Supreme Court

Garware Wall Ropes Ltd.Vs. Coastal Marine Constructions & Engineering Ltd.

MANU/SC/0511/2019

10.04.2019

Arbitration

Insufficiently stamped agreement cannot be acted upon by court

Present appeal arises out of a sub-contract given by the Appellant to the Respondent in respect of work. Disputes arose between parties, and on 2nd January, 2015, the Appellant terminated the sub-contract. As a result, on 20th July, 2016, the Respondent wrote to the Appellant stating that, as disputes and differences had arisen between the parties, notice was given of appointment of Mr. Mihir Naniwadekar, Advocate, as sole arbitrator. The Appellant replied stating that, the appointment of Mr. Naniwadekar as sole arbitrator was not acceptable as invocation of arbitration in pursuance of the agreement is premature.

The Respondent, therefore, filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (1996 Act) before the Bombay High Court. By the impugned judgment, Section 11 petition was allowed and Mr. Naniwadekar was appointed as sole arbitrator to adjudicate upon disputes and differences which have arisen between the Appellant and the Respondent in relation to the sub-contract. The question raised in present appeal is as to what is the effect of an arbitration Clause contained in a contract which requires to be stamped.

When an arbitration Clause is contained "in a contract", it is significant that the agreement only becomes a contract, if it is enforceable by law. Under the Indian Stamp Act, 1899, an agreement does not become a contract, namely, that it is not enforceable in law, unless, it is duly stamped. Therefore, even a plain reading of Section 11(6A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that, an arbitration Clause in an agreement would not exist, when it is not enforceable by law. In the facts of the present case, it is clear that the arbitration Clause that is contained in the sub-contract would not "exist" as a matter of law until the sub-contract is duly stamped.

A harmonious construction needs to be given to the provisions of the Act, 1958 and Section 11(13) of the 1996 Act by which, if it is possible, both provisions ought to be sub-served. Under the Maharashtra Stamp Act, 1958, the object of impounding an instrument that is unstamped is to ensure that stamp duty and penalty must be paid on such instrument before it is acted upon by any authority. Likewise, under Section 11(13) of the 1996 Act, an application made under Section 11 for appointment of an arbitrator should be disposed of as expeditiously as possible, and, in any event, an endeavour shall be made to dispose of such application at least within a period of 60 days from the date of service of notice on the opposite party.

Reasonable way of harmonising the provisions contained in Sections 33 and 34 of the Maharashtra Stamp Act, 1958 which is a general statute and Section 11(13) of the 1996 Act, which applies specifically to speedy resolution of disputes by appointment of an arbitrator expeditiously, is by declaring that, while proceeding with the Section 11 application, the High Court must impound the instrument which has not borne stamp duty and hand it over to the authority under the Act, 1958. As soon as stamp duty and penalty are paid on the instrument, any of the parties can bring the instrument to the notice of the High Court, which will then proceed to expeditiously hear and dispose of the application under Section 11 of Arbitration Act. The matter is remitted to High Court to dispose of the same in the light of present judgment. Appeal allowed.

Tags : Agreement Enforceability Stamp

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