1. Lease deeds for land development — invocation of arbitration clause — challenge to arbitrator appointment due to insufficient stamping under the Karnataka Stamp Act. (Para 5 , 6 , 7 , 8 , 9 , 11 , 12 )
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2020 Supreme(SC) 167
SUPREME COURT OF INDIA
S.A. BOBDE, CJI., B.R. GAVAI, SURYA KANT, JJ.
M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY MUDALIAR CHATTRAM & OTHER CHARITIES & ORS. – APPELLANT(S)
VERSUS
M/S BHASKAR RAJU & BROTHERS & ORS. – RESPONDENT(S)
CIVIL APPEAL No. 1599 OF 2020 (Arising out of SLP(C) No. 7088 of 2015)
Decided on : 14-02-2020
Important Points
IMPORTANT POINT
If Court comes to conclusion, that instrument is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of Stamp Act, 1899.
If Court comes to conclusion, that instrument is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of Stamp Act, 1899.
Subject
Arbitration Law - Appointment of Arbitrator
Act Referred
ARBITRATION ACT: S.11(6), S.8
ARBITRATION AND CONCILIATION ACT: S.11(6)
CRIMINAL PROCEDURE CODE: Ch.12, Ch.36
KARNATAKA STAMP ACT: S.33, S.34, S.35, S.38, S.40
REGISTRATION ACT: S.49
ARBITRATION AND CONCILIATION ACT: S.11(6)
CRIMINAL PROCEDURE CODE: Ch.12, Ch.36
KARNATAKA STAMP ACT: S.33, S.34, S.35, S.38, S.40
REGISTRATION ACT: S.49
Headnote
Arbitration and Conciliation Act, 1996 – Section 11(6) – Karnataka Stamp Act, 1957 – Sections 33 and 34 – Appointment of Arbitrator – Dispute emanating from Development Agreement – When a lease deed or any other instrument is relied upon as containing arbitration agreement, Court is required to consider at the outset, whether document is properly stamped or not – If Court comes to conclusion, that instrument is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of Stamp Act, 1899 – Even on equity respondents are not entitled to any relief – High Court has totally erred in relying on lease deed which was found to be insufficiently stamped and brushing aside report of Registrar (Judicial), when respondents had failed to pay insufficient stamp duty and penalty as determined by Registrar (Judicial) of High Court – Impugned judgment and order passed by High Court of Karnataka in CMP quashed and set aside – Petition/application filed by respondents under Section 11 of Arbitration Act rejected. (Paras 20, 21, 26 and 27)
Facts of the case:
By way of present appeal, appellants challenge judgment and order dated 1.12.2014, passed by single judge of the High Court of Karnataka at Bangalore in Civil Miscellaneous Petition No. 167 of 2013 whereby, Justice L. Sreenivasa Reddy, former judge of the High Court of Karnataka, was appointed as Arbitrator to conduct arbitration proceedings at the Arbitration Centre, Bangalore, as per Arbitration and Conciliation Act, 1996 read with the Arbitration Central Rules.
Findings of the Court:
Lessee had undertaken all the responsibility of obtaining vacant possession of Schedule ‘B’ property and to secure vacant possession by ejecting the unauthorised occupants. Responsibility of sanctioning the building plans was also undertaken by the respondents. It would further reveal, that it was also agreed between the parties, that in the event of any of the tenants approaching a court of law, such period of litigation shall not in any manner affect the agreed tenure of the lease deed of 38 years.
Result : Appeal allowed.
Legal Category Hierarchy
- practice and procedure
- civil law
- fiscal law
Advocates Appeared:
For the Appellant :Pritha Srikumar, Advocate
For the Respondent:Balaji Srinivasan, Advocate
For the Appellant :Pritha Srikumar, Advocate
For the Respondent:Balaji Srinivasan, Advocate
Table of Contents
2. Whether an insufficiently stamped lease deed can be acted upon to appoint an arbitrator — whether the document constituted a lease deed or an agreement to lease. (Para 15 , 16 )
3. The lease deed was insufficiently stamped and the respondents failed to pay the deficit duty and penalty as determined by the Registrar (Judicial). (Para 18 , 20 , 22 , 23 , 24 , 25 , 26 )
4. An instrument not duly stamped cannot be acted upon, including any arbitration clause contained therein, unless the deficit stamp duty and penalty are paid. (Para 19 , 20 )
5. Appeal allowed — High Court order appointing the arbitrator quashed — application under Section 11 of the Arbitration Act rejected. (Para 27 )
6. Can a court act upon an arbitration clause contained in an insufficiently stamped instrument?
No. An instrument not duly stamped is inadmissible in evidence and cannot be acted upon. This restriction extends to the arbitration agreement within the instrument. The court cannot appoint an arbitrator based on such a document unless the deficit duty and penalty are paid. (Para 19 , 20 )
7. What is the duty of a court when an instrument chargeable with duty is produced before it?
Under the Stamp Act, every person having authority to receive evidence must examine the instrument to ascertain if it is duly stamped. If the court concludes the instrument is not properly stamped, it must impound the document and deal with it as specified by law. (Para 17 , 19 , 20 )
8. Does the failure to pay deficit stamp duty and penalty preclude the enforcement of an arbitration agreement?
Yes. If a court finds an instrument is insufficiently stamped and the party fails to pay the required deficit duty and penalty, the court cannot rely on the document or the arbitration clause contained therein to refer the dispute to arbitration. (Para 18 , 20 , 26 )
JUDGMENT :
1. Leave granted.
2. Heard the learned counsel for the parties.
3. By way of present appeal, the appellants challenge the judgment and order dated 1.12.2014, passed by the single judge of the High Court of Karnataka at Bangalore in Civil Miscellaneous Petition No. 167 of 2013 whereby, Justice L. Sreenivasa Reddy, former judge of the High Court of Karnataka, was appointed as Arbitrator to conduct arbitration proceedings at the Arbitration Centre, Bangalore, as per the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Arbitration Act") read with the Arbitration Central Rules.
4. The facts, in brief, giving rise to the present appeal are as under:
5. The appellant No.1 is a registered Charitable Trust. Rest of the appellants are Trustees of the appellant No. 1 -Trust. The appellant No.1 - Trust desired to develop the land owned by it and construct a multi-purpose community hall with office complex.
6. As such, the respondent No.1 offered to develop the said property and also to renovate the Samadhi of the founder of the Trust existing on the said piece of land. Negotiations were held between the appellant No. 1 - Trust and the respondent No.1.
7. As an outcome of the negotiations, a lease deed was executed between the appellant No.1 -Trust and the respondent No. 1 - lessee for a period of 38 years. As per the said lease deed, the respondent No.1 - lessee was required to pay an amount of Rs.55,00,000/- (Rupees Fifty five lakh only) as an interest free deposit, which was to be refunded to it at the end of the period of 38 years, if the lease was not extended between the parties. As per the terms of the said lease deed, a certain monthly ground rent was also required to be paid by the respondent No.1 -lessee to the appellant No.1 -Trust. As per the said lease deed, the respondent No.1 - lessee was to construct a multi-purpose auditorium with minimum seating capacity of one thousand persons. The said auditorium was to be used for marriages, etc. together with dining hall, kitchen, guest rooms, etc. The respondent No.1 - lessee had also undertaken to obtain vacant possession of property mentioned in Schedule 'B' subject to all co-operations being extended to it, by the lessor for ejectment of the existing tenants of the lessor. The said lease deed was executed on 31.5.1996 on the basis of the resolution of the appellant No. 1 - Trust dated 30.4.1996.
8. A subsequent lease deed dated 12.3.1997 came to be executed between the appellant No.1 and the respondent No.1. Most of the terms and conditions in the subsequent/fresh lease deed dated 12.3.1997 are identical with the terms and conditions as are found in the first lease deed dated 31.5.1996.
9. It appears, that during the period between 1997 till 2000, there was not much progress in the development of the said project. It further appears that in the year 2008 certain re-negotiations took place between the appellants and the respondents. However, the same failed to materialize. It is the case of the appellants, that except paying initial amount of Rs.25 lakhs towards the security deposit, the balance amount towards the security deposit was not paid by the respondents. It was also the case of the appellants that the respondents were trying to interfere with the possession of the trust property in collusion with one of the trustees. In this background, the appellant -Trust filed Original Suit being O.S. No.8952 of 2010 before the City Civil Court at Bangalore. In the said suit, it was also contended on behalf of the appellants that the respondent No. 1 - lessee had also desecrated the Samadhi of the founder of the Trust and had damaged part of it. It was further contended that, the respondent No.1 - lessee, in collusion with the respondent No.4, was trying to get a fresh lease deed executed illegally. The following prayers were made in the said suit:
"a. Decree of permanent injunction restraining the Defendants 1 to 3, their agents, servants from interfering with
