2023 Supreme(SC) 1216

SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, CJI., SANJAY KISHAN KAUL, B.R. GAVAI, SURYA KANT, J.B. PARDIWALA, MANOJ MISRA, SANJIV KHANNA, JJ.
IN RE: INTERPLAY BETWEEN ARBITRATION AGREEMENTS UNDER THE ARBITRATION AND CONCILIATION ACT 1996 AND THE INDIAN STAMP ACT 1899 – Appellant
Curative Petition (C) No. 44 of 2023, Review Petition (C) No. 704 of 2021, Civil Appeal No. 1599 of 2020, Arbitration Petition No. 25 of 2023
Decided On : 13-12-2023

IMPORTANT POINTS
(1) Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act – Such agreements are not rendered void or void ab initio or unenforceable – Non-stamping or inadequate stamping is a curable defect.
(2) Doctrine of competence-competence has both negative and positive connotations – A legal authority possessing adjudicatory powers has right to decide its own jurisdiction.
(3) Arbitral autonomy – Principle of arbitral autonomy is an integral element of ever-evolving domain of arbitration law.
(4) Arbitration Act is a special law and Indian Contract Act and Stamp Act are general laws – General law must give way to a special law.
(5) Judicial Discipline – Predictability and certainty are central tenets of law, especially in matters of commercial and routine nature – Adherence to principle of stare decisis is essential for parties to be able to rely on law to define their conduct in commercial or ordinary day to day dealings.
(6) Void contract – An instrument whether unstamped or insufficiently stamped will not fall foul on the ground of consideration or object of agreement being immoral, neither will it fall foul as opposed to public policy.

Headnote:

Per Dr. Dhananjaya Y. Chandrachud,CJI. (For himself and on behalf of Sanjay Kishan Kaul, B. R. Gavai, Surya Kant, J.B. Pardiwala and Manoj Misra, JJ.)

(A) Arbitration and Conciliation Act, 1996 – Section 5 – Indian Stamp Act, 1899 – Sections 33 and 35 – Indian Contract Act, 1872 – Section 2(h) – Admissibility of arbitral award in evidence – Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act – Such agreements are not rendered void or void ab initio or unenforceable – Non-stamping or inadequate stamping is a curable defect – Objection as to stamping does not fall for determination under Sections 8 or 11 of Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists – Any objections in relation to stamping of agreement fall within ambit of arbitral tribunal. (Paras 48 and 224)

(B) Judicial Discipline – Maintenance of judicial discipline is important for ensuring consistency and certainty in development of law – Rule of judicial discipline demands that a Bench of lower strength is bound by decision of a larger Bench – Judicial discipline also dictates that generally, a Bench of same strength can question correctness of a decision rendered by a co-ordinate Bench – In such a situation, matter is placed before a Bench of larger strength. (Para 23)

(C) Indian Contract Act, 1872 – Section 2(g) – Admissibility of an instrument in evidence – Admissibility of an instrument in evidence is distinct from its validity or enforceability in law – Admissibility of a particular document or oral testimony, on other hand, refers to whether or not it can be introduced into evidence – An agreement can be void without its nature as a void agreement having an impact on whether it may be introduced in evidence – Similarly, an agreement can be valid but inadmissible in evidence – When an agreement is void, we are speaking of its enforceability in a court of law – When it is inadmissible, we are referring to whether court may consider or rely upon it while adjudicating the case – This is essence of difference between voidness and admissibility. (Paras 44, 45 and 46)

(D) Indian Stamp Act, 1899 – Section 35 – Admissibility of an instrument in evidence – Stamp Act is a fiscal enactment intended to secure revenue for the State – It is a mandatory statute – Effect of not paying duty or paying an inadequate amount renders an instrument inadmissible and not void. Non-stamping or improper stamping does not result in the instrument becoming invalid. The Stamp Act does not render such an instrument void. The non-payment of stamp duty is accurately characterised as a curable defect. The Stamp Act itself provides for the manner in which the defect may be cured and sets out a detailed procedure for it. (Paras 48 and 59)

(E) Arbitration and Conciliation Act, 1996 – Sections 5, 18 and 34 – Arbitral autonomy – Principle of arbitral autonomy is an integral element of ever-evolving domain of arbitration law – Basis of arbitral autonomy is to give effect to true intention of parties to distance themselves from risk of domestic judicial parochialism – Principle of judicial non-interference reflects autonomy of arbitral tribunals – Arbitral tribunals are autonomous in the sense that they are constituted to give effect to mutual intention of parties to settle their disputes through a neutral and expert authority of their choice – Competence of an arbitral tribunal to rule on its own jurisdiction, including ruling on any objections with respect to existence or validity of arbitration agreement, also indicates that arbitral tribunal enjoys sufficient autonomy from national courts – Arbitral tribunal is not subject to procedural laws of a country – Arbitral tribunal shall not be bound by Code of Civil Procedure 1908 or Indian Evidence Act 1872 – Principle of judicial non-interference in arbitral proceedings is fundamental to both domestic as well as international commercial arbitration – Although arbitral tribunals have autonomy in procedural and substantive sense, they are not completely independent of law of country in which arbitral tribunal has its juridical seat – Every provision of Arbitration Act ought to be construed in view of Section 5 to give true effect to legislative intention of minimal judicial intervention – Provisions of other statutes cannot interfere with working of Arbitration Act, unless specified otherwise. (Paras 66, 67, 68, 69, 74, 82 and 85)

(F) Interpretation of Statute – Non-obstante clauses – Legislature uses non-obstante clauses to remove all obstructions which might arise out of provisions of any other law, which stand in way of operation of legislation which incorporates non-obstante clause – Although a non-obstante clause must be allowed to operate with full vigour, its effect is limited to the extent intended by legislature. (Paras 75, 76 and 77)

(G) Arbitration Law – Separability or severability of arbitration agreement – [Rule 23 of UNCITRAL Arbitration Rules, 2021] – Concept of separability or severability of an arbitration agreement from underlying contract is a legal fiction which acknowledges separate nature of an arbitration agreement – Separate nature of arbitration agreement from underlying contract is one of cornerstones of arbitration law – Concept of separability reflects presumptive intention of parties to distinguish underlying contract, which captures substantive rights and obligations of parties, from an arbitration agreement which provides a procedural framework to resolve disputes arising out of underlying contract – Rationale for separability presumption lies in contractual freedom of parties to an arbitration agreement to settle their disputes by proceedings before an arbitral tribunal to exclusion of courts – Arbitration clause which forms part of a contract shall be treated as an agreement independent of other terms of contract. (Paras 90, 92 and 102)

(H) Arbitration Law – Doctrine of kompetenz-kompetenz – [Sections 33 and 35 of Stamp Act, 1899] – Doctrine of competence-competence has both negative and positive connotations – A legal authority possessing adjudicatory powers has right to decide its own jurisdiction – It is a general rule of international arbitration law that an arbitral tribunal has power to determine its own jurisdiction – Ability of an arbitral tribunal to determine its own jurisdiction is an important facet of arbitration jurisprudence because it gives effect to separability presumption – Separability presumption insulates arbitration agreement from defects of underlying contract and thereby ensures sustenance of tribunal’s jurisdiction over substantive rights and obligations of parties under underlying contract even after such a contract is put to an end – Doctrine of competence-competence allows tribunal to decide on all substantive issues arising out of underlying contract, including existence and validity of arbitration agreement – Doctrine of competence-competence is now a part of all major jurisdictions – Issue of stamping is a jurisdictional issue – Principle of negative competence-competence requires courts to leave issue of stamping to be decided by arbitral tribunal in first instance. (Paras 116, 131 and 132)

(I) Arbitration and Conciliation Act, 1996 – Sections 5 and 11(6A) – Article 11(2) of Model Law – Arbitral autonomy – Power of appointment of Arbitrators is vested with national courts to resolve deadlock in appointment of an Arbitrator – When parties enter into an arbitration agreement, it is their mutual and unequivocal intention to submit their disputes to an arbitral tribunal – In a situation where agreed procedure of parties fails, Model Law permits national courts to appoint arbitrators on a request of a party – To ensure that such disagreement between parties does not derail arbitral proceedings, international covenants as well as national laws allow judicial authorities to assist parties in appointing arbitrators – Basis for providing judicial intervention to the extent of determining validity of arbitration agreement is to ensure that courts do not mechanically appoint arbitrators in situations where arbitration does not have any contractual basis. (Paras 133, 135 and 138)

(J) Interpretation of Statute – Harmonious construction of Arbitration Act, Stamp Act and Contract Act – One of cardinal principles of interpretation of statutes is to discover and give effect to legislative intention – If a statute is susceptible to two interpretations, court will have to reject construction which will defeat plain intention of legislation – Court has to ascertain intention of legislation by considering not only clause to be interpreted, but also entirety of statute – Inconsistencies or contradictions may arise between statutes – In such situations, it is left to court to bring about a harmony between working of such statutes – Arbitration Act is a special law and Indian Contract Act and Stamp Act are general laws – General law must give way to a special law. (Paras 159, 166 and 167)

Per Sanjiv Khanna J. (Separate Assenting View)

(A) Arbitration and Conciliation Act, 1996 – Section 8 – Indian Stamp Act, 1899 – Sections 33 and 35 – Admissibility of arbitral award in evidence – Section 35 deals with admissibility etc. of an instrument and not invalidity – Section 35 permits admission of an unstamped or under-stamped instrument after same instrument is duly stamped – An instrument which is void ab initio or void, cannot be validated by mere consent or waiver, unless consent or wavier undoes cause of invalidity – Section 36 of Stamp Act incorporates doctrine of waiver, estoppel and implied consent – After due stamping as per Stamp Act, unstamped or insufficiently stamped instrument can be admitted in evidence, or be registered, authenticated or be acted upon by such person or public officer – Whole purport of Stamp Act is to make available certain dues and collect revenue, but it does not mean and imply an overriding effect on another statute operating in a completely different sphere – Enforceability of a decree cannot be a subject matter of Section 35 of Stamp Act, neither can limitation be said to be under suspension. (Paras 8, 11, 13 and 18)

(B) Judicial Discipline – Principle of Stare Decisis – Predictability and certainty are central tenets of law, especially in matters of commercial and routine nature – Adherence to principle of stare decisis is essential for parties to be able to rely on law to define their conduct in commercial or ordinary day to day dealings – Transient laws undermine public legitimacy and faith in t mandate of Rule of Law – Consistency in judicial decisions is conducive to reassuring parties of consequences of transactions forming part of their daily affairs. (Para 24)

(C) Contract Act, 1872 – Sections 21 and 22 – Void contract – An instrument whether unstamped or insufficiently stamped will not fall foul on the ground of consideration or object of agreement being immoral, neither will it fall foul as opposed to public policy – Jurisprudentially, it is important to distinguish terms and consequences of an agreement void ab initio, and a voidable agreement, and effect of illegality and violation of law on an agreement. (Paras 30 and 36)

Facts of the case:

An instrument which is unstamped or insufficiently stamped is inadmissible in evidence and cannot be acted upon in terms of its provisions. Arbitration agreements are often embedded in underlying instruments or substantive contracts. When an application is made for the appointment of an arbitrator, an objection is raised on the ground that the arbitration agreement is inadmissible because it is in an instrument which is unstamped or inadequately stamped. The primary issue that arises is whether such arbitration agreements would be non-existent, unenforceable, or invalid if the underlying contract is not stamped.

Findings of Court:

Reference to validity of an unstamped arbitration agreement, as mentioned in Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209, was only to serve the purpose of drawing a comparison between ‘existence’ and the ‘validity’ of an arbitration agreement, and not a comment or opinion on ‘existence’ of unstamped or under-stamped arbitration agreements.

Result : Reference answered.