M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY MUDALIAR CHATTRAM & OTHER CHARITIES & ORS. versus M/S BHASKAR RAJU & BROTHERS & ORS. on 14 February 2020

JUDGMENT

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1. Leave granted.

2. Heard the learned counsel for the parties.

3. By way of present appeal, the appellants challenge the judgmentand order dated 1.12.2014, passed by the single judge of the High CourtEof Karnataka at Bangalore in Civil Miscellaneous Petition No. 167 of2013 whereby, Justice L. Sreenivasa Reddy, former judge of the HighCourt of Karnataka, was appointed as Arbitrator to conduct arbitrationproceedings at the Arbitration Centre, Bangalore, as per the Arbitrationand Conciliation Act, 1996 (hereinafter referred to as “the ArbitrationFAct”) read with the Arbitration Central Rules.

4. The facts, in brief, giving rise to the present appeal are asunder:

5. The appellant No.1 is a registered Charitable Trust. Rest of theappellants are Trustees of the appellant No.1 – Trust. The appellantGNo.1 – Trust desired to develop the land owned by it and construct amulti-purpose community hall with office complex.

6. As such, the respondent No.1 offered to develop the saidproperty and also to renovate the Samadhi of the founder of the Trustexisting on the said piece of land. Negotiations were held between theHappellant No.1 – Trust and the respondent No.1.

7. As an outcome of the negotiations, a lease deed was executedbetween the appellant No.1 -Trust and the respondent No.1 – lessee fora period of 38 years. As per the said lease deed, the respondent No.1 –lessee was required to pay an amount of Rs.55,00,000/- (Rupees Fiftyfive lakh only) as an interest free deposit, which was to be refunded to itat the end of the period of 38 years, if the lease was not extended betweenthe parties. As per the terms of the said lease deed, a certain monthlyground rent was also required to be paid by the respondent No.1 – lesseeto the appellant No. 1 -Trust. As per the said lease deed, the respondentNo.1 – lessee was to construct a multi-purpose auditorium with minimumseating capacity of one thousand persons. The said auditorium was tobe used for marriages, etc. together with dining hall, kitchen, guest rooms,etc. The respondent No.1 – lessee had also undertaken to obtain vacantpossession of property mentioned in Schedule ‘B’ subject to all co-operations being extended to it, by the lessor for ejectment of the existingtenants of the lessor. The said lease deed was executed on 31.5.1996 onthe basis of the resolution of the appellant No.1 – Trust dated 30.4.1996.

8. A subsequent lease deed dated 12.3.1997 came to be executedbetween the appellant No.1 and the respondent No. 1. Most of the termsand conditions in the subsequent/fresh lease deed dated 12.3.1997 areidentical with the terms and conditions as are found in the first leasedeed dated 31.5.1996.

9. It appears, that during the period between 1997 till 2000, therewas not much progress in the development of the said project. It furtherappears that in the year 2008 certain re-negotiations took place betweenthe appellants and the respondents. However, the same failed tomaterialize. It is the case of the appellants, that except paying initialamount of Rs. 25 lakhs towards the security deposit, the balance amounttowards the security deposit was not paid by the respondents. It wasalso the case of the appellants that the respondents were trying to interferewith the possession of the trust property in collusion with one of thetrustees. In this background, the appellant – Trust filed Original Suitbeing O.S. No. 8952 of 2010 before the City Civil Court at Bangalore.In the said suit, it was also contended on behalf of the appellants that therespondent No. 1 – lessee had also desecrated the Samadhi of the founderof the Trust and had damaged part of it. It was further contended that,the respondent No. 1 – lessee, in collusion with the respondent No.4,was trying to get a fresh lease deed executed illegally. The followingprayers were made in the said suit:

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A“a.Decree of permanent injunction restraining the Defendants1 to 3, their agents, servants from interfering with thepeaceful possession and enjoyment of the 1[st] Plaintiff Trustover the A schedule property.

b.Permanent injunction restraining the Defendants 1 to 4 fromBentering into, executing or registering any lease deed orother document transaction concerning the A scheduleproperty or any portion of it.

c.Decree granting of costs of the case and such other relief/reliefs as the Court may deem fit in the circumstances.”C10. The City Civil Court at Bangalore, granted an interim order bydirecting maintaining of status quo over the Schedule property in thesaid suit. The suit was contested by the respondent Nos. 1 and 2 byfiling written statement.

11. Respondent Nos. 1 and 2, after participating in the suitDproceedings for almost a period of about two years and three months,issued a notice to the appellants on 6.9.2013 thereby, invoking arbitrationclause in the lease deed dated 31.5.1996 and 12.3.1997. On 11.10.2013,the respondent Nos. 1 and 2 filed a petition under Section 11(6) of theArbitration Act before the High Court of Karnataka. On being servedEwith the notice, the appellants entered their appearance and filed theirstatement of objections on 2.6.2014 thereby, praying for dismissal of thepetition on various grounds.

12. Since it was the basic contention of the appellants, that thelease deed dated 12.3.1997 being insufficiently stamped had to beFmandatorily impounded under Section 33 of the Karnataka Stamp Act,1957 and it could not be relied upon unless proper duty and penalty waspaid, the single judge of the Karnataka High Court referred the matterto the Registrar (Judicial) for determination of the said issue. TheRegistrar (Judicial) of the High Court of Karnataka by a detailed reportdated 25.9.2014 held, that the document in question was lease deed andGnot an agreement to lease and therefore, directed the respondent Nos. 1and 2 to pay deficit stamp duty and penalty of Rs. 1,01,56,388 /- (RupeesOne crore One lakh Fifty-Six thousand Three hundred and Eighty-Eightonly).

13. The respondent Nos. 1 and 2 filed their objections to the reportHof the Registrar (Judicial). The High Court of Karnataka without

consideration of the report of the Registrar (Judicial) passed the impugnedorder thereby, allowing the petition filed by the respondent Nos. 1 and 2and invoking power under Section 11(6) of the Arbitration Act, appointedan Arbitrator to decide the dispute between the appellants and therespondents. Being aggrieved thereby, the appellants are before this Court.

14. We have heard Shri Nikhil Nayyar, learned Senior Counselappearing on behalf of the appellants and Shri Balaji Srinivasan, learnedcounsel appearing for the respondents.

15. Shri Nikhil Nayyar, learned Senior Counsel, submits, that thoughclause 36 of the lease deed dated 12.3.1997 provides for arbitrationbetween the parties, since the said lease deed was insufficiently stamped,the same could not have been relied upon by the High Court for appointingArbitrator. It is further submitted, that the respondent Nos. 1 and 2 hadfailed to take any steps in furtherance of the lease deed dated 12.3.1997and belatedly, after a period of almost 16 years and only when the suitfiled by the appellants was in the final stages, had invoked the arbitrationclause. Learned Senior Counsel submits, that as a matter of fact, thesuit filed by the appellants already stands decreed by a judgment anddecree dated 2.3.2015.

16. Shri Balaji Srinivasan, learned counsel appearing for therespondents, on the contrary submits, that the agreement was in effect,an agreement to lease the property which was required to be stampedonly after all the tenants were evicted and the permission to start theconstruction was granted by the Corporation. It is submitted, that therespondents were, all the while, trying to negotiate with the varioustenants and as such, the High Court was right in holding, that theagreement was for developing the property immediately after the propertywas made vacant by evicting the tenants.

17. It will be apposite to reproduce Sections 33 and 34 of theKarnataka Stamp Act, 1957, which are as under:

“33. Examination and impounding of instruments.- (1) Everyperson having by law or consent of parties authority to receiveevidence, and every person in charge of a public office, except anofficer of police, before whom any instrument, chargeable in hisopinion, with duty, is produced or comes in the performance of hisfunctions, shall, if it appears to him that such instrument is notduly stamped, impound the same.

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(2) For that purpose every such person shall examine everyinstrument so chargeable and so produced or coming before him,in order to ascertain whether it is stamped with a stamp of thevalue and description required by the law in force in the State ofKarnataka when such instrument was executed or first executed:

BProvided that,—

(a) nothing herein contained shall be deemed to require anyMagistrate or Judge of a Criminal Court to examine or impound,if he does not think fit so to do, any instrument coming before himin the course of any proceeding other than a proceeding underChapter XII or Chapter XXXVI of the Code of CriminalProcedure, 1898; C

(b) in the case of a Judge of the High Court, the duty of examiningand impounding any instrument under this section may be delegatedto such officer as the Court appoints in this behalf.

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(3) For the purposes of this section, in cases of doubt, theGovernment may determine,—

(a) what offices shall be deemed to be public offices; and (b) who shall be deemed to be persons in charge of public offices.

34. Instruments not duly stamped inadmissible in evidence,etc.- No instrument chargeable with duty shall be admitted inevidence for any purpose by any person having by law or consentof parties authority to receive evidence, or shall be acted upon,registered or authenticated by any such person or by any publicofficer, unless such instrument is duly stamped:

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Provided that,—

(a) any such instrument not being an instrument chargeable witha duty not exceeding fifteen naye paise only, or a mortgage ofcrop Article 35 (a) of the Schedule chargeable under clauses (a)and (b) of section 3 with a duty of twenty-five naye paise shall,subject to all just exceptions, be admitted in evidence on paymentof the duty with which the same is chargeable, or, in the case ofan instrument insufficiently stamped, or the amount required tomake up such duty, together with a penalty of five rupees, or,when ten times the amount of the proper duty or deficient portion G

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M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMYMUDALIAR CHATTRAM v. M/S BHASKAR RAJU & BROTHERS

thereof exceeds five rupees, of a sum equal to ten times suchduty or portion; (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 agreement shallbe deemed to be duly stamped;

(c) nothing herein contained shall prevent the admission of anyinstrument in evidence in any proceeding in a Criminal Court, otherthan a proceeding under Chapter XII or Chapter XXXVI of theCode of Criminal Procedure, 1898; (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 Deputy Commissioner as provided by section 32 or anyother provision of this Act and such certificate has not been revisedin exercise of the powers conferred by the provisions of ChapterVI.”

18. Admittedly, both the lease deeds are neither registered norsufficiently stamped as required under the Karnataka Stamp Act, 1957.Admittedly, the Registrar (Judicial) of the High Court of Karnataka hadsubmitted a report to the High Court pointing out, that the document of1997 executed/entered into between the parties was a lease deed andnot an agreement to lease and passed an order directing the respondentNos. 1 and 2 to pay deficit stamp duty and penalty of Rs. 1,01,56,388 /-(Rupees One crore One lakh Fifty-Six thousand Three hundred andEighty-Eight only). It is also an admitted fact, that the respondent Nos. 1and 2 have not complied with the said directions and have not paid thedeficit stamp duty and penalty. In this background, a question that wouldarise for consideration is, as to whether clause 36 in the lease deeddated 12.3.1997 could be acted upon to enforce the arbitration clausecontained therein.

19. The issue is no longer res integra. This Court in the case ofSMS Tea Estates Private Limited vs. Chandmari Tea CompanyPrivate Limited[1]had occasion to consider the provisions which are inpari materia with the provisions of the Karnataka Stamp Act, 1957. Therelevant paragraphs are as under:1 (2011) 14 SCC 66

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“17. What if an arbitration agreement is contained in anunregistered (but compulsorily registerable) instrument which isnot duly stamped? To find an answer, it may be necessary torefer to the provisions of the Stamp Act, 1899 (“the Stamp Act”,for short). Section 33 of the Stamp Act relates to examination andimpounding of instruments. The relevant portion thereof is extractedbelow:

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‘33. Examination and impounding of instruments.—(1) Everyperson having by law or consent of parties authority to receiveevidence, and every person in charge of a public office, except anofficer of police, before whom any instrument, chargeable, in hisCopinion, with duty, is produced or comes in the performance of hisfunctions, shall, if it appears to him that such instrument is notduly stamped, impound the same.

(2) For that purpose every such person shall examine everyinstrument so chargeable and so produced or coming before him,in order to ascertain whether it is stamped with a stamp of thevalue and description required by the law in force in India whensuch instrument was executed or first executed:’

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18. Section 35 of the Stamp Act provides that instruments notduly stamped are inadmissible in evidence and cannot be actedupon. The relevant portion of the said section is extracted below:

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‘35. Instruments not duly stamped inadmissible in evidence,etc.—No instrument chargeable with duty shall be admitted inevidence for any purpose by any person having by law or consentof parties authority to receive evidence, or shall be acted upon,Fregistered or authenticated by any such person or by any publicofficer, unless such instrument is duly stamped:

Provided that—

(a) any such instrument shall be admitted in evidence on paymentof the duty with which the same is chargeable or, in the case of aninstrument insufficiently stamped, of the amount required to makeup such duty, together with a penalty of five rupees, or, when tentimes the amount of the proper duty or deficient portion thereofexceeds five rupees, of a sum equal to ten times such duty orportion;’

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M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMYMUDALIAR CHATTRAM v. M/S BHASKAR RAJU & BROTHERS

19. Having regard to Section 35 of the Stamp Act, unless thestamp duty and penalty due in respect of the instrument is paid,the court cannot act upon the instrument, which means that itcannot act upon the arbitration agreement also which is part ofthe instrument. Section 35 of the Stamp Act is distinct and differentfrom Section 49 of the Registration Act in regard to an unregistereddocument. Section 35 of the Stamp Act, does not contain a provisolike Section 49 of the Registration Act enabling the instrument tobe used to establish a collateral transaction.

20. The Scheme for Appointment of Arbitrators by the ChiefJustice of Gauhati High Court, 1996 requires an application underSection 11 of the Act to be accompanied by the original arbitrationagreement or a duly certified copy thereof. In fact, such arequirement is found in the scheme/rules of almost all the HighCourts. If what is produced is a certified copy of the agreement/contract/instrument containing the arbitration clause, it shoulddisclose the stamp duty that has been paid on the original. Section33 casts a duty upon every court, that is, a person having by lawauthority to receive evidence (as also every arbitrator who is aperson having by consent of parties, authority to receive evidence)before whom an unregistered instrument chargeable with duty isproduced, to examine the instrument in order to ascertain whetherit is duly stamped. If the court comes to the conclusion that theinstrument is not duly stamped, it has to impound the documentand deal with it as per Section 38 of the Stamp Act.

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 tothe conclusion that it is not properly stamped, it should beimpounded 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.”

20. It can thus clearly be seen, that this Court has in unequivocalterms held, that when a lease deed or any other instrument is relied upon AB

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Aas containing the arbitration agreement, the Court is required to considerat the outset, whether the document is properly stamped or not. It hasbeen held, that even when an objection in that behalf is not raised, it isthe duty of the Court to consider the issue. It has further been held, thatif the Court comes to the conclusion, that the instrument is not properlystamped, it should be impounded and dealt with, in the manner specifiedBin Section 38 of the Stamp Act, 1899. It has also been held, that theCourt cannot act upon such a document or the arbitration clause therein.However, if the deficit duty and penalty is paid in the manner set out inSection 35 or Section 40 of the Stamp Act, 1899, the document can beacted upon or admitted in evidence. It is needless to state, that theCprovisions that fell for consideration before this Court are analogouswith the provisions of Sections 33 and 34 of the Karnataka Stamp Act,1957. In this view of the matter, we are of the considered view, that inview of the law laid down in the case of SMS Tea Estates PrivateLimited (supra), that the lease deed containing the arbitration clausewhich is required to be duly stamped, was not sufficiently stamped andDthough the Registrar (Judicial) had directed the respondent Nos. 1 and 2to pay deficit stamp duty and penalty of Rs. 1,01,56,388/- (Rupees Onecrore One lakh fifty-six thousand Three hundred and Eighty-eight only),the respondents failed to do so, the High Court has erred in relying onthe said lease dated 12.3.1997.

E21. Though the appellants deserve to succeed only on the aforesaidquestion of law, we find, that even on equity the respondents are notentitled to any relief.

22. After lease deed was executed in the year 1996-1997, thoughthe respondent Nos. 1 and 2 have placed on record some settlementFdeeds with tenants executed in 1998, except one bald statement, thatlast of the tenants was evicted in the year 2010, nothing has been placedon record. It appears, that only after the appellants had filed a suit forinjunction against the respondents which was duly contested by therespondents by filing written statement on 18.6.2011, the respondentsGafter participating in the suit proceedings for a period of about 2 yearsand 3 months, filed the present application before the High Court underSection 11(6) of the Arbitration Act. It is further to be noted, that if inthe pursuit of the respondents, the lease deed dated 12.3.1997 was legaland valid document and it could be relied on for referring the dispute to H

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arbitration in view of clause 36 thereof, nothing precluded them fromfiling an application under Section 8 of the Arbitration Act before theCity Civil Court at Bangalore in O.S. No. 8952 of 2010 at the earliestopportunity available. It appears, that the respondent Nos. 1 and 2 aretaking self-contradictory stands. In the written statement before the CityCivil Court at Bangalore, they have admitted, that the document was alease deed, whereas before the High Court they have taken a stand, thatthe document was an agreement for developing the property after theproperty is made vacant by evicting the tenants. The stand is alsototally contrary to the terms expressed in the lease deed. It will berelevant to refer to clause 5 of the lease deed dated 12.3.1997, whichreads thus:

“5. The tenure of the lease shall be 38 years commencing fromthe date of signing of this lease deed.”

23. It can thus clearly be seen, that the tenure of the lease deedwas to be 38 years from the date of signing of the lease deed.

24. A perusal of the clauses of the lease deed dated 12.3.1997would also reveal, that the lessee had undertaken all the responsibility ofobtaining vacant possession of Schedule ‘B’ property and to securevacant possession by ejecting the unauthorised occupants. Responsibilityof sanctioning the building plans was also undertaken by the respondents.It would further reveal, that it was also agreed between the parties, thatin the event of any of the tenants approaching a court of law, suchperiod of litigation shall not in any manner affect the agreed tenure ofthe lease deed of 38 years.

25. In that view of the matter, the submission made by Shri BalajiSrinivasan, learned counsel for the respondents, that the agreement wasto be registered only after all the tenants were evicted and the buildingplans were sanctioned is not supported by any of the terms in the leasedeed dated 12.3.1997.

26. In that view of the matter, we find, that the High Court hastotally erred in relying on the lease deed dated 12.3.1997, which wasfound to be insufficiently stamped and brushing aside the report of theRegistrar (Judicial), when the respondents had failed to pay the insufficientstamp duty and penalty as determined by the Registrar (Judicial) of theHigh Court of Karnataka.

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[2020] 3 S.C.R.

A27. In the result, the appeal is allowed. The impugned judgmentand order dated 1.12.2014 passed by the High Court of Karnataka inCMP No.167 of 2013 is quashed and set aside. The petition/applicationfiled by the respondents under Section 11 of the Arbitration Act is rejected.There shall be no order as to costs.

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Devika Gujral

Appeal allowed

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