-1- IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR.

ORDER

SB Civil Misc. Arbitration Application No.77/2009 M/s Nakoda Granite & Marmo Pvt. Ltd. v. Yogendra Singhvi Date of Order ::

26. h February, 2014 HON'BLE MR.JUSTICE GOVIND MATHUR Mr. R.K.Thanvi, Senior Advocate, assisted by Mr. Narendra Thanvi, for the petitioner-applicant. Mr. Vikas Balia and Mr. Vikram Choudhary, for the respondent. .... REPORTABLE This application as per provisions of Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act of 1996') is preferred for appointment of arbitrators in consonance to clause 31 of the lease deed dated 5.4.2000 executed between Nakoda Granite & Marmo Pvt. Ltd. and respondent Shri Yogendra Singhvi, Director, Rajputana Granite & Marmo Pvt. Ltd. As per conditions of the lease deed, property of the applicant company was on lease with the respondent for a period of five years w.e.f. 5.4.2000 against payment of lease money @ Rs.1,91,000/- per month. A security in a tune of Rs.15,00,000/- was furnished by the respondent. -2- The lease deed came to an end on 31.3.2005 and as per the applicant, the respondent was supposed to hand over possession of the property on 31.3.2005 itself, but that was actually done on 30.4.2005. No lease money was paid nor any account was given by the respondent while handing over possession of the leased property. Beside the above, as per the applicant, certain other disputes relating to sales tax recovery, machinery work, repairing work and quantum of interest accrued were existing between the parties. Clause 31 of the lease deed dated 5.4.2000 provides that in the event of failure to resolve mutually, the disputes arising between the parties to the deed as to its interpretation, operation or effect of any clause and also other differences arising between the parties shall be referred to the arbitration having Shri R.S.Tambi, Madhusudan Vyas and Giriraj Sanadhya as arbitrators. In view of the provision aforesaid the disputes were forwarded by the applicant to the arbitrators but the arbitrators failed to coordinate and as such Shri R.S.Tambi and Shri Madhusudan Vyas did not participate in the arbitral proceedings. Arbitrator Shri Giriraj Sanadhya independently passed an award dated 13.1.2006 and an application for execution of that was filed by the applicant before learned District Judge, Rajsamand. Learned District Judge, Rajsamand by order dated 18.2.2008 dismissed the application by holding the award non- executable being not passed in accordance with law. -3- A petition for writ preferred by the petitioner to challenge the order passed by learned District Judge also came to be rejected by this Court on 9.1.2009 with observation that “since the petitioner was pursuing the remedy and obtained the award in the year 2006 and tried to execute it, then he found that the award is nullity, then those facts may be considered while considering the petitioner's prayer for appointing arbitrator in the proceedings under Section 11 sympathetically”.. By a notice dated 20.3.2009 the applicant while proposing an arbitrator of his choice called upon the respondent to appoint second arbitrator of his choice. The notice said to be sent by registered post was not accepted by the respondent, hence this application is preferred. Beside certain other objections this application is contested by the respondent with a preliminary objection that the instrument dated 5.4.2000 is a lease as defined under Section 105 of the Transfer of Property Act, 1882, thus, is chargeable with stamp duty as per provisions of the Rajasthan Stamp Duty Act and the same being not duly stamped is neither executable nor is a document admissible, hence, the request for appointment of arbitrator on basis of that cannot be accepted. While meeting with the objection advanced, it is urged by counsel for the applicant that the document is written on a stamp of Rs.100/-, thus, i.e. sufficiently stamped for invoking the arbitration clause. As per learned -4- counsel, Section 16 of the Act of 1996 takes necessary care of such eventuality as that provides that an arbitration clause which forms part of a contract is required to be treated as an agreement independent to other terms of the contract. Heard learned counsels and considered the rival submissions. Before coming to the core issue, it shall be appropriate to mention that the proceedings for appointment of an arbitrator as per provisions of Section 11 of the Act of 1996 are judicial in nature, thus, the objection relating to sufficiency of the stamp duty deserves to be determined at the threshold, hence the same is considered first. The instrument dated 5.4.2000 is a lease deed and as per condition of that immoveable property of the applicant was leased out for a period of five years and the lease money settled was @ Rs.1,91,000/- per month, hence the stamp duty chargeable on it is equal to the 10% of the annual lease amount. Admittedly, the instrument is not duly stamped. Section 39 of the Rajasthan Stamp Act, 1998 (hereinafter referred to as 'the Act of 1998') provides that “no instrument chargeable with duty under this Act shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped.”

. -5- As per the provision aforesaid, an instrument not duly stamped is inadmissible in evidence and cannot be acted upon. Section 37 of the Act of 1998 provides that “(1) Every person having by law or consent of parties authority to receive evidence, and every person incharge of a public office, except an officer of a police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same. (2)For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in the State when such instrument was executed or first executed.”

. By keeping the factual and legal position noticed above in vision, the issue for determination is that “can the instrument i.e. written on a stamp of Rs.100/- but is otherwise not duly stamped, be acted upon at least to invoke its arbitration clause?.”. As already stated, stand of learned counsel for the applicant is that the arbitration clause in an agreement is independent to other terms of the contract in view of the provisions of Section 16 of the Act of 1996 which provides that an arbitration clause which forms part of a contract shall be treated as an agreement independent -6- of the other terms of the contract, thus, the arbitration clause in the instrument dated 5.4.2000 is an independent agreement, hence, there is no impediment in granting this application. The deficiency of the stamp duty on the instrument concerned is not a factor relevant to consider the application. To substantiate the argument, reliance is placed upon a judgment given by Hon'ble the Judge designated by the Chief Justice of the Supreme Court as per Section 11(5) of the Act of 1996, in the case of Geo-Group Communications INC v. IOL Broadband Ltd., reported in 2010 (2) SRJ188 wherein it was held that “the plea that the Arbitration Agreement is not duly stamped and, therefore, the application should be dismissed has no merit at all. Section 2(1)(b) of the Arbitration and Conciliation Act, 1996 defines the term “arbitration agreement”. to mean an agreement referred to in Section 7. Sub-section(2) of Section 7 further provide that an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Here the facts of the case make it very clear that the Arbitration Agreement is in the form of an arbitration clause, i.e., Clause No.11.7 incorporated in the SHA dated December 1, 2005. The law does not provide that arbitration clause incorporated in a contract should be stamped. Therefore, the plea that Arbitration Agreement is not stamped and, therefore, the applicant is not entitled to relief, cannot be accepted.”

. In view of Section 16 of the Act of 1996 and also in light of the law laid down in the case of Geo-Group Communications INC (supra), the agreement having arbitration clause is an agreement of composite nature – -7- one is relating to substantive terms of the contract and other is relating to resolution of disputes. The arbitration clause, thus, is an independent agreement for the purposes given under Section 16 itself and if the entire document is suffered with certain deficiencies, then those are not of much relevance for invoking arbitration clause. The issue in question has been considered and dealt with by Hon'ble the Supreme Court in lucid in SMS Tea Estates Private Limited vs M/S Chandmari Tea Company Private Limited, reported in (2011) 14 SCC66 The Apex Court in this case while examining different eventualities, held as under:-

“12. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts -- one in regard to the substantive terms of the main contract and the other relating to resolution of disputes -- had been rolled into one, for purposes of convenience. An arbitration clause is therefore an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance is terminated or comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. -8- 13. Similarly, when an instrument or deed of transfer (or a document affecting immovable property) contains an arbitration agreement, it is a collateral term relating to resolution of disputes, unrelated to the transfer or transaction affecting the immovable property. It is as if two documents - one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registrable - are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer.

15. But where the contract or instrument is voidable at the option of a party (as for example under section 19 of the Indian Contract Act, 1872), the invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement, if the reasons which make the main agreement voidable, exist in relation to the making of the arbitration agreement also. For example, if a person is made to sign an agreement to sell his property under threat of physical harm or threat to life, and the said person repudiates the agreement on that ground, not only the agreement for sale, but any arbitration agreement therein will not be binding.

16. An arbitration agreement does not require registration under the Registration -9- Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to section 49 of Registration Act read with section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.”

. The position, however, shall be different for the instrument i.e. not duly stamped. Hon'ble the Apex Court considered the impact and effect of Sections 33 and 35 of the Indian Stamp Act, 1899 (hereinafter referred to as 'the Act of 1899') on a document i.e. not duly stamped and which also contains an arbitration clause. The consideration made and conclusions arrived by the Apex Court in this regard in the case of M/s. SMS Tea Estates Private Limited (supra) are as under:-

“17. What if an arbitration agreement is contained in an unregistered (but compulsorily registrable) instrument which is not duly stamped?. To find an answer, it may be necessary to refer to the provisions of the Indian Stamp Act, 1899 (`Stamp Act' for short). Section 33 of the Stamp Act relates to examination and impounding of instruments. The relevant portion thereof is extracted below : -10- 33.Examination and impounding of instruments.-(1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a pubic office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not dull stamped, impound the same. (2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed:”.

18. Section 35 of Stamp Act provides that instruments not duly stamped is inadmissible in evidence and cannot be acted upon. The relevant portion of the said section is extracted below :

35. Instruments not duly stamped inadmissible in evidence, etc. -- No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped : Provided that-- -11- (a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion.”. 19. Having regard to section 35 of Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of Stamp Act is distinct and different from section 49 of Registration Act in regard to an unregistered document. Section 35 of Stamp Act, does not contain a proviso like to section 49 of Registration Act enabling the instrument to be used to establish a collateral transaction.

21. Therefore, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in section 38 of Stamp Act. The court cannot act upon such a document or the arbitration clause therein. But if the deficit duty and penalty is paid -12- in the manner set out in section 35 or section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.”

. The law laid down by Hon'ble the Supreme Court clearly indicates that the stamp duty is not on a transaction but on the instrument and in view of the provisions of Section 35 of the Act of 1899 its deficiency makes the same non-actionable. Sections 34 and 39 of the Act of 1998 are para-materia to provisions of Sections 33 and 35 respectively of the Act of 1899. Pertinent to notice that in the case of Geo-Group Communications INC (supra) the implication of the provisions of applicable Stamp Act was not examined. Section 39 of the Act of 1998 too prescribes that the instrument chargeable with duty, if is not duly stamped, shall not be acted upon. Meaning thereby, no action in relation to any condition of that instrument can be taken. Such an instrument deserves to be impounded as per Section 37 and this implication is sufficient to further strengthen that the document concerned is non- operational. True it is, an arbitration clause in an agreement for contract is required to be treated as an independent agreement for arbitration in light of Section 16 of the Act of 1996, but that agreement can be operated in the eventualities referred in paras 12, 13 and 16 (as marked in the journal SCC), of the judgment given in the case of SMS Tea Estates Private Limited (supra), but if the instrument is not duly stamped, then in view of the law discussed in the case of SMS Tea Estates Private Limited -13- (supra), that is to be treated non-operational even to invoke arbitration clause. With the conclusion stated above, this application is dismissed. However, the applicant shall be at liberty to move an application afresh for appointment of arbitrator after getting the instrument in question duly stamped. ( GOVIND MATHUR ),J.

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