REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  3631            OF 2019 (Arising out of Special Leave Petition (Civil) No. 9213 of 2018)

GARWARE WALL ROPES LTD.    … APPELLANT

VERSUS

COASTAL MARINE CONSTRUCTIONS  & ENGINEERING LTD.           … RESPONDENT

JUDGMENT

R.F. NARIMAN, J.  

1. Leave granted.

2. This appeal arises out of a sub-contract given by the appellant to

the respondent in respect of work to be done for installation of a geo-

textile tubes embankment with toe mound at village Pentha in Odisha

for protection against coastal erosion. The sub-contract agreement is

dated  14.06.2013,  Annexure  III  of  which  contains  the  following

arbitration clause:

“Any and all claims, disputes, questions or controversies involving the parties and arising in connection with the Agreement  or  execution,  interpretation,  validity, performance, termination hereof which cannot be finally

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resolved by such parties [sic through] negotiation shall be resolved by final and binding arbitration held in Pune. The disputes shall be referred to a sole arbitrator to be appointed  by  GWRL  and  COMACOE  jointly  in agreement.”

3. Disputes  arose  between  the  parties,  and  on  02.01.2015,  the

appellant terminated the sub-contract. As a result, on 20.07.2016, the

respondent  wrote  to  the  appellant  stating  that  as  disputes  and

differences  had  arisen  between  the  parties,  notice  was  given  of

appointment  of  Mr.  Mihir  Naniwadekar,  Advocate,  as  sole  arbitrator.

The appellant replied on 17.08.2016, stating that the appointment of

Mr. Naniwadekar as sole arbitrator was not acceptable as invocation of

arbitration  in  pursuance  of  the  agreement  is  premature.  The

respondent,  therefore,  filed  a  petition  under  Section  11  of  the

Arbitration  and  Conciliation  Act,  1996  [“1996  Act”]  on  10.02.2017

before  the  Bombay  High  Court.  By  the  impugned  judgment  dated

09.03.2018, the Section 11 petition was allowed and Mr. Naniwadekar

was  appointed  as  sole  arbitrator  to  adjudicate  upon  disputes  and

differences  which  have  arisen  between  the  appellant  and  the

respondent in relation to the sub-contract dated 14.06.2013.

4. The question raised in this appeal is as to what is the effect of an

arbitration  clause  contained  in  a  contract  which  requires  to  be

stamped. This Court, in SMS Tea Estates (P) Ltd. v. Chandmari Tea

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Co. (P) Ltd., (2011) 14 SCC 66 [“SMS Tea Estates”], has held that

where an arbitration clause is contained in an unstamped agreement,

the provisions of  the Indian Stamp Act,  1899 [“Indian Stamp Act”]

require the Judge hearing the Section 11 application to impound the

agreement and ensure that stamp duty and penalty (if any) are paid

thereon  before  proceeding  with  the  Section  11  application.  The

question is whether Section 11(6A), which has been introduced by way

of  the  Arbitration  and  Conciliation  (Amendment)  Act,  2015

[“Amendment Act, 2015”], has removed the basis of this judgment, so

that the stage at which the instrument is to be impounded is not by the

Judge hearing the Section 11 application, but by an arbitrator who is

appointed  under  Section  11,  as  has  been  held  by  the  impugned

judgment.

5. Mr. Dhruv Mehta, learned Senior Advocate appearing on behalf

of the appellant, has taken us through the sub-contract as well as the

arbitration  clause  contained  therein.  He  relied  strongly  upon  the

Maharashtra  Stamp  Act,  1958  [“Maharashtra  Stamp  Act”],  and

Sections 33 and 34 thereof, in particular. According to him, these are

provisions which are similar to the provisions contained in Sections 33

and 35 of the Indian Stamp Act, which, as held in  SMS Tea Estates

(supra),  requires  judicial  authorities  to  impound  such  instruments,

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which cannot be admitted in evidence or cannot be acted upon until

duly stamped.  According to him, the judgment in  SMS Tea Estates

(supra) continues to apply even after the introduction of Section 11(6A)

to  the 1996 Act,  by which the Court  is  now to confine itself  to  the

examination of the existence of an arbitration agreement. Relying upon

the  246th Law  Commission  Report,  which  led  to  the  amendment

contained in Section 11(6A), together with the Statement of Objects

and  Reasons  appended  to  the  Arbitration  and  Conciliation

(Amendment) Bill,  2015, Mr. Mehta argued that it was clear that the

amendment  was  necessitated  as  a  result  of  two  Supreme  Court

judgments in particular, namely, SBP & Co. v. Patel Engineering Ltd.,

(2005) 8 SCC 618 [“SBP & Co.”] and National Insurance Co. Ltd. v.

Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 [“Boghara Polyfab”], by

which the door was opened too wide, so that many preliminary issues

which do not relate to the existence of an arbitration agreement were

to be decided by the Court hearing the Section 11 application instead

of by the arbitrator. The focus being on these two judgments, it is clear

that it is these two judgments whose basis has been removed, leaving

SMS Tea Estates (supra) untouched. According to him, it is clear that

if, as a result of operation of law, an instrument is to be impounded,

upon which stamp duty and penalty (if any) are then to be paid, must

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be  followed  as  Section  11(6A)  does  not  seek  to  interfere  with  the

Indian Stamp Act at all. He relied upon certain judgments to buttress

his submissions.   

6. Ms.  Ridhi  Nyati,  learned Advocate appearing on behalf  of  the

respondent, referred us to Sections 8, 16, and 45 of the 1996 Act in

particular,  and made it  clear that  the object  of  the Amendment Act,

2015, in introducing Section 11(6A), was to confine the Court hearing

the  Section  11  application  to  examination  of  the  existence  of  an

arbitration  agreement  and  nothing  more.  She  made  a  distinction

between  “validity”  and  “existence”  of  an  arbitration  agreement,  and

argued that the provisions of the Indian Stamp Act are a fiscal measure

intended merely to collect revenue and, if at all, will go to “validity” of

an arbitration agreement and not to its “existence”. She relied strongly

upon  certain  judgments  which  made  it  clear  that  an  arbitration

agreement is independent of the agreement in which it is contained. So

long as it is in writing, and therefore, exists in fact, the Court hearing

the Section 11 application is  to  appoint  an arbitrator  and thereafter

leave all other preliminary issues to the arbitrator, as is mandated by

Section 11 of the 1996 Act. The whole object of the amendment would

be  defeated  as  otherwise,  a  mini-trial  would  be  conducted  at  the

Section 11 stage, requiring impounding of the agreement containing

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the arbitration clause. She also relied upon Section 11(13) of the 1996

Act, making it clear that the application under Section 11 ought to be

disposed of  within a period of  60 days from the date  of  service of

notice, and that this would not be possible if questions relating to the

Indian Stamp Act were to be decided at the Section 11 stage. Equally,

according to her,  no prejudice would be caused to any party  if  the

arbitrator  were  to  commence  the  arbitration  and  then  impound  the

documents  containing  the  arbitration  clause  by  applying  the  Indian

Stamp Act. She also argued that, in the present case, it is the appellant

who is to pay stamp duty under the Indian Contract Act,  1872, and

therefore, cannot take advantage of its own wrong in not doing so, as

has been correctly  held in  the impugned judgment.  She also relied

upon several other judgments to buttress her submissions.

7. Having heard learned counsel for both sides, it  is important to

first set out the relevant provisions contained in the 1996 Act. Section

2(1)(b) defines “arbitration agreement” as follows:

“2.  Definitions.—(1)  In  this  Part,  unless  the  context otherwise requires,—

xxx xxx xxx (b)  “arbitration  agreement”  means  an  agreement

referred to in Section 7; xxx xxx xxx”

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Section 7 is important and deals with what is meant by an arbitration

agreement. Section 7 states:

“7. Arbitration agreement.—(1) In this Part, “arbitration agreement”  means  an  agreement  by  the  parties  to submit to arbitration all  or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration  clause  in  a  contract  or  in  the  form  of  a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or

other means of telecommunication including communication  through  electronic  means which provide a record of the agreement; or

(c)  an  exchange  of  statements  of  claim  and defence  in  which  the  existence  of  the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”

Section 8,  which speaks of  the power to refer  parties to arbitration

where there is an arbitration agreement is also relevant, and states:

“8. Power to refer parties to arbitration where there is an  arbitration  agreement.—(1)  A  judicial  authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under  him,  so  applies  not  later  than  the  date  of submitting  his  first  statement  on  the  substance  of  the dispute, then, notwithstanding any judgment, decree or

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order  of  the  Supreme  Court  or  any  Court,  refer  the parties to arbitration unless it  finds that prima facie no valid arbitration agreement exists. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying  for  reference  to  arbitration  under  sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the court to  call  upon  the  other  party  to  produce  the  original arbitration agreement or its duly certified copy before that court. (3) Notwithstanding that an application has been made under  sub-section  (1)  and  that  the  issue  is  pending before  the  judicial  authority,  an  arbitration  may  be commenced or continued and an arbitral award made.”

Section 11(6A),  11(7),  and 11(13)  are important  for  decision in this

case and are set out hereinbelow:

“11. Appointment of arbitrators.— xxx xxx xxx (6A) The Supreme Court  or,  as the case may be, the High Court, while considering any application under sub- section (4)  or  sub-section (5)  or  sub-section (6),  shall, notwithstanding  any judgment,  decree or  order  of  any court, confine to the examination of the existence of an arbitration agreement. xxx xxx xxx (7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Supreme Court or, as the case may be, the High Court or the person or institution  designated  by  such  court  is  final  and  no appeal including Letters Patent Appeal shall lie against such decision.

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xxx xxx xxx (13)  An  application  made  under  this  section  for appointment  of  an  arbitrator  or  arbitrators  shall  be disposed of by the Supreme Court or the High Court or the person or institution designated by such court, as the case  may  be,  as  expeditiously  as  possible  and  an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party. xxx xxx xxx”

Section 16(1) reads as follows:

“16.  Competence  of  arbitral  tribunal  to  rule  on  its jurisdiction.—(1)  The  arbitral  tribunal  may rule  on  its own jurisdiction, including ruling on any objections with respect  to  the  existence  or  validity  of  the  arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract  shall  be treated as an agreement independent  of  the  other  terms  of  the contract; and

(b)  a  decision by the arbitral  tribunal  that  the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

xxx xxx xxx”

Section 45, which speaks of the power of a judicial authority to refer

parties to arbitration, when it comes to agreements referred to by the

New York Convention of 1958, states as follows:

“45.  Power  of  judicial  authority  to  refer  parties  to arbitration.—Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (V of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said

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agreement is null and void, inoperative or incapable of being performed.”

8. Sections 33 and 34 of the Maharashtra Stamp Act, with which we

are directly concerned, read as follows:

“33. Examination and impounding of instruments.— (1)  Subject  to  the  provisions  of  section  32-A,  every person having by law or consent of parties authority to receive evidence and every person in charge of a public office,  except  an  officer  of  police  or  any  other  officer, empowered by law to investigate offences under any law for the time being in force, before whom any instrument chargeable,  in  his  opinion,  with  duty,  is  produced  or comes  in  the  performance  of  his  functions  shall,  if  it appears to him that such instrument is not duly stamped, impound the same irrespective whether the instrument is or is not valid in law. (2)  For that  purpose every such person shall  examine every  instrument  so  chargeable  and  so  produced  or coming  before  him  in  order  to  ascertain  whether  it  is stamped  with  a  stamp  of  the  value  and  description required by the law for  the time being in  force in  the State  when  such  instrument  was  executed  or  first executed:

Provided that,— (a) nothing herein contained shall be deemed to require any Magistrate or Judge of a Criminal Court  to  examine or  impound,  if  he does not think fit so to do any instrument coming before him in the course of any proceeding other than a  proceeding  under  Chapter  IX  or  Part  D  of Chapter X of the Code of Criminal Procedure, 1973; (b) in the case of a judge of a High Court, the duty  of  examining  and  impounding  any instrument under this section may be delegated to such officer as the Court may appoint in this behalf.

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(3) For the purposes of this section, in cases of doubt,—  (a) the State Government may determine what offices shall be deemed to be public offices; and (b) the State Government may determine who shall  be  deemed to  be  persons  in  charge  of public offices.

34.  Instruments  not  duly  stamped  inadmissible  in evidence,  etc.—No  instrument  chargeable  with  duty shall  be admitted in  evidence for  any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer unless  such  instrument  is  duly  stamped  or  if  the instrument is written on sheet of paper with impressed stamp such stamp paper is purchased in the name of one of the parties to the instrument:

Provided that,— (a) any such instrument shall, subject to all just exceptions,  be  admitted  in  evidence  on payment of,—

(i)  the  duty  with  which  the  same  is chargeable,  or  in  the  case  of  an instrument  insufficiently  stamped,  the amount  required  to  make  up  such duty, and (ii) a penalty at the rate of 2 per cent of the deficient portion of the stamp duty for every month or part thereof,  from the  date  of  execution  of  such instrument: Provided that, in no case, the amount

of  the  penalty  shall  exceed  double  the deficient portion of the stamp duty. (b) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of  the letters bears the  proper  stamp;  the  contract  or  agreement shall be deemed to be duly stamped;

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(c)  nothing herein contained shall  prevent the admission of any instrument in evidence in any proceeding  in  a  Criminal  Court,  other  than  a proceeding  under  Chapter  IX  or  Part  D  of Chapter X of the Code of Criminal Procedure, 1973; (d)  nothing herein contained shall  prevent the admission of any instrument in any Court when such instrument  has been executed by or  on behalf of the Government or where it bears the certificate  of  the  Collector  as  provided  by section 32 or any other provision of this Act; (e)  nothing herein contained shall  prevent the admission of a copy of any instrument or of an oral  admission  of  the  contents  of  any instrument,  if  the  stamp  duty  or  a  deficient portion  of  the  stamp  duty  and  penalty  as specified in clause (a) is paid.”

9. The case law under  Section 11(6) of  the Arbitration Act,  as it

stood prior to the Amendment Act, 2015, has had a chequered history.

In  Konkan Railway Corporation Ltd.  v.  Mehul  Construction Co.,

(2000) 7 SCC 201 [“Konkan Railway I”], it was held that the powers of

the  Chief  Justice  under  Section  11(6)  of  the  1996  Act  are

administrative in nature,  and that  the Chief  Justice or  his designate

does not act as a judicial authority while appointing an arbitrator. The

same view was reiterated in  Konkan Railway Corporation Ltd.  v.

Rani Construction (P) Ltd., (2002) 2 SCC 388 [“Konkan Railway II”].

10. However, in SBP & Co. (supra), a seven-Judge Bench overruled

this view and held that the power to appoint an arbitrator under Section

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11 is  judicial  and not  administrative.  The conclusions of  the seven-

Judge  Bench  were  summarised  in  paragraph  47  of  the  aforesaid

judgment. We are concerned directly with sub-paragraphs (i), (iv), and

(xii), which read as follows:

“(i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the  Act  is  not  an  administrative  power.  It  is  a  judicial power. xxx xxx xxx (iv) The Chief Justice or the designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request,  the existence of  a valid arbitration agreement, the existence or otherwise of a  live  claim,  the  existence  of  the  condition  for  the exercise of  his  power  and on the qualifications of  the arbitrator  or  arbitrators.  The  Chief  Justice  or  the designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. xxx xxx xxx (xii)  The  decision  in  Konkan  Rly.  Corpn.  Ltd.  v.  Rani Construction (P) Ltd. [(2002) 2 SCC 388] is overruled.”

This  position  was  further  clarified  in  Boghara  Polyfab  (supra) as

follows:

“22. Where  the  intervention  of  the  court  is  sought  for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. [(2005) 8 SCC 618]. This Court identified and segregated  the  preliminary  issues  that  may  arise  for consideration in an application under Section 11 of the Act  into  three  categories,  that  is,  (i)  issues  which  the

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Chief  Justice  or  his  designate  is  bound to  decide;  (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. 22.1. The  issues  (first  category)  which  the  Chief Justice/his designate will have to decide are:

(a)  Whether  the  party  making  the  application has approached the appropriate High Court. (b)  Whether  there is  an arbitration agreement and whether the party who has applied under Section  11  of  the  Act,  is  a  party  to  such  an agreement.

22.2. The  issues  (second  category)  which  the  Chief Justice/his  designate  may  choose  to  decide  (or  leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is a dead (long-barred) claim or a live claim. (b)  Whether  the  parties  have  concluded  the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.

22.3. The  issues  (third  category)  which  the  Chief Justice/his  designate  should  leave  exclusively  to  the Arbitral Tribunal are:

(i)  Whether  a  claim  made  falls  within  the arbitration  clause  (as  for  example,  a  matter which  is  reserved  for  final  decision  of  a departmental  authority  and  excepted  or excluded from arbitration). (ii)  Merits  or  any  claim  involved  in  the arbitration.”

11. As a result of these judgments, the door was wide open for the

Chief Justice or his designate to decide a large number of preliminary

aspects which could otherwise have been left  to be decided by the

arbitrator  under  Section  16  of  the  1996  Act.  As  a  result,  the  Law

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Commission of India, by its Report No. 246 submitted in August 2014,

suggested that various sweeping changes be made in the 1996 Act.

Insofar  as  SBP  &  Co. (supra)  and  Boghara  Polyfab  (supra) are

concerned,  the  Law  Commission  examined  the  matter  and

recommended the addition of a new sub-section, namely, sub-section

(6A) in Section 11. In so doing, the Law Commission recommendations

which are relevant and which led to the introduction of Section 11(6A)

are as follows:

“28. The Act recognizes situations where the intervention of the Court  is envisaged at the pre-arbitral stage, i.e. prior  to  the  constitution  of  the  arbitral  tribunal,  which includes  sections  8,  9,  11  in  the  case  of  Part  I arbitrations  and  section  45  in  the  case  of  Part  II arbitrations. Sections 8, 45 and also section 11 relating to  “reference  to  arbitration”  and  “appointment  of  the tribunal”,  directly  affect  the  constitution  of  the  tribunal and  functioning  of  the  arbitral  proceedings.  Therefore, their operation has a direct and significant impact on the “conduct” of arbitrations. Section 9, being solely for the purpose of  securing interim relief,  although having the potential to affect the rights of parties, does not affect the “conduct”  of  the arbitration in  the same way as these other provisions. It is in this context the Commission has examined  and  deliberated  the  working  of  these provisions and proposed certain amendments. 29. The Supreme Court has had occasion to deliberate upon  the  scope  and  nature  of  permissible  pre-arbitral judicial intervention, especially in the context of section 11  of  the  Act.  Unfortunately,  however,  the  question before  the  Supreme  Court  was  framed  in  terms  of whether such a power is a “judicial” or an “administrative” power – which obfuscates the real issue underlying such nomenclature/description as to –

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   the  scope of  such  powers  –  i.e.  the  scope of arguments  which  a  Court  (Chief  Justice)  will consider  while  deciding  whether  to  appoint  an arbitrator  or  not  –  i.e.  whether  the  arbitration agreement  exists,  whether  it  is  null  and  void, whether it  is  voidable etc.;  and which of  these it should leave for decision of the arbitral tribunal.

   the nature of such intervention – i.e. would the Court  (Chief  Justice)  consider  the issues upon a detailed  trial  and  whether  the  same  would  be decided finally or  be left  for  determination of  the arbitral tribunal.  

30. After a series of cases culminating in the decision in SBP  v. Patel  Engineering,  (2005)  8  SCC  618,  the Supreme  Court  held  that  the  power  to  appoint  an arbitrator  under  section  11  is  a  “judicial”  power.  The underlying issues in this judgment, relating to the scope of  intervention,  were  subsequently  clarified  by RAVEENDRAN J in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267, where the Supreme Court laid down as follows –

“1.  The  issues  (first  category)  which  Chief Justice/his designate will have to decide are:

(a)  Whether  the  party  making  the  application has approached the appropriate High Court? (b) Whether there is an arbitration agreement and whether the party who has applied under section  11  of  the  Act,  is  a  party  to  such  an agreement?

2.  The  issues  (second  category)  which  the  Chief Justice/his designate may choose to decide are:

(a) Whether the claim is a dead (long barred) claim or a live claim? (b)  Whether  the  parties  have  concluded  the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection?

3.  The  issues  (third  category)  which  the  Chief Justice/his designate should leave exclusively to the arbitral tribunal are:

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(a) Whether a claim falls within the arbitration clause  (as  for  example,  a  matter  which  is reserved  for  final  decision  of  a  departmental authority  and  excepted  or  excluded  from arbitration)? (b)  Merits  of  any  claim  involved  in  the arbitration.”

31. The Commission is of the view that, in this context, the  same  test  regarding  scope  and  nature  of  judicial intervention, as applicable in the context of section 11, should also apply to sections 8 and 45 of the Act – since the scope and nature of judicial intervention should not change upon whether  a  party  (intending to  defeat  the arbitration agreement) refuses to appoint an arbitrator in terms  of  the  arbitration  agreement,  or  moves  a proceeding before a judicial authority in the face of such an arbitration agreement. 32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234, (in the context of section 45 of the Act),  where the Supreme Court  has ruled in  favour of looking at the issues/controversy only prima facie. 33. It  is  in  this  context,  the  Commission  has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the  Court/Judicial  Authority  finds  that  the  arbitration agreement does not exist or is null and void. In so far as the  nature  of  intervention  is  concerned,  it  is recommended  that  in  the  event  the  Court/Judicial Authority  is  prima facie  satisfied against  the argument challenging the arbitration agreement, it shall appoint the arbitrator  and/or  refer  the parties to arbitration,  as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence  of  the  arbitration  agreement  to  be  finally

17

determined  by  the  arbitral  tribunal.  However,  if  the judicial authority concludes that the agreement does not exist,  then  the  conclusion  will  be  final  and  not  prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, under sections 8 and 11 respectively, such a decision will  be final  and non-appealable. An appeal can be maintained under section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator.”

12. Pursuant  to  the  Law  Commission  recommendations,  Section

11(6A) was introduced first by Ordinance and then by the Amendment

Act,  2015.  The  Statement  of  Objects  and  Reasons  which  were

appended to the Arbitration and Conciliation (Amendment) Bill,  2015

which introduced the Amendment Act, 2015 read as follows:

“STATEMENT OF OBJECTS AND REASONS xxx xxx xxx 6.  It  is  proposed  to  introduce  the  Arbitration  and Conciliation  (Amendment)  Bill,  2015,  to  replace  the Arbitration  and  Conciliation  (Amendment)  Ordinance, 2015, which inter alia, provides for the following, namely: — (i) to amend the definition of “Court” to provide that in the case of international commercial arbitrations, the Court should be the High Court;  (ii)  to  ensure  that  an  Indian  Court  can  exercise jurisdiction to grant interim measures, etc., even where the seat of the arbitration is outside India;  (iii) an application for appointment of an arbitrator shall be disposed of by the High Court or Supreme Court, as the case may be, as expeditiously as possible and an endeavour  should  be  made  to  dispose  of  the  matter within a period of sixty days;  

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(iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court  shall  examine  the  existence  of  a  prima  facie arbitration agreement and not other issues;  (v)  to  provide  that  the  arbitral  tribunal  shall  make  its award within a period of twelve months from the date it enters  upon  the  reference  and  that  the  parties  may, however, extend such period up to six months, beyond which period any extension can only be granted by the Court, on sufficient cause;  (vi) to provide that a model fee Schedule on the basis of which High Courts may frame rules for the purpose of determination of fees of arbitral tribunal,  where a High Court appoints arbitrator in terms of section 11 of the Act; (vii)  to  provide that  the parties  to  dispute  may at  any stage  agree  in  writing  that  their  dispute  be  resolved through  fast  track  procedure  and  the  award  in  such cases shall be made within a period of six months;  (viii) to provide for neutrality of arbitrators, when a person is approached in connection with possible appointment as an arbitrator;  (ix) to provide that application to challenge the award is to be disposed of by the Court within one year. 7. The amendments proposed in the Bill will ensure that arbitration  process  becomes  more  user-friendly,  cost effective and lead to expeditious disposal of cases.  xxx xxx xxx”

13. A reading  of  the  Law  Commission  Report,  together  with  the

Statement of Objects and Reasons, shows that the Law Commission

felt that the judgments in  SBP & Co. (supra) and  Boghara Polyfab

(supra) required a relook, as a result of which, so far as Section 11 is

concerned, the Supreme Court or, as the case may be, the High Court,

while considering any application under Section 11(4) to 11(6) is to

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confine  itself  to  the  examination  of  the  existence  of  an  arbitration

agreement and leave all other preliminary issues to be decided by the

arbitrator.  The  question  is  as  to  whether  the  decision  in  SMS Tea

Estates (supra)  has  also  been  done  away  with  by  the  expression

“notwithstanding  any  judgment,  decree  or  order  of  any  Court”

contained in Section 11(6A).

14. In SMS Tea Estates (supra), this Court was confronted with an

arbitration  clause,  namely,  Clause  35  of  a  lease  deed  dated

21.12.2006 for a term of 30 years in regard to two tea estates. The

lease deed was neither stamped nor registered. Paragraph 9 of the

judgment set out the questions that arose for consideration as follows:

“9. On  the  contentions  urged  the  following  questions arise for consideration:

(i) Whether an arbitration agreement contained in  an  unregistered  (but  compulsorily registerable)  instrument  is  valid  and enforceable? (ii)  Whether  an  arbitration  agreement  in  an unregistered  instrument  which  is  not  duly stamped, is valid and enforceable? (iii)  Whether there is an arbitration agreement between the appellant and the respondent and whether an arbitrator should be appointed?”

When it came to the question of an arbitration clause contained in an

unregistered lease deed, this Court held:

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“12. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts—one in regard to the substantive terms of the main contract and the other relating to resolution of disputes—had  been  rolled  into  one,  for  purposes  of convenience.  An  arbitration  clause  is  therefore  an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance  is  terminated  or  comes  to  an  end  on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. 13. Similarly, when an instrument or deed of transfer (or a document affecting immovable property)  contains an arbitration agreement,  it  is  a collateral  term relating to resolution  of  disputes,  unrelated  to  the  transfer or transaction affecting the immovable property.  It  is as if two documents—one affecting the immovable  property requiring registration and the other relating to resolution of disputes which is not  compulsorily registerable—are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid  or  enforceable,  the  arbitration  agreement  would remain  unaffected  for  the  purpose  of  resolution  of disputes arising with reference to the deed of transfer. 14. These  principles  have  now  found  statutory recognition  in  sub-section  (1)  of  Section  16  of  the Arbitration and Conciliation Act, 1996 which is extracted below:

“16. Competence of Arbitral Tribunal to rule on its jurisdiction.—(1) The Arbitral  Tribunal may rule on its own jurisdiction, including ruling on any objections with respect  to  the  existence  or  validity  of  the  arbitration agreement, and for that purpose—

(a) an arbitration clause which forms part of a contract shall  be  treated  as  an  agreement  independent  of  the other terms of the contract; and

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(b) a decision by the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” 15. But where the contract or instrument is voidable at the option of a party (as for example under Section 19 of the Contract Act, 1872), the invalidity that attaches itself to  the  main  agreement  may  also  attach  itself  to  the arbitration  agreement,  if  the  reasons  which  make  the main agreement voidable, exist in relation to the making of  the  arbitration  agreement  also.  For  example,  if  a person is made to sign an agreement to sell his property under threat of physical harm or threat to life, and the said person repudiates the agreement  on that  ground, not  only  the  agreement  for  sale,  but  any  arbitration agreement therein will not be binding. 16. 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  the  Registration  Act  read  with  Section 16(1)(a)  of  the  Act,  an  arbitration  agreement  in  an unregistered but compulsorily registerable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.”

However, when it came to an unstamped lease deed which contained

an arbitration clause, this Court, after setting out Sections 33 and 35 of

the Indian Stamp Act held:

“19. Having  regard  to  Section  35  of  the  Stamp  Act, unless the stamp duty and penalty due in respect of the instrument  is  paid,  the  court  cannot  act  upon  the instrument,  which  means  that  it  cannot  act  upon  the arbitration  agreement  also  which  is  part  of  the instrument. Section 35 of the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp

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Act,  does not contain a proviso like Section 49 of  the Registration Act  enabling the instrument to be used to establish a collateral transaction. 20. The  Scheme for  Appointment  of  Arbitrators  by  the Chief Justice of Gauhati  High Court,  1996 requires an application  under  Section  11  of  the  Act  to  be accompanied by the original arbitration agreement or a duly certified copy thereof. In fact, such a requirement is found in the scheme/rules of almost all the High Courts. 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 (as also every arbitrator who is a person having by  consent  of  parties,  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 the document and deal with it as per Section 38 of the Stamp Act. 21. Therefore,  when  a  lease  deed  or  any  other instrument  is  relied upon as contending the arbitration agreement,  the  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 the 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. 22. We  may  therefore  sum  up  the  procedure  to  be adopted where the arbitration clause is  contained in a document  which  is  not  registered  (but  compulsorily registerable) and which is not duly stamped: 22.1. The court should, before admitting any document into evidence or acting upon such document,  examine whether  the instrument/document  is  duly stamped and

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whether  it  is  an  instrument  which  is  compulsorily registerable. 22.2. If the document is found to be not duly stamped, Section  35  of  the  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 Sections 35 and 38 of the Stamp Act. 22.3. 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  Section  of  the  Stamp Act),  and  the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped. xxx xxx xxx”

In conclusion, this Court held:

“32. In view of the above this appeal is allowed, the order of the High Court is set aside and the matter is remitted to the learned Chief Justice of the Gauhati High Court to first decide the issue of stamp duty, and if the document is duly stamped, then appoint an arbitrator in accordance with law.”

15. It  will  be  noticed  from the  aforesaid  judgment  that  where  an

arbitration  clause  is  contained  in  an  agreement  or  conveyance,

different consequences ensue depending on whether the agreement or

conveyance is unregistered or unstamped. It is settled by SBP & Co.

(supra)  that  Section 16 of  the 1996 Act  has full  play only after  the

arbitral tribunal is constituted, without intervention of the Court under

Section 11. This Court, in the aforesaid judgment, held:

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“12. Section 16 of  the Act  only  makes explicit  what  is even otherwise implicit, namely, that the Arbitral Tribunal constituted under the Act has the jurisdiction to rule on its own  jurisdiction,  including  ruling  on  objections  with respect  to  the  existence  or  validity  of  the  arbitration agreement.  Sub-section  (1)  also  directs  that  an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of  the  contract.  It  also  clarifies  that  a  decision  by the Arbitral Tribunal that the contract is null  and void shall not entail ipso jure the invalidity of the arbitration clause. Sub-section  (2)  of  Section  16  enjoins  that  a  party wanting to raise a plea that the Arbitral Tribunal does not have jurisdiction, has to raise that objection not later than the submission of the statement of defence, and that the party  shall  not  be  precluded  from  raising  the  plea  of jurisdiction  merely  because  he  has  appointed  or participated  in  the  appointment  of  an  arbitrator.  Sub- section (3) lays down that a plea that the Arbitral Tribunal is exceeding the scope of its authority, shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. When the Tribunal  decides these two questions,  namely,  the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in  an appeal  against  the final  award, when the objection is overruled. Sub-section (5) enjoins that if the Arbitral Tribunal overrules the objections under sub-section (2) or (3), it should continue with the arbitral proceedings and make an arbitral award. Sub-section (6) provides that a party aggrieved by such an arbitral award overruling  the  plea  on  lack  of  jurisdiction  and  the exceeding  of  the  scope  of  authority,  may  make  an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the Arbitral Tribunal to rule upon its own jurisdiction and the existence of  the arbitration clause, envisaged by Section 16(1), once the Chief  Justice  or  the  person  designated  by  him  had appointed an arbitrator  after  satisfying himself  that  the

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conditions  for  the  exercise  of  power  to  appoint  an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-section  (7)  of  Section  11  of  the  Act,  to  such  a decision of the Chief Justice, the Arbitral Tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an Arbitral Tribunal, the Arbitral Tribunal can turn round and say that  the Chief  Justice had no jurisdiction or authority to appoint the Tribunal, the very creature brought into existence by the exercise of power by its  creator,  the  Chief  Justice.  The  argument  of  the learned Senior Counsel, Mr K.K. Venugopal that Section 16  has  full  play  only  when  an  Arbitral  Tribunal  is constituted without  intervention under  Section  11(6)  of the  Act,  is  one  way  of  reconciling  that  provision  with Section 11 of the Act, especially in the context of sub- section (7) thereof. We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral  Tribunal  and  at  subsequent  stages  of  the proceeding except in an appeal in the Supreme Court in the case of the decision being by the Chief Justice of the High Court or by a Judge of the High Court designated by him.”

In view of the law laid down by seven-Judge Bench, it  is difficult  to

accede to the argument made by the learned counsel on behalf of the

respondent  that  Section  16  makes  it  clear  that  an  arbitration

agreement  has  an  independent  existence  of  its  own,  and  must  be

applied while deciding an application under Section 11 of the 1996 Act.

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16. It  will  be  seen  that  neither  in  the  Statement  of  Objects  and

Reasons nor in the Law Commission Report is there any mention of

SMS Tea Estates (supra). This is for the very good reason that the

Supreme  Court  or  the  High  Court,  while  deciding  a  Section  11

application, does not, in any manner, decide any preliminary question

that arises between the parties. The Supreme Court or the High Court

is only giving effect to the provisions of a mandatory enactment which,

no doubt, is to protect revenue.  SMS Tea Estates (supra) has taken

account of the mandatory provisions contained in the Indian Stamp Act

and held them applicable to judicial authorities, which would include

the Supreme Court  and the High Court  acting under  Section 11.  A

close look at Section 11(6A) would show that when the Supreme Court

or  the  High  Court  considers  an  application  under  Section  11(4)  to

11(6),  and  comes  across  an  arbitration  clause  in  an  agreement  or

conveyance which is unstamped, it is enjoined by the provisions of the

Indian Stamp Act to first impound the agreement or conveyance and

see that stamp duty and penalty (if any) is paid before the agreement,

as a whole, can be acted upon. It is important to remember that the

Indian Stamp Act applies to the agreement or conveyance as a whole.

Therefore, it is not possible to bifurcate the arbitration clause contained

in  such  agreement  or  conveyance so  as to  give it  an  independent

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existence,  as  has  been  contended  for  by  the  respondent.  The

independent existence that could be given for certain limited purposes,

on a harmonious reading of the Registration Act, 1908 and the 1996

Act  has  been  referred  to  by  Raveendran,  J.  in  SMS  Tea  Estates

(supra) when it comes to an unregistered agreement or conveyance.

However,  the Indian Stamp Act,  containing no such provision as is

contained in Section 49 of the Registration Act, 1908, has been held by

the  said  judgment  to  apply  to  the  agreement  or  conveyance  as  a

whole, which would include the arbitration clause contained therein. It

is clear, therefore, that the introduction of Section 11(6A) does not, in

any manner, deal with or get over the basis of the judgment in  SMS

Tea  Estates (supra),  which  continues  to  apply  even  after  the

amendment of Section 11(6A).   

17. Looked at from a slightly different angle, an arbitration agreement

which is  contained in  an agreement  or  conveyance is  dealt  with in

Section 7(2) of the 1996 Act. We are concerned with the first part of

Section  7(2)  on  the  facts  of  the  present  case,  and  therefore,  the

arbitration clause that is contained in the sub-contract in question is the

subject matter of the present appeal. It is significant that an arbitration

agreement may be in the form of an arbitration clause “in a contract”.    

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18. Sections 2(a), 2(b), 2(g) and 2(h) of the Indian Contract Act, 1872

[“Contract Act”] read as under:

“2.  Interpretation  clause.—In  this  Act  the  following words and expressions are used in the following senses, unless a contrary intention appears from the context:—

(a)  When one person signifies  to  another  his willingness  to  do  or  to  abstain  from  doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal; (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is  said  to  be  accepted.  A  proposal,  when accepted, becomes a promise; xxx xxx xxx (g) An agreement not enforceable by law is said to be void; (h)  An  agreement  enforceable  by  law  is  a contract; xxx xxx xxx”

19. 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 Indian 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(6A), 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

29

(supra) has, in no manner, been touched by the amendment of Section

11(6A).   

20. We now come to some of the judgments cited by both the sides.

21. Learned counsel for the respondent relied heavily upon Enercon

(India)  Ltd.  &  Ors.  v.  Enercon  GmbH  &  Anr., (2014)  5  SCC  1

[“Enercon”],  in  particular,  paragraph  83  thereof,  which  reads  as

follows:

“83. The  concept  of  separability  of  the  arbitration clause/agreement  from  the  underlying  contract  is  a necessity to ensure that  the intention of  the parties to resolve the disputes by arbitration does not  evaporate into thin air with every challenge to the legality, validity, finality or breach of the underlying contract. The Indian Arbitration Act, 1996, as noticed above, under Section 16 accepts  the  concept  that  the  main  contract  and  the arbitration  agreement  form two  independent  contracts. Commercial rights and obligations are contained in the underlying,  substantive,  or  the  main  contract.  It  is followed  by  a  second  contract,  which  expresses  the agreement and the intention of the parties to resolve the disputes  relating  to  the  underlying  contract  through arbitration.  A remedy is  elected by parties  outside the normal civil  court remedy. It  is true that support of the national courts would be required to ensure the success of  arbitration,  but  this  would  not  detract  from  the legitimacy or  independence of  the collateral  arbitration agreement, even if it is contained in a contract, which is claimed to be void or voidable or unconcluded by one of the parties.”

Paragraph 83 follows upon paragraph 79 of the judgment, which reads

as follows:

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“79. In our opinion, all the issues raised by the appellants about  the  non-existence  of  a  concluded  contract  pale into insignificance in the face of “Heads of Agreement on the proposed IPLA dated 23-5-2006”.  Clause 3  of  the Heads of Agreement provides as under:

“3. Governing law and jurisdiction 3.1 This paragraph is legally binding. 3.2  This  Heads  of  Agreement  is  (and  all

negotiations  and  any  legal  agreements prepared in connection with the IPLA shall be) governed by and construed in accordance with the law of Germany.

3.3 The parties irrevocably agree that Clause 18  of  the  proposed  draft  IPLA shall  apply  to settle any dispute or claim that arises out of or in  connection  with  this  memorandum  of understanding and negotiations relating to the proposed IPLA.”

A bare perusal of this clause makes it abundantly clear that the parties have irrevocably agreed that Clause 18 of the proposed IPLA shall apply to settle any dispute or claim  that  arises  out  of  or  in  connection  with  this memorandum of understanding and negotiations relating to IPLA.”

The focus in Enercon (supra) was as to whether an arbitration clause

will apply even if there is no concluded contract entered into between

the parties.  Since the “Heads of  Agreement”  provided that  disputes

which  arose  out  of  the  Memorandum  of  Understanding  and

negotiations  relating  to  the  Intellectual  Property  Licence  Agreement

(IPLA) were arbitrable, this Court held that the arbitration agreement in

the facts of that case was separate from the main contract, making it a

case which falls under the second part (and not under the first part) to

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Section 7(2), namely, that an arbitration agreement may be in the form

of a separate agreement. This judgment, therefore, does not take the

respondent very much further. It may only be noted that the judgment

in  Ashapura  Mine-Chem  Ltd.  v.  Gujarat  Mineral  Development

Corporation, (2015) 8 SCC 193 merely followed Enercon (supra) and

would be inapplicable for the same reasons outlined by us above.

22. The other judgment strongly relied upon by the learned counsel

for the respondent is Duro Felguera, S.A. v. Gangavaram Port Ltd.,

(2017) 9 SCC 729 [“Duro Felguera”], and in particular, paragraph 59

of the judgment of Kurian Joseph, J.  Paragraph 59 reads as follows:

“59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]  and  Boghara Polyfab [National  Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]. This position continued till the amendment  brought  about  in  2015.  After  the amendment, all that the courts need to see is whether an arbitration  agreement  exists—nothing  more,  nothing less. The legislative policy and purpose is essentially to minimise  the  Court’s  intervention  at  the  stage  of appointing  the  arbitrator  and  this  intention  as incorporated in Section 11(6-A) ought to be respected.”

This judgment also makes it clear that the mischief that was sought to

be remedied by the introduction of Section 11(6A) was contained in the

judgments of  SBP & Co. (supra) and Boghara Polyfab (supra). This

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judgment does not, in any manner, answer the precise issue that is

before us.

23. Indeed,  in  United  India  Insurance  Co.  Ltd.  and  Ors.  v.

Hyundai  Engineering and Construction Co.  Ltd.  and Ors.,  2018

SCC OnLine SC 1045 [“United India Insurance Co.”], a three-Judge

Bench of this Court, while dealing with an arbitration clause that arose

under  an  insurance policy,  distinguished  Duro Felguera (supra)  as

follows:

“12. The other decision heavily relied upon by the High Court  and  also  by  the  respondents  in  Duro  Felguera [Duro Felguera, S.A.  v. Gangavaram Port Ltd., (2017) 9 SCC 729], will be of no avail. Firstly, because it is a two- Judge Bench decision and also because the Court was not called upon to consider the question which arises in the present case, in reference to clause 7 of the subject Insurance  Policy.  The  exposition  in  this  decision  is  a general  observation  about  the  effect  of  the  amended provision  and  not  specific  to  the  issue  under consideration. The issue under consideration has been directly dealt with by a three-Judge Bench of this Court in Oriental Insurance Company Limited [Oriental Insurance Company Ltd.  v. Narbheram Power and Steel (P) Ltd., (2018) 6 SCC 534],  following the exposition in  Vulcan Insurance Co. Ltd. v.  Maharaj Singh  [Vulcan Insurance Co. Ltd.  v.  Maharaj  Singh,  (1976) 1 SCC 943],  which, again, is a three-Judge Bench decision having construed clause similar to the subject clause 7 of the Insurance Policy. In paragraphs 11 & 12 of  Vulcan Insurance Co. Ltd. (supra), the Court answered the issue thus:

“11.  Although  the  surveyors  in  their  letter dated April 26, 1963 had raised a dispute as to the amount of any loss or damage alleged to have  been  suffered  by  Respondent  1,  the

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appellant  at  no point  of  time raised any such dispute. The  appellant  company  in  its  letter dated July 5 and 29, 1963 repudiated the claim altogether. Under clause 13 the company was not required to mention any reason of rejection of  the  claim  nor  did  it  mention  any.  But  the repudiation of the claim could not amount to the raising of  a dispute as to  the amount  of  any loss or damage alleged to have been suffered by Respondent 1. If  the rejection of the claim made by the insured be on the ground that he had suffered no loss as a result of the fire or the  amount  of  loss  was  not  to  the  extent claimed by him, then and then only, a difference could have arisen as to the amount of any loss or damage within the meaning of clause 18. In this case, however, the company repudiated its liability to pay any amount of loss or damage as claimed by Respondent 1. In other words, the dispute raised by the company appertained to its  liability  to  pay  any  amount  of  damage whatsoever.  In  our  opinion,  therefore,  the dispute raised by the appellant  company was not covered by the arbitration clause.

12. As  per  clause  13  on  rejection  of  the claim  by  the  company  an  action  or  suit, meaning  thereby  a  legal  proceeding  which almost invariably in India will be in the nature of a suit, has got to be commenced within three months  from  the  date  of  such  rejection; otherwise,  all  benefits  under  the  policy  stand forfeited. The rejection of the claim may be for the reasons indicated in the first part of clause 13,  such  as,  false  declaration,  fraud  or  wilful neglect of the claimant or on any other ground disclosed or undisclosed. But as soon as there is a rejection of the claim and not the raising of a  dispute  as  to  the  amount  of  any  loss  or damage, the only remedy open to the claimant is to commence a legal proceeding, namely, a suit, for establishment of the company's liability. It  may  well  be  that  after  the  liability  of  the

34

company  is  established  in  such  a  suit,  for determination  of  the  quantum  of  the  loss  or damage reference to arbitration will have to be resorted to in accordance with clause 18. But the arbitration clause, restricted as it is by the use of the words ‘if any difference arises as to the amount of any loss or damage’, cannot take within its sweep a dispute as to the liability of the  company  when  it  refuses  to  pay  any damage at all.”

xxx xxx xxx 14. From  the  line  of  authorities,  it  is  clear  that  the arbitration  clause  has  to  be  interpreted  strictly.  The subject clause 7 which is in pari materia to clause 13 of the policy considered by a three-Judge Bench in Oriental Insurance  Company  Limited  (supra),  is  a  conditional expression of intent. Such an arbitration clause will get activated  or  kindled  only  if  the  dispute  between  the parties is limited to the quantum to be paid under the policy. The liability should be unequivocally admitted by the insurer. That is the precondition and sine qua non for triggering the arbitration clause. To put it differently, an arbitration clause would enliven or invigorate only if the insurer admits or accepts its liability under or in respect of  the  concerned  policy.  That  has  been  expressly predicated in the opening part of clause 7 as well as the second paragraph of  the same clause.  In  the opening part,  it  is  stated  that  the  “(liability  being  otherwise admitted)”. This is reinforced and re-stated in the second paragraph in the following words:

“It  is  clearly  agreed  and  understood  that  no difference  or  dispute  shall  be  referable  to arbitration  as  herein  before  provided,  if  the Company has disputed or not accepted liability under or in respect of this Policy.”

15. Thus  understood,  there  can  be  no  arbitration  in cases where the insurance company disputes or  does not accept the liability under or in respect of the policy. 16. The core issue is whether the communication sent on 21st April,  2011  falls  in  the  excepted  category  of repudiation and denial of liability in toto or has the effect

35

of  acceptance  of  liability  by  the  insurer  under  or  in respect  of  the  policy  and  limited  to  disputation  of quantum. The High Court has made no effort to examine this  aspect  at  all.  It  only  reproduced  clause  7  of  the policy and in reference to the dictum in  Duro Felguera (supra) held that no other enquiry can be made by the Court  in  that  regard.  This  is  misreading  of  the  said decision and the amended provision and, in particular, mis-application  of  the  three-Judge  Bench  decisions  of this Court  in  Vulcan Insurance Co. Ltd.  (supra) and in Oriental Insurance Company Ltd. (supra). 17. Reverting  to  the  communication  dated  21st April, 2011, we have no hesitation in taking the view that the appellants  completely  denied  their  liability  and repudiated the claim of the JV (respondent Nos. 1 & 2) for  the  reasons  mentioned in  the  communication.  The reasons  are  specific.  No  plea  was  raised  by  the respondents  that  the  policy  or  the  said  clause  7  was void. The appellants repudiated the claim of the JV and denied  their  liability  in  toto  under  or  in  respect  of  the subject policy. It was not a plea to dispute the quantum to  be  paid  under  the  policy,  which  alone  could  be referred to arbitration in terms of clause 7. Thus, the plea taken  by  the  appellants  is  of  denial  of  its  liability  to indemnify the loss as claimed by the JV, which falls in the excepted category, thereby making the arbitration clause ineffective and incapable of being enforced, if  not non- existent. It is not actuated so as to make a reference to arbitration. In other words, the plea of the appellants is about falling in an excepted category and non-arbitrable matter within the meaning of the opening part of clause 7 and as re-stated in the second paragraph of the same clause. 18. In view of the above, it must be held that the dispute in question is non-arbitrable and respondent Nos. 1 & 2 ought to have resorted to the remedy of a suit. The plea of  respondent  Nos.  1  &  2  about  the  final  repudiation expressed by the appellants vide communication dated 17th April, 2017 will be of no avail. However, whether that factum can be taken as the cause of action for institution of the suit  is  a matter  which can be debated in those

36

proceedings.  We  may  not  be  understood  to  have expressed any opinion either way in that regard.

(emphasis in original)

24. This judgment 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(6A) deals with “existence”, as opposed to

Section 8, Section 16, and Section 45, which deal with “validity” of an

arbitration agreement is answered by this Court’s understanding of the

expression  “existence”  in  United  India  Insurance  Co.  (supra),  as

followed by us.

25. Other High Court judgments were relied upon in the context of

stamp duty, being the judgments contained in  JMD Ltd. v. Celebrity

Fitness India Pvt. Ltd., (2019) SCC OnLine Del 6483, B.D. Sharma v.

Swastik Infra Estate Pvt. Ltd. & Ors., (2018) SCC OnLine Del 13279,

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Sandeep Soni v. Sanjay Roy, (2018) SCC OnLine Del 11169, and

N.D. Developers Pvt. Ltd. v. Bharathi & Ors., (2018) SCC OnLine

Kar 2938. In view of  our holding in this  judgment,  these judgments

have not declared the law correctly, and are consequently, overruled. A

recent  Full  Bench judgment  of  the  Bombay High  Court  in  Gautam

Landscapes Pvt. Ltd. v. Shailesh Shah and Ors., Arb. Pet. No. 466

of 2017 [decided on 04.04.2019] has also been brought to our notice.

In  paragraph  120  thereof,  the  Full  Bench  answered  two  questions

framed by it as follows:

“120. In view of the above deliberation, we answer the questions as framed by us as follows:  (1) Whether  a  court,  under  the  Arbitration  and Conciliation  Act,  1996,  can  entertain  and  grant  any interim or ad-interim relief in an application under Section 9 of the said Act when a document containing arbitration clause is unstamped or insufficiently stamped?

In the Affirmative  (2) Whether,  inter alia, in view of Section 11 (6A) of the Arbitration  and  Conciliation  Act,  1996,  inserted  by Arbitration  and  Conciliation  (Amendment)  Act,  2016,  it would be necessary for the Court before considering and passing  final  orders  on  an  application  under  Section 11(6) of the Act to await the adjudication by the stamp authorities, in a case where the document objected to, is not adequately stamped?

In the Negative”

Question (2), having been answered contrary to our judgment, is held

to be incorrectly decided.

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26. Learned counsel for the respondent relied strongly upon Section

11(13)  of  the  1996  Act  to  show  that  the  60-day  period  would  be

breached  if  a  document  were  to  be  impounded  at  the  stage  of  a

Section 11(6) application. Stamp duty, when paid with penalty (if any),

would require adjudication by the stamp authorities, which would take

far more than the 60-day period that is laid down by Section 11(13).

Undoubtedly,  Section  11(13),  which  was  also  introduced  by

Amendment Act 3 of 2016, was enacted keeping one of the important

objectives of the 1996 Act in mind, namely, speedy disposal of disputes

by the arbitral tribunal, and appointment of an arbitrator having to be

made  as  expeditiously  as  possible,  therefore.  Thus,  a  harmonious

construction needs to be given to the provisions of the Maharashtra

Stamp Act and Section 11(13) of the 1996 Act by which, if it is possible,

both provisions ought  to  be subserved.  We have already seen that

under  the  Maharashtra  Stamp  Act,  the  object  of  impounding  an

instrument that is unstamped is to ensure that stamp duty and penalty

(if any) must be paid on such instrument before it is acted upon by any

authority.  Likewise,  under  Section  11(13)  of  the  1996  Act,  an

application made under  Section 11 for  appointment  of  an arbitrator

should be disposed of as expeditiously as possible, and, in any event,

an endeavour shall  be made to dispose of such application at least

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within a period of 60 days from the date of service of notice on the

opposite party.  

27. The doctrine of harmonious construction of statutes is strongly

imbedded in our interpretative canon. In  Sri Venkataramana Devaru

v.  State  of  Mysore,  [1958]  SCR  895,  Articles  25  and  26  of  the

Constitution  of  India  were  reconciled  by  applying  the  rule  of

harmonious construction thus:

“The result then is that there are two provisions of equal authority, neither of them being subject to the other. The question is how the apparent conflict between them is to be resolved. The rule of construction is well settled that when there are  in  an enactment  two provisions which cannot be reconciled with each other, they should be so interpreted that, if possible, effect could be given to both. This  is  what  is  known  as  the  rule  of  harmonious construction. Applying this rule, if  the contention of the appellants  is  to  be accepted,  then Article  25(2)(b)  will become  wholly  nugatory  in  its  application  to denominational  temples,  though,  as  stated  above,  the language  of  that  Article  includes  them.  On  the  other hand, if the contention of the respondents is accepted, then full effect can be given to Article 26(b) in all matters of religion, subject only to this that as regards one aspect of  them,  entry  into  a  temple  for  worship,  the  rights declared under Article 25(2)(b) will prevail. While, in the former  case,  Article  25(2)(b)  will  be  put  wholly  out  of operation, in the latter, effect can be given to both that provision  and  Article  26(b).  We must  accordingly  hold that  Article 26(b) must be read subject  to Article 25(2) (b).”

(at page 918)

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In  J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P.,

(1961)  3  SCR  185,  this  Court  applied  the  rule  of  harmonious

construction so that both provisions of a legislative instrument be given

effect to thus:

“To remove this incongruity, says the learned Attorney- General, apply the rule of harmonious construction and hold that clause 23 of the order has no application when an order is made on an application under clause 5(a). On the assumption that under clause 5(a) an employer can raise  a  dispute  sought  to  be  created  by  his  own proposed order of dismissal of workmen there is clearly this  disharmony  as  pointed  out  above  between  two provisions  viz.  clause  5(a)  and  clause  23;  and undoubtedly  we have to  apply  the rule  of  harmonious construction. In applying the rule, however, we have to remember  that  to  harmonise  is  not  to  destroy.  In  the interpretation of statutes the court, always presumes that the legislature inserted every part thereof for a purpose and  the  legislative  intention  is  that  every  part  of  the statute should have effect. These presumptions will have to be made in the case of rule-making authority also. On the  construction  suggested  by  the  learned  Attorney- General  it  is  obvious  that  by  merely  making  an application  under  clause  (5)  on  the  allegation  that  a dispute has arisen about the proposed action to dismiss workmen the  employer  can  in  every  case  escape the requirements of clause 23 and if for one reason or other every employer when proposing a dismissal  prefers to proceed  under  clause  5(a)  instead  of  making  an application under  clause 23,  clause 23 will  be a dead letter. A construction like this which defeats the intention of  the  rule-making  authority  in  clause  23  must,  if possible, be avoided.”

(at page 193)

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In Chief Inspector of Mines v. Lala Karam Chand Thapar, (1962) 1

SCR 9,  the  rule  of  harmonious  construction  was used to  reconcile

Section 31(4) of the Mines Act, 1952 and Section 24 of the General

Clauses Act. This Court held:

“If the words of Section 31(4) are construed to mean that the regulations became part of the Act to the extent that when  the  Act  is  repealed,  the  regulations  also  stand repealed, a conflict at once arises between Section 31(4) and the provisions of Section 24 of the General Clauses Act. In other words, the Mines Act, 1923, while saying in Section 31(4) that the repeal of the Act will result in the repeal of the regulations, will be saying, in the provisions of Section 24 of the General Clauses Act as read into it, that on the repeal of the Act, when the Act is repealed and re-enacted, the regulations will  not stand repealed but will  continue in force till  superseded by regulations made under the re-enacted Act. To solve this conflict the courts must apply the rule of harmonious construction. According to Mr Pathak we have perfect harmony if it is held  that  the  provisions  of  Section  24  of  the  General Clauses Act  will  have effect  only if  the regulations are such as survive the repeal of the parent Act and at the same  time,  construe  Section  31(4)  to  mean  that  the regulations became for all  purposes part and parcel of the Act. To harmonise is not however to destroy. The so- called  harmony  on  the  learned  counsel's  argument  is achieved by making the provisions of Section 24 of the General Clauses Act nugatory and in effects destroying them in relation to the Mines Act, 1923. We have to seek therefore  some  other  means  of  harmonising  the  two provisions.  The  reasonable  way  of  harmonising  that obviously suggests itself is to construe Section 31(4) to mean that the regulations on publication shall have for some  purposes,  say,  for  example,  the  purpose  of deciding the validity of the regulations, the same effect as if they were part of the Act, but for the purpose of the continuity of existence, they will not be considered part of the  Act,  so  that  even  though the  Act  is  repealed,  the

42

regulations will continue to exist, in accordance with the provisions of Section 24 of the General Clauses Act. This construction will give reasonable effect to Section 31(4) of the Mines Act, 1923 and at the same time not frustrate the  very  salutary  object  of  Section  24  of  the  General Clauses Act. ……”

(at pp. 19-20)

In Anwar Hasan Khan v. Mohd. Shafi, (2001) 8 SCC 540, this Court

succinctly  laid  down  what  is  meant  by  the  doctrine  of  harmonious

construction, thus:

“8. It is settled that for interpreting a particular provision of an Act,  the import and effect of the meaning of the words  and  phrases  used  in  the  statute  have  to  be gathered from the text, the nature of the subject-matter and  the  purpose  and  intention  of  the  statute.  It  is  a cardinal principle of construction of a statute that effort should be made in construing its provisions by avoiding a conflict  and  adopting  a  harmonious  construction.  The statute or  rules made thereunder should be read as a whole  and  one  provision  should  be  construed  with reference to the other provision to make the provision consistent  with  the object  sought  to  be achieved.  The well-known principle of harmonious construction is that effect  should  be  given  to  all  the  provisions  and  a construction  that  reduces  one  of  the  provisions  to  a “dead letter” is not harmonious construction. ……”

One  reasonable  way  of  harmonising  the  provisions  contained  in

Sections 33 and 34 of the Maharashtra Stamp Act, which is a general

statute  insofar  as  it  relates  to  safeguarding  revenue,  and  Section

11(13) of the 1996 Act, which applies specifically to speedy resolution

of  disputes  by  appointment  of  an  arbitrator  expeditiously,  is  by

43

declaring that  while  proceeding with the Section 11 application,  the

High Court must impound the instrument which has not borne stamp

duty and hand it over to the authority under the Maharashtra Stamp

Act,  who  will  then  decide  issues  qua payment  of  stamp  duty  and

penalty (if  any) as expeditiously as possible, and preferably within a

period of 45 days from the date on which the authority receives the

instrument. As soon as stamp duty and penalty (if any) are paid on the

instrument, any of the parties can bring the instrument to the notice of

the  High  Court,  which  will  then  proceed  to  expeditiously  hear  and

dispose of the Section 11 application. This will also ensure that once a

Section 11 application is allowed and an arbitrator is appointed, the

arbitrator can then proceed to decide the dispute within the time frame

provided by Section 29A of the 1996 Act.  

28. Arguments taken of prejudice, namely, that on the facts of this

case,  the  appellant  had  to  pay  the  stamp  duty  and  cannot  take

advantage of  his own wrong,  are of  no avail  when it  comes to the

application  of  mandatory  provisions  of  law.  Even  this  argument,

therefore, must be rejected.

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29. We, therefore, allow the appeal and set aside the judgment of the

Bombay High Court. The matter is remitted to the Bombay High Court

to dispose of the same in the light of this judgment.  

  ……........................... J.       (R.F. NARIMAN)

……........................... J.       (VINEET SARAN)

New Delhi; April 10, 2019.

45