The Supreme Court Constitution Bench is set to examine the issue as whether an Arbitration Clause in an Unstamped Contract (requiring registeration and stamping) shall be binding or not?
A 5-Judge Bench comprising of Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy and Justice C.T. Ravikumar has appointed Senior Advocate, Mr. Gourab Banerji as an Amicus Curiae in the matter as there was no contesting respondent.
Mr. Banerji has been asked to name three young lawyers who are 'very active in arbitration', who would also assist the Court along with him. He hinted he has few names in his mind and shall do the needful.
When the Counsel apprised the Bench that the judgment which contains the reference order goes beyond the scope of the arguments made on both sides, Justice Rastogi stated:
"Now when the matter is before us, we have to decide the issue."
Background
The petitioner and the respondent herein entered into a sub-contract which contained an Arbitration Clause. When they met with certain disputes, respondent invoked the Bank Guarantee furnished by the petitioner pursuant to which a suit was filed by the petitioner. In response, the respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 in the suit and sought for reference of disputes to arbitration. However, the Commercial Court rejected the same. Consequently, a revision petition was filed by the respondent before the Bombay High Court which was objected on the ground of maintainability. The HC Court eventually granted liberty to the respondent to withdraw the review and file a writ petition instead.
In the writ, High Court held that the Section 8 of the Arbitration Act was maintainable.
While deciding on the writ, one of the issues the High Court faced was that the arbitration agreement was unenforceable since the sub-contract was unregistered and unstamped.
To this, it noted that the said issue can be raised in application under Section 11 or before the Arbitral Tribunal. Subsequently, in the appeal, the Apex Court held that the view of M/s. SMS Tea Estates Pvt. Ltd. Vs. M/s. Chandmari Tea Co. Pvt. Ltd., 2011 Latest Caselaw 529 SC and Garware Wall Ropes Ltd. Vs. Coastal Marine Constructions & Engineering Ltd., 2019 Latest Caselaw 374 SC that non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-existent in law, and unenforceable, is not the correct position in law.
Considering the fact that that Garware Wall Ropes was affirmed by Vidya Drolia Vs. Durga Trading Corporation, 2020 Latest Caselaw 659 SC, which is a coordinate Bench, the 3-Judge Bench of the Apex Court deemed it appropriate to refer the matter to a Constitution Bench.
The question thus formed for consideration is:
"Whether the statutory bar contained in Section 35 of the Indian Stamp Act, 1899 applicable to instruments chargeable to Stamp Duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, un- enforceable, or invalid, pending payment of stamp duty on the substantive contract / instrument ?"
The hearing has been adjourned to 6th December.
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(With input from news agency language)
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