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2011 (5) Supreme 205
SUPREME COURT OF INDIA
R V Raveendran and A K Patnaik, JJ.
M/s. SMS Tea Estates Pvt. Ltd. — Appellant
versus
M/s. Chandmari Tea Co. Pvt. Ltd. — Respondent
Civil Appeal No. 5820 of 2011
[Arising out of SLP [C] No.24484/2010]
Decided on : 20-7-2011
Arbitration & Conciliation Act, 1996- Section 11, 16(1)(a) - Indian Stamp Act, 1899-Section 33 -Application filed by appellant for appointment of an arbitrator- Issue in consideration Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable- When a lease deed or any other instrument is relied upon as contending the arbitration agreement, court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped- If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in section 38 of Stamp Act- The court cannot act upon such a document or the arbitration clause therein- But if the deficit duty and penalty is paid in the manner set out in section 35 or section 40 of the Stamp Act, the document can be acted upon or admitted in evidence (Para 11)
Arbitration & Conciliation Act, 1996- Section 11, 16(1)(a) - Application filed by appellant for appointment of an arbitrator- Issue in consideration whether there was an arbitration agreement between appellant and respondent and whether an Arbitrator ought to have been appointed- Instantly appellant sought arbitration with regard to for enforcing an alleged agreement of sale of two tea estates, for enforcing the lease for thirty years and for recovery of amounts spent by it in regard to the estates on the assumption that it was entitled to purchase the property or at least have a lease of 30 years.-Alleged agreement of sale was entered prior to the lease deed and there was no arbitration agreement in regard to such agreement of sale- When admittedly there is no arbitration agreement in regard to the alleged agreement of sale, appellant could not seek arbitration with reference to any dispute regarding such agreement of sale, whether it was for performance or for damages for breach or any other relief arising out of or with reference to the agreement of sale- An Arbitrator can no doubt be appointed in regard to any disputes relating to the lease deed- But as the lease deed was not registered, Arbitrator could not rely upon the lease deed or any term thereof and the lease deed cannot affect the immovable property which was the subject matter of the lease nor be received as evidence of any transaction affecting such property- Hence, held that Arbitrator would not be able to entertain any claim for enforcement of the lease-Impugned order of High Court set aside and matter remitted to High Court to first decide the issue of stamp duty, and if document was duly stamped, then appoint an arbitrator in accordance with law-Appeal allowed. (Paras 17 to 21)
Facts of the Case :
Issue in consideration in present appeal was whether an arbitration agreement contained in an unregistered but compulsorily registrable instrument is valid and enforceable and Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable.
Findings of the Court :
Held An arbitration agreement does not require registration under the Registration Act- Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument- Therefore having regard to the proviso to section 49 of Registration Act read with section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.
It was further held that If what is produced is a certified copy of the agreement/contract/instrument containing the arbitration clause, it should disclose the stamp duty that has been paid on the original. Section 33 casts a duty upon every court, that is a person having by law authority to receive evidence before whom an unregistered instrument chargeable with duty is produced, to examine the instrument in order to ascertain whether it is duly stamped. If the court comes to the conclusion that the instrument is not duly stamped, it has to impound document and deal with it as per section 38 of the Stamp Act.Hence, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped- If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in section 38 of Stamp Act. The court cannot act upon such a document or the arbitration clause therein. But if the deficit duty and penalty is paid in the manner set out in section 35 or section 40 of the Stamp Act, the document can be acted upon or admitted in evidence
JUDGMENT
R.V.Raveendran, J. —
Leave granted. Heard.
2. The appellant filed an application under section 11 of the Arbitration & Conciliation Act, 1996 (‘Act’ for short) for appointment of an arbitrator. The averments made in the said application in brief were as under:
2.1) On 7.10.2006 the appellant requested the respondent to grant a long term lease in respect of two Tea estates (Chandmari Tea Estate and Burahapahar Tea Estate). A lease deed dated 21.12.2006 was executed between the respondent and appellant under which respondent granted a lease to the appellant for a term of 30 years in regard to the said two Tea estates with all appurtenances. Clause 35 of the said lease deed provided for settlement of disputes between the parties by arbitration. As the estates were hypothecated to United Bank of India, on 27.12.2006, the respondent requested the said bank for issue of a no objection certificate for entering into a long term lease. The Bank sent a reply dated 17.7.2007, stating that it would issue a no objection certificate for the lease, if the entire balance amount due to it was deposited by 14.8.2007.
2.2) Prior to the execution of the said lease deed, on 29.11.2006 the respondent had offered to sell the two Tea estates to the appellant for a consideration of Rupees four crores. The appellant agreed to purchase them subject to detailed verification. The appellant wrote a letter dated 27.6.2007 to the respondent agreeing to purchase the said two Tea estates.
2.3) The appellant invested huge sums of money for improving the tea estates in the expectation that it would either be purchasing the said estates or have a lease for 30 years. The respondent however abruptly and illegally evicted the appellant from the two estates and took over their management in January 2008. The appellant thereafter wrote a letter dated 28.3.2008 to the respondent expressing its willingness to purchase the said two estates for a mutually agreed upon consideration and also discharge the liability towards the bank.
2.4) The appellant issued a notice dated 5.5.2008 calling upon the respondent to refer the matter to arbitration under section 35 of the lease deed. The respondent failed to comply. According to appellant the dispute between the parties related to the claim of the appellant that the respondent should either sell the estates to the appellant, or permit the appellant to continue in occupation of the estates for 30 years as lessees or reimburse the amounts invested by it in the two estates and the payments made to the Bank.
3. The respondents opposed the said application. The respondents contended that the unregistered lease deed dated 21.12.2006 for thirty years was invalid, unenforceable and not binding upon the parties, having regard to section 107 of Transfer of Property Act 1882 (‘TP Act’ for short) and section 17 and section 49 of the Registration Act, 1908 (‘Registration Act’ for short); that the said lease deed was also not duly stamped and was therefore invalid, unenforceable and not binding, having regard to section 35 of Indian Stamp Act, 1899; that clause 35 providing for arbitration, being part of the said lease deed, was also invalid and unenforceable. The respondent denied that they had agreed to sell the two tea estates to the respondent for a consideration of Rupees four crores. The appellant also denied that the respondent had invested any amount in the tea estates. It contended that as the lease deed itself was invalid, the appellant could not claim appointment of an arbitrator under the arbitration agreement forming part of the said deed.
4. The learned Chief Justice of Guwahati High Court dismissed the appellant’s application by order dated 28.5.2010. He held that the lease deed was compulsorily registrable under section 17 of the Registration Act and section 106 of the TP Act; and as the lease deed was not registered, no term in the said lease deed could be relied upon for any purpose and therefore clause 35 could
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