HIGH COURT OF ANDHRA PRADESH

****

ICOMAA No.01 of 2022

Between:

VR Commodities Private Limited

….Appellant

v.

Norvic Shipping Asia Pte. Ltd.

….

Respondent

JUDGMENT PRONOUNCED ON 05.05.2022

HON’BLE MR. JUSTICE PRASHANT KUMAR MISHRA, CHIEF JUSTICE

A N D

HON’BLE MR. JUSTICE M. SATYANARAYANA MURTHY

1. Whether Reporters of Local newspapers

may be allowed to see the Judgments?

-No -

2. Whether the copies of judgment may be

marked to Law Reporters/Journals

-Yes-

3. Whether Their Ladyship/Lordship wish to

see the fair copy of the Judgment?

-Yes-

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2

* HON’BLE MR. JUSTICE PRASHANT KUMAR MISHRA, CHIEF JUSTICE

A N D

HON’BLE MR. JUSTICE M. SATYANARAYANA MURTHY

+ ICOMAA No.01 of 2022

% 05.05.2022

# VR Commodities Private Limited

….Appellant

v.

$ Norvic Shipping Asia Pte. Ltd.

….

Respondent

! Counsel for the Appellant : Mr.Sanjay Suraneni representing

Avanija Inuganti

Counsel for Respondents : Mr. Amitava Majumdar

<Gist :

>Head Note:

? Cases referred:

(1) (2019) 9 SCC 209

(2) AIR 2019 Bom 149

(3) (2021) 4 SCC 379

(4) (2021) 2 SCC 1

(5) JT 1995 (3) SC 186

(6) 1942 AC 356

(7) (2007) UKHL 40

(8) (2012) WLR (D) 148

(9) (1999) Q.B. 785

(10) (2013) EWHC 470 (Comm) at [35]-[36]

(11) (2016) SGHC 249

(12) (2019) SCGA 84

(13) (2014) 5 SCC 68

(14) (2007) 5 SCC 692

(15) (2011) 14 SCC 66

(16) (2009) 2 SCC 134

(17) 2019 SCC OnLine Bom 13047

(18) AIR 2022 SC 797

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IN THE HIGH COURT OF ANDHRA PRADESH : AMARAVATI

HON’BLE MR. JUSTICE PRASHANT KUMAR MISHRA, CHIEF JUSTICE

A N D

HON’BLE MR. JUSTICE M. SATYANARAYANA MURTHY

ICOMAA No.01 of 2022

VR Commodities Private Limited

.. Appellant/Respondent

Versus

Norvic Shipping Asia Pte. Ltd.

.. Respondent/Petitioner

Counsel for the Appellant : Mr.Sanjay Suraneni representing

Avanija Inuganti

Counsel for respondent : Mr. Amitava Majumdar

JUDGMENT

Dt.05.05.2022

(Per M.Satyanarayana Murthy, J)

1) Aggrieved by the order dated 28.01.2022 passed in

ICOMAOA No.11 of 2021 by the learned single Judge, the present

appeal is preferred under Section 37 of the Arbitration and

Conciliation Act.

2) The parties to the appeal will hereinafter be referred as

arrayed before the learned single Judge for the sake of convenience

and to avoid confusion.

3) The petitioner (respondent herein) before the learned

single Judge, filed an application under Section 9 of the Arbitration

and Conciliation Act, 1996 seeking the following reliefs:

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a) pass an order of interim injunction in favour of the petitioner and against

the respondent, restraining the respondent, from directly or indirectly

through its nominees, agents, associates, affiliates, representatives or

employees, in any manner, acquiring, selling, encumbering, alienating,

transferring, issuing delivery orders getting possession or otherwise

dealing with the cargo of 7,600 MTs out of the

32,770 MTs of coal discharged by the Vessel MV Port Tokyo and currently

lying at the V.O. Chidambaranar Port at Tuticorin in the month of August

2021, till the disposal of the present petition;

b) pass an order appointing a Receiver/Court Commissioner to take custody

of the cargo of 7,600 MTs of coal currently lying at the V .O

Chidambaranar Port at Tuticorin discharged from the vessel MV Port

Tokyo;

c) pass an order directing the respondent to offer security in the form of

cash security or other security as this Hon‘ble Court deems fit for a sum

of INR 4,86,97,180.40 ps. equivalent to USD 646,486.11 being the sum

total of the principal claim of USD 566,486.11 in lieu of admitted pending

dues of demurrage payable to the Petitioner and USD 80 ,000 towards

legal costs

d) Pass an order directing the Respondent to bear all costs, charges,

expenses, levies, of any kind whatsoever which may be incurred by the

petitioner in exercise of its lien over the cargo of 7,600 MTs of coal,

including storage and maintenance costs

e) pass an order permitting the Petitioner to sell the liened cargo of 7,600

MTs of coal in the event of non-payment of sums to the petitioner as set

out in prayer clauses (c) above;

f) for ad interim reliefs in terms of prayer (a) (b) (c) and (d) above.

4) It is alleged that the petitioner (respondent herein) is a

company incorporated under the Companies Act , carrying on

shipping business known as ―Norvic Shipping Asia Pte. Limited‖,

whereas the respondent (appellant herein) is another company

carrying on its business in the name and style of ―VR Commodities

Private Limited‖. The petitioner and respondent entered into fixture

note dated 16.07.2021 , Charterparty dated 29.05.2021 and

settlement agreement dated 06.09.2021 for transportation of coal

from ―Muara Bunyuasi‖ to ―Tuticorin‖ and ―New Mangalore, India‖.

But there is a breach of agreement of Charter party allegedly and the

petitioner sustained loss due to default of certain terms under the

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charterparty agreement, requiring the petitioner to have arbitral

proceedings. To make good for the amount possibly to recover from

the respondent, the petitioner sought various interim reliefs under

Section 9 of the Arbitration and Conciliation Act.

5) Learned single Judge ordered ad-interim injunction on

22.10.2021 in favour of the peti tioner against the respondent

restraining the respondent, from directly or indirectly through its

nominees, agents, associates, affiliates, representatives or

employees, in any manner, acquiring, selling, encumbering,

alienating, transferring, issuing delivery orders, getting possession or

otherwise dealing with the cargo of 7,600 MTs out of the 32,770 MTs

of coal discharged by the vessel MV Port Tokyo, which is currently

lying at V.O.Chidambaranar Port at Tuticorin, in the event of the

respondent failing to furnish security for US $ 646,500/- within 48

hours of service of notice as well as this order on the respondent.

6) After passing order dated 22.10.2021, final order dated

28.01.2022 was passed in ICOMAOA No.11 of 2021 by the learned

single Judge. Operative portion of the order dated 28.01.2022 is as

follows.

―However, considering the scope of this application under

Section 9 of the Arbitration and Conciliation Act, 1996, no further

steps can as such be ordered pursuant to it. If the petit ioner so

desires, it can as well approach the Court for necessary relief.

Purpose of filing the present petition is over and therefore,

this petition is directed to be closed, preserving liberty to the

petitioner to file separate application if so advised in respect of

subject matter in question for necessary reliefs. No costs.‖

7) Aggrieved by the order passed by the learned single

Judge, respondent in the ICOMAOA No.11 of 2021 preferred this

appeal on various grounds.

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8) Though several grounds were raised in the grounds of

appeal, appellant/respondent, limited his contentions as to the

admissibility of charterparty and arbitration clause contained in it in

evidence before the Court or Arbitrator as it was not duly stamped,

leaving the other contentions.

9) In view of the limited contentions urged before this Court,

this Court is not required to adjudicate upon other issues except

about the admissibility of document i.e. charterparty and arbitration

clause imbedded in it in evidence before this Court or before the

Arbitrator, without payment of stamp duty and penalty as it was not

stamped.

10) During hearing, Sri Mr.Sanjay Suraneni representing

Ms.Avanija Inuganti, learned counsel for the appellant would contend

that since Charterparty is inadmissible in evidence and passing of

order under Section 9 of the Arbitration and Conciliation Act based on

arbitration clause in the substantive agreement, is a serious illegality.

The charterparty between the petitioner and respondent is unstamped

and when it is presented before the officer, who is authorised to

receive the document in evidence, unless it is impounded collecting

stamp duty and penalty under Section 35 of the Indian Stamp Act,

1899, the same is inadmissible, thereby the order dated 28.01.2022

passed by the learned single Judge is illegal. In support of his

contentions, he has drawn the attention of this Court to the judgment

of the Apex Court in ―Garware Wall Ropes Limited v. Coastal

Marine Constructions and Engineering Limited

1

‖. On the strength

of the principle laid down in the above judgment, learned counsel for

the appellant requested to set aside the order dated 28.01.2022

passed in ICOMAOA No.11 of 2021 by the learned single Judge.

1

(2019) 9 SCC 209

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11) Sri Amitava Majumdar, learned senior counsel for the

respondent, would submit that in proceedings under Section 8 and 11

of the Arbitration and Conciliation Act, the Courts concluded that

such arbitration agreement or substantive agreement consisting of

arbitration clause must be stamped. But in proceedings under

Section 9 of the Arbitration and Conciliation Act, the Full Bench of

the High Court already concluded that the agreement is admissible

though not duly stamped and relied on ―Gautam Landscapes Pvt.

Ltd. v. Shailesh S.Shah

2

‖. He further submitted that when similar

issue came up for consideration before the Apex Court in various

judgments, the Apex Court dealt with the issue with reference to

object of enacting the Arbitration and Conciliation Act. In ―N.N.Global

Mercantile Private Limited v. Indo Uniqu e Flame Limited

3

‖ the

Full Bench of the Supreme Court referred the question to the

Constitution Bench. Learned senior counsel placed reliance on

another judgment of the Apex Court in ― Vidya Drolia v. Durga

Trading Corporation

4

‖. Finally, learned senior counsel would submit

that the issue can be decided by this Court though it is pending in

reference before the Constitution Bench of the Apex Court.

12) Considering rival contentions, perusing the material

available on record, the point need be answered by this Court is as

follows:

Whether the charterparty dated 29.05.2021 consisting

of arbitration clause is admissible in evidence before

this Court or before the Arbitrator as the agreement is

not stamped? If not, whether the order passed by the

learned single Judge closing the arbitration

proceedings as the purpose is served, be set aside?

2

AIR 2019 Bom 149

3

(2021) 4 SCC 379

4

(2021) 2 SCC 1

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P O I N T:

13) It is not in quarrel about the parties entering into

agreement known as Charterparty dated 29.05.2021 for

transportation of coal from Muara Bunyuasi to Tuticorin and New

Mangalore, India subject to conditions contained in the agreement.

Certain clauses are incorporated in the said charterparty. One of the

terms of the charter party is with regard to arbitration. Clause No.5

deals with arbitration and the same is necessary for deciding the

present issue and it is extracted hereunder:

“If any dispute or difference should arise under this Charter, same

to be referred to three parties in the City of Singpore New York, one to

be appointed by each of the par ties hereto, the third by the two so

chosen, and their decision, or that any two of them, shall be final and

binding and this agreement may, for enforcing the same, be made a rule

of Court. Said three parties to be commercial men who are members of

the Institute of Arbitrators in Singapore. English Law to apply and

arbitrations and General Average in Singapore”

14) Annexure-B of Charterparty consists of arbitration clause

and seat of arbitration is at ―Singapore‖ governed by English law, but

the Charterparty is not stamped as required under the Indian Stamp

Act.

15) As seen from annexure-B of Charterparty, it was executed

in India. When the Charterparty is executed in India, it must be duly

stamped under the provisions of Indian Stamp Act. The Indian Stamp

Act is a fiscal enactment intended to collect revenue from public, who

entered into transactions. Therefore, it is the duty of every public

officer, who is competent to receive the document, is under obligation

to protect the revenue of the state. It is settled law that no document

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can be admitted in evidence unless it is properly stamped. (Vide:

Shankar Balwant Lokhande (Dead) by L.Rs. vs. Chandrakant

Shankar Lokhande

5

‖)

16) Undoubtedly, it is true that unless the document is

impounded and collected stamp duty and penalty payable on such

document, it cannot be received in evidence and no Court is

competent to pass any decree or judgment based on such unstamped

document. When the document is executed at a particular State, the

law applicable to particular State for payment of stamp duty alone is

applicable for collection of stamp duty and penalty and to admit the

document in evidence.

17) Chapter – IV of the Indian Stamp Act deals with

Instruments not duly stamped. Section 33 deals with ‗examinati on

and impounding of instruments‘, which is as follows:

―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 public 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 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 [India] when such instrument was executed or first

executed:

Provided that—

(a) nothing herein contained shall be deemed to require any

Magistrate of 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

5

JT 1995 (3) SC 186

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under Chapter XII or Chapter XXXVI of the Code of Criminal

Procedure, 1898;

(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 appoints in this behalf.

(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.

18) Section 35 prohibits receiving instruments not duly

stamped or unstamped in evidence. According to Section 35 of the

Indian Stamps Act, 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.

19) Therefore, there is a clear prohibition against receipt of

unstamped and not duly stamped document in evidence by public

officer, who is entitled to receive such document in evidence and

when it is produced before him, he shall examine the same and

impound the same, collect stamp duty payable on the document.

20) According to Sl.20 of Schedule – I, Charter party, that is

to say, any instrument (except an agreement for the hire of a tug-

steamer) whereby a vessel or some specified principal part thereof is

let for the specified purposes of the character, whether it includes a

penalty clause or not, stamp duty payable is Rs.5/-.

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21) Schedule I-A, which is applicable to the State of Andhra

Pradesh deals with stamp duty payable several instruments or

documents.

22) According to Sl.18 of Schedule-IA, Charter party, that is

to say, any instrument (except an agreement for the hire of a tug-

steamer), whereby a vessel or some specified principal part thereof is

left for the specified purposes of the charter, whether it includes a

penalty clause or not, stamp duty payable is ―one rupee‖.

23) Thus, as per Schedule-I and Schedule-I A, stamp duty is

to be paid on charterparty. Whereas, Schedule – I of the Indian Stamp

Act and Schedule –IA (Andhra Pradesh) did not prescribe any stamp

duty payable on arbitration agreement. When arbitration agreement

though forms part of substantive agreement, it can be separable from

the substantive agreement i.e. charter party. Time and again, this

issue came up for consideration before the Court, but various

countries dealt with this issue in different modes. The doctrine of

separability treats an agreement to arbitrate contained within a

contract as an independent agreement that is deemed to be separable

from the main contract. To put it simply, as per the doctrine of

separability, where a dispute arises concerning the initial validity or

continued existence of a contract, the arbitration clause embedded in

the main contract is seen to be autonomous, and separate. The

doctrine preserves the validity and enforceability of the arbitration

clause in a contract, even when the primary contract is found to be

invalid and unenforceable, providing autonomy to the arbitration

clause. The UNCITRAL Model law on International Commercial

Arbitration, 1985, Article 16[1], integrates the doctrine of separability

as an arbitration clause which forms part of a contract shall be

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treated as an agreement independent of the other terms of the

contract, it runs as follows:

“The arbitral tribunal may rule on its own jurisdiction, including

any objections with respect to the existence or validity of the

arbitration agreement. For that purpose, an arbitration clause which

forms part of a contract shall be treated as an agreement independent

of the other terms of the contract. A decision by the arbitral tribunal

that the contract is null and void shall not entail ipso jure the

invalidity of the arbitration clause. It provides that an arbitral

tribunal's determination that a contract is void does not immediately

render the arbitration provision unenforceable. The same principle is

manifested in Section 7 of the Arbitration Act, 1996 of England,

Singapore's approach to separability provisions and Section 16(1) of

India's Arbitration and Conciliation Act, 1996.”

24) As seen from Charterparty, English law alone is

applicable and the seat of the arbitration is at ‗Singapore‘. As the law

governing such arbitration is English law, it is necessary to advert to

few decisions under English law relating to separability of arbitration

clause from original agreement.

25) The United Kingdom views separability as reflecting the

presumed intention of the parties that their preferred method of

resolving dispute remain effective. Arbitration agreement is seen

as distinct. Section 7 of the English Arbitration Act, 1996, deals with

the Separability of Arbitration agreement.

26) The Doctrine was first recognised in England, through the

landmark judgment in ―Heyman vs. Darwins Ltd.

6

‖, which laid down

the principle of separability of arbitration agreement, and was later

incorporated in the Arbitration Act of 1996, based on UNCITRAL

Model Law through legislation.

6

1942 AC 356

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27) In ―Fiona Trust & Holding Corp v. Privalov

7

‖ the House

of Lords held that unless otherwise agreed by the parties an

arbitration agreement which forms or was intended to form part of

another agreement shall not be regarded as invalid, non-existent or

ineffective because that other agreement is invalid, or did not come

into existence or has become ineffective, and it shall for that purpose

be treated as a distinct agreement.

28) The House of Lords further stated that the arbitration

agreement must be treated as a distinct agreement and can be void or

voidable only on grounds which relate directly to the arbitration

agreement; the invalidity or rescission of the main contract does not

necessarily entail the invalidity or rescission of the arbitration

agreement.

29) The primary or substantive agreement and the arbitration

agreement may both be declared as illegal for the same reason in rare

situations. For example, if a signature on a contract including an

arbitration clause is forged, the arbitration clause is null and void.

This is because the signature to the arbitration agreement as a

"separate agreement" was forged, not because the primary agreement

is unlawful. However, in other circumstances, if an agent is accused

of transgressing his power by entering into the primary or substantive

agreement on conditions that were not authorised or for improper

reasons, the arbitration agreement is not always under dispute.

30) In ―Sulamrica Cia Nacional de Seguros SA vs

EnesaEngenharia SA

8

‖ it is observed that the only purpose of the

doctrine of separability is to give legal effect to the parties' intention of

7

(2007) UKHL 40

8

(2012) WLR (D) 148

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resolving disputes through arbitration and not to insulate the

arbitration agreement from the substantive contract for all purposes.

Accordingly, it was held that an express choice of law governing the

substantive contract is a strong indication of the parties' intention in

relation to the agreement to arbitrate. The principle of separability of

arbitration agreements from the contracts in which they sit which

means that disputes arising out of the contract are submitted to

arbitration even where the existence of the contract itself is

challenged, was re-emphasised.

31) The House of Lords re-emphasised the doctrine of

―separability‖ of arbitration agreements from the substantive

contracts in which they sit, which means that disputes arising out of

the contract are submitted to arbitration even where the existence of

the contract itself is challenged.

32) In ―Soleimany v. Soleimany

9

‖ the Court of Appeal

reversed the High Court's decision to enforce an arbitral award

(rendered by the Beth Din in England under Jewish law) which

enforced a contract to smuggle carpets out of Iran, held as follows:

“In our view, an enforcement judge, if there is prima facie evidence

from one side that the award is based on an illegal contract, should

enquire further to some extent.

The judge has to decide whether it is proper to give full fait h and

credit to the arbitrator's award. Only if he decides at the preliminary

stage that he should not take that course does he need to embark on a

more elaborate enquiry into the issue of illegality.”

33) The Court declined to enforce an award relating to a

dispute arising out of an illegal contract to smuggle carpet out of Iran

holding that 'where the making of the contract will itself be an illegal

9

(1999) Q.B. 785

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act, the court would be driven nolens volens to hold that the

arbitration was itself void'. It was also specified that the enforcement

court must see whether there is prima facie evidence that the award

is based on an illegal contract.

34) United Kingdom views on doctrine of separability as

reflecting the presumed intention of the parties that their preferred

method of resolving dispute remain effective. Arbitration agreement

seen as distinct. In cases of void ab initio contracts, it should be seen

if the arbitration agreement by itself is void ab initio. However, in case

of illegal contracts, court will find arbitration agreement within it

invalid.

35) Singapore follows a limited ―separability‖ in arbitration

agreements. There are no distinct statutory provisions, but this

doctrine is drawn from Article 16 UNCITRAL model law. The

separability doctrine in the country is seen as a tool for execution of

parties intention or expectation that the arbitration clause should

survive an agreement that has been invalidated by Court. Here, the

doctrine does not imply that arbitration agreement is independent of

the main contract.

36) There are statutory provisions in the country in the

Singapore Arbitration Act 2001, Part VI states Jurisdiction of Arbitral

Tribunal. These are provisions for separability of arbitration clause

and competence of arbitral tribunal to rule its own jurisdiction. When

the jurisdiction is challenged before an arbitral tribunal one of the

most common grounds raised is that the contract which incorporates

the arbitration was never concluded. Before it was a common practice

to determine both the validity of arbitration agreement and existence

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of binding contract together. (Vide: Hyundai Merchant Marine

Company Ltd vs. Americas Bulk Transport Ltd .)

10

37) In the case of ―BCY and BCZ

11

‖ the defendant's case was

a binding ICC arbitration agreement which was concluded before the

conclusion of SPA. In such cases where arbitration clause was

negotiated in the context of a contract such an approach was found

problematic from the perspective of both parties as well as arbitrators.

38) There are decisions of the High Court of the country

where the law governing the arbitration agreement was implied from

the main or substantive contract. The Court held that when the

arbitration clause is a part of the main or substantive contract, then

it is reasonable to presume that the entire relationship is governed by

uniform law, if the intention differed, they must have specified or

entered into different agreements. Further clarity is provided by

Article 16 of the UNCITRAL Model Law on International Commercial

Arbitration.

39) In the recent years there have been perspective judicial

pronouncements which have provided clarity with respect to ―doctrine

of separability‖ of arbitration agreements. The court in the judgment

of ―BNA v. BNB

12

‖, stated that the root cause behind evolution of the

doctrine of separability is the desire to give effect to the arbitration

agreement even if the substantive contract is ineffective. Court

refused to accept this as limitation of the doctrine following which it

was held that it is legitimate to presume that the parties want the

arbitration clause to survive. The only limitation the court stated was

10

(2013) EWHC 470 (Comm) at [35]-[36]

11

(2016) SGHC 249

12

(2019) SCGA 84

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to only give 'reasonable effect' to this intention. The judgment further

discusses the reason why ―doctrine of separability‖ has a limited

scope, being consistent with the ut res magis principle, it is there just

to give effect to the intention of the parties which is presumed that the

arbitration clause should survive.

40) The Court interpreted this doctrine and held that it has a

limited scope it is broad enough to operate and uphold the arbitration

clause, which is integrated in an agreement, but an operation of the

substantive agreement could operate to nullify the parties manifest

intention to arbitrate their disputes.

41) In India, the statutory provision is present in Chapter IV

of Arbitration and Conciliation Act, 1996. There have been judicial

pronouncements as cases upholding the ―Doctrine of Separability‖ as

well as on Illegal Contracts and Frauds. In the case of ―N.N.Global

Mercantile Private Limited vs. Indo Unique Flame Limited ‖

(referred supra), the enforceability of Arbitration agreement embedded

in Unstamped Contract was discussed. It was held that separability of

arbitration agreement from substantive contract in which it is

embedded is well settled law. Invalidity, ineffectiveness or termination

of substantive commercial contract does not effect the validity of the

arbitration agreement.

42) In the case of ―Today Homes & Infrastructure (P) Ltd.

vs. Ludhiana Improvement Tru st

13

‖, the two-judge bench held that

arbitration clause is not invalidated even if the main or substantive

agreement is declared void.

13

(2014) 5 SCC 68

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43) In the case of ―National Agricultural Coop. Marketing

Federation India Ltd. vs. Gains Trading Ltd.

14

‖, it was stated Even

if the performance of the contract 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.

44) In view of the settled law laid down by the United

Kingdom and in view of separate clause contained in Singapore

Arbitration Act, the clause relating to settlement of disputes by

arbitration shall be an independent and autonomous clause. Though

Charterparty is not stamped, still, in view of separability of arbitration

clause, which does not require any stamp duty payable thereon either

under the Indian Stamp Act or law relating to the State of Andhra

Pradesh, the arbitration clause is independent clause. When once the

arbitration agreement is not liable for stamp duty, based on such

arbitration clause, though the substantive agreement is not duly

stamped, the Court can take into consideration of such clause

independently and pass appropriate orders under Section 9 of the

Arbitration and Conciliation Act, 1996.

45) The law is well settled regarding appointment of arbitrator

despite the arbitration agreement/clause being contained in an

insufficiently stamped document.

46) The Karnataka High Court in th e case of ―Malchira C.

Nanaiah v. Messrs Pathak Developers Private Limited , [Civil

Miscellaneous Petition No. 113 of 2019, decided on October 5, 2020]‖

faced with the issue of an application under Section 11 of the Act

14

(2007) 5 SCC 692

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arising out of an insufficiently stamped arbitration agreement. In

consideration of the peculiar facts and circumstances of the case,

particularly having regard to the joint submission and consent given

by both the parties to proceed with the appointment of the sole

arbitrator upon imposition of necessary conditions with regard to

payment of stamp duty and penalty on the sale agreement by the

petitioners on or before the first date of hearing before the sole

arbitrator, the Court went onto appoint an arbitrator to adjudicate

upon the dispute between the parties despite the arbitration

agreement being contained in an insufficiently stamped document.

However, the Court also enumerated that the instant decision shall

not be treated as a precedent.

47) The law relating to admissibility of a document and

treating the arbitral agreement as separable was discussed in various

judgments.

48) Learned counsel for the appellant placed reliance on the

judgment of the Apex Court in ―Garware Wall Ropes Limited v.

Coastal Marine Constructions and Engineering Limited ‖ (referred

supra). In the said judgment, the Apex Court held as follows:

― 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

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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.

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 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.‖

49) Earlier to the said judgment, when similar issued came

up for consideration in ―SMS Tea Estates Private Limited v s.

Chandmari Tea Company Private Limited

15

‖. In the facts of the

above case, a lease deed was executed with respect to two tea estates.

Clause 35 of the deed provided for settlement of disputes between the

parties by arbitration. However, the lease deed was unregistered and

unstamped. With respect to the validity of the arbitration clause

contained in an unregistered (but compulsorily registrable)

instrument, the Supreme Court relied upon section 49 of Registration

Act, 1908. The proviso to this section elucidates exceptions in which

such an instrument can be received as evidence of any transaction

affecting such property. The proviso states that it may be received as

15

(2011) 14 SCC 66

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evidence of any collateral transaction not required to be effected by

registered instrument. Applying the doctrine of separability, the

Supreme Court held that an arbitration clause in a contract is a

collateral term relating to the resolution of disputes and has nothing

to do with the performance of the contract. Therefore, there are two

independent documents:

(a) the substantive contract which requires registration; and

(b) the arbitration agreement which is not compulsorily

registrable.

50) The Supreme Court concluded by stating that an

arbitration agreement does not require registration under the

Registration Act and, thus, can be enforced for the purpose of

arbitration.

51) With respect to the validity of the arbitration clause in an

unstamped instrument, the Supreme Court relied on sections 33 and

35 of the Indian Stamp Act, 1899. Section 33 of the legislation relates

to the examination and impounding of instruments and section 35

provides that instruments not duly stamped are inadmissible in

evidence and cannot be acted upon. The Supreme Court rejected the

application of doctrine of separability to an unstamped instrument

containing an arbitration clause, only for the reason that section 35

did not contain a proviso like the one in section 49 of the Registration

Act, 1908. Therefore, the Supreme Court held that as the arbitration

agreement is also a part of the instrument, it cannot be acted upon

unless the stamp duty and penalty is paid.

52) The judgment of the Apex Court in ―N.N.Global

Mercantile Private Limited v. Indo Unique Flame Limited ‖

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(referred supra) signifies a complete overhaul in the approach of the

Court regarding the validity of an arbitration clause in an unstamped

instrument. The Supreme Court held that an arbitration agreement is

separate and distinct from the substantive commercial contract on

the basis of two principles: the doctrine of separability and

kompetenz – kompetenz. While the doctrine of separability has been

discussed earlier, principle of kompetenz – kompetenz is relatively

unexplored. This principle states that the arbitral tribunal is

competent to determine and rule on its own jurisdiction, including

issues of existence, validity and scope of arbitration agreement. The

ruling of the arbitral tribunal is subject to judicial scrutiny by courts

at a later stage. This legislative policy of minimal interference has

been statutorily recognized by the Arbitration and Conciliation Act,

1996 by the following provisions:

(a) Section 5 prohibits judicial intervention except as specified

in Part I of the Arbitration and Conciliation Act, 1996; and

(b) Section 16 explicitly empowers the arbitral tribunal to rule

on its jurisdiction and also recognizes the independent existence of an

arbitration clause.

53) With respect to the specific issue of validity of arbitration

clause contained in an unstamped instrument, the Supreme Court

held that according to Maharashtra Stamp Act, 1958 (which was the

legislation applicable in ―Garware Wall Ropes Limited v. Coastal

Marine Constructions and Engineering Limited ‖ (referred supra),

the arbitration agreement is not included as an instrument

chargeable to Stamp duty. Therefore, due to the doctrine of

separability, the arbitration clause will exist independently and would

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not be rendered invalid on account of non-payment of stamp duty as

the same is not chargeable to it.

54) On this basis, the Supreme Court overruled the judgment

in ―SMS Tea Estates Private Limited vs. Chandmari Tea

Company Private Limited ‖ (referred supra). Further, the Supreme

Court stated that the judgment in ―Garware Wall Ropes Limited v.

Coastal Marine Constructions and Engineering Limited ‖ (referred

supra), was affirmed by a coordinate bench in ―Vidya Drolia v.

Durga Trading Corporation ‖ (referred supra). Therefore, the

Supreme Court referred the issue to a constitution bench of five

judges of the Supreme Court.

55) Sri Amitava Majumdar, learned senior counsel for the

respondent, relied on ―Gautam Landscapes Pvt. Ltd. v. Shailesh

S.Shah‖ (referred supra), the Full Bench judgment of Bombay High

Court on detailed consideration of various provisions concluded as

follows:

―Taking an overall view of the scheme of the ACA, judgments delivered by

the Supreme Court, we are of the view that the party need not be put to a

disadvantage merely because an objection has been raised in respect of

insufficiency of the stamp on the agreement presented before the court.

Neither a contesting party could deprive legitimate rights of a litigant in

praying for timely intervention of the court by praying for appointment of an

arbitral tribunal nor for interim reliefs in the fact situation of a case. That

would be rendering a party without any forum and in a given situation the

outcome would be, at times, catastrophic and disastrous and the damage

could be irreparable one. A balanced approach, keeping in view the legislative

intent and the view adopted by the Supreme Court, needs to be adopted, so

that the purpose of enacting the provisions of Sections 11 and 9 of the ACA as

amended by the Amendment Act is not defeated.

If an application under Section 11 or under Section 9 is required to be

postponed till the order of adjudication is passed by the learned Collector of

Stamps with such uncertainty of the time it would take to decide and the

hierarchy of remedies after such order, as it would be subject to an appeal or

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a revision, as the case may be and till such time no order either under Section

11 of under Section 9 should be passed, then the Legislature would not have

provided for speedy disposal of the applications under Section 11 or under

Section 9 of the Act by inserting sub-Section (13) in Section 11 and sub-

Section (2) in Section 9 of the Act.‖

56) Learned Senior counsel for the respondent relied on

―Shakti Bhog Foods Limited v. Kola Shipping Limited

16

‖, wherein

the Apex Court held as follows:

―Fixtures are frequently recorded in a telex or fax recapitulating the terms

finally agreed (a "recap"). Thus a recap telex or fax may constitute the "charter

Party referred to in another contract. In the case of ―Welex A.G. v. Rosa

Maritime Ltd. (The "Elipson Rosa Case") [2002] EWHC 762 (Comm)‖, it was

decided by the Queen's Bench Division (Commercial Court) that a voyage

charter party of the Elipson Rosa was concluded on the basis of a recap telex

which incorporated by reference a standard form charter. Before any formal

charter was signed, bills of lading were issued referring to the "Charter Party",

without identifying it by date. It was held that the charter party referred to

was the contract contained in or evidenced by the recap telex.

In the present case therefore, we conclude that there existed a charter

party between the parties to the suit which can be identified from the

correspondence between the parties to that effect as also from the fixture note

and the bill of lading signed by the parties.‖

57) In ―Saifee Developers Pvt. Ltd. v s. Shanklesha

Constructions

17

‖, the High Court of Bombay held that ―the decision

of the Supreme Court in Garware Wall Ropes Limited v. Coastal

Marine Constructions and Engineering Limited ‖ (referred supra) is

rendered in the context of Section 11 of the Act and not in a

proceeding under Section 9 of the Act. The decision of the Full Bench

in the context of Section 9 of the Act is subject matter of challenge

before the Supreme Court in "Sha ilesh S. Shah vs. Gautam

Landscapes Pvt. Ltd.‖ in a Petition for Special leave to Appeal (c) No.

10232 - 10233 of 2019. By an order dated 29

th

April, 2019, passed by

16

(2009) 2 SCC 134

17

2019 SCC OnLine Bom 13047

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the Supreme Court, on the said petition, while issuing notice to the

respondents, the Supreme Court has not stayed the decision of the

Full Bench. The Supreme Court, however, observed that sect ion 9

petition may continue, in the meanwhile judgment delivered thereon

shall not be implemented without leave of the Court. Thus, as the

judgment of the full bench is binding on this Court, and the same

being not stayed by the Supreme Court, it is not possible to accept

the contention as urged on behalf of respondent that this Court

cannot grant any ad-interim relief.‖

58) The judgment of learned single Judge is not binding and

similarly the judgments of other High Courts are also not binding,

however they got persuasive value. Therefore, persuaded by the law

laid down in ―N.N.Global Mercantile Private Limited v s. Indo

Unique Flame Limited ‖ (referred supra)‖ and by applying the

doctrine of separability, in the absence of inclusion of arbitration

agreement in Schedule – I of Indian Stamp Act or Schedule -IA

(Andhra Pradesh) and not chargeable with stamp duty, the arbitration

clause is admissible since it is a separate contract.

59) Recently, the Apex Court in ―Intercontinental Hotels

Group (India) Pvt. Ltd. vs. Waterline Hotels Pvt. Ltd.

18

‖ the Full

Bench after consideration of judgments (referred above) expressed its

opinion as to the admissibility of unstamped or insufficiently stamped

arbitration clause in unstamped substantive agreement , held as

follows:

―Upon reading ―Vidya Drolia v. Durga Trading Corporation ‖ (referred

supra), the issue of 'existence' and/or 'validity' of the arbitration clause, would

not be needed to be looked into herein, as payment of stamp duty, sufficient

18

AIR 2022 SC 797

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or otherwise, has taken place herein. In order to ascertain whether adequate

stamp duty has been paid in terms of the Karnataka Stamp Act, this Court

needs to examine the nature of the substantive agreement, the nature of the

arbitration agreement, and whether a separate stamp fee would be payable for

the arbitration agreement at all. It may be noted that the Petitioners, have

themselves attempted to self-adjudicate the required stamp duty and have

paid, on 29.07.19, a stamp duty of Rs. 2,200/-, describing the HMA as a

"bond". On 10.06.2020, the Petitioners further purchased 11 e-stamps for Rs.

200/- each, describing the HMA as an 'agreement' Under Article 5(j).

Therefore, it falls upon the Court, under the Stamp Act to review the nature of

the agreement in order to ascertain the stamp duty payable. From the above it

is clear, that stamp duty has been paid, whether it be insufficient or

appropriate is a question that maybe answered at a later stage as this Court

cannot review or go into this aspect Under Section 11(6). If it was a question

of complete non stamping, then this Court, might have had an occasion to

examine the concern raised in ―N.N.Global Mercantile Private Limited vs.

Indo Unique Flame Limited‖ (referred supra)‖, however, this case, is not one

such scenario.‖

60) In view of the law laid down by the Apex Court in various

judgments and by applying the principle of separability, the clause

pertaining to settlement of disputes by Arbitration contained in

substantive agreement can be taken into consideration even to decide

an application under Section 9 of the Arbitration and Conciliation Act

leaving it open to the Arbitration Tribunal to record a finding, if any,

on the clause, its admissibility due to failure to pay stamp duty on the

substantive document.

61) In any view of the matter, the issue is pending before the

Constitution Bench of the Apex Court and this finding is only subject

to decision of Constitution Bench in the reference made in

―N.N.Global Mercantile Private Limited v s. Indo Unique Flame

Limited‖ (referred supra)‖.

62) The main contention raised before this Court by the

appellant is that since the document is unstamped, basing on the

principle laid down in ―Garware Wall Ropes Limited v. Coastal

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Marine Constructions and Engineering Limited ‖ and ―SMS Tea

Estates Private Limited vs. Chandmari Tea Company Private

Limited‖ (referred supra), the order of the learned single Judge is

liable to be set aside. The same was considered in the later judgment

by the Full Bench in ―N.N.Global Mercantile Private Limited v s.

Indo Unique Flame Limited‖ (referred supra)‖ and referred the issue

to the Constitution Bench. Therefore, basing on the principle laid

down in ―Garware Wall Ropes Limited v. Coastal Marine

Constructions and Engineering Limited ‖ and ―SMS Tea Estates

Private Limited vs. Chandmari Tea Company Private Limited ‖

(referred supra), it is difficult to uphold the contention of the learned

counsel for the appellant since the same was turned down by the Full

Bench indirectly while referring the matter to the Constitution Bench.

63) In view of our foregoing discussion, we find no merits in

the contention of the learned counsel for the appellant-respondent,

hence the order under challenge cannot be interfered on the ground

that the substantive agreement is not stamped. Consequently, the

appeal is liable to be dismissed.

64) In the result, the appeal is dismissed. No costs.

The miscellaneous petitions pending, if any, shall also stand

closed.

PRASHANT KUMAR MISHRA, CJ M. SATYANARAYANA MURTHY, J

Ksp

Note:

Mark L.R. Copy

B/o

Ksp