Whether stamping of the agreement is required?

Reference may be made to Lifetime Really v. Poddar Udyog,  2012 5 RAJ 440 (All), in which M/s. SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co. Pvt. Ltd., 2011 (7) SCALE 747, has been analyzed in detail in 11 and summed up in 12, in the light of  procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registrable) and which is not duly stamped vis à vis Sections §§ 33 and 35 of the Central Stamp Act, 1899, as hereunder —

“therefore sum up the procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registrable) and which is not duly stamped:

(i) The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.

If the document is found to be not duly stamped, Section 35 of 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 Section 35 and 38 of the Stamp Act.

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 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.

Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.

If the document is not registered, but is compulsorily registrable, having regard to Section 16(1)(a) of the Act, the court can de-link the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the Respondent in the application demonstrates that the arbitration agreement is also void and unenforceable, as pointed out in para 8 above. If the Respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator.

Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration.”

In, Dharam Pal v. Dinesh Industries, (2010) 5 RAJ 440 (All) = 2010 1 ADJ 25; 2010 7 RCR(Civ) 996; 2009 0 Supreme(All) 3558, it was held —

“Arbitration Clause in an unregistered sale agreement is not non est

In, Aspire Investments Pvt. Ltd. v. M/s Nexgen Edusolutions Pvt. Ltd., (2010) 3 RAJ 668 (Del.),

where arbitration agreement was contained in an unregistered house deed, the court answered various questions as under -

(i) NO LEGAL RELATIONSHIP, NO ARBITRATION AGREEMENT

7 … Court concluded that there was no defined legal relationship between the parties and hence, no valid CS(OS) 192-2009 Page 6 of 9 arbitration agreement subsisted between the parties”

(ii) REGISTRATION AND STAMPING NOT COMPULSORY FOR  ARBITRATION AGREEMENT —

7.1 Fortuitously, my task has become easier - a further research has revealed, that a Division Bench of this Court in N.I.I.T. vs M/s West Star Construction Pvt. Ltd. & Anr, Arb.P.No. 244/2008 dated 27.04.2009 has accepted the view expressed in Gaajara International (supra) and Travel Finance Pvt Ltd (supra). The decision in Chemical Sales Agencies (supra) has been distinguished. The Division Bench has come to the conclusion, after noticing Section 7 and Section 16(1)(b) of the Arbitration Act and Section 107 of the Transfer of Property Act, 1882, that an arbitration clause contained in a lease deed is a collateral term which would survive whether or not it is registered or properly stamped.

7.2 Stamping like registration would effect the admissibility of the document, its absence cannot exclude the reliance on the parent contract for the purposes of triggering an arbitration.

The Arbitration Act, which undoubtedly, is a special statute dealing with an arbitration should in my view take precedence over the provisions of both the Registration Act and the Indian Stamp Act, 1899. Respectfully following the Division Bench of this Court, I am of the view that even though the parent contract is neither registered nor stamped, the arbitration clause contained in the parent contract would survive. The arbitration agreement, in my view, is a collateral transaction which would fall within the proviso to Section 49 of the Registration Act, 1908.”

Thus, it can be said that Registration And Stamping Of Arbitration Agreement Is Not Compulsory Because Arbitration Agreement Is A Collateral Term.

Moreover, in Ganga Ram v. Narayan Babaji, ILR (1893) 19 Bom. 31, it was held -

“Letters written and signed by the parties authorizing Arbitrator to arbitrate need not be required to be stamped.”

Again, in Geo-Group Communications Inc v. IOL Broadband Ltd., 2010 1 SCC 562 = 2009 4 ArbLR 308 = 2009 4 CCR(SC) 402 = 2009 14 JT 543 = 2010 1 RCR(Civ) 906 = 2010 6 RCR(Civ) 875 = 2009 14 Scale 175, it was held —

8. the plea that Arbitration agreement was not stamped and hence applicant was not entitled to relief held unacceptable”

SUGGESTED READINGS:

  • Indian Constitutional Law by Prof. G.C.V. Subba Rao’s.
  • Johari's, Commentary on Arbitration and Conciliation Act, 1996, Kamal Law House.
  • O.P. Tiwari, The Arbitration and Conciliation Act (2nd Ed.), Allahabad Law Agency.
  • Acharya N.K., Law relating to Arbitration and ADR, Asia Law House, Hyderabad
  • Tripathi S.C., Arbitration, Conciliation and ADR, Central Law Agency, Allahabad.
  • Avatar Singh, Arbitration and Conciliation, Eastern Law Book House, Lucknow.
  • KSR Murthy, An introduction to ADR Mechanism, Gogia Law Agency, Hyderabad
  • P.C. Rao, Alternate Dispute Resolution (2001 Ed.), Universal Book Traders, New Delhi.
  • S.D.  Singh, Alternate  Dispute  Resolution,  Universal  Book  Traders, New Delhi
  • Baddi, A. (2016, Dec 25). ARBITRAL AWARDS - LEGALITY, INTERPRETATION, APPEAL, MODIFICATION. Retrieved from http://satyagraha.com/portal/articles/9-business-law/1571-arbitral-awards-legality-interpretation-appeal-modification.html

Author Bio

Anil hails from a Consulting Background in the area of Business, Technology and Project Management. This Article is a humble effort to the aforementioned domains by making a foray into Legal Research. The Author may be reached via anil [at] Satyagraha [dot] com

 

Anil Satyagraha 
on 03 January 2017
Published in Civil Law
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