The Supreme Court recently observed that an agreement should be duly stamped if the arbitration clause it contains can be enforced. The three judge bench of the Supreme Court comprising of Chief Justice SA Bobde, Justice BR Gavai, and Justice Surya Kant said that an agreement should be duly stamped if the arbitration clause it contains can be enforced. The Court reiterated that an agreement, for the Court to be able to act upon it, needs to be sufficiently stamped.
Facts leading to the Order
In this case the appellant signed before the Supreme Court a lease deed for a construction project with the respondents. The respondent, as per the agreement signed, required to pay a sum of Rs. 55 lakhs as an interest fee deposit. The respondents failed to deposit the whole amount and further were trying to interfere with the possession of the project property. This was done so allegedly with collusion with one of the trustees.
As a result of the dispute a suit was filed. The respondents issued a notice to the appellants, invoking the arbitration clause in the lease deed, after participating in the suit for almost two years. As a result a petition was filed in the Karnataka High Court invoking Section 11(6) of the Arbitration and Conciliation Act, 1996. It was prayed by the appellants that the petition should be dismissed as the lease deed between the parties was insufficiently stamped.
It was argued by the appellant that, unless proper duty and penalty was paid under the Karnataka Stamp Act, 1957, the deed could not be relied upon. The Karnataka High Court however, taking in view the arbitration clause present in the lease deed between the parties, directed for the appointment of an Arbitrator. This was despite of the fact that a report was filed by the Registrar (Judicial) of the High, opining that the remained of the stamp duty ought to be paid before lease deed can be relied upon.
- Supreme Court recently observed that an agreement should be duly stamped if the arbitration clause it contains can be enforced.
- The three judge bench of the Supreme Court comprising of Chief Justice SA Bobde, Justice BR Gavai, and Justice Surya Kant reiterated that an agreement, for the Court to be able to act upon it, needs to be sufficiently stamped.
The three judge bench of the Supreme Court set aside the appointment of the Arbitrator on the grounds that the appointment was on the basis of an arbitration clause in an insufficiently stamped agreement. The bench referred to the case of SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited, wherein the Court held, “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.”
In view of the above the Court opined that, when a lease deed or any document is relied upon as containing the arbitration agreement, it is the requirement of the Court to consider at the outset, whether the document is properly stamped or not. Further, the bench also mentioned that if the main instrument or agreement containing the arbitration clause is not properly stamped, the Court cannot act in the arbitration clause it contains.
The Court further added that once the deficit stamp duty and penalty is paid in terms of the Stamp Act, the document can be acted upon and admitted to evidence. The bench hence, allowed the appeal, while observing, “the High Court has totally erred in relying on the lease deed dated 12.3.1997, which was found to be insufficiently stamped.”
Edited by J. Madonna Jephi
Approved & Published – Sakshi Raje
1. M/S Dharmaratnakara Rai Bahadur ArcotNarainswamyMudaliarChattram& Other Charities & Ors. v. M/S Bhaskar Raju & Brothers & Ors., Civil Appeal No. 1599, 2020.