ORDER :

1. We have heard Mr. Abhinav Mukerji, learned counsel for the petitioner, and Ms. Prabha Swami, learned counsel for the respondent.

2. Learned counsel for the petitioner places reliance upon a decision of this Court in M/s SMS Tea Estates Pvt. Ltd. v. M/s Chandmari Tea Co. Pvt. Ltd., 2011 (7) SCALE 747 and submits that the 2nd Additional Chief Judge, City Civil Court at Hyderabad in his order dated July 20, 2010 in the application made by the petitioner under Section 8 of the Arbitration and Conciliation Act, 1996 (for short, 'the Act') having held that the lease deed dated December 19, 2005 is insufficiently stamped ought to have impounded the said lease deed and followed the procedure prescribed under Sections 35 and 38 of the Indian Stamp Act, 1899 and, if the document was found to be not duly stamped, should have given an opportunity to the petitioner to make up the deficit stamp duty and pay penalty if directed by the Collector. Having not followed the above procedure, the said court committed serious illegality in rejecting petitioner's application under Section 8 of the Act and the High Court was in error in not interfering with such illegal order.

3. Admittedly, the lease deed dated December 19, 2005 entered between the petitioner and the respondent is an unregistered document prepared on a non-judicial stamp paper of Rs. 100/-. This is also an admitted position that the period of lease as per the lease deed dated December 19, 2005 is five years. Having regard to this, it is also an admitted position that the lease deed was required to be registered and it suffers from deficit stamp duty.

4. In M/s SMS Tea Estates Pvt. Ltd. case (supra), this Court was concerned with, inter alia, two questions - (i) Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable?, and (ii) Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable?

5. While dealing with question (i), the Court referred to statutory provisions contained in Sections 17(1)(d) and 49 of the Registration Act, 1908, Section 107 of the Transfer of Property Act, 1882, Section 19 of the Indian Contract Act, 1872 and Section 16 of the Act. While dealing with question (ii), the Court referred to Sections 33, 35, 38 and 40 of the Indian Stamp Act, 1899 and Section 49 of the Registration Act, 1908. The Court then summed up the procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registrable) and which is not duly stamped as under :

"(i) The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.

(ii) If the document is found to be not duly stamped, Section 35 of 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 section 35 and 38 of the Stamp Act.

(iii) 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 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.

(iv) Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.

(v) If the document is not registered, but is compulsorily registrable, having regard to section 16(1)(a) of the Act, the court can de-link the arbitration agreement from the main document, as an agreement independent