL 43 : [2006] 1 A.C. 221 at [21].

International Insurance, … spelled out in s. 7 of the Act,that the arbitration agreement is a distinct and separableagreement from the underlying or principal contract.”

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Article 16(1) of the Model Law incorporates the doctrineof separability :

“Article 16. The arbitral tribunal may rule on its ownjurisdiction, including any objections with respect to theexistence or validity of the arbitration agreement. For thatpurpose, an arbitration clause which forms a part of acontract shall be treated as an agreement independent ofthe other terms of the contract. A decision by the arbitraltribunal that the contract is null and void shall not entail ipsojure the invalidity of the arbitration clause.”

3.10The French Cour de Cassation recognised the doctrineof separability in broad terms in the Gosset v. Caparelli,[5]wherein it was held that:

“In international arbitration, the agreement to arbitrate,whether concluded separately or included in the contractto which it relates, is always save in exceptionalcircumstances, … completely autonomous in law whichexcludes the possibility of it being affected by the possibleinvalidity of the main contract.”

3.11

The doctrine of kompetenz – kompetenz is based onthe premise that the arbitration agreement is separate andindependent from the substantive underlying contract inwhich it is embedded. Equally, an arbitration agreementexists and can be acted upon irrespective of whether themain substantive contract is valid or not.

The Court of Appeal in the seminal decision rendered inFiona Trust & Holding Corporation v. Privalov,[6] heldthat the allegation of invalidity of the underlying contract,would not preclude the arbitral tribunal from determiningthe said issue in the first instance, even though the allegedillegality would render the contract void from inception. In 5 Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963), 545.

6 [2007] EWCA Civ 20.

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this case, the arbitration agreement was contained in acharter party agreement, wherein it was alleged that it hadbeen procured through bribery by the owner’s agent, andwas invalid from its inception. It was held that only if thearbitration agreement is itself directly impeached, andrendered void or unenforceable on grounds which relate tothe arbitration agreement itself, and not merely as aconsequence of the invalidity of the underlying contract,that the courts may refuse reference to arbitration. Todiscourage parasitical challenges and dilatory tactics inresisting reference to arbitration, the Court of Appeal heldin paragraph 38 that :

“38. … As we have sought to explain, once the separabilityof the arbitration agreement is accepted, there cannot beany question but that there is a valid agreement.

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If there is a contest about whether an arbitration agreementhad come into existence at all, the court would have adiscretion as to whether to determine that issue itself, butthat will not be the case where there is an overall contractwhich is said for some reason to be invalid eg for illegality,misrepresentation or bribery and the arbitration agreementis merely part of the contract. …’’

3.12In the Appeal filed in the Fiona Trust case before theHouse of Lords, in Fili Shipping Co Ltd and others v.Premium Nafta Products Ltd and others[7], Lord Hoffmanopined :

“It amounts to saying that because the main agreement andthe arbitration agreement were bound up with each other,the invalidity of the main agreement should result in theinvalidity of the arbitration agreement. The one should fallwith the other because they would never have beenseparately concluded. But section 7 in my opinion meansthat they must be treated as having been separatelyconcluded and the arbitration agreement can be invalidatedonly on a ground which relates to the arbitration agreement

and is not merely a consequence of the invalidity of themain agreement.”

Lord Hope in his separate opinion, held that :

“The owners’ argument was not that there was no contractat all, but that they were entitled to rescind the contractincluding the arbitration agreement because the contractwas induced by bribery. Allegations of that kind, if sound,may affect the validity of the main agreement. But they donot undermine the validity of the arbitration agreement as adistinct agreement. The doctrine of separability requiresdirect impeachment of the arbitration agreement before itcan be set aside. This is an exacting test. The argumentmust be based on facts which are specific to the arbitrationagreement. Allegations that are parasitical to a challengeto the validity to the main agreement will not do. That beingthe situation in this case, the agreement to go to arbitrationmust be given effect.”

3.13

The law as it stands in U.K. today is that if the courtwhile entertaining a plea to refer the parties to arbitration,is satisfied of the existence of the arbitration agreement, itis incumbent to refer the parties to arbitration, even ifobjections to the validity of the substantive contract areraised. Where the arbitration agreement is embedded in anunderlying contract, the court would not entertain the disputeon the issue of jurisdiction until the arbitral tribunal has ruledon this issue. Lord Hoffman opined that :

“But that is in my opinion exactly the kind of argument whichs 7 was intended to prevent. It amounts to saying thatbecause the main agreement and the arbitration agreementwere bound up with each other, the invalidity of the mainagreement should result in the invalidity of the arbitrationagreement. The one should fall with the other because theywould never have been separately concluded and thearbitration agreement can be invalidated only on a groundwhich relates to the arbitration agreement and is not merelya consequence of the invalidity of the main agreement.”[8]

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3.14On the issue of whether a claim of fraud in theinducement of the entire contract is to be decided by thecourt, or the arbitrator, was considered by the U.S. SupremeCourt in Prima Paint Corporation v. Flood & ConklinMFG. CO.,[9]

The Court held that:

“If the claim is fraud in the inducement of the arbitrationclause itself an issue which goes to the ‘making’ of theagreement to arbitrate—the federal court may proceed toadjudicate it. But the statutory language does not permitthe federal court to consider claims of fraud in theinducement of the contract generally.……

In so concluding, we not only honor the plain meaning ofthe statute but also the unmistakably clear congressionalpurpose that the arbitration procedure, when selected bythe parties to a contract, be speedy and not subject to delayand obstruction in the courts.”

3.15The United States Supreme Court in Buckeye CheckCashing, Inc v. Cardegna et. al,[10] followed the earlierdecisions in Prima Paint and Southland Corp. v.Keating.[11] Scalia, J. opined :

“Prima Paint and Southland answer the questionpresented here by establishing three propositions. First, asa matter of substantive federal arbitration law, an arbitrationprovision is severable from the remainder of the contract.Second, unless the challenge is to the arbitration clause itself,the issue of the contract’s validity is considered by thearbitrator in the first instance. Third, this arbitration lawapplies in state as well as federal courts. The parties havenot requested, and we do not undertake, reconsideration ofthose holdings. Applying them to this case, we concludethat because respondents challenge the Agreement, but notspecifically its arbitration provisions, those provisions areenforceable apart from the remainder of the contract. The 9 388 US 395 (1967).10 US SC 440 (2006).H11 79 L Ed 2d: 465 US 1 (1984).

9 388 US 395 (1967).10 US SC 440 (2006).H11 79 L Ed 2d: 465 US 1 (1984).

challenge should therefore be considered by an arbitrator,not a court.”

3.16In Rent-A- Center, West, Inc. v. Jackon,[12] the U.S.Supreme Court opined :

“There are two types of validity challenges under § 2: “Onetype challenges specifically the validity of the agreement toarbitrate,” and “[t]he other challenges the contract as awhole, either on a ground that directly affects the entireagreement (e.g., the agreement was fraudulently induced),or on the ground that the illegality of one of the contract’sprovisions renders the whole contract invalid.” Buckeye,546 U.S., at 444. In a line of cases neither party has askedus to overrule, we held that only the first type of challengeis relevant to a court’s determination whether the arbitrationagreement at issue is enforceable. See Prima PaintCorp. v. Flood & Conklin Mfg. Co., 388 US 395, 403-404 (1967); Buckeye, supra, at 444-446; Preston v. Ferrer,552 US 346, 353-354 (2008). That is because § 2 statesthat a “written provision” “to settle by arbitration acontroversy” is “valid, irrevocable, and enforceable” withoutmention of the validity of the contract in which it is contained.Thus, a party’s challenge to another provision of the contract,or to the contract as a whole, does not prevent a court fromenforcing a specific agreement to arbitrate. “[A]s a matterof substantive federal arbitration law, an arbitration provisionis severable from the remainder of the contract.” Buckeye,546 U.S., at 445; see also id., at 447 (the severability rule isbased on §2).

……

The Court asserts that its holding flows logically from PrimaPaint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395(1967), in which the Court held that consideration of acontract revocation defense is generally a matter for thearbitrator, unless the defense is specifically directed at thearbitration clause, id., at 404. We have treated this holdingas a severability rule: When a party challenges a contract, A

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“but not specifically its arbitration provisions, those provisionsare enforceable apart from the remainder of thecontract.” Buckeye Check Cashing, Inc. v. Cardegna,546 US 440, 446 (2006).

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The second line of cases bearing on who decides the validityof an arbitration agreement, as the Court explains, involvesthe Prima Paint rule. See ante, at 71. That rule recognizestwo types of validity challenges. One type challenges thevalidity of the arbitration agreement itself, on a ground arisingCfrom an infirmity in that agreement. The other challengesthe validity of the arbitration agreement tangentially—via aclaim that the entire contract (of which the arbitrationagreement is but a part) is invalid for some reason.See Buckeye, 546 U.S., at 444. Under Prima Paint, achallenge of the first type goes to the court; a challenge ofDthe second type goes to the arbitrator. See 388 U.S., at403-404; see also Buckeye, 546 U.S., at 444-445.The Prima Paint rule is akin to a pleading standard, wherebya party seeking to challenge the validity of an arbitrationagreement must expressly say so in order to get his disputeEinto court.”

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4. The Indian Arbitration and Conciliation Act, 1996 is based onthe Model Law. Section 16 gives statutory recognition to the doctrine ofseparability and kompetenz – kompetenz. Section 16 provides :

“16. Competence of arbitral tribunal to rule on itsjurisdiction:

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(1) The arbitral tribunal may rule on its own jurisdiction, includingruling on any objections with respect to the existence or validityof the arbitration agreement, and for that purpose, —

(a) an arbitration clause which forms part of a contract shallbe treated as an agreement independent of the other terms ofthe contract; and G

(b) a decision by the arbitral tribunal that the contract is nulland void shall not entail ipso jure the invalidity of the arbitrationclause.”

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4.1The legislative policy of minimal interference is enshrinedin Section 5, which by a non-obstante clause prohibits judicialintervention except as specified in Part I of the ArbitrationAct. A conjoint reading of Sections 5 and 16 would indicatethat all civil commercial matters, including the issue as towhether the substantive contract was voidable can beresolved through arbitration.

4.2This Court in Uttarakhand Purv Sainik Kalyan NigamLtd. v. Northern Coal Field Ltd.[13], speaking through oneof us (Indu Malhotra, J.) discussed the application of thedoctrine of kompetenz – kompetenz in the Indian legislation,and observed :

“7.7. Based on the recommendations of the LawCommission, Section 11 was substantially amended by the2015 Amendment Act, to overcome the effect of all previousjudgments rendered on the scope of power by a non obstanteclause, and to reinforce the kompetenz-kompetenz principleenshrined in Section 16 of the 1996 Act. The 2015Amendment Act inserted sub-section (6-A) to Section 11which provides that:

“(6-A) The Supreme Court or, as the case may be, theHigh Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6),shall, notwithstanding any judgment, decree or order ofany court, confine to the examination of the existenceof an arbitration agreement.”

7.8. By virtue of the non obstante clause incorporated inSection 11(6-A), previous judgments rendered in Patel Engg.and Boghara Polyfab, were legislatively overruled. Thescope of examination is now confined only to the existenceof the arbitration agreement at the Section 11 stage, andnothing more.

7.9. Reliance is placed on the judgment in Duro FelgueraS.A. v. Gangavaram Port Ltd. [Duro Felguera S.A. v.

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Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC(Civ) 764. Refer to TRF Ltd. v. Energo Engg. Projects Ltd.,(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , wherein thisCourt held that: (SCC p. 759, para 48)

“48. … From a reading of Section 11(6-A), the intentionof the legislature is crystal clear i.e. the court shouldand need only look into one aspect—the existence of anarbitration agreement. What are the factors for decidingas to whether there is an arbitration agreement is thenext question. The resolution to that is simple — it needsto be seen if the agreement contains a clause whichprovides for arbitration pertaining to the disputes whichhave arisen between the parties to the agreement.”

(emphasis supplied)

7.10. In view of the legislative mandate contained in Section11(6-A), the Court is now required only to examine theexistence of the arbitration agreement. All other preliminaryor threshold issues are left to be decided by the arbitratorunder Section 16, which enshrines the kompetenz-kompetenz principle.

7.11. The doctrine of “kompetenz-kompetenz”, also referredto as “compétence-compétence”, or “compétence de larecognized”, implies that the Arbitral Tribunal is empoweredand has the competence to rule on its own jurisdiction,including determining all jurisdictional issues, and theexistence or validity of the arbitration agreement. Thisdoctrine is intended to minimise judicial intervention, so thatthe arbitral process is not thwarted at the threshold, when apreliminary objection is raised by one of the parties. Thedoctrine of kompetenz-kompetenz is, however, subject tothe exception i.e. when the arbitration agreement itself isimpeached as being procured by fraud or deception. Thisexception would also apply to cases where the parties inthe process of negotiation, may have entered into a draftagreement as an antecedent step prior to executing the finalcontract. The draft agreement would be a mere proposalto arbitrate, and not an unequivocal acceptance of the terms

of the agreement. Section 7 of the Contract Act, 1872requires the acceptance of a contract to be absolute andunqualified [Dresser Rand S.A. v. Bindal Agro Chem Ltd.,(2006) 1 SCC 751. See also BSNL v. Telephone CablesLtd., (2010) 5 SCC 213 : (2010) 2 SCC (Civ) 352. Referto PSA Mumbai Investments Pte. Ltd. v. Jawaharlal NehruPort Trust, (2018) 10 SCC 525 : (2019) 1 SCC (Civ) 1] . Ifan arbitration agreement is not valid or non-existent, theArbitral Tribunal cannot assume jurisdiction to adjudicateupon the disputes. Appointment of an arbitrator may berefused if the arbitration agreement is not in writing, or thedisputes are beyond the scope of the arbitration agreement.Article V(1)(a) of the New York Convention states thatrecognition and enforcement of an award may be refusedif the arbitration agreement “is not valid under the law towhich the parties have subjected it or, failing any indicationthereon, under the law of the country where the awardwas made”.

7.13. In view of the provisions of Section 16, and thelegislative policy to restrict judicial intervention at the pre-reference stage, the issue of limitation would require to bedecided by the arbitrator. Sub-section (1) of Section 16provides that the Arbitral Tribunal may rule on its ownjurisdiction, “including any objections” with respect to theexistence or validity of the arbitration agreement. Section16 is as an inclusive provision, which would comprehend allpreliminary issues touching upon the jurisdiction of theArbitral Tribunal. The issue of limitation is a jurisdictionalissue, which would be required to be decided by thearbitrator under Section 16, and not the High Court at thepre-reference stage under Section 11 of the Act. Once theexistence of the arbitration agreement is not disputed, allissues, including jurisdictional objections are to be decidedby the arbitrator.”

4.3 In A. Ayyasamy v. Parmasivam & Ors.,[14] Dr. D.Y.Chandrachud, J. in his separate opinion observed that :

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“53. The Arbitration and Conciliation Act, 1996, should in my viewbe interpreted so as to bring in line the principles underlying itsinterpretation in a manner that is consistent with prevailingapproaches in the common law world. Jurisprudence in India mustevolve towards strengthening the institutional efficacy ofarbitration. Deference to a forum chosen by parties as a completeremedy for resolving all their claims is but part of that evolution.Minimising the intervention of courts is again a recognition of thesame principle.”

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5. We will now apply the law to the facts of the present case.

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5. We will now apply the law to the facts of the present case.

C5.1The Appellant-Global Mercantile submitted that theapplication under Section 8 for reference of disputes to arbitrationwas not maintainable, since as per Section 34 of the MaharashtraStamp Act, 1958 the Work Order being an unstamped documentcould not be received in evidence for any purpose, or acted upon,unless it is duly stamped. Consequently, the arbitration clause inDthe unstamped agreement also could not be acted upon or enforcedsince the arbitration clause would have no existence in law, unlessthe applicable stamp duty (and penalty, if any) is paid on the WorkOrder. Reliance was placed on paragraph 22 of the judgment inGarware Wall Ropes Limited v. Coastal Marine ConstructionsEand Engineering Limited,[15] wherein it has been held : “.. thatan arbitration clause in an agreement would not exist when it”is not enforceable by law.It was submitted that the High Courtwhile allowing the application under Section 8, had enforced anon-existent arbitration clause, which was in violation of Section34 of the Maharashtra Stamp Act, 1958 and the law laid down byFthis Court.

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It was further contended that since 03.01.2018 to date,the Respondent No.1 had not indicated its willingness to pay thestamp duty, even though the Appellant had raised this objection.There was no justifiable reason to grant any further opportunityGto Respondent No.1 to pay the stamp duty, and enforce the clausein view of the judgment of this Court in Naina Thakkar v.Annapurna Builders.[16]

5.2Indo Unique – the Respondent No.1 submitted that eventhough the Work Order dated 28.09.2015 is an unstampedagreement, it would be enforceable after it is duly stamped, forwhich an opportunity must be given to the parties to make up thedeficient stamp duty and penalty as may be assessed by theCollector. Non-payment of stamp duty would not render theagreement unenforceable, but was a curable defect.

5.3 Statutory scheme under the Maharashtra Stamp Act, 1958.—

(a) Section 3 of the Maharashtra Stamp Act, 1958 is the chargingsection, which specifies the instruments which are chargeable to stampduty of the amount specified in Schedule I of the Act.

Section 3 provides:

“3. Instruments chargeable with duty. —

Subject to the provisions of this Act and the exemptions containedin Schedule I, the following instruments shall be chargeable withduty of the amount indicated in Schedule I as the proper dutytherefore respectively, that is to say—

(a) every instrument mentioned in Schedule I, which, not havingbeen previously executed by any person, is executed in theState on or after the date of commencement of this Act; ’’

(b) Section 30 provides :

“30.- Duties by whom payable. –

In the absence of an agreement to the contrary, the expense ofproviding the proper stamp shall be borne, - (a) in the case of any instrument described in any of the followingarticles of Schedule I, namely :- …

…

(f-a) in case of instruments of works contract as provided in Article63 of SCHEDULE I, by the person receiving the contract ; …

(c) Section 32A provides :

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962SUPREME COURT REPORTS

A“32A. Instrument of conveyance, etc. under valued how to bedealt with.–

(1) Every instrument of conveyance, exchange, gift, certificateof sale, deed of partition or power of attorney to sellimmoveable property when given for consideration, deedBof settlement or transfer of lease by way of assignmentand also any other instruments mentioned in SCHEDULEI chargeable with duty on the basis of market value of theproperty, presented for registration under the provisions ofthe Registration Act, 1908, shall be accompanied by a truecopy thereof.

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Provided that, in case of such instruments executed onor after the 4[th] July 1980, to the date of commencement ofthe Bombay Stamp (Amendment) Act, 1985, an extract ofthe instrument to be taken from the registration record shallbe deemed to be the true copy accompanying theDinstrument, presented for registration for the purposes ofsub-section (1). …”

(d) Section 33 provides:

“ CHAPTER IV

EInstruments not duly stamped

33. Examination and impounding of instruments.—

(1) Subject to the provisions of section 32A, every person havingby law or consent of parties authority to receive evidence,and every person in charge of a public office, except an officerFof police, or any other officer, empowered by law to investigateoffences under any law for the time being in force, beforewhom any instrument, chargeable, in his opinion, with duty, isproduced or comes in the performance of his functions shall,if it appears to him that such instrument is not duly stamped,Gimpound the same irrespective whether the instrument is or isnot valid in law.

(2) For that purpose every such person shall examine everyinstrument so chargeable and so produced or coming beforehim in order to ascertain whether it is stamped with a stampHof the value and description required by the law for the time

being in force in the State when such instrument was executedor first executed:

Provided that—

(a) nothing herein contained shall be deemed to require anyMagistrate or Judge of Criminal Court to examine or impound,if he does not think fit so to do, any instrument coming beforehim in the course of any proceeding other than a proceedingunder Chapter IX or Part D of Chapter X of the Code ofCriminal Procedure, 1973; (b) in the case of a Judge of a High Court, the duty of examiningand impounding any instrument under this section may bedelegated to such officer as the Court appoints in this behalf.”

Section 33 casts a statutory obligation on every personempowered by law, or holding a public office, or a person whoby consent of parties (which would include an arbitrator) isempowered to receive evidence, to examine the instrumentpresented before him, and ascertain whether the instrument isduly stamped. This would include the court being an authorityempowered to receive an instrument in evidence. In view ofthe statutory interdict, the bar against the admissibility of anunstamped instrument, is absolute in nature, including for acollateral purpose.[17]

The phrase “duly stamped” implies that the instrumentmust be stamped with the requisite amount of duty determinedin accordance with the Schedule to the Act.[18] If it is found thatthe instrument is not stamped, or inadequately stamped, it ismandated by law to impound the instrument, and deal with it inaccordance with provisions of the Stamp Act.

(e) Section 34 operates as a statutory bar from receiving anyinstrument in evidence, or relying on it for any purposewhatsoever, or being acted upon, or registered, or authenticated,by any such person or public officer, unless the instrument isduly stamped.

17 Avinash Kumar Chauhan v. Vijay Krishna Mishra, (2009) 2 SCC 532.

18 Black Pearl Hotels (P) Ltd. v. Planet M. Retail Ltd., (2017) 4 SCC 498.

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ASection 34 provides:

“34. Instruments not duly stamped inadmissible in evidence,etc.—No instrument chargeable with duty shall be admitted inevidence for any purpose by any personhaving by law or consentof parties authority to receive evidence, or shall be acted upon,Bregistered or authenticated by any such person or by any publicofficer unless such instrument is duly stamped or if the instrumentis written on sheet of paper with impressed stamp such stamppaper is purchased in the name of one of the parties to theinstrument:

CProvided that—

(a) any such instrument shall, subject to all just exceptions, beadmitted in evidence on payment of—

(i) the duty with which the same is chargeable, or in the case ofan instrument insufficiently stamped, the amount required to makeup such duty, and D

(ii) a penalty at the rate of 2 per cent of the deficient portion ofthe stamp duty for every month or part thereof, from the date ofexecution of such instrument:

Provided that, in no case, the amount of the penalty shall exceedEdouble the deficient portion of the stamp duty.

(b) where a contract or agreement of any kind is effected bycorrespondence consisting of two or more letters and any one ofthe letters bears the proper stamp; the contract or agreementshall be deemed to be duly stamped; F

(c) nothing herein contained shall prevent the admission of anyinstrument in evidence in any proceeding in a Criminal Court, otherthan a proceeding under Chapter IX or Part D of Chapter X ofthe Code of Criminal Procedure, 1973; (d) nothing herein contained shall prevent the admission of anyinstrument in any court when such instrument has been executedby or on behalf of the Government or where it bears the certificateof the Collector as provided by Section 32 or any other provisionof this Act; G

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(e) nothing herein contained shall prevent the admission of a copyof any instrument or of an oral admission of the contents of anyinstrument, if the stamp duty or a deficient portion of the stampduty and penalty as specified in clause (a) is paid.”

(f) Section 35 provides that:

“35. Admission of instrument where not to be questioned.—Where an instrument has been admitted in evidence, suchadmission shall not, except as provided in section 58, be calledin question at any stage of the same suit or proceeding on theground that the instrument has not been duly stamped.”

(g) Section 36 provides that:

“36. Admission of improperly stamped instruments.—TheState Government may make rules providing that, where aninstrument bears a stamp of sufficient amount but of improperdescription, it may, on payment of the duty with which thesame is chargeable, be certified to be duly stamped, and anyinstrument so certified shall then be deemed to have been dulystamped as from the date of its execution.”

(h) Section 37 provides that:

“37. Instruments impounded how dealt with.-

(1) When the person impounding an instrument under section33 has by law or consent of parties authority to receiveevidence and admits such instrument in evidence uponpayment of a penalty as provided by section 34 or of dutyas provided by section 36, he shall send to the Collectoran authenticated copy of such instrument, together with acertificate in writing, stating the amount of duty and penaltylevied in respect thereof, and shall send such amount tothe Collector, or to such person as he may appoint in thisbehalf.

(2) In every other case, a person so impounding the originalinstrument shall prepare an authentic copy of suchinstrument and where it is a true copy or an abstractreferred to in section 31 or true copy referred to in section33A, he shall send such authentic copy or, the true copyor, as the case may be, an abstract to the Collector, for A

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the purpose of taking action on the authentic copy or atrue copy or, as the case may be, an abstract as if it werethe original instrument and endorsing thereon a certificatewith reference to the instrument under clause (a) of sub-section (1) of section 39 or under sub-section (1) of section41, as the case may be. On receipt of the authentic copy,the true copy or, as the case may be, an abstract with thecertificate as aforesaid endorsed thereon, the person whohas impounded the original instrument shall copy on theoriginal instrument the certificate endorsed on the authenticcopy and shall authenticate such certificate; and where itis a true copy or an abstract on which the certificate asaforesaid is endorsed, the registering officer who hasforwarded the true copy or an abstract shall makeappropriate entries in respect of the instrument of whichit was a true copy or an abstract, in the relevant registermaintained by him and on an application made in this behalfissue under his signature a certificate to the effect thatthe proper duty or, as the case may be, the proper dutyand penalty (stating the amount of each) have been leviedin respect of that instrument, and the name and residenceof the person paying such duty and penalty.”

Once the duty (and penalty, if any) leviable under ScheduleI is paid on the instrument, and the instrument is duly endorsed bythe Collector, the instrument shall be admissible in evidence, andacted upon as provided by Section 41 of the Maharashtra StampAct.

(i) Section 41 provides :

“41. Endorsement of instruments on which duty has beenpaid under section 34, 39 or 40 –

(1) When the duty and penalty (if any) leviable in respect ofany instrument (not being any instrument referred to insub-section (1) of section 32A), have been paid undersection 34, section 39 or section 40, the person admittingsuch instrument in evidence or the Collector, as the casemay be, shall certify by endorsement thereon that theproper duty or, as the case may be, the proper duty and penalty (stating the amount of each) have been levied inrespect thereof, and the name and residence of the personpaying them.

(2) Subject to the provisions of section 53A, every instrumentso endorsed shall thereupon be admissible in evidence,and may be registered and acted upon and authenticatedas if it had been duly stamped, and shall be delivered on the application in this behalf, to the person who producedit or to the person from whose possession it came into thehands of the Officer impounding it, or to any other personaccording to the directions of such person:

Provided that –

(a) no instrument which has been admitted in evidenceupon payment of duty and a penalty under section 34,shall be so delivered before the expiration of one monthfrom the date of such impounding, or if the Collectorhas certified that its further detention is necessary andhas not cancelled such certificate; (b) nothing in this section shall affect the provisions ofrule 9 of Order XIII in Schedule I of the Code of CivilProcedure, 1908.”

(j) Section 58 provides that :

“58. Revision of certain decisions of Courts regarding thesufficiency of stamps.—

(1) When any Court in the exercise of its civil or revenuejurisdiction or any Criminal Court in any proceeding underChapter IX or Part D of Chapter X of the Code of CriminalProcedure 1973, makes any order admitting any instrument inevidence as duly stamped or as not requiring a stamp, or uponpayment of duty and a penalty under section 34, the Court towhich appeals lie from, or reference are made by, such firstmentioned Court may, of its own motion or on the applicationof the Collector, take such order into consideration.

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without the payment of a higher duty and penalty than thosepaid, it may record a declaration to that effect, and determinethe amount of duty with which such instrument is chargeable,and may require,-

i.the party or person concerned to make the payment ofthe proper duty or the amount required to make up thesame, together with a penalty under section 34, orpayment of a higher duty and penalty than those paid, toitself or to the Collector; and

ii. any person in whose possession or power such instrumentthen is, to produce the same, and may impound the samewhen produced.

(3) When any declaration has been recorded under sub-section(2), the Court recording the same shall send a copy thereof tothe Collector, and, where the instrument to which it relates hasbeen impounded or is otherwise in the possession of such Court,shall also send him such instrument.

(3A) When the duty and penalty leviable in respect of anyinstrument in accordance with, the declaration made undersub -section (3) and required to be paid thereunder are paid tothe Court or to the Collector, then the Court or, as the casemay be, the Collector shall certify by endorsement thereonthat the proper duty and penalty, stating the amount of each,have been le-vied in respect of such instrument, and the nameand residence of the person paying the same.

(3B) Every instrument so endorsed shall thereupon be delivered,on an application in this behalf, to the person from whosepossession the instrument came in the possession of such Court,or as such person may direct, to any other person authorisedby him.

(4) The Collector may thereupon, notwithstanding anythingcontained in the order admitting such instrument in evidence,or in any certificate granted under section 41, or in section 42,prosecute any person for any offence against the stamp lawwhich the Collector considers him to have committed in respectof such instrument:

Provided that –

(a) no such prosecution shall be instituted where the amountincluding duty and penalty, which, according to the determinationof such Court, was payable in respect of the instrument undersection 34 ,is paid to the Court or the Collector, unless theCollector thinks that the offence was committed with anintention of evading payment of the proper duty; (b) except for the purposes of such prosecution no declarationmade under this section shall affect the validity of any orderadmitting any instrument in evidence or of any certificategranted under section 41.”

(k) Item No. 63 of Schedule I of the Maharashtra Stamp Act,1958 provides that :

5.4 The Stamp Act is a fiscal measure enacted to secure therevenue of the State on certain classes of instruments specified inSchedule I of the Act. The stringent provisions of the Stamp Act havebeen framed to protect the interest of the revenue of the State. Section34 of the Maharashtra Stamp Act, 1958 operates as a statutory bar to anunstamped instrument being admitted in evidence, or being acted upon,for any purpose, by any authority having by law or consent of parties,the power to receive evidence, unless such instrument is duly stamped.The proviso to Section 34 states that upon payment of the requisite stampduty, the instrument may be admitted in evidence.

The words “for any purpose” occurring in the Indian Stamp Actwas interpreted by the Privy Council in Ram Rattan v. Parma Nand,[19]wherein it was held :

19 (1945-46) 73 IA 28: AIR 1946 PC 51.

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A“That the words ‘for any purpose’ in Section 35 of the Stamp Act,should be given their natural meaning and effect and would includea collateral purpose (and that) an unstamped partition deed cannotbe used to corroborate the oral evidence for the purposes ofdetermining even the factum of partition as distinct from its terms.”

B5.5 Section 41(1) of the Maharashtra Stamp Act, 1958 providesthat after the instrument is duly stamped, it would be endorsed bythe Collector. Once the object of payment of Stamp Duty is satisfied,the party making a claim on the basis of that instrument, will notbe defeated, on the ground of the initial defect or irregularity.Section 41(2) of the said Act provides that upon payment of StampCDuty and endorsement by the concerned Collector, the defect ofadmissibility and legality of such instrument would stand cured.

5.6 This Court in SMS Tea Estates Pvt. Ltd. v. M/s. ChandmariTea Co. Pvt. Ltd.[20]considered the issue whether an arbitrationagreement in an unregistered and unstamped lease deed, whichDrequired compulsory registration under Sections 17 and 19 of theRegistration Act 1908, was valid and enforceable, being a part ofthe said lease deed which was invalid and unenforceable. A two-judge bench of this Court considered the following two issues :

(i) Whether an arbitration agreement contained in an unregisteredE(but compulsorily registerable) instrument is valid and enforceable?

(ii) Whether an arbitration agreement in an unregistered instrumentwhich is not duly stamped, is valid and enforceable?

With respect to the first issue, the Court held as follows :

F“11. Section 49 makes it clear that a document which iscompulsorily registerable, if not registered, will not affect theimmovable property comprised therein in any manner. It will alsonot be received as evidence of any transaction affecting suchproperty, except for two limited purposes. First is as evidence ofa contract in a suit for specific performance. Second is as evidenceGof any collateral transaction which by itself is not required to beeffected by registered instrument. A collateral transaction is notthe transaction affecting the immovable property, but a transaction

which is incidentally connected with that transaction. The questionis whether a provision for arbitration in an unregistered document(which is compulsorily registerable) is a collateral transaction, inrespect of which such unregistered document can be received asevidence under the proviso to Section 49 of the Registration Act.

12. When a contract contains an arbitration agreement, it is acollateral term relating to the resolution of disputes, unrelated tothe performance of the contract. It is as if two contracts—one inregard to the substantive terms of the main contract and the otherrelating to resolution of disputes—had been rolled into one, forpurposes of convenience. An arbitration clause is therefore anagreement independent of the other terms of the contract or theinstrument.Resultantly, even if the contract or its performance isterminated or comes to an end on account of repudiation, frustrationor breach of contract, the arbitration agreement would survivefor the purpose of resolution of disputes arising under or inconnection with the contract.

13. Similarly, when an instrument or deed of transfer (or adocument affecting immovable property) contains an arbitrationagreement, it is a collateral term relating to resolution of disputes,unrelated to the transfer or transaction affecting the immovableproperty. It is as if two documents—one affecting the immovableproperty requiring registration and the other relating to resolutionof disputes which is not compulsorily registerable—are rolled intoa single instrument. Therefore, even if a deed of transfer ofimmovable property is challenged as not valid or enforceable, thearbitration agreement would remain unaffected for the purposeof resolution of disputes arising with reference to the deed oftransfer.

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16. An arbitration agreement does not require registration underthe Registration Act. Even if it is found as one of the clauses in acontract or instrument, it is an independent agreement to refer thedisputes to arbitration, which is independent of the main contractor instrument. Therefore having regard to the proviso to Section49 of the Registration Act read with Section 16(1)(a) of the Act,an arbitration agreement in an unregistered but compulsorily A

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Aregisterable document can be acted upon and enforced for thepurpose of dispute resolution by arbitration.”

With respect to a contract or instrument which is voidable at theoption of a party (as by way of illustration u/S. 19 of the Indian ContractAct, 1872) in paragraph 15 of the judgment, it was held that the invalidityBwhich attaches itself to the main agreement, may also attach itself to thearbitration agreement, if the reasons which make the main agreementvoidable, exist in relation to the making of the arbitration agreementalso. Paragraph 15 reads as follows :

“15. But where the contract or instrument is voidable at the optionCof a party (as for example under Section 19 of the Contract Act,1872), the invalidity that attaches itself to the main agreementmay also attach itself to the arbitration agreement, if the reasonswhich make the main agreement voidable, exist in relation to themaking of the arbitration agreement also. For example, if a personis made to sign an agreement to sell his property under threat ofDphysical harm or threat to life, and the said person repudiates theagreement on that ground, not only the agreement for sale, butany arbitration agreement therein will not be binding.”

With respect to the second issue of whether an arbitrationagreement in an unstamped contract can be acted upon, it was held asEfollows :

19. Having regard to Section 35 of the Stamp Act, unless the stampduty and penalty due in respect of the instrument is paid, the courtcannot act upon the instrument, which means that it cannot actupon the arbitration agreement also which is part of the instrument.FSection 35 of the Stamp Act is distinct and different from Section49 of the Registration Act in regard to an unregistered document.Section 35 of the Stamp Act, does not contain a proviso like Section49 of the Registration Act enabling the instrument to be used toestablish a collateral transaction.

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21. Therefore, when a lease deed or any other instrument is reliedupon as contending the arbitration agreement, the court shouldconsider at the outset, whether an objection in that behalf is raisedor not, whether the document is properly stamped. If it comes toHthe conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 ofthe Stamp Act. The court cannot act upon such a document orthe arbitration clause therein. But if the deficit duty and penalty ispaid in the manner set out in Section 35 or Section 40 of theStamp Act, the document can be acted upon or admitted inevidence.”

(emphasis supplied)

5.7 The judgment in SMS Tea Estates was passed on anapplication filed u/S. 11 of the Arbitration Act, for reference ofdisputes to arbitration prior to the 2016 Amendment being passed.At that time, the law as it prevailed, as expounded in theConstitution Bench decision in SBP & Co. v. Patel EngineeringLtd.[21], and other cases like National Insurance Co. v. BogharaPolyfab[22], Master Construction Company v. Union of India[23]etc. held that at the pre-reference stage in an application u/S.11(6), the Court may determine certain threshold issues, such aswhether the claim was time-barred, a stale claim, or whether therehad been accord and satisfaction, which would preclude thenecessity of reference to arbitration.

5.8 Section 11 was amended by the 2016 Amendment Act, whichinserted clause (6A), which now provides that notwithstandingany judgment, decree or order of any Court, the examination wouldbe confined only to the existence of an arbitration agreement.The amendment of 2016 legislatively overruled the position withrespect to the jurisdiction u/S. 11 of the Arbitration Act, andconfined the examination only to the existence of an arbitrationagreement. In Duro Felguera v. Gangavaram Port Ltd.[24] itwas held that the legislative intent was clear that at the pre-reference stage, there must be minimal judicial intervention, andthe only issue to be decided would be the existence of the arbitrationagreement, and nothing more. This position was affirmed by athree-judge bench in Mayavati Trading Private Limited v.Pradyuat Deb Burman.[25]

21 (2005) 8 SCC 618.

22 (2009) 1 SCC 267.

23 (2011) 12 SCC 357.

24 (2017) 9 SCC 729.

25 (2019) 8 SCC 714.

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5.9 The issue whether an arbitration clause in a document /agreement / conveyance which requires compulsorily to bestamped under the relevant Stamp Act, but is not duly stamped,would be enforceable after the insertion of clause (6A) in Section11, came up for consideration before a two-judge bench of thisCourt in Garware Wall Ropes Ltd. (supra).

In Garware Wall Ropes Limited (supra), the Court held as under:

“19. It will be seen that neither in the Statement of Objects andReasons nor in the Law Commission Report is there any mentionof SMS Tea Estates. This is for the very good reason that theSupreme Court or the High Court, while deciding a Section 11application, does not, in any manner, decide any preliminaryquestion that arises between the parties. The Supreme Court orthe High Court is only giving effect to the provisions of a mandatoryenactment which, no doubt, is to protect revenue. SMS TeaEstates has taken account of the mandatory provisions containedin the Stamp Act and held them applicable to judicial authorities,which would include the Supreme Court and the High Court actingunder Section 11.

A close look at Section 11(6-A) would show that when theSupreme Court or the High Court considers an application underSections 11(4) to 11(6), and comes across an arbitration clause inan agreement or conveyance which is unstamped, it is enjoinedby the provisions of the Stamp Act to first impound the agreementor conveyance and see that stamp duty and penalty (if any) ispaid before the agreement, as a whole, can be acted upon. It isimportant to remember that the Stamp Act applies to the agreementor conveyance as a whole. Therefore, it is not possible to bifurcatethe arbitration clause contained in such agreement or conveyanceso as to give it an independent existence, as has been contendedfor by the respondent. The independent existence that could begiven for certain limited purposes, on a harmonious reading of theRegistration Act, 1908 and the 1996 Act has been referred to byRaveendran, J. in SMS Tea Estates when it comes to anunregistered agreement or conveyance.

However, the Stamp Act, containing no such provision as iscontained in Section 49 of the Registration Act, 1908, has been

held by the said judgment to apply to the agreement or conveyanceas a whole, which would include the arbitration clause containedtherein. It is clear, therefore, that the introduction of Section 11(6-A) does not, in any manner, deal with or get over the basis of thejudgment in SMS Tea Estates, which continues to apply even afterthe amendment of Section 11(6-A).

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22. When an arbitration clause is contained “in a contract”, it issignificant that the agreement only becomes a contract if it isenforceable by law.We have seen how, under the Stamp Act, anagreement does not become a contract, namely, that it is notenforceable in law, unless it is duly stamped. Therefore, even a-plain reading of Section 11(6A), when read with Section 7(2) ofthe 1996 Act and Section 2(h) of the Contract Act, would make itclear that an arbitration clause in an agreement would not existwhen it is not enforceable by law. This is also an indicator that SMSTea Estates has, in no manner, been touched by the amendment-of Section 11(6A).

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29. This judgment in Hyundai Engg. case [United India InsuranceCo. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17SCC 607 : (2019) 2 SCC (Civ) 530] is important in that what wasspecifically under consideration was an arbitration clause whichwould get activated only if an insurer admits or accepts liability.Since on facts it was found that the insurer repudiated the claim,though an arbitration clause did “exist”, so to speak, in the policy,it would not exist in law, as was held in that judgment, when oneimportant fact is introduced, namely, that the insurer has notadmitted or accepted liability. Likewise, in the facts of the presentcase, it is clear that the arbitration clause that is contained in thesub-contract would not “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above.Theargument that Section 11(6-A) deals with “existence”, as opposedto Section 8, Section 16 and Section 45, which deal with “validity”of an arbitration agreement is answered by this Court’sunderstanding of the expression “existence” in Hyundai Engg.case [United India Insurance Co. Ltd. v. Hyundai Engg. &

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Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ)530] , as followed by us.

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37. One reasonable way of harmonising the provisions containedin Sections 33 and 34 of the Maharashtra Stamp Act, which is aBgeneral statute insofar as it relates to safeguarding revenue, andSection 11(13) of the 1996 Act, which applies specifically to speedyresolution of disputes by appointment of an arbitrator expeditiously,is by declaring that while proceeding with the Section 11application, the High Court must impound the instrument whichChas not borne stamp duty and hand it over to the authority underthe Maharashtra Stamp Act, who will then decide issues quapayment of stamp duty and penalty (if any) as expeditiously aspossible, and preferably within a period of 45 days from the dateon which the authority receives the instrument. As soon as stampduty and penalty (if any) are paid on the instrument, any of theDparties can bring the instrument to the notice of the High Court,which will then proceed to expeditiously hear and dispose of theSection 11 application. This will also ensure that once a Section11 application is allowed and an arbitrator is appointed, thearbitrator can then proceed to decide the dispute within the time-Eframe provided by Section 29-A of the 1996 Act.”

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(emphasis supplied)

6. We have carefully perused the provisions of the MaharashtraStamp Act, 1958 and Schedule I appended thereto, which enlists theinstruments specified in Section 3, on which stamp duty is chargeable.FWe find that an arbitration agreement is not included in the Schedule asan instrument chargeable to Stamp Duty.

Item 12 of Schedule I to the Maharashtra Stamp Act, 1958 includesan Award passed by an arbitrator to be chargeable for payment of StampDuty, which reads as follows:G

In Shriram EPC Limited v. Rioglass Solar SA,[26] this Courtheld that the payment of Stamp Duty is applicable to awards made inIndia, but does not include a “foreign award” which has not been includedin the Schedule to the Stamp Act, 1899.

6.1The issue which has arisen in the present case is whetherthe arbitration agreement incorporated in the unstamped WorkOrder dated 28.09.2015, would also be legally unenforceable, tillsuch time that the Work Order is subjected to payment of StampDuty. Undisputedly, the Work Order is chargeable to payment ofStamp Duty under Item No. 63 of the First Schedule to theMaharashtra Stamp Act, 1958.

6.2In our view, the non-payment or deficiency of StampDuty on the Work Order does not invalidate the main contract.Section 34 provides that an unstamped instrument would not beadmissible in evidence, or be acted upon, till the requisite stampduty is paid. This would amount only to a deficiency, which canbe cured on the payment of the requisite stamp duty.

6.3The point for consideration is whether the non-paymentof Stamp Duty on the Work Order, would render the arbitrationclause invalid, non-existent, or unenforceable in law, till the stampduty is paid on the substantive commercial contract.

6.4The arbitration agreement contained in the Work Orderis independent and distinct from the underlying commercialcontract. The arbitration agreement is an agreement whichprovides the mode of dispute resolution. Section 3 of theMaharashtra Stamp Act does not subject an arbitration agreementto payment of Stamp Duty, unlike various other agreements A

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enlisted in the Schedule to the Act. This is for the obvious reasonthat an arbitration agreement is an agreement to resolve disputesarising out of a commercial agreement, through the mode ofarbitration. On the basis of the doctrine of separability, thearbitration agreement being a separate and distinct agreementfrom the underlying commercial contract, would surviveindependent of the substantive contract. The arbitration agreementwould not be rendered invalid, un-enforceable or non-existent,even if the substantive contract is not admissible in evidence, orcannot be acted upon on account of non-payment of Stamp Duty.

6.5A three-Judge Bench of this Court in Hindustan SteelLimited v. M/s. Dilip Construction Company[27]held that :

“4. The award, which is an “instrument” within the meaningof the Stamp Act was required to be stamped. Beingunstamped, the award could not be received in evidence bythe Court, nor could it be acted upon. But the Court wascompetent to impound it and to send it to the Collector with acertificate in writing stating the amount of duty and penaltylevied thereon. On the instrument so received the Collectormay adjudge whether it is duly stamped and he may requirepenalty to be paid thereon, if in his view it has not been dulystamped. If the duty and penalty are paid, the Collector willcertify by endorsement on the instrument that the proper dutyand penalty have been paid.

5. An instrument which is not duly stamped cannot be receivedin evidence by any person who has authority to receive evidence,and it cannot be acted upon by that person or by any publicofficer. Section 35 provides that the admissibility of aninstrument once admitted in evidence shall not, except asprovided in Section 61, be called in question at any stage of thesame suit or proceeding on the ground that the instrument hasnot been duly stamped.

6. Relying upon the difference in the phraseology betweenSections 35 and 36 it was urged that an instrument which isnot duly stamped may be admitted in evidence on payment ofduty and penalty, but it cannot be acted upon because Section

35 operates as a bar to the admission in evidence of theinstrument not duly stamped as well as to its being acted upon,and the Legislature has by Section 36 in the conditions set outtherein removed the bar only against admission in evidence ofthe instrument. The argument ignores the true import of Section36. By that section an instrument once admitted in evidenceshall not be called in question at any stage of the same suit orproceeding on the ground that it has not been duly stamped.Section 36 does not prohibit a challenge against an instrumentthat it shall not be acted upon because it is not duly stamped,but on that account there is no bar against an instrument notduly stamped being acted upon after payment of the stampduty and penalty according to the procedure prescribed by theAct. The doubt, if any, is removed by the terms of Section42(2) which enact, in terms unmistakable, that every instrumentendorsed by the Collector under Section 42(1) shall beadmissible in evidence and may be acted upon as if it has beenduly stamped.

7. The Stamp Act is a fiscal measure enacted to secure revenuefor the State on certain classes of instruments: It is not enactedto arm a litigant with a weapon of technicality to meet the caseof his opponent. The stringent provisions of the Act areconceived in the interest of the revenue once that object issecured according to law, the party staking his claim on theinstrument will not be defeated on the ground of the initialdefect in the instrument. Viewed in that light the scheme isclear. Section 35 of the Stamp Act operates as a bar to anunstamped instrument being admitted in evidence or being actedupon; Section 40 provides the procedure for instruments beingimpounded, sub-section (1) of Section 42 provides for certifyingthat an instrument is duly stamped, and sub-section (2) ofSection 42 enacts the consequences resulting from suchcertification.”

(emphasis supplied)

6.6In our view, there is no legal impediment to theenforceability of the arbitration agreement, pending payment ofStamp Duty on the substantive contract. The adjudication of therights and obligations under the Work Order or the substantive AB

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Acommercial contract would however not proceed before complyingwith the mandatory provisions of the Stamp Act.

6.7The Stamp Act is a fiscal enactment for payment ofstamp duty to the State on certain classes of instruments specifiedin the Stamp Act. Section 40 of the Indian Stamp Act,1899 providesthe procedure for instruments which have been impounded, andsub-section (1) of Section 42 requires the instrument to be endorsedafter it is duly stamped by the concerned Collector. Section 42(2)provides that after the document is duly stamped, it shall beadmissible in evidence, and may be acted upon.

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6.8In our view, the decision in SMS Tea Estates does notlay down the correct position in law on two issues i.e. (i) that anarbitration agreement in an unstamped commercial contract cannotbe acted upon, or is rendered un-enforceable in law; and (ii) thatan arbitration agreement would be invalid where the contract orinstrument is voidable at the option of a party, such as u/S. 19 ofthe Indian Contract Act, 1872.

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We hold that since the arbitration agreement is anindependent agreement between the parties, and is not chargeableto payment of stamp duty, the non-payment of stamp duty on thecommercial contract, would not invalidate the arbitration clause,or render it un-enforceable, since it has an independent existenceof its own. The view taken by the Court on the issue of separabilityof the arbitration clause on the registration of the substantivecontract, ought to have been followed even with respect to theStamp Act. The non-payment of stamp duty on the substantivecontract would not invalidate even the main contract. It is adeficiency which is curable on the payment of the requisite StampDuty.

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6.9The second issue in SMS Tea Estates that a voidablecontract would not be arbitrable as it affects the validity of thearbitration agreement, is in our view not the correct position inlaw. The allegations made by a party that the substantive contracthas been obtained by coercion, fraud, or misrepresentation has tobe proved by leading evidence on the issue. These issues cancertainly be adjudicated through arbitration.

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We overrule the judgment in SMS Tea Estates withrespect to the aforesaid two issues as not laying down the correctposition in law.

6.10The Garware judgment has followed the judgment inSMS Tea Estates. The Counsel for the Appellant has placedreliance on paragraph 22 of the judgment to contend that thearbitration clause would be non-existent in law, and unenforceable,till Stamp Duty is adjudicated and paid on the substantive contract.

We hold that this finding is erroneous, and does not laydown the correct position in law. We have already held that anarbitration agreement is distinct and independent from theunderlying substantive commercial contract. Once the arbitrationagreement is held to have an independent existence, it can beacted upon, irrespective of the alleged invalidity of the commercialcontract.

6.11We notice that the judgment in Garware Wall RopesLimited has been cited with approval by a co-ordinate bench ofthis Court in Vidya Drolia & Ors. v. Durga TradingCorporation.[28]Paragraph 92 of the judgment reads thus :

“92. We now proceed to examine the question, whether theword ‘existence’ in Section 11 merely refers to contractformation (whether there is an arbitration agreement) andexcludes the question of enforcement (validity) and thereforethe latter falls outside the jurisdiction of the court at the referralstage. On jurisprudentially and textualism it is possible todifferentiate between existence of an arbitration agreementand validity of an arbitration agreement. Such interpretationcan draw support from the plain meaning of the word“existence’. However, it is equally possible, jurisprudentiallyand on contextualism, to hold that an agreement has noexistence if it is not enforceable and not binding. Existence ofan arbitration agreement presupposes a valid agreement whichwould be enforced by the court by relegating the parties toarbitration. Legalistic and plain meaning interpretation wouldbe contrary to the contextual background including the definitionclause and would result in unpalatable consequences. A

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reasonable and just interpretation of ‘existence’ requiresunderstanding the context, the purpose and the relevant legalnorms applicable for a binding and enforceable arbitrationagreement. An agreement evidenced in writing has no meaningunless the parties can be compelled to adhere and abide by theterms. A party cannot sue and claim rights based on anunenforceable document. Thus, there are good reasons to holdthat an arbitration agreement exists only when it is valid andlegal. A void and unenforceable understanding is no agreementto do anything. Existence of an arbitration agreement meansan arbitration agreement that meets and satisfies the statutoryrequirements of both the Arbitration Act and the Contract Actand when it is enforceable in law. We would proceed toelaborate and give further reasons :

(i) In Garware Wall Ropes Ltd., this Court had examined thequestion of stamp duty in an underlying contract with anarbitration clause and in the context had drawn a distinctionbetween the first and second part of Section 7(2) of theArbitration Act, albeit the observations made and quoted abovewith reference to ‘existence’ and ‘validity’ of the arbitrationagreement being apposite and extremely important, we wouldrepeat the same by reproducing paragraph 29 thereof :

“29. This judgment in Hyundai Engg. case is important inthat what was specifically under consideration was anarbitration clause which would get activated only if an insureradmits or accepts liability. Since on facts it was found thatthe insurer repudiated the claim, though an arbitration clausedid “exist”, so to speak, in the policy, it would not exist inlaw, as was held in that judgment, when one important factis introduced, namely, that the insurer has not admitted oraccepted liability. Likewise, in the facts of the present case,it is clear that the arbitration clause that is contained in thesubcontract would not “exist” as a matter of law until thesub-contract is duly stamped, as has been held by us above.The argument that Section 11(6A) deals with “existence”,as opposed to Section 8, Section 16 and Section 45, whichdeal with “validity” of an arbitration agreement is answeredby this Court’s understanding of the expression “existence”in Hyundai Engg. case, as followed by us.”

Existence and validity are intertwined, and arbitration agreementdoes not exist if it is illegal or does not satisfy mandatory legalrequirements. Invalid agreement is no agreement.”

6.12We doubt the correctness of the view taken in paragraph92 of the three-judge bench in Vidya Drolia. We consider itappropriate to refer the findings in paras 22 and 29 of GarwareWall Ropes Limited, which has been affirmed in paragraph 92of Vidya Drolia, to a Constitution Bench of five judges.

7. The next issue which arises is as to which authority wouldexercise the power of impounding the instrument under Section 33 readwith Section 34 of the Maharashtra Stamp Act, in a case where thesubstantive contract contains an arbitration agreement.

7.1In an arbitration agreement, the disputes may be referredto arbitration by three modes.

a) The first mode is where the appointment of the arbitratortakes place by the parties consensually in accordance with theterms of the arbitration agreement, or by a designated arbitralinstitution, without the intervention of the court. In such a case,the arbitrator/tribunal is obligated by Section 33 of the Indian StampAct, 1899 (or the applicable State Act) to impound the instrument,and direct the parties to pay the requisite Stamp Duty (and penalty,if any), and obtain an endorsement from the concerned Collector.

This would be evident from the provisions of Section 34of the Stamp Act which provides that “any person having bylaw or consent of parties authority to receive evidence” ismandated by law to impound the instrument, and direct the partiesto pay the requisite stamp duty.

b)The second mode of appointment is where the partiesfail to make the appointment in accordance with the arbitrationagreement, and an application is filed under Section 11 before theCourt to invoke the default power for making the appointment.

In such a case, the High Court, or the Supreme Court,as the case may be, while exercising jurisdiction under Section 11,would impound the substantive contract which is either unstampedor inadequately stamped, and direct the parties to cure the defectbefore the arbitrator / tribunal can adjudicate upon the contract.

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Ac)The third mode is when an application is filed underSection 8 before a judicial authority for reference of disputes toarbitration, since the subject matter of the contract is covered byan arbitration agreement. In such a case, the judicial authority willmake the reference to arbitration. However, in the meanwhile,the parties would be directed to have the substantive contractBstamped in accordance with the provisions of the relevant StampAct, so that the rights and obligations emanating from thesubstantive contract can be adjudicated upon.

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7.2In the case of an application under Section 9 of theArbitration Act, 1996 the situation would be different. If anCapplication for urgent interim reliefs is filed under Section 9 beforethe Court, and it is brought to the attention of the Court that thesubstantive contract is not duly stamped, the Court would grantad-interim relief to safeguard the subject-matter of the arbitration.However, the substantive contract would then be impounded, andDthe concerned party be directed to take the necessary steps forpayment of the requisite stamp duty in accordance with theprovisions of the relevant Stamp Act, within a time-bound period.

It is made clear that the payment of Stamp Duty on thesubstantive contract as assessed by the Collector, would howeverEbe subject to the right of revision / appeal available under therelevant Stamp Act.

8. Whether the fraudulent invocation of the Bank Guaranteeis arbitrable?

8.1 In the present case, the Appellant-Plaintiff in the CommercialFSuit inter alia submitted that the Bank Guarantee was furnishedto ensure due execution of the Work Order dated 28.09.2015. Itwas submitted on behalf of the Appellants that the invocation ofthe bank guarantee was fraudulent, since the agreement had neverbeen acted upon. There was no invoice raised or payment receivedGunder the Work Order. In the absence of any legal liability forpayment under the Work Order, the invocation of the bankguarantee was fraudulent.

8.2 The High Court held that the allegations of fraud made in thiscase are simple, which do not in the normal course constitute anycriminal offence, nor are the allegations so complex in nature H

which would entail extensive evidence being led, hence the disputescould be resolved through arbitration.

8.3 Under the Arbitration Act, the earliest decision on the issue ofarbitrability of allegations of fraud was considered by a two-judgebench in N. Radhakrishnan v. Maestro Engineers.[29]In thiscase, the applicant had made serious allegations against therespondents of having committed malpractices in the accountbooks, and mani-pulation of finances of the partnership firm. Anapplication under Section 8 was filed by the respondents forreference of disputes to arbitration. The Court took the view thatsince the issues involved detailed investigation into the allegationsand production of elaborate evidence, it could not be properlydealt by an arbitrator, and ought to be settled by a court of law.This decision relied on the judgment in Abdul Kadir v. MadhavPrabhakar,[30] which was passed under the 1940 Act. Thejudgment in Abdul Kadir in turn relied upon an English judgmentrendered in Russel v. Russel,[31]wherein it was held that a partyagainst whom an allegation of fraud is made, has the right to defendhimself in a public forum.

8.4 The judgment in N. Radhakrishnan (supra) is based on anoutdated view of the law propounded in Russel v. Russel, whichante-dates even the first English Arbitration Act of 1899.Arbitrability of fraud is no longer an issue relating to the competenceof the arbitrator, or dealing with voluminous evidence. Arbitratorsare competent to deal with allegations of civil fraud. The judgmentin Russel is obsolete, which would be evident from the variousenactments of the English Arbitration Act. Under Section 24(2)of the 1950 Act, the court could revoke the authority of a tribunalto deal with claims involving issues of fraud. This provision wasrepealed by Section 107(2) of the English Arbitration Act, 1996

Act. Russel in his Commentary on Arbitration observed that an 29 (2010) 1 SCC 72.Followed in Ivory Properties & Hotels Pvt. Ltd. v. Nusli Neville Wadia, 2011 (2) Arb LR 479 (Bom);See also article by Justice D.R. Dhanuka (Retd.) reported in Journal Section of 2010 (2)Arb LR 13; RRB Energy Ltd. v. Vestas Wind System & Ors., (2015) 219 DLT 516.

30 AIR 1962 SC 406: [1962] 3 SCR 702.

31 [1880] 14 Ch. D 471.

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arbitral tribunal does not have the jurisdiction to impose criminalsanctions on a party, its power is limited to the civil consequencesof fraud.[32]

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8.5 In Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra,[33]atwo-judge bench took a different view by holding that at the pre-Breference stage under Section 11, the court is not required toexamine the allegations of fraud and forgery. The scope ofexamination is only the existence of a valid and enforceablearbitration agreement as a condition precedent for making areference. The ground that allegations of fraud, forgery andfabrication are likely to involve recording of evidence, or involveCsome delay in disposal, were not relevant grounds to be consideredat the pre-reference stage.

8.6 The legislature amended sub-section (1) of Section 8 to providethat a judicial authority shall refer the parties to arbitration, ‘unlessit finds that prima facie no valid agreement exists’. The amendedDSection 8 reads :

“8. Power to refer parties to arbitration where there is anarbitration agreement.- (1) A judicial authority, before which anaction is brought in a matter which is the subject of an arbitrationagreement shall, if a party to the arbitration agreement or anyEperson claiming through or under him, so applies not later than thedate of submitting his first statement on the substance of the dispute,then, notwithstanding any judgment, decree or order of theSupreme Court or any Court, refer the parties to arbitration unlessit finds that prima facie no valid arbitration agreement exists.

F(2) …

(3) … ’’

The issue of arbitrability of fraud was subsequently consideredby a two-judge bench in A. Ayyasamy v. A. Paramasivam & Ors.[34].The Court held that Section 8 mandates reference to arbitration, unlessGthe arbitration agreement is found to be invalid. It has been recognisedthat certain categories of disputes which are of public nature, are not 32 Russel on Arbitration, Pg.72, para 2-083, and Pg.83, para 2-107.33 (2012) 2 SCC 144.H34 (2016) 10 SCC 386.

capable of adjudication and settlement by arbitration, which is a privateforum constituted by consent of parties.

The Court made a distinction between cases where there areallegations of serious fraud and fraud simplicitor. Mere allegations offraud simplicitor are not a sufficient ground to decline reference toarbitration. Parties may be referred to arbitration where allegations offraud pertain to disputes between parties inter se, and have no implicationfor third parties. The courts may, however, refuse to make a referenceto arbitration only in those cases where there are very serious allegationsof fraud, which make a virtual case of criminal offence of fraud, orwhere allegations of fraud are so complicated, that it becomes absolutelyessential that such complex issues be decided only by the civil courts onappreciation of voluminous evidence. This would also include those caseswhere there are serious allegations of forgery or fabrication of documents,or where fraud is alleged with respect to the arbitration clause itself, orwhere the fraud alleged is of such a nature that it permeates the entirecontract, including the agreement to arbitrate. The judicial authority mustcarefully sift the materials for the purpose of determining whether thedefence is merely a pretext to avoid arbitration. It was opined that theArbitration Act must be interpreted to bring it in consonance with theprevailing arbitration jurisprudence in the common law world.

8.7 The judgment in Ayyasamy (supra) was followed in RashidRaza v. Sadaf Akhtar,[35] wherein the twin test laid down in para25 of Ayyasamy was followed i.e. : (i) does the plea of fraudpermeate the entire contract and above all, the agreement ofarbitration, rendering it void, or (ii) whether the allegations of fraudtouch upon the internal affairs of the parties inter se having noimplication in the public domain.

8.8 In the subsequent decision of Ameet Lalchand Shah & Ors.v. Rishabh Enterprises & Anr.,[36]allegations of fraud arising fromcriminal breach of trust and misrepresentation regarding theequipment procured and leased for the setting up and operating ofa Photovoltaic solar plant were made. A civil suit was filed prayingfor a declaration that all the agreements were vitiated by fraudand misrepresentation. An application was filed under Section 8seeking reference of the disputes to arbitration 35 (2019) 8 SCC 710.

36 (2018) 15 SCC 678.

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36 (2018) 15 SCC 678.

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Aunder all the four agreements. This Court held that only wherethe court is satisfied that the allegations of fraud are serious andcomplicated in nature, would it be more appropriate for the courtto deal with the subject matter of the disputes, rather than relegatethe parties to arbitration. It is the duty of the court to impart asense of business efficacy to commercial transactions, and mereBallegations of fraud would not be sufficient to decline referenceof disputes to arbitration.

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8.9 In a recent judgment delivered in Avitel Post Studioz Ltd. &Ors. v. HSBC PI Holdings (Mauritius Limited),[37] whichpertains to an international commercial contract, the issue ofarbitrability of fraud arose for consideration. This Court held thatthe same set of facts may have civil as well criminal consequences.If it is clear that a civil dispute involves questions of fraud,misrepresentation, etc. which can be the subject matter of aproceeding under Section 17 of the Indian Contract, 1872, and/orthe tort of deceit, the mere fact that criminal proceedings can orhave been instituted in respect of the same subject matter, wouldnot lead to the conclusion that a dispute which is otherwisearbitrable, ceases to be so.

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This view has been affirmed by a co-ordinate bench inDeccan Paper Mills v. Regency Mahavir[38]and Vidya Drolia& Others v. Durga Trading Corporation[39].

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8.10 In our view, all civil or commercial disputes, either contractualor non-contractual, which can be adjudicated upon by a civil court,in principle, can be adjudicated and resolved through arbitration,unless it is excluded either expressly by statute, or by necessaryimplication. The Arbitration and Conciliation Act, 1996 does notexclude any category of disputes as being non arbitrable. Section2(3) of the Arbitration Act however recognizes that certaincategories of disputes by law may not be submitted to arbitration.[40]In all jurisdictions, certain categories of disputes are reserved by F

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37 (2020) SCCOnLine SC 656.

38 (2020) SCCOnLine SC 655.

39 Civil Appeal No.2402 of 2019 decided vide Judgment dated 14.12.2020.

40 Section 2(3). This Part shall not affect any other law for the time being in force byHvirtue of which certain disputes may not be submitted to arbitration.

the legislature, as a matter of public policy, to be adjudicated by acourt of law, since they lie in the realm of public law.

8.11 Traditionally, disputes relating to rights in rem are required tobe adjudicated by courts and / or statutory tribunals. A right inrem is a right exercisable against the world at large. Actions inrem refer to actions which create a legal status such as citizenship,divorce, testamentary and probate issues, etc. A lis in rem is notarbitrable by a private tribunal constituted by the consent of parties.Actions in personam determine the rights and interests of partiesto the subject matter of the dispute, which are arbitrable.

The broad categories of disputes which are considered tobe non arbitrable are penal offences which are visited with criminalsanction; offences pertaining to bribery / corruption; matrimonialdisputes relating to divorce, judicial separation, restitution ofconjugal rights, child custody and guardianship matters, whichpertain to the status of a person; testamentary matters whichpertain to disputes relating to the validity of a Will, grant of probate,letters of administration, succession, which pertain to the statusof a person, and are adjudicated by civil courts.

Certain categories of disputes such as consumer disputes[41];insolvency and bankruptcy proceedings; oppression andmismanagement, or winding up of a company; disputes relating totrusts, trustees and beneficiaries of a trust[42] are governed byspecial enactments.

This Court in Booz Allen & Hamilton Inc. v. SBI HomeFinance Ltd.[43]has recognized some examples of disputes whichare not arbitrable, and held that :

“36. The well recognized examples of non-arbitrable disputesare : (i) disputes relating to rights and liabilities which give riseto or arise out of criminal offences; (ii) matrimonial disputesrelating to divorce, judicial separation, restitution of conjugalrights, child custody; (iii) guardianship matters; (iv) insolvencyand winding up matters; (v) testamentary matters (grant of 41 Emaar MGF Land Limited v. Aftab Singh, (2019) 12 SCC 751.

42 Vimal Kishor Shah & Others v. Jayesh Dinesh Shah & Others. (2016) 8 SCC 788.

43 (2011) 5 SCC 532.

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probate, letters of administration and succession certificate);and (vi) eviction or tenancy matters governed by special statuteswhere the tenant enjoys statutory protection against evictionand only the specified courts are conferred jurisdiction to granteviction or decide the disputes.”

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B8.12 The civil aspect of fraud is considered to be arbitrable incontemporary arbitration jurisprudence, with the only exceptionbeing where the allegation is that the arbitration agreement itselfis vitiated by fraud or fraudulent inducement, or the fraud goes tothe validity of the underlying contract, and impeaches the arbitrationclause itself. Another category of cases is where the substantiveCcontract is “expressly declared to be void” under Section 10[44]of the Indian Contract Act, 1872 where the agreement is enteredinto by a minor (without following the procedure prescribed underthe Guardian and Wards Act, 1890) or a lunatic, which would bewith a party incompetent to enter into a contract.

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8.13 The civil aspect of fraud can be adjudicated by an arbitraltribunal. The civil aspect of fraud is defined by Section 17 of theIndian Contract Act, 1872 as follows :

“17. Fraud defined. – Fraud means and includes any of thefollowing acts committed by a party to a contract, or with hisEconnivance, or by his agent, with intent to deceiveanother party thereto or his [agent], or to induce him to enterinto the contract:

(1) the suggestion, as a fact, of that which is not true, byone who does not believe it to be true; F

(2) the active concealment of a fact by one havingknowledge or belief of the fact; 44 Section 10. What agreements are contracts.—All agreements are contracts if they areGmade by the free consent of parties competent to contract, for a lawful considerationand with a lawful object, and are not hereby expressly declared to be void.Nothing herein contained shall affect any law in force in India, and not hereby expresslyrepealed, by which any contract is required to be made in writing or in the presence ofwitnesses, or any law relating to the registration of documents.Section 11. Who are competent to contract.—Every person is competent to contractwho is of the age of majority according to the law to which he is subject, and who is ofHsound mind and is not disqualified from contracting by any law to which he is subject.

(3) a promise made without any intention of performing it;

(4) any other act fitted to deceive;

(5) any such act or omission as the law specially declaresto be fraudulent.”

8.14We will now consider whether voidable agreements arearbitrable. Voidable agreements are defined by Section 19 of theContract Act as :

“19. Voidability of agreements without free consent.—Whenconsent to an agreement is caused by coercion, fraud ormisrepresentation, the agreement is a contract voidable at theoption of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud ormisrepresentation, may, if he thinks fit, insist that the contractshall be performed, and that he shall be put in the position inwhich he would have been if the representation made had beentrue.

Exception.—If such consent was caused by misrepresentationor by silence, fraudulent within the meaning of Section 17, thecontract, nevertheless, is not voidable, if the party whose consentwas so caused had the means of discovering the truth withordinary diligence.

Explanation.—A fraud or misrepresentation which did not causethe consent to a contract of the party of whom such fraud waspractised, or to whom such misrepresentation was made, doesnot render a contract voidable.”

In the case of voidable agreements, such disputes would bearbitrable, since the issue whether the consent was procured by coercion,fraud, or misrepresentation requires to be adjudicated upon by leadingcogent evidence, which can very well be decided through arbitration.Until it so proved and upheld as per Sections 2(i) and (j) of the IndianContract Act, 1872 such an agreement would remain enforceable, andis not void.

8.15In Swiss Timing Ltd. v. Commonwealth Games 2010Organising Committee,[45] a single judge (exercising powers u/S.

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11) opined that when a plea is taken to avoid arbitration on theground of the underlying contract being void, the court is requiredto ascertain the true nature of the defence. Often, the terms ‘void’and ‘voidable’ are used loosely and interchangeably. The courtought to examine the plea by keeping in mind the provisions of theIndian Contract Act, 1872. In cases where the court comes to aconclusion that the contract is void without receiving any evidence,it may be justified in declining the reference to arbitration in a fewisolated cases. These would be cases where the court can readilyconclude that the contract is void upon a meaningful reading ofthe contract document itself. However, it would not be permissibleto circumvent arbitration where the defence taken is that thecontract is voidable, which are cases covered under circumstancesmentioned inter alia in Sections 12, 14, 15, 16, 17, 18 of the IndianContract Act, 1872.

Even though Swiss Timing Ltd. was a decision of adesignate of the Chief Justice under Section 11 of the 1996 Act(prior to the Amendment), and would have no precedential valuein view of the judgment of this Court in State of West Bengal v.Associated Contractors,[46]the reasoning in Swiss Timing Ltd.has been cited with approval by this Court in Avitel Post StudiozLtd. & Ors. v. HSBC PI Holdings (Mauritius Limited)[47].

8.16The ground on which fraud was held to be non arbitrableearlier was that it would entail voluminous and extensive evidence,and would be too complicated to be decided in arbitration. Incontemporary arbitration practice, arbitral tribunals are requiredto traverse through volumes of material in various kinds of disputessuch as oil, natural gas, construction industry, etc. The groundthat allegations of fraud are not arbitrable is a wholly archaicview, which has become obsolete, and deserves to be discarded.However, the criminal aspect of fraud, forgery, or fabrication,which would be visited with penal consequences and criminalsanctions can be adjudicated only by a court of law, since it mayresult in a conviction, which is in the realm of public law.[48]

46 (2015) 1 SCC 32.

47 (2020) SCCOnLine SC 656.

48th Malhotra’s Commentary on the Law of Arbitration, [4 ed., Wolters Kluwer (2020)],Hp.339, Volume I.

8.17In the present case, the allegations of fraud with respectto the invocation of the Bank Guarantee are arbitrable, since itarises out of disputes between parties inter se, and is not in therealm of public law.

9. Maintainability of the Writ Petition

9.1We are of the view that the Writ Petition filed by theRespondent No. 1 to challenge the Order dated 18.01.2018 passedby the Special Commercial Court / District Judge-I in CommercialDispute No. 62/2017 was not maintainable, since a statutoryremedy under the amended Section 37 of the Arbitration Act isavailable. Section 37(1) has been amended by Act 3 of 2016[49].Section 37(1)(a) provides for an appeal to be filed against an Orderrefusing to refer the parties to arbitration.

Section 37(1)(a) reads as :

“37. Appealable orders. – (1) An appeal shall lie from thefollowing orders (and from no others) to the Court authorisedby law to hear appeals from original decrees of the Courtpassing the order, namely:- (a) Refusing to refer the parties to arbitration under section8;…”

9.2 Since the judgment and order of the Commercial Court dated18.01.2018 refusing to refer the parties to arbitration was an appealableorder under Section 37(1)(a) of the Arbitration Act, the Writ Petitionwas not maintainable. The appeal would lie before the CommercialAppellate Division of the High Court under Section 13(1A) of theCommercial Courts Act, 2015. Section 13(1A) read as :

“13. Appeals from decrees of Commercial Courts andCommercial Divisions.–(1) Any person aggrieved by thejudgment or order of a Commercial Court below the level of aDistrict Judge may appeal to the Commercial Appellate Courtwithin a period of 60 days from the date of judgment or order.

(1A) Any person aggrieved by the judgment or order of aCommercial Court at the level of District Judge exercisingoriginal civil jurisdiction or, as the case may be, Commercial A

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ADivision of a High Court may appeal to the CommercialAppellate Division of that High Court within a period of sixtydays from the date of the judgment or order:

Provided that an appeal shall lie from such orders passedby a Commercial Division or a Commercial Court that areBspecifically enumerated under Order XLIII of the Code ofCivil Procedure, 1908 (5 of 1908) as amended by this Act andSection 37 of the Arbitration and Conciliation Act, 1996 (26 of1996).”

In view of the availability of a statutory remedy, theCjudgment of the High Court passed under Articles 226 and 227of the Constitution is liable tobe set aside on the ground ofmaintainability.

10. In the present case, since both parties have admitted theexistence of the arbitration agreement between the parties, as recordedDin the judgment of the High Court, and even before this Court during oralsubmissions, parties may either appoint a sole arbitrator consensually;failing which, an application u/S. 11 for appointment of the arbitratormay be made before the High Court.

11. In view of the discussion hereinabove, we hold that :

E(i)The impugned judgment and order dated 30.09.2020 in W.P.No. 1801 of 2020 passed by the Bombay High Court is setaside;

(ii) We direct the Secretary General of this Court to impoundthe Work Order dated 28.09.2015, and forward it to theFconcerned Collector in Maharashtra for assessment of theStamp Duty payable on the said instrument, to be completedwithin a period of 45 days from receipt of the same;

(iii) On determination of the Stamp Duty payable, the Appellant/ Plaintiff is directed to make the payment assessed by theGCollector u/S.30(f-a) of the Maharashtra Stamp Act, 1958within a period of four weeks from the date of receipt ofcommunication of the Order; The Stamp Duty assessed by the Collector will, however,be subject to the statutory right available to file a revision /Happeal under the Maharashtra Stamp Act.

(iv) With respect to the invocation of the Bank Guarantee, theAppellant may seek interim relief u/S. 9 of the Arbitrationand Conciliation Act, 1996.

We extend the stay granted by the High Court for a further periodof eight weeks.

12. We are of the considered view that the finding in SMS TeaEstates and Garware that the non-payment of stamp duty on thecommercial contract would invalidate even the arbitration agreement,and render it non-existent in law, and un-enforceable, is not the correctposition in law.

In view of the finding in paragraph 92 of the judgment in VidyaDrolia by a co-ordinate bench, which has affirmed the judgment inGarware, the aforesaid issue is required to be authoritatively settled bya Constitution bench of this Court.

We consider it appropriate to refer the following issue, to beauthoritatively settled by a Constitution bench of five judges of this Court:

“Whether the statutory bar contained in Section 35 of the IndianStamp Act, 1899 applicable to instruments chargeable to StampDuty under Section 3 read with the Schedule to the Act, wouldalso render the arbitration agreement contained in such aninstrument, which is not chargeable to payment of stamp duty, asbeing non-existent, un-enforceable, or invalid, pending paymentof stamp duty on the substantive contract / instrument ?’’

In light of the same, the Registry may place this matter before theHon’ble Chief Justice of India for appropriate orders/directions.

Ankit Gyan

Issue referred to Constitution Bench.

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