In a recent judgement, the Supreme Court has observed that Arbitration Clause In An Agreement which is required to be duly stamped, was not sufficiently stamped cannot be acted upon by Court.
The judgement came out in a case titled as M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY MUDALIAR CHATTRAM & OTHER CHARITIES & ORS. vs. M/S BHASKAR RAJU & BROTHERS & ORS.
CASE BACKGROUND
In the present case, the respondent filed a petition u/s 11(6) of the Arbitration Act before the High Court of Karnataka. On being served with the notice, the appellant appeared and filed statement of objections that the lease deed dated 12.03.1997 being insufficiently stamped had to be mandatorily impounded u/s 33 of the Karnataka Stamp Act,1957 and it could not be relied upon unless proper duty and penalty was paid. High Court referred the matter to Registrar(Judicial) for determination of the said issue. Registrar by a detailed report directed the Respondent to pay deficit stamp duty and penalty of Rs.1,01,56,388/.
However, The High Court Without considering the report of the Registrar, allowed the petition by invoking power u/s 11(6) of the Arbitration Act and appointed an Arbitrator for deciding the dispute between the parties.
Being aggrieved thereby, the appellant filed an appeal before Supreme Court. It was noted that both the lease deeds are neither registered nor sufficiently stamped as required under the Karnataka Stamp Act, 1957.
The Supreme Court referred the law laid down in SMS Tea Estates Private Limited (supra) and held that when a leased deed or any other instrument is relied upon as containing the arbitration agreement, the court is required to consider at the outset, whether the document is properly stamped or not. It has been held that when an objection in that behalf is not raised, it is the duty of the Court to consider the issue. It has further been held, that if the court comes to the conclusion, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899. It has also been held, that the court cannot act upon such a document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, the document can be acted upon or admitted in evidence. It is needless to state, that the provisions that fell for consideration before this court are analogous with the provision of Section 33 and 34 of the Karnataka Stamp Act, 1957.
It was held that as per the law laid down in SMS Tea Estates Private Limited (supra), The High Court has totally erred in relying on the lease deed dated 13.03.1997, which was found to be insufficiently stamped and brushing aside the report of the Registrar, when the respondent failed to pay the insufficient stamp duty and penalty as determined. In the result the appeal is allowed and the impugned Judgement and order dated 01.12.2014 passed by the High Court is quashed and set aside. The petition filed by the respondent u/s 11 of Arbitration Act is rejected.
The judgement has been delivered by Chief Justice S.A. Bobde, Justice B.R. Gavai and Justice Surya Kant on 14-02-2020.
Read Judgement Here:
