An arbitration clause is enforceable if the underlying contract is enforceable; unstamped agreements can still allow arbitration to proceed pending resolution of stamping issues.

JUDGMENT

Anup Jairam Bhambhani J. (Oral)

ARB.P. 695/2021

1. By way of the present petition under section 11 of the Arbitration & Conciliation Act 1996 (`A&C Act' for short), the petitioner seeks appointment of an arbitrator to adjudicate upon the disputes that are stated to have arisen with the respondent from Work Order dated 04.12.2012 (`work order' for short).

2. Notice on this petition was issued on 02.08.2021, consequent to which the respondent filed its reply dated 16.12.2021.

3. Mr. Adarsh Kumar Tiwari, learned counsel for the petitioner has drawn the attention of this court to clause 15 of the work order, which comprises the arbitration agreement between the parties; and contemplates reference of disputes between them to arbitration in accordance with the A&C Act; with the `venue' of arbitration being at a designated office address at New Delhi.

4. For completeness, it may be recorded that a separate territorial jurisdiction provision is also contained in clause 18 of the work order, which also subjects the disputes between the parties to the jurisdiction of courts of law at New Delhi.

5. As per the record, the petitioner invoked arbitration vide Notice dated 28.04.2021; to which however, the respondent sent no reply.

6. However, in reply dated 16.12.2021 filed to the present petition, the respondent has taken the following three principal objections:

i. Objection I: The respondent's first objection is that the work order on which the petitioner has placed reliance has "not been duly stamped". It is accordingly contended, that the work order requires to be impounded by the court; and that since an agreement only becomes a contract if it is enforceable by law, and being unstamped, the work order cannot be enforced, and therefore, the arbitration clause contained therein is also not enforceable. In this regard the respondent has drawn attention to the provisions of sections 11(6A) and 7 of the A&C Act and to section 2(h) of the Indian Contract Act, 1872 to submit, that if an agreement is not enforceable in law, an arbitration clause contained therein is also not enforceable.

ii. Furthermore, learned counsel for the respondent relies upon the decision of the Hon'ble Supreme Court in Garware Wall Ropes Limited vs. Coastal Marine Construction and Engineering Limited, (2019)9 SCC 209 in support of this contention, in particular on paras 22 and 29, which held as follows:

"22. 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 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(6-A), 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 has, in no manner, been touched by the amendment of Section 11(6- A).

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"29. This judgment in Hyundai Engg. Case 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(6-A) deals with "existence", as opposed to Section 8, Section 16 and Section 45, which deal with "validity" of an arbitration agreement is a