N.N. Global Judgment Does Not Affect The Power Of Court To Grant Interim Measures Under Section 9 Of The A&C Act Despite Inadequacy/Insufficiency Of Stamp Duty: Bombay High Court
The High Court of Bombay has held that the judgment of the Constitution Bench in N.N. Global does not affect the power of Court to grant interim measures under Section 9 of the A&C Act despite the non-payment or insufficiency of payment of stamp duty on the arbitration agreement or the main agreement containing the arbitration clause. The bench of Justice Bharati Dangre held...
The High Court of Bombay has held that the judgment of the Constitution Bench in N.N. Global does not affect the power of Court to grant interim measures under Section 9 of the A&C Act despite the non-payment or insufficiency of payment of stamp duty on the arbitration agreement or the main agreement containing the arbitration clause.
The bench of Justice Bharati Dangre held that unlike Section 11 or 8 of the A&C Act, the Court exercising powers under Section 9 of the Act is not required to make a determination on the existence and validity of the arbitration agreement rather the Court would have to grant interim relief on the parameters of three-fold test of (a) prima facie case (b) balance of convenience and (c) irreparable injury.
The Court held that an inadequately/insufficiently stamped instrument/document/agreement shall not preclude the party from seeking interim measures as contemplated under Section 9 of the A&C Act.
Facts
The Court clubbed together five petitions moved under Section 9 of the A&C Act as all the petitions involved a similar question of law. In all the five petitions, the petitioners had sought interim reliefs at pre-arbitration stage.
The respondents objected to the maintainability of the petitions on the ground that the agreements in which the arbitration clauses were embedded were not sufficiently stamped as required under the Maharashtra Stamps Act.
Considering the involvement of similar question of law, the Court disposed of the preliminary objection vide a common order.
Contention of the Parties
The petitioners made the following submissions:
- That the judgment in N.N. Global did not alter the court's ability to grant interim measures under Section 9, even when facing an allegation of inadequate stamping in the arbitration agreement. They contended that N.N. Global specifically dealt with Section 11 applications and treated them as 'non-evidentiary,' while Section 9 stood on a different footing.
- That Section 9 had a unique scope and objective compared to other sections, such as Section 11. The purpose of Section 9 was to ensure the protection of the subject matter of arbitration at various stages of the process.
- That the consequences of non-stamping only followed after a determination was made about stamping, which depended on whether the proceedings were evidentiary or non-evidentiary.
- A line was drawn between evidentiary and non-evidentiary proceedings under the Maharashtra Stamp Act.
- That the adequacy of stamp duty was determined later, at the evidentiary stage, and not during Section 9 proceedings. They contended that Section 9 was akin to proceedings under Order 39 Rule 1 or Order 38 Rule 5 of the Code of Civil Procedure.
- That the power to grant interim relief under Section 9 was not affected by the stamping status of the agreement. Drawing an analogy to civil suits, they contended that the power to grant interim relief under Orders 38 and 39 of CPC would not be affected even if a document containing an arbitration clause was unstamped or insufficiently stamped.
The respondent made the following counter-submissions:
- That once the Constitution Bench deemed such an agreement void/invalid, there could be no cure, and the interpretation must prevail. Stamping was seen as a substantive objection, and the exercise of power under Section 9 presupposed the existence of a valid agreement.
- That such an agreement, inadequately stamped or unstamped, resulted in a cause of action that was stillborn and undeserving of entertainment. The words 'enforceable in law' or 'not enforceable in law,' when considered in the context of the Stamp Act, implied that an unstamped document would be unsafe and should not be enforced by the court.
- That a contract must conform to Section 7 of the Arbitration Act and satisfy the requirements of the Contract Act, 1872. An agreement that is not enforceable does not exist in law, and validation could only occur through the process contemplated under Section 33 of the Stamp Act.
- That this was no longer a fiscal or technical objection but one related to enforceability. Such an agreement was considered non-est, not existing in law, and the court exercising power under Section 9 should not assist in enforcing it.
- That the court, except in cases of unstamped instruments, was not expected to engage in a detailed exercise. Instead, it could prima facie examine the pleadings and the instrument to assess the adequacy of stamp duty. If found inadequate, the court would impound the document following the process under the Stamp Act.
- That, to make out a prima facie case under Section 9, a petitioner had to demonstrate the existence of a valid and legally enforceable arbitration agreement. The cause of action for filing a Section 9 petition arises in relation to a valid agreement, and this is a precondition for maintaining such a petition under Section 9.
- That it is the court's jurisdictional duty, under Section 33 and 34 of the Stamp Act, to examine the instrument to ascertain whether the necessary stamp duty had been paid.
- That the Constitution Bench had clarified that the arbitration agreement was separate from the underlying contract for stamping purposes. He argued that even though the Maharashtra Stamp Act did not specifically cover the duty payable on arbitration agreements, it would be covered by relevant provisions.
Analysis by the Court
The Court held that the analysis and conclusion rested on the critical issue of admissibility concerning unstamped or insufficiently stamped instruments in the context of arbitration proceedings. The Court held that the judgment of the Constitution Bench in N.N. Global does not affect the power of Court to grant interim measures under Section 9 of the A&C Act despite the non-payment or insufficiency of payment of stamp duty on the arbitration agreement or the main agreement containing the arbitration clause.
The Court observed that, in Section 9, which deals with interim measures, the focus is on addressing the party's request for immediate relief to protect its interests during the arbitral process. At this stage, the Court, exercising powers akin to a civil court, should not delve into the question of whether the document is sufficiently stamped. The Court argued that denying interim relief solely on stamp duty grounds would be unduly burdensome on a party seeking such relief, especially when the intent is not to evade stamp duty but to secure interim measures at an early stage.
On the other hand, the Court held that Section 11 deals with the appointment of arbitrators. It emphasized that, in this context, the existence of a valid arbitration agreement must be examined. The Court should ensure that the arbitration agreement is not only valid but also sufficiently stamped. This distinction arises because Sections 9 and 11 serve different purposes in the arbitration process.
The Court underscored that the admissibility of documents, particularly the question of stamping, should not be a barrier to granting interim relief. It held that such issues could be addressed at a later stage when the document is produced for admission as evidence.
The Court observed that in a civil suit, the Court can grant interim reliefs under Orders 38 and 39 of CPC despite the inadequacy of the payment of stamp duty on the underlying agreement, therefore, the powers under Section 9 should also be exercised in a similar manner.
Case Title: L&T Finance Limited v. Diamond Projects Limited, Commercial Arbitration Petition No. 1430 of 2019
Date: 27.10.2023