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Browse Law School Education ADR: Arbitration Important Arbitration Cases

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Now here’s another latest case from 2019 i.e., Garware Walls Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd.,(2019) 9 SCC 209

BRIEF FACTS:

Dispute arose between the parties out of a sub-contract given by the appellant to the respondent in respect of the work to be done for installation of geo-textile tubes in Odisha, for protection against coastal erosion. The sub-contract agreement contained an arbitration clause, which stated that the disputes shall be referred to a sole arbitrator to be appointed by the parties jointly in agreement. 

The appellant terminated the sub-contract. As a result of this, the respondent issued a notice of appointment of a sole arbitrator, which was not acceptable to the appellant. The respondent, therefore, filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court. Taking note of the amendments to Section 11 of the Act, the Bombay High Court held that the scope of Section 11 of that legislation, after the amendment, has been narrowed; hence the court’s role following the amendment is limited only to examine the existence of an arbitration agreement. Hence, this appeal was filed in the SC.

ISSUE:

Now, the issue that was raised in this case to the SC was—Whether the court can proceed to appoint an arbitrator on the basis an unstamped instrument, and whether it is the arbitrator who later can impound the instrument?

HELD:

The Supreme Court set-aside the judgement of the Bombay High Court in this case. The Court observed that a closer look at Section 11(6A) would show that when the Supreme Court or the High Court considers an application under Section 11(4) to 11(6), and comes across an arbitration clause in an agreement or conveyance which is unstamped, it is enjoined by the provisions of the Indian Stamp Act to first impound the agreement or conveyance and see that stamp duty and penalty (if any) is paid before the agreement, as a whole, can be acted upon. 

It is important to remember that the Indian Stamp Act applies to the agreement or conveyance as a whole. The Court held that, in the present case, 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.

The Supreme Court relied on the judgement in the case of SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66—a 2011 SC case, wherein it was held that “Before admitting any document into evidence or acting upon such document, it should be examined by the Court whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable. If the document is found to be not duly stamped, Section 35 of the Indian Stamp Act, bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Indian Stamp Act and follow the procedure under Sections 35 and 38 of the Stamp Act.”

RATIO:

Now the ratio that can be derived from this judgment is that—An arbitration clause in an agreement, which is not stamped as per law, cannot be given effect until it is duly stamped.

If an unstamped or deficiently stamped agreement is presented, it must be impounded, and sent to the relevant authorities for payment of stamp duty and penalty (if any) for non-payment of stamp duty when the agreement was first executed. Only after such stamp duty and penalty have been paid, the Court should proceed with the application.

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