REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3631 OF 2019

(Arising out of Special Leave Petition (Civil) No. 9213 of 2018)

GARWARE WALL ROPES LTD. … APPELLANT

VERSUS

COASTAL MARINE CONSTRUCTIONS

& ENGINEERING LTD. … RESPONDENT

JUDGMENT

R.F. NARIMAN, J.

1.Leave granted.

2.This appeal arises out of a sub-contract given by the appellant to

the respondent in respect of work to be done for installation of a geo-

textile tubes embankment with toe mound at village Pentha in Odisha

for protection against coastal erosion. The sub-contract agreement is

dated 14.06.2013, Annexure III of which contains the following

arbitration clause:

“Any and all claims, disputes, questions or controversies

involving the parties and arising in connection with the

Agreement or execution, interpretation, validity,

performance, termination hereof which cannot be finally

1

resolved by such parties [sic through] negotiation shall

be resolved by final and binding arbitration held in Pune.

The disputes shall be referred to a sole arbitrator to be

appointed by GWRL and COMACOE jointly in

agreement.”

3.Disputes arose between the parties, and on 02.01.2015, the

appellant terminated the sub-contract. As a result, on 20.07.2016, 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 on 17.08.2016, 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”] on 10.02.2017

before the Bombay High Court. By the impugned judgment dated

09.03.2018, the 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 dated 14.06.2013.

4.The question raised in this appeal is as to what is the effect of an

arbitration clause contained in a contract which requires to be

stamped. This Court, in SMS Tea Estates (P) Ltd. v. Chandmari Tea

2

Co. (P) Ltd., (2011) 14 SCC 66 [“SMS Tea Estates”], has held that

where an arbitration clause is contained in an unstamped agreement,

the provisions of the Indian Stamp Act, 1899 [“Indian Stamp Act”]

require the Judge hearing the Section 11 application to impound the

agreement and ensure that stamp duty and penalty (if any) are paid

thereon before proceeding with the Section 11 application. The

question is whether Section 11(6A), which has been introduced by way

of the Arbitration and Conciliation (Amendment) Act, 2015

[“Amendment Act, 2015”], has removed the basis of this judgment, so

that the stage at which the instrument is to be impounded is not by the

Judge hearing the Section 11 application, but by an arbitrator who is

appointed under Section 11, as has been held by the impugned

judgment.

5.Mr. Dhruv Mehta, learned Senior Advocate appearing on behalf

of the appellant, has taken us through the sub-contract as well as the

arbitration clause contained therein. He relied strongly upon the

Maharashtra Stamp Act, 1958 [“Maharashtra Stamp Act”], and

Sections 33 and 34 thereof, in particular. According to him, these are

provisions which are similar to the provisions contained in Sections 33

and 35 of the Indian Stamp Act, which, as held in SMS Tea Estates

(supra), requires judicial authorities to impound such instruments,

3

which cannot be admitted in evidence or cannot be acted upon until

duly stamped. According to him, the judgment in SMS Tea Estates

(supra) continues to apply even after the introduction of Section 11(6A)

to the 1996 Act, by which the Court is now to confine itself to the

examination of the existence of an arbitration agreement. Relying upon

the 246

th

Law Commission Report, which led to the amendment

contained in Section 11(6A), together with the Statement of Objects

and Reasons appended to the Arbitration and Conciliation

(Amendment) Bill, 2015, Mr. Mehta argued that it was clear that the

amendment was necessitated as a result of two Supreme Court

judgments in particular, namely, SBP & Co. v. Patel Engineering Ltd.,

(2005) 8 SCC 618 [“SBP & Co.”] and National Insurance Co. Ltd. v.

Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 [“Boghara Polyfab”], by

which the door was opened too wide, so that many preliminary issues

which do not relate to the existence of an arbitration agreement were

to be decided by the Court hearing the Section 11 application instead

of by the arbitrator. The focus being on these two judgments, it is clear

that it is these two judgments whose basis has been removed, leaving

SMS Tea Estates (supra) untouched. According to him, it is clear that

if, as a result of operation of law, an instrument is to be impounded,

upon which stamp duty and penalty (if any) are then to be paid, must

4

be followed as Section 11(6A) does not seek to interfere with the

Indian Stamp Act at all. He relied upon certain judgments to buttress

his submissions.

6.Ms. Ridhi Nyati, learned Advocate appearing on behalf of the

respondent, referred us to Sections 8, 16, and 45 of the 1996 Act in

particular, and made it clear that the object of the Amendment Act,

2015, in introducing Section 11(6A), was to confine the Court hearing

the Section 11 application to examination of the existence of an

arbitration agreement and nothing more. She made a distinction

between “validity” and “existence” of an arbitration agreement, and

argued that the provisions of the Indian Stamp Act are a fiscal measure

intended merely to collect revenue and, if at all, will go to “validity” of

an arbitration agreement and not to its “existence”. She relied strongly

upon certain judgments which made it clear that an arbitration

agreement is independent of the agreement in which it is contained. So

long as it is in writing, and therefore, exists in fact, the Court hearing

the Section 11 application is to appoint an arbitrator and thereafter

leave all other preliminary issues to the arbitrator, as is mandated by

Section 11 of the 1996 Act. The whole object of the amendment would

be defeated as otherwise, a mini-trial would be conducted at the

Section 11 stage, requiring impounding of the agreement containing

5

the arbitration clause. She also relied upon Section 11(13) of the 1996

Act, making it clear that the application under Section 11 ought to be

disposed of within a period of 60 days from the date of service of

notice, and that this would not be possible if questions relating to the

Indian Stamp Act were to be decided at the Section 11 stage. Equally,

according to her, no prejudice would be caused to any party if the

arbitrator were to commence the arbitration and then impound the

documents containing the arbitration clause by applying the Indian

Stamp Act. She also argued that, in the present case, it is the appellant

who is to pay stamp duty under the Indian Contract Act, 1872, and

therefore, cannot take advantage of its own wrong in not doing so, as

has been correctly held in the impugned judgment. She also relied

upon several other judgments to buttress her submissions.

7.Having heard learned counsel for both sides, it is important to

first set out the relevant provisions contained in the 1996 Act. Section

2(1)(b) defines “arbitration agreement” as follows:

“2. Definitions.—(1) In this Part, unless the context

otherwise requires,—

xxx xxx xxx

(b) “arbitration agreement” means an agreement

referred to in Section 7;

xxx xxx xxx”

6

Section 7 is important and deals with what is meant by an arbitration

agreement. Section 7 states:

“7. Arbitration agreement.—(1) In this Part, “arbitration

agreement” means an agreement by the parties to

submit to arbitration all or certain disputes which have

arisen or which may arise between them in respect of a

defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an

arbitration clause in a contract or in the form of a

separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained

in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or

other means of telecommunication including

communication through electronic means

which provide a record of the agreement; or

(c) an exchange of statements of claim and

defence in which the existence of the

agreement is alleged by one party and not

denied by the other.

(5) The reference in a contract to a document containing

an arbitration clause constitutes an arbitration agreement

if the contract is in writing and the reference is such as to

make that arbitration clause part of the contract.”

Section 8, which speaks of the power to refer parties to arbitration

where there is an arbitration agreement is also relevant, and states:

“8. Power to refer parties to arbitration where there is

an arbitration agreement.—(1) A judicial authority,

before which an action is brought in a matter which is the

subject of an arbitration agreement shall, if a party to the

arbitration agreement or any person claiming through or

under him, so applies not later than the date of

submitting his first statement on the substance of the

dispute, then, notwithstanding any judgment, decree or

7

order of the Supreme Court or any Court, refer the

parties to arbitration unless it finds that prima facie no

valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall not

be entertained unless it is accompanied by the original

arbitration agreement or a duly certified copy thereof.

Provided that where the original arbitration agreement

or a certified copy thereof is not available with the party

applying for reference to arbitration under sub-section

(1), and the said agreement or certified copy is retained

by the other party to that agreement, then, the party so

applying shall file such application along with a copy of

the arbitration agreement and a petition praying the court

to call upon the other party to produce the original

arbitration agreement or its duly certified copy before that

court.

(3) Notwithstanding that an application has been made

under sub-section (1) and that the issue is pending

before the judicial authority, an arbitration may be

commenced or continued and an arbitral award made.”

Section 11(6A), 11(7), and 11(13) are important for decision in this

case and are set out hereinbelow:

“11. Appointment of arbitrators.—

xxx xxx xxx

(6A) The Supreme Court or, as the case may be, the

High Court, while considering any application under sub-

section (4) or sub-section (5) or sub-section (6), shall,

notwithstanding any judgment, decree or order of any

court, confine to the examination of the existence of an

arbitration agreement.

xxx xxx xxx

(7) A decision on a matter entrusted by sub-section (4) or

sub-section (5) or sub-section (6) to the Supreme Court

or, as the case may be, the High Court or the person or

institution designated by such court is final and no

appeal including Letters Patent Appeal shall lie against

such decision.

8

xxx xxx xxx

(13) An application made under this section for

appointment of an arbitrator or arbitrators shall be

disposed of by the Supreme Court or the High Court or

the person or institution designated by such court, as the

case may be, as expeditiously as possible and an

endeavour shall be made to dispose of the matter within

a period of sixty days from the date of service of notice

on the opposite party.

xxx xxx xxx”

Section 16(1) reads as follows:

“16. Competence of arbitral tribunal to rule on its

jurisdiction.—(1) The arbitral tribunal may rule on its

own jurisdiction, including ruling on any objections with

respect to the existence or validity of the arbitration

agreement, and for that purpose,—

(a) an arbitration clause which forms part of a

contract shall be treated as an agreement

independent of the other terms of the

contract; and

(b) a decision by the arbitral tribunal that the

contract is null and void shall not entail ipso

jure the invalidity of the arbitration clause.

xxx xxx xxx”

Section 45, which speaks of the power of a judicial authority to refer

parties to arbitration, when it comes to agreements referred to by the

New York Convention of 1958, states as follows:

“45. Power of judicial authority to refer parties to

arbitration.—Notwithstanding anything contained in Part

I or in the Code of Civil Procedure, 1908 (V of 1908), a

judicial authority, when seized of an action in a matter in

respect of which the parties have made an agreement

referred to in Section 44, shall, at the request of one of

the parties or any person claiming through or under him,

refer the parties to arbitration, unless it finds that the said

9

agreement is null and void, inoperative or incapable of

being performed.”

8.Sections 33 and 34 of the Maharashtra Stamp Act, with which we

are directly concerned, read as follows:

“33. Examination and impounding of instruments.—

(1) Subject to the provisions of section 32-A, every

person having by law or consent of parties authority to

receive evidence and every person in charge of a public

office, except an officer of police or any other officer,

empowered by law to investigate offences under any law

for the time being in force, 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 irrespective whether the instrument is

or is not valid in law.

(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 for the time being in force in the

State when such instrument was executed or first

executed:

Provided that,—

(a) nothing herein contained shall be deemed to

require any Magistrate or Judge of a Criminal

Court to examine or impound, if he does not

think fit so to do any instrument coming before

him in the course of any proceeding other than

a proceeding under Chapter IX or Part D of

Chapter X of the Code of Criminal Procedure,

1973;

(b) in the case of a judge of a High Court, the

duty of examining and impounding any

instrument under this section may be delegated

to such officer as the Court may appoint in this

behalf.

10

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

(a) the State Government may determine what

offices shall be deemed to be public offices; and

(b) the State Government may determine 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 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 or if the

instrument is written on sheet of paper with impressed

stamp such stamp paper is purchased in the name of

one of the parties to the instrument:

Provided that,—

(a) any such instrument shall, subject to all just

exceptions, be admitted in evidence on

payment of,—

(i) the duty with which the same is

chargeable, or in the case of an

instrument insufficiently stamped, the

amount required to make up such

duty, and

(ii) a penalty at the rate of 2 per cent of

the deficient portion of the stamp duty

for every month or part thereof, from

the date of execution of such

instrument:

Provided that, in no case, the amount

of the penalty shall exceed double the

deficient portion of the stamp duty.

(b) where a contract or agreement of any kind is

effected by correspondence consisting of two or

more letters and any one of the letters bears

the proper stamp; the contract or agreement

shall be deemed to be duly stamped;

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(c) nothing herein contained shall prevent the

admission of any instrument in evidence in any

proceeding in a Criminal Court, other than a

proceeding under Chapter IX or Part D of

Chapter X of the Code of Criminal Procedure,

1973;

(d) nothing herein contained shall prevent the

admission of any instrument in any Court when

such instrument has been executed by or on

behalf of the Government or where it bears the

certificate of the Collector as provided by

section 32 or any other provision of this Act;

(e) nothing herein contained shall prevent the

admission of a copy of any instrument or of an

oral admission of the contents of any

instrument, if the stamp duty or a deficient

portion of the stamp duty and penalty as

specified in clause (a) is paid.”

9.The case law under Section 11(6) of the Arbitration Act, as it

stood prior to the Amendment Act, 2015, has had a chequered history.

In Konkan Railway Corporation Ltd. v. Mehul Construction Co.,

(2000) 7 SCC 201 [“Konkan Railway I”], it was held that the powers of

the Chief Justice under Section 11(6) of the 1996 Act are

administrative in nature, and that the Chief Justice or his designate

does not act as a judicial authority while appointing an arbitrator. The

same view was reiterated in Konkan Railway Corporation Ltd. v.

Rani Construction (P) Ltd., (2002) 2 SCC 388 [“Konkan Railway II”].

10.However, in SBP & Co. (supra), a seven-Judge Bench overruled

this view and held that the power to appoint an arbitrator under Section

12

11 is judicial and not administrative. The conclusions of the seven-

Judge Bench were summarised in paragraph 47 of the aforesaid

judgment. We are concerned directly with sub-paragraphs (i), (iv), and

(xii), which read as follows:

“(i) The power exercised by the Chief Justice of the High

Court or the Chief Justice of India under Section 11(6) of

the Act is not an administrative power. It is a judicial

power.

xxx xxx xxx

(iv) The Chief Justice or the designated Judge will have

the right to decide the preliminary aspects as indicated in

the earlier part of this judgment. These will be his own

jurisdiction to entertain the request, the existence of a

valid arbitration agreement, the existence or otherwise of

a live claim, the existence of the condition for the

exercise of his power and on the qualifications of the

arbitrator or arbitrators. The Chief Justice or the

designated Judge would be entitled to seek the opinion

of an institution in the matter of nominating an arbitrator

qualified in terms of Section 11(8) of the Act if the need

arises but the order appointing the arbitrator could only

be that of the Chief Justice or the designated Judge.

xxx xxx xxx

(xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani

Construction (P) Ltd. [(2002) 2 SCC 388] is overruled.”

This position was further clarified in Boghara Polyfab (supra) as

follows:

“22. Where the intervention of the court is sought for

appointment of an Arbitral Tribunal under Section 11, the

duty of the Chief Justice or his designate is defined in

SBP & Co. [(2005) 8 SCC 618]. This Court identified and

segregated the preliminary issues that may arise for

consideration in an application under Section 11 of the

Act into three categories, that is, (i) issues which the

13

Chief Justice or his designate is bound to decide; (ii)

issues which he can also decide, that is, issues which he

may choose to decide; and (iii) issues which should be

left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief

Justice/his designate will have to decide are:

(a) Whether the party making the application

has approached the appropriate High Court.

(b) Whether there is an arbitration agreement

and whether the party who has applied under

Section 11 of the Act, is a party to such an

agreement.

22.2. The issues (second category) which the Chief

Justice/his designate may choose to decide (or leave

them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred)

claim or a live claim.

(b) Whether the parties have concluded the

contract/transaction by recording satisfaction of

their mutual rights and obligation or by receiving

the final payment without objection.

22.3. The issues (third category) which the Chief

Justice/his designate should leave exclusively to the

Arbitral Tribunal are:

(i) Whether a claim made falls within the

arbitration clause (as for example, a matter

which is reserved for final decision of a

departmental authority and excepted or

excluded from arbitration).

(ii) Merits or any claim involved in the

arbitration.”

11.As a result of these judgments, the door was wide open for the

Chief Justice or his designate to decide a large number of preliminary

aspects which could otherwise have been left to be decided by the

arbitrator under Section 16 of the 1996 Act. As a result, the Law

14

Commission of India, by its Report No. 246 submitted in August 2014,

suggested that various sweeping changes be made in the 1996 Act.

Insofar as SBP & Co. (supra) and Boghara Polyfab (supra) are

concerned, the Law Commission examined the matter and

recommended the addition of a new sub-section, namely, sub-section

(6A) in Section 11. In so doing, the Law Commission recommendations

which are relevant and which led to the introduction of Section 11(6A)

are as follows:

“28. The Act recognizes situations where the intervention

of the Court is envisaged at the pre-arbitral stage, i.e.

prior to the constitution of the arbitral tribunal, which

includes sections 8, 9, 11 in the case of Part I

arbitrations and section 45 in the case of Part II

arbitrations. Sections 8, 45 and also section 11 relating

to “reference to arbitration” and “appointment of the

tribunal”, directly affect the constitution of the tribunal

and functioning of the arbitral proceedings. Therefore,

their operation has a direct and significant impact on the

“conduct” of arbitrations. Section 9, being solely for the

purpose of securing interim relief, although having the

potential to affect the rights of parties, does not affect the

“conduct” of the arbitration in the same way as these

other provisions. It is in this context the Commission has

examined and deliberated the working of these

provisions and proposed certain amendments.

29. The Supreme Court has had occasion to deliberate

upon the scope and nature of permissible pre-arbitral

judicial intervention, especially in the context of section

11 of the Act. Unfortunately, however, the question

before the Supreme Court was framed in terms of

whether such a power is a “judicial” or an “administrative”

power – which obfuscates the real issue underlying such

nomenclature/description as to –

15

 the scope of such powers – i.e. the scope of

arguments which a Court (Chief Justice) will

consider while deciding whether to appoint an

arbitrator or not – i.e. whether the arbitration

agreement exists, whether it is null and void,

whether it is voidable etc.; and which of these it

should leave for decision of the arbitral tribunal.

 the nature of such intervention – i.e. would the

Court (Chief Justice) consider the issues upon a

detailed trial and whether the same would be

decided finally or be left for determination of the

arbitral tribunal.

30. After a series of cases culminating in the decision in

SBP v. Patel Engineering, (2005) 8 SCC 618, the

Supreme Court held that the power to appoint an

arbitrator under section 11 is a “judicial” power. The

underlying issues in this judgment, relating to the scope

of intervention, were subsequently clarified by

RAVEENDRAN J in National Insurance Co. Ltd. v. Boghara

Polyfab Pvt. Ltd., (2009) 1 SCC 267, where the Supreme

Court laid down as follows –

“1. The issues (first category) which Chief

Justice/his designate will have to decide are:

(a) Whether the party making the application

has approached the appropriate High Court?

(b) Whether there is an arbitration agreement

and whether the party who has applied under

section 11 of the Act, is a party to such an

agreement?

2. The issues (second category) which the Chief

Justice/his designate may choose to decide are:

(a) Whether the claim is a dead (long barred)

claim or a live claim?

(b) Whether the parties have concluded the

contract/transaction by recording satisfaction of

their mutual rights and obligation or by receiving

the final payment without objection?

3. The issues (third category) which the Chief

Justice/his designate should leave exclusively to the

arbitral tribunal are:

16

(a) Whether a claim falls within the arbitration

clause (as for example, a matter which is

reserved for final decision of a departmental

authority and excepted or excluded from

arbitration)?

(b) Merits of any claim involved in the

arbitration.”

31. The Commission is of the view that, in this context,

the same test regarding scope and nature of judicial

intervention, as applicable in the context of section 11,

should also apply to sections 8 and 45 of the Act – since

the scope and nature of judicial intervention should not

change upon whether a party (intending to defeat the

arbitration agreement) refuses to appoint an arbitrator in

terms of the arbitration agreement, or moves a

proceeding before a judicial authority in the face of such

an arbitration agreement.

32. In relation to the nature of intervention, the exposition

of the law is to be found in the decision of the Supreme

Court in Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre,

(2005) 7 SCC 234, (in the context of section 45 of the

Act), where the Supreme Court has ruled in favour of

looking at the issues/controversy only prima facie.

33. It is in this context, the Commission has

recommended amendments to sections 8 and 11 of the

Arbitration and Conciliation Act, 1996. The scope of the

judicial intervention is only restricted to situations where

the Court/Judicial Authority finds that the arbitration

agreement does not exist or is null and void. In so far as

the nature of intervention is concerned, it is

recommended that in the event the Court/Judicial

Authority is prima facie satisfied against the argument

challenging the arbitration agreement, it shall appoint the

arbitrator and/or refer the parties to arbitration, as the

case may be. The amendment envisages that the judicial

authority shall not refer the parties to arbitration only if it

finds that there does not exist an arbitration agreement

or that it is null and void. If the judicial authority is of the

opinion that prima facie the arbitration agreement exists,

then it shall refer the dispute to arbitration, and leave the

existence of the arbitration agreement to be finally

17

determined by the arbitral tribunal. However, if the

judicial authority concludes that the agreement does not

exist, then the conclusion will be final and not prima

facie. The amendment also envisages that there shall be

a conclusive determination as to whether the arbitration

agreement is null and void. In the event that the judicial

authority refers the dispute to arbitration and/or appoints

an arbitrator, under sections 8 and 11 respectively, such

a decision will be final and non-appealable. An appeal

can be maintained under section 37 only in the event of

refusal to refer parties to arbitration, or refusal to appoint

an arbitrator.”

12.Pursuant to the Law Commission recommendations, Section

11(6A) was introduced first by Ordinance and then by the Amendment

Act, 2015. The Statement of Objects and Reasons which were

appended to the Arbitration and Conciliation (Amendment) Bill, 2015

which introduced the Amendment Act, 2015 read as follows:

“STATEMENT OF OBJECTS AND REASONS

xxx xxx xxx

6. It is proposed to introduce the Arbitration and

Conciliation (Amendment) Bill, 2015, to replace the

Arbitration and Conciliation (Amendment) Ordinance,

2015, which inter alia, provides for the following, namely:

—

(i) to amend the definition of “Court” to provide that in the

case of international commercial arbitrations, the Court

should be the High Court;

(ii) to ensure that an Indian Court can exercise

jurisdiction to grant interim measures, etc., even where

the seat of the arbitration is outside India;

(iii) an application for appointment of an arbitrator shall

be disposed of by the High Court or Supreme Court, as

the case may be, as expeditiously as possible and an

endeavour should be made to dispose of the matter

within a period of sixty days;

18

(iv) to provide that while considering any application for

appointment of arbitrator, the High Court or the Supreme

Court shall examine the existence of a prima facie

arbitration agreement and not other issues;

(v) to provide that the arbitral tribunal shall make its

award within a period of twelve months from the date it

enters upon the reference and that the parties may,

however, extend such period up to six months, beyond

which period any extension can only be granted by the

Court, on sufficient cause;

(vi) to provide that a model fee Schedule on the basis of

which High Courts may frame rules for the purpose of

determination of fees of arbitral tribunal, where a High

Court appoints arbitrator in terms of section 11 of the Act;

(vii) to provide that the parties to dispute may at any

stage agree in writing that their dispute be resolved

through fast track procedure and the award in such

cases shall be made within a period of six months;

(viii) to provide for neutrality of arbitrators, when a person

is approached in connection with possible appointment

as an arbitrator;

(ix) to provide that application to challenge the award is

to be disposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure that

arbitration process becomes more user-friendly, cost

effective and lead to expeditious disposal of cases.

xxx xxx xxx”

13.A reading of the Law Commission Report, together with the

Statement of Objects and Reasons, shows that the Law Commission

felt that the judgments in SBP & Co. (supra) and Boghara Polyfab

(supra) required a relook, as a result of which, so far as Section 11 is

concerned, the Supreme Court or, as the case may be, the High Court,

while considering any application under Section 11(4) to 11(6) is to

19

confine itself to the examination of the existence of an arbitration

agreement and leave all other preliminary issues to be decided by the

arbitrator. The question is as to whether the decision in SMS Tea

Estates (supra) has also been done away with by the expression

“notwithstanding any judgment, decree or order of any Court”

contained in Section 11(6A).

14.In SMS Tea Estates (supra), this Court was confronted with an

arbitration clause, namely, Clause 35 of a lease deed dated

21.12.2006 for a term of 30 years in regard to two tea estates. The

lease deed was neither stamped nor registered. Paragraph 9 of the

judgment set out the questions that arose for consideration as follows:

“9. On the contentions urged the following questions

arise for consideration:

(i) Whether an arbitration agreement contained

in an unregistered (but compulsorily

registerable) instrument is valid and

enforceable?

(ii) Whether an arbitration agreement in an

unregistered instrument which is not duly

stamped, is valid and enforceable?

(iii) Whether there is an arbitration agreement

between the appellant and the respondent and

whether an arbitrator should be appointed?”

When it came to the question of an arbitration clause contained in an

unregistered lease deed, this Court held:

20

“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.

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 registerable—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.

14. These principles have now found statutory

recognition in sub-section (1) of Section 16 of the

Arbitration and Conciliation Act, 1996 which is extracted

below:

“16. Competence of Arbitral Tribunal to rule on its

jurisdiction.—(1) The Arbitral Tribunal may rule on its

own jurisdiction, including ruling on any objections with

respect to the existence or validity of the arbitration

agreement, and for that purpose—

(a) an arbitration clause which forms part of a contract

shall be treated as an agreement independent of the

other terms of the contract; and

21

(b) a decision by the Arbitral Tribunal that the contract

is null and void shall not entail ipso jure the invalidity of

the arbitration clause.”

15. But where the contract or instrument is voidable at

the option of a party (as for example under Section 19 of

the 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 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 the Registration Act read with Section

16(1)(a) of the Act, an arbitration agreement in an

unregistered but compulsorily registerable document can

be acted upon and enforced for the purpose of dispute

resolution by arbitration.”

However, when it came to an unstamped lease deed which contained

an arbitration clause, this Court, after setting out Sections 33 and 35 of

the Indian Stamp Act held:

“19. Having regard to Section 35 of the 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 the Stamp Act is distinct and

different from Section 49 of the Registration Act in regard

to an unregistered document. Section 35 of the Stamp

22

Act, does not contain a proviso like Section 49 of the

Registration Act enabling the instrument to be used to

establish a collateral transaction.

20. The Scheme for Appointment of Arbitrators by the

Chief Justice of Gauhati High Court, 1996 requires an

application under Section 11 of the Act to be

accompanied by the original arbitration agreement or a

duly certified copy thereof. In fact, such a requirement is

found in the scheme/rules of almost all the High Courts.

If what is produced is a certified copy of the

agreement/contract/instrument containing the arbitration

clause, it should disclose the stamp duty that has been

paid on the original. Section 33 casts a duty upon every

court, that is, a person having by law authority to receive

evidence (as also every arbitrator who is a person having

by consent of parties, authority to receive evidence)

before whom an unregistered instrument chargeable with

duty is produced, to examine the instrument in order to

ascertain whether it is duly stamped. If the court comes

to the conclusion that the instrument is not duly stamped,

it has to impound the document and deal with it as per

Section 38 of the Stamp Act.

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 the Stamp Act. The court cannot act upon

such a document or the arbitration clause therein. But if

the deficit duty and penalty is paid 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.

22. We may therefore sum up the procedure to be

adopted where the arbitration clause is contained in a

document which is not registered (but compulsorily

registerable) and which is not duly stamped:

22.1. The court should, before admitting any document

into evidence or acting upon such document, examine

whether the instrument/document is duly stamped and

23

whether it is an instrument which is compulsorily

registerable.

22.2. If the document is found to be not duly stamped,

Section 35 of the 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 Stamp Act and follow the procedure under

Sections 35 and 38 of the Stamp Act.

22.3. If the document is found to be duly stamped, or if

the deficit stamp duty and penalty is paid, either before

the court or before the Collector (as contemplated in

Section 35 or 40 Section of the Stamp Act), and the

defect with reference to deficit stamp is cured, the court

may treat the document as duly stamped.

xxx xxx xxx”

In conclusion, this Court held:

“32. In view of the above this appeal is allowed, the order

of the High Court is set aside and the matter is remitted

to the learned Chief Justice of the Gauhati High Court to

first decide the issue of stamp duty, and if the document

is duly stamped, then appoint an arbitrator in accordance

with law.”

15.It will be noticed from the aforesaid judgment that where an

arbitration clause is contained in an agreement or conveyance,

different consequences ensue depending on whether the agreement or

conveyance is unregistered or unstamped. It is settled by SBP & Co.

(supra) that Section 16 of the 1996 Act has full play only after the

arbitral tribunal is constituted, without intervention of the Court under

Section 11. This Court, in the aforesaid judgment, held:

24

“12. Section 16 of the Act only makes explicit what is

even otherwise implicit, namely, that the Arbitral Tribunal

constituted under the Act has the jurisdiction to rule on its

own jurisdiction, including ruling on objections with

respect to the existence or validity of the arbitration

agreement. Sub-section (1) also directs that an

arbitration clause which forms part of a contract shall be

treated as an agreement independent of the other terms

of the contract. It also clarifies that a decision by the

Arbitral Tribunal that the contract is null and void shall

not entail ipso jure the invalidity of the arbitration clause.

Sub-section (2) of Section 16 enjoins that a party

wanting to raise a plea that the Arbitral Tribunal does not

have jurisdiction, has to raise that objection not later than

the submission of the statement of defence, and that the

party shall not be precluded from raising the plea of

jurisdiction merely because he has appointed or

participated in the appointment of an arbitrator. Sub-

section (3) lays down that a plea that the Arbitral Tribunal

is exceeding the scope of its authority, shall be raised as

soon as the matter alleged to be beyond the scope of its

authority is raised during the arbitral proceedings. When

the Tribunal decides these two questions, namely, the

question of jurisdiction and the question of exceeding the

scope of authority or either of them, the same is open to

immediate challenge in an appeal, when the objection is

upheld and only in an appeal against the final award,

when the objection is overruled. Sub-section (5) enjoins

that if the Arbitral Tribunal overrules the objections under

sub-section (2) or (3), it should continue with the arbitral

proceedings and make an arbitral award. Sub-section (6)

provides that a party aggrieved by such an arbitral award

overruling the plea on lack of jurisdiction and the

exceeding of the scope of authority, may make an

application on these grounds for setting aside the award

in accordance with Section 34 of the Act. The question,

in the context of sub-section (7) of Section 11 is, what is

the scope of the right conferred on the Arbitral Tribunal to

rule upon its own jurisdiction and the existence of the

arbitration clause, envisaged by Section 16(1), once the

Chief Justice or the person designated by him had

appointed an arbitrator after satisfying himself that the

25

conditions for the exercise of power to appoint an

arbitrator are present in the case. Prima facie, it would

be difficult to say that in spite of the finality conferred by

sub-section (7) of Section 11 of the Act, to such a

decision of the Chief Justice, the Arbitral Tribunal can still

go behind that decision and rule on its own jurisdiction or

on the existence of an arbitration clause. It also appears

to us to be incongruous to say that after the Chief Justice

had appointed an Arbitral Tribunal, the Arbitral Tribunal

can turn round and say that the Chief Justice had no

jurisdiction or authority to appoint the Tribunal, the very

creature brought into existence by the exercise of power

by its creator, the Chief Justice. The argument of the

learned Senior Counsel, Mr K.K. Venugopal that Section

16 has full play only when an Arbitral Tribunal is

constituted without intervention under Section 11(6) of

the Act, is one way of reconciling that provision with

Section 11 of the Act, especially in the context of sub-

section (7) thereof. We are inclined to the view that the

decision of the Chief Justice on the issue of jurisdiction

and the existence of a valid arbitration agreement would

be binding on the parties when the matter goes to the

Arbitral Tribunal and at subsequent stages of the

proceeding except in an appeal in the Supreme Court in

the case of the decision being by the Chief Justice of the

High Court or by a Judge of the High Court designated

by him.”

In view of the law laid down by seven-Judge Bench, it is difficult to

accede to the argument made by the learned counsel on behalf of the

respondent that Section 16 makes it clear that an arbitration

agreement has an independent existence of its own, and must be

applied while deciding an application under Section 11 of the 1996 Act.

26

16.It will be seen that neither in the Statement of Objects and

Reasons nor in the Law Commission Report is there any mention of

SMS Tea Estates (supra). This is for the very good reason that the

Supreme Court or the High Court, while deciding a Section 11

application, does not, in any manner, decide any preliminary question

that arises between the parties. The Supreme Court or the High Court

is only giving effect to the provisions of a mandatory enactment which,

no doubt, is to protect revenue. SMS Tea Estates (supra) has taken

account of the mandatory provisions contained in the Indian Stamp Act

and held them applicable to judicial authorities, which would include

the Supreme Court and the High Court acting under Section 11. A

close 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.

Therefore, it is not possible to bifurcate the arbitration clause contained

in such agreement or conveyance so as to give it an independent

27

existence, as has been contended for by the respondent. The

independent existence that could be given for certain limited purposes,

on a harmonious reading of the Registration Act, 1908 and the 1996

Act has been referred to by Raveendran, J. in SMS Tea Estates

(supra) when it comes to an unregistered agreement or conveyance.

However, the Indian Stamp Act, containing no such provision as is

contained in Section 49 of the Registration Act, 1908, has been held by

the said judgment to apply to the agreement or conveyance as a

whole, which would include the arbitration clause contained therein. It

is clear, therefore, that the introduction of Section 11(6A) does not, in

any manner, deal with or get over the basis of the judgment in SMS

Tea Estates (supra), which continues to apply even after the

amendment of Section 11(6A).

17.Looked at from a slightly different angle, an arbitration agreement

which is contained in an agreement or conveyance is dealt with in

Section 7(2) of the 1996 Act. We are concerned with the first part of

Section 7(2) on the facts of the present case, and therefore, the

arbitration clause that is contained in the sub-contract in question is the

subject matter of the present appeal. It is significant that an arbitration

agreement may be in the form of an arbitration clause “in a contract”.

28

18.Sections 2(a), 2(b), 2(g) and 2(h) of the Indian Contract Act, 1872

[“Contract Act”] read as under:

“2. Interpretation clause.—In this Act the following

words and expressions are used in the following senses,

unless a contrary intention appears from the context:—

(a) When one person signifies to another his

willingness to do or to abstain from doing

anything, with a view to obtaining the assent of

that other to such act or abstinence, he is said

to make a proposal;

(b) When the person to whom the proposal is

made signifies his assent thereto, the proposal

is said to be accepted. A proposal, when

accepted, becomes a promise;

xxx xxx xxx

(g) An agreement not enforceable by law is said

to be void;

(h) An agreement enforceable by law is a

contract;

xxx xxx xxx”

19.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. We have seen how, under the Indian Stamp Act,

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. This is also an indicator that SMS Tea Estates

29

(supra) has, in no manner, been touched by the amendment of Section

11(6A).

20.We now come to some of the judgments cited by both the sides.

21.Learned counsel for the respondent relied heavily upon Enercon

(India) Ltd. & Ors. v. Enercon GmbH & Anr., (2014) 5 SCC 1

[“Enercon”], in particular, paragraph 83 thereof, which reads as

follows:

“83. The concept of separability of the arbitration

clause/agreement from the underlying contract is a

necessity to ensure that the intention of the parties to

resolve the disputes by arbitration does not evaporate

into thin air with every challenge to the legality, validity,

finality or breach of the underlying contract. The Indian

Arbitration Act, 1996, as noticed above, under Section 16

accepts the concept that the main contract and the

arbitration agreement form two independent contracts.

Commercial rights and obligations are contained in the

underlying, substantive, or the main contract. It is

followed by a second contract, which expresses the

agreement and the intention of the parties to resolve the

disputes relating to the underlying contract through

arbitration. A remedy is elected by parties outside the

normal civil court remedy. It is true that support of the

national courts would be required to ensure the success

of arbitration, but this would not detract from the

legitimacy or independence of the collateral arbitration

agreement, even if it is contained in a contract, which is

claimed to be void or voidable or unconcluded by one of

the parties.”

Paragraph 83 follows upon paragraph 79 of the judgment, which reads

as follows:

30

“79. In our opinion, all the issues raised by the appellants

about the non-existence of a concluded contract pale

into insignificance in the face of “Heads of Agreement on

the proposed IPLA dated 23-5-2006”. Clause 3 of the

Heads of Agreement provides as under:

“3. Governing law and jurisdiction

3.1 This paragraph is legally binding.

3.2 This Heads of Agreement is (and all

negotiations and any legal agreements

prepared in connection with the IPLA shall be)

governed by and construed in accordance with

the law of Germany.

3.3 The parties irrevocably agree that Clause

18 of the proposed draft IPLA shall apply to

settle any dispute or claim that arises out of or

in connection with this memorandum of

understanding and negotiations relating to the

proposed IPLA.”

A bare perusal of this clause makes it abundantly clear

that the parties have irrevocably agreed that Clause 18

of the proposed IPLA shall apply to settle any dispute or

claim that arises out of or in connection with this

memorandum of understanding and negotiations relating

to IPLA.”

The focus in Enercon (supra) was as to whether an arbitration clause

will apply even if there is no concluded contract entered into between

the parties. Since the “Heads of Agreement” provided that disputes

which arose out of the Memorandum of Understanding and

negotiations relating to the Intellectual Property Licence Agreement

(IPLA) were arbitrable, this Court held that the arbitration agreement in

the facts of that case was separate from the main contract, making it a

case which falls under the second part (and not under the first part) to

31

Section 7(2), namely, that an arbitration agreement may be in the form

of a separate agreement. This judgment, therefore, does not take the

respondent very much further. It may only be noted that the judgment

in Ashapura Mine-Chem Ltd. v. Gujarat Mineral Development

Corporation, (2015) 8 SCC 193 merely followed Enercon (supra) and

would be inapplicable for the same reasons outlined by us above.

22.The other judgment strongly relied upon by the learned counsel

for the respondent is Duro Felguera, S.A. v. Gangavaram Port Ltd.,

(2017) 9 SCC 729 [“Duro Felguera”], and in particular, paragraph 59

of the judgment of Kurian Joseph, J. Paragraph 59 reads as follows:

“59. The scope of the power under Section 11(6) of the

1996 Act was considerably wide in view of the decisions

in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005)

8 SCC 618] and Boghara Polyfab [National Insurance

Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 :

(2009) 1 SCC (Civ) 117]. This position continued till the

amendment brought about in 2015. After the

amendment, all that the courts need to see is whether an

arbitration agreement exists—nothing more, nothing

less. The legislative policy and purpose is essentially to

minimise the Court’s intervention at the stage of

appointing the arbitrator and this intention as

incorporated in Section 11(6-A) ought to be respected.”

This judgment also makes it clear that the mischief that was sought to

be remedied by the introduction of Section 11(6A) was contained in the

judgments of SBP & Co. (supra) and Boghara Polyfab (supra). This

32

judgment does not, in any manner, answer the precise issue that is

before us.

23.Indeed, in United India Insurance Co. Ltd. and Ors. v.

Hyundai Engineering and Construction Co. Ltd. and Ors., 2018

SCC OnLine SC 1045 [“United India Insurance Co.”], a three-Judge

Bench of this Court, while dealing with an arbitration clause that arose

under an insurance policy, distinguished Duro Felguera (supra) as

follows:

“12. The other decision heavily relied upon by the High

Court and also by the respondents in Duro Felguera

[Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9

SCC 729], will be of no avail. Firstly, because it is a two-

Judge Bench decision and also because the Court was

not called upon to consider the question which arises in

the present case, in reference to clause 7 of the subject

Insurance Policy. The exposition in this decision is a

general observation about the effect of the amended

provision and not specific to the issue under

consideration. The issue under consideration has been

directly dealt with by a three-Judge Bench of this Court in

Oriental Insurance Company Limited [Oriental Insurance

Company Ltd. v. Narbheram Power and Steel (P) Ltd.,

(2018) 6 SCC 534], following the exposition in Vulcan

Insurance Co. Ltd. v. Maharaj Singh [Vulcan Insurance

Co. Ltd. v. Maharaj Singh, (1976) 1 SCC 943], which,

again, is a three-Judge Bench decision having construed

clause similar to the subject clause 7 of the Insurance

Policy. In paragraphs 11 & 12 of Vulcan Insurance Co.

Ltd. (supra), the Court answered the issue thus:

“11. Although the surveyors in their letter

dated April 26, 1963 had raised a dispute as to

the amount of any loss or damage alleged to

have been suffered by Respondent 1, the

33

appellant at no point of time raised any such

dispute. The appellant company in its letter

dated July 5 and 29, 1963 repudiated the claim

altogether. Under clause 13 the company was

not required to mention any reason of rejection

of the claim nor did it mention any. But the

repudiation of the claim could not amount to the

raising of a dispute as to the amount of any

loss or damage alleged to have been suffered

by Respondent 1. If the rejection of the claim

made by the insured be on the ground that he

had suffered no loss as a result of the fire or

the amount of loss was not to the extent

claimed by him, then and then only, a difference

could have arisen as to the amount of any loss

or damage within the meaning of clause 18. In

this case, however, the company repudiated its

liability to pay any amount of loss or damage as

claimed by Respondent 1. In other words, the

dispute raised by the company appertained to

its liability to pay any amount of damage

whatsoever. In our opinion, therefore, the

dispute raised by the appellant company was

not covered by the arbitration clause.

12. As per clause 13 on rejection of the

claim by the company an action or suit,

meaning thereby a legal proceeding which

almost invariably in India will be in the nature of

a suit, has got to be commenced within three

months from the date of such rejection;

otherwise, all benefits under the policy stand

forfeited. The rejection of the claim may be for

the reasons indicated in the first part of clause

13, such as, false declaration, fraud or wilful

neglect of the claimant or on any other ground

disclosed or undisclosed. But as soon as there

is a rejection of the claim and not the raising of

a dispute as to the amount of any loss or

damage, the only remedy open to the claimant

is to commence a legal proceeding, namely, a

suit, for establishment of the company's liability.

It may well be that after the liability of the

34

company is established in such a suit, for

determination of the quantum of the loss or

damage reference to arbitration will have to be

resorted to in accordance with clause 18. But

the arbitration clause, restricted as it is by the

use of the words ‘if any difference arises as to

the amount of any loss or damage’, cannot take

within its sweep a dispute as to the liability of

the company when it refuses to pay any

damage at all.”

xxx xxx xxx

14. From the line of authorities, it is clear that the

arbitration clause has to be interpreted strictly. The

subject clause 7 which is in pari materia to clause 13 of

the policy considered by a three-Judge Bench in Oriental

Insurance Company Limited (supra), is a conditional

expression of intent. Such an arbitration clause will get

activated or kindled only if the dispute between the

parties is limited to the quantum to be paid under the

policy. The liability should be unequivocally admitted by

the insurer. That is the precondition and sine qua non for

triggering the arbitration clause. To put it differently, an

arbitration clause would enliven or invigorate only if the

insurer admits or accepts its liability under or in respect

of the concerned policy. That has been expressly

predicated in the opening part of clause 7 as well as the

second paragraph of the same clause. In the opening

part, it is stated that the “(liability being otherwise

admitted)”. This is reinforced and re-stated in the second

paragraph in the following words:

“It is clearly agreed and understood that no

difference or dispute shall be referable to

arbitration as herein before provided, if the

Company has disputed or not accepted liability

under or in respect of this Policy.”

15. Thus understood, there can be no arbitration in

cases where the insurance company disputes or does

not accept the liability under or in respect of the policy.

16. The core issue is whether the communication sent on

21

st

April, 2011 falls in the excepted category of

repudiation and denial of liability in toto or has the effect

35

of acceptance of liability by the insurer under or in

respect of the policy and limited to disputation of

quantum. The High Court has made no effort to examine

this aspect at all. It only reproduced clause 7 of the

policy and in reference to the dictum in Duro Felguera

(supra) held that no other enquiry can be made by the

Court in that regard. This is misreading of the said

decision and the amended provision and, in particular,

mis-application of the three-Judge Bench decisions of

this Court in Vulcan Insurance Co. Ltd. (supra) and in

Oriental Insurance Company Ltd. (supra).

17. Reverting to the communication dated 21

st

April,

2011, we have no hesitation in taking the view that the

appellants completely denied their liability and

repudiated the claim of the JV (respondent Nos. 1 & 2)

for the reasons mentioned in the communication. The

reasons are specific. No plea was raised by the

respondents that the policy or the said clause 7 was

void. The appellants repudiated the claim of the JV and

denied their liability in toto under or in respect of the

subject policy. It was not a plea to dispute the quantum

to be paid under the policy, which alone could be

referred to arbitration in terms of clause 7. Thus, the plea

taken by the appellants is of denial of its liability to

indemnify the loss as claimed by the JV, which falls in the

excepted category, thereby making the arbitration clause

ineffective and incapable of being enforced, if not non-

existent. It is not actuated so as to make a reference to

arbitration. In other words, the plea of the appellants is

about falling in an excepted category and non-arbitrable

matter within the meaning of the opening part of clause 7

and as re-stated in the second paragraph of the same

clause.

18. In view of the above, it must be held that the dispute

in question is non-arbitrable and respondent Nos. 1 & 2

ought to have resorted to the remedy of a suit. The plea

of respondent Nos. 1 & 2 about the final repudiation

expressed by the appellants vide communication dated

17

th

April, 2017 will be of no avail. However, whether that

factum can be taken as the cause of action for institution

of the suit is a matter which can be debated in those

36

proceedings. We may not be understood to have

expressed any opinion either way in that regard.

(emphasis in original)

24.This judgment is important in that what was specifically under

consideration was an arbitration clause which would get activated only

if an insurer admits or accepts liability. Since on facts it was found that

the insurer repudiated the claim, though an arbitration clause did

“exist”, so to speak, in the policy, it would not exist in law, as was held

in that judgment, when one important fact is introduced, namely, that

the insurer has not admitted or accepted liability. Likewise, 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, as has been held by us above. The

argument that Section 11(6A) deals with “existence”, as opposed to

Section 8, Section 16, and Section 45, which deal with “validity” of an

arbitration agreement is answered by this Court’s understanding of the

expression “existence” in United India Insurance Co. (supra), as

followed by us.

25.Other High Court judgments were relied upon in the context of

stamp duty, being the judgments contained in JMD Ltd. v. Celebrity

Fitness India Pvt. Ltd., (2019) SCC OnLine Del 6483, B.D. Sharma v.

Swastik Infra Estate Pvt. Ltd. & Ors., (2018) SCC OnLine Del 13279,

37

Sandeep Soni v. Sanjay Roy, (2018) SCC OnLine Del 11169, and

N.D. Developers Pvt. Ltd. v. Bharathi & Ors., (2018) SCC OnLine

Kar 2938. In view of our holding in this judgment, these judgments

have not declared the law correctly, and are consequently, overruled. A

recent Full Bench judgment of the Bombay High Court in Gautam

Landscapes Pvt. Ltd. v. Shailesh Shah and Ors., Arb. Pet. No. 466

of 2017 [decided on 04.04.2019] has also been brought to our notice.

In paragraph 120 thereof, the Full Bench answered two questions

framed by it as follows:

“120. In view of the above deliberation, we answer the

questions as framed by us as follows:

(1)Whether a court, under the Arbitration and

Conciliation Act, 1996, can entertain and grant any

interim or ad-interim relief in an application under Section

9 of the said Act when a document containing arbitration

clause is unstamped or insufficiently stamped?

In the Affirmative

(2) Whether, inter alia, in view of Section 11 (6A) of the

Arbitration and Conciliation Act, 1996, inserted by

Arbitration and Conciliation (Amendment) Act, 2016, it

would be necessary for the Court before considering and

passing final orders on an application under Section

11(6) of the Act to await the adjudication by the stamp

authorities, in a case where the document objected to, is

not adequately stamped?

In the Negative”

Question (2), having been answered contrary to our judgment, is held

to be incorrectly decided.

38

26.Learned counsel for the respondent relied strongly upon Section

11(13) of the 1996 Act to show that the 60-day period would be

breached if a document were to be impounded at the stage of a

Section 11(6) application. Stamp duty, when paid with penalty (if any),

would require adjudication by the stamp authorities, which would take

far more than the 60-day period that is laid down by Section 11(13).

Undoubtedly, Section 11(13), which was also introduced by

Amendment Act 3 of 2016, was enacted keeping one of the important

objectives of the 1996 Act in mind, namely, speedy disposal of disputes

by the arbitral tribunal, and appointment of an arbitrator having to be

made as expeditiously as possible, therefore. Thus, a harmonious

construction needs to be given to the provisions of the Maharashtra

Stamp Act and Section 11(13) of the 1996 Act by which, if it is possible,

both provisions ought to be subserved. We have already seen that

under the Maharashtra Stamp Act, the object of impounding an

instrument that is unstamped is to ensure that stamp duty and penalty

(if any) 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

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within a period of 60 days from the date of service of notice on the

opposite party.

27.The doctrine of harmonious construction of statutes is strongly

imbedded in our interpretative canon. In Sri Venkataramana Devaru

v. State of Mysore, [1958] SCR 895, Articles 25 and 26 of the

Constitution of India were reconciled by applying the rule of

harmonious construction thus:

“The result then is that there are two provisions of equal

authority, neither of them being subject to the other. The

question is how the apparent conflict between them is to

be resolved. The rule of construction is well settled that

when there are in an enactment two provisions which

cannot be reconciled with each other, they should be so

interpreted that, if possible, effect could be given to both.

This is what is known as the rule of harmonious

construction. Applying this rule, if the contention of the

appellants is to be accepted, then Article 25(2)(b) will

become wholly nugatory in its application to

denominational temples, though, as stated above, the

language of that Article includes them. On the other

hand, if the contention of the respondents is accepted,

then full effect can be given to Article 26(b) in all matters

of religion, subject only to this that as regards one aspect

of them, entry into a temple for worship, the rights

declared under Article 25(2)(b) will prevail. While, in the

former case, Article 25(2)(b) will be put wholly out of

operation, in the latter, effect can be given to both that

provision and Article 26(b). We must accordingly hold

that Article 26(b) must be read subject to Article 25(2)

(b).”

(at page 918)

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In J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P.,

(1961) 3 SCR 185, this Court applied the rule of harmonious

construction so that both provisions of a legislative instrument be given

effect to thus:

“To remove this incongruity, says the learned Attorney-

General, apply the rule of harmonious construction and

hold that clause 23 of the order has no application when

an order is made on an application under clause 5(a). On

the assumption that under clause 5(a) an employer can

raise a dispute sought to be created by his own

proposed order of dismissal of workmen there is clearly

this disharmony as pointed out above between two

provisions viz. clause 5(a) and clause 23; and

undoubtedly we have to apply the rule of harmonious

construction. In applying the rule, however, we have to

remember that to harmonise is not to destroy. In the

interpretation of statutes the court, always presumes that

the legislature inserted every part thereof for a purpose

and the legislative intention is that every part of the

statute should have effect. These presumptions will have

to be made in the case of rule-making authority also. On

the construction suggested by the learned Attorney-

General it is obvious that by merely making an

application under clause (5) on the allegation that a

dispute has arisen about the proposed action to dismiss

workmen the employer can in every case escape the

requirements of clause 23 and if for one reason or other

every employer when proposing a dismissal prefers to

proceed under clause 5(a) instead of making an

application under clause 23, clause 23 will be a dead

letter. A construction like this which defeats the intention

of the rule-making authority in clause 23 must, if

possible, be avoided.”

(at page 193)

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In Chief Inspector of Mines v. Lala Karam Chand Thapar, (1962) 1

SCR 9, the rule of harmonious construction was used to reconcile

Section 31(4) of the Mines Act, 1952 and Section 24 of the General

Clauses Act. This Court held:

“If the words of Section 31(4) are construed to mean that

the regulations became part of the Act to the extent that

when the Act is repealed, the regulations also stand

repealed, a conflict at once arises between Section 31(4)

and the provisions of Section 24 of the General Clauses

Act. In other words, the Mines Act, 1923, while saying in

Section 31(4) that the repeal of the Act will result in the

repeal of the regulations, will be saying, in the provisions

of Section 24 of the General Clauses Act as read into it,

that on the repeal of the Act, when the Act is repealed

and re-enacted, the regulations will not stand repealed

but will continue in force till superseded by regulations

made under the re-enacted Act. To solve this conflict the

courts must apply the rule of harmonious construction.

According to Mr Pathak we have perfect harmony if it is

held that the provisions of Section 24 of the General

Clauses Act will have effect only if the regulations are

such as survive the repeal of the parent Act and at the

same time, construe Section 31(4) to mean that the

regulations became for all purposes part and parcel of

the Act. To harmonise is not however to destroy. The so-

called harmony on the learned counsel's argument is

achieved by making the provisions of Section 24 of the

General Clauses Act nugatory and in effects destroying

them in relation to the Mines Act, 1923. We have to seek

therefore some other means of harmonising the two

provisions. The reasonable way of harmonising that

obviously suggests itself is to construe Section 31(4) to

mean that the regulations on publication shall have for

some purposes, say, for example, the purpose of

deciding the validity of the regulations, the same effect

as if they were part of the Act, but for the purpose of the

continuity of existence, they will not be considered part of

the Act, so that even though the Act is repealed, the

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regulations will continue to exist, in accordance with the

provisions of Section 24 of the General Clauses Act. This

construction will give reasonable effect to Section 31(4)

of the Mines Act, 1923 and at the same time not frustrate

the very salutary object of Section 24 of the General

Clauses Act. ……”

(at pp. 19-20)

In Anwar Hasan Khan v. Mohd. Shafi, (2001) 8 SCC 540, this Court

succinctly laid down what is meant by the doctrine of harmonious

construction, thus:

“8. It is settled that for interpreting a particular provision

of an Act, the import and effect of the meaning of the

words and phrases used in the statute have to be

gathered from the text, the nature of the subject-matter

and the purpose and intention of the statute. It is a

cardinal principle of construction of a statute that effort

should be made in construing its provisions by avoiding a

conflict and adopting a harmonious construction. The

statute or rules made thereunder should be read as a

whole and one provision should be construed with

reference to the other provision to make the provision

consistent with the object sought to be achieved. The

well-known principle of harmonious construction is that

effect should be given to all the provisions and a

construction that reduces one of the provisions to a

“dead letter” is not harmonious construction. ……”

One reasonable way of harmonising the provisions contained in

Sections 33 and 34 of the Maharashtra Stamp Act, which is a general

statute insofar as it relates to safeguarding revenue, and Section

11(13) of the 1996 Act, which applies specifically to speedy resolution

of disputes by appointment of an arbitrator expeditiously, is by

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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 Maharashtra Stamp

Act, who will then decide issues qua payment of stamp duty and

penalty (if any) as expeditiously as possible, and preferably within a

period of 45 days from the date on which the authority receives the

instrument. As soon as stamp duty and penalty (if any) 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 Section 11 application. This will also ensure that once a

Section 11 application is allowed and an arbitrator is appointed, the

arbitrator can then proceed to decide the dispute within the time frame

provided by Section 29A of the 1996 Act.

28.Arguments taken of prejudice, namely, that on the facts of this

case, the appellant had to pay the stamp duty and cannot take

advantage of his own wrong, are of no avail when it comes to the

application of mandatory provisions of law. Even this argument,

therefore, must be rejected.

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29.We, therefore, allow the appeal and set aside the judgment of the

Bombay High Court. The matter is remitted to the Bombay High Court

to dispose of the same in the light of this judgment.

……........................... J.

(R.F. NARIMAN)

……........................... J.

(VINEET SARAN)

New Delhi;

April 10, 2019.

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