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Petitioner: Garware Wall Ropes LTD VS Respondent: Coastal Marine Constructions & Engineering JUDGMENT
Court Name: Supreme Court of India Judge(s): Rohinton Fali Nariman, Vineet Saran Title:Garware Wall Ropes LTD vs Coastal Marine Constructions & Engineering
JUDGMENT
Reported As: 2020 P SC 415 Result: Appeal allowed Judgment JUDGMENT R.F. NARIMAN, J. --- 1. Leave granted. 2. This appeal arises out of a sub-contrac t given by the appellant to the responde nt in respect of work to be done for installation of a geotextile 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 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 dillerences had arisen between the parties notice was given of appointment or 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 I I of the Arbitration and Conciliation Act; 1996 ["1996 /ken 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.
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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 Co. (P) Ltd.. (2011) 14 SCC 66 ["`SMS Tea EStates"1, has held that where an arbitration clause is contain ed 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"j, 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 b\ an arbitrator who is appointed under Section 1 1, as has been held by die impugned judgment. Mr. Dhrtiv Mehta, learned "Senior Advoc ate appearing on behalf of the appellant; has taken us through the sub- contract as well as the arbitration clause contained therein. lie relied strongly Upon the Maharashtra 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). requiresiudicial authorities to impound Such-instruments which cannot be admitted evidence or cannot be acted upon until duly stamp ed. recording to him, the judgment in SMS Tea Estates (supra) continues to apply even after the introduction of Section I 1(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 1 1(6A), together with the Statement of Objects and Reasons appended to the Arbitration and Conciliat ion (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 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 conta ining 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.
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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" 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 adocument 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.-- ( I ) 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 claim ing 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 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 arbitrati on 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 prayi ng 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 1 1(6A), 1 1(7), and 1 1(13) are important for decision in this case and are set out here in below: "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 subsection (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 fads that the said 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 of ficer as the Court may appoint in this behalf. (3) For the purposes of this section, in cases of doubt,- (a) the State Government may determine what of fices shall be deemed to be public of fices; and (b) the State Government may determine who shall be deemed to be persons in charge of public of fices. 34. Instruments not duly stamped inadm issible in evidence, etc.-- No instrumen t chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consen t 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,-
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(i) the duty with which the same is chargeable, or in the case of an instrument insuf ficiently' stamped the amount required to make up such duty, acid a penalty at the rate of 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 stomp duty . (h) 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; (c) nothing herein contained shall preven t 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 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 instrume nt 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 Mt, 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 f"Konkan Railway 11, 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 judicia l 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 1.1"]. 10. However , in SBP & .Co. (supra). a seven-Judge Bench overruled this view and held that the per to appoint an arbitrator under Section 11 is judicial and not. administrative. l he conclusions of the seven Judge Bench were summarised in paragraph -17 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 (Thief Justice of India under Section 11(6) of the Act is not an administrative-power . It is a xxx xxx xxx (tv) The Chief Justice or the designated Judge will have the -right to decide, tin: 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 1 1 , 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 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.
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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 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 1 1(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 arbitr ation 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 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- 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…
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