Arbitration Clause In Unstamped Charter Party Agreement Can Invoke Jurisdiction Under Section 9 Of A&C Act: Andhra Pradesh High Court

The Bench, consisting of Chief Justice Prashant Kumar Mishra and Justice M. Satyanarayana Murthy, held that since the arbitration agreement is not chargeable with stamp duty under the Indian Stamp Act, by applying the doctrine of separability the arbitration agreement is admissible in evidence before the Court since it is a separate contract.

The respondent Norvic Shipping Asia Pte. Limited and the appellant VR Commodities Private Limited entered into a charter party agreement for transportation of coal. After a breach of the agreement, the respondent suffered losses and thus invoked the arbitration proceedings. The respondent filed an application under Section 9 of the A&C Act seeking various interim reliefs before the Single Judge. The Single Judge allowed the application and passed an order. Against the order of the Single Judge, the appellant filed an appeal under Section 37 of the A&C Act before the Division Bench of the Andhra Pradesh High Court.

The appellant VR Commodities Private Limited contended before the High Court that the Charter party agreement and the arbitration clause contained in it were not admissible in evidence before the High Court or before the Arbitrator since the charter party agreement was not duly stamped.

The appellant averred that since the Charter party agreement was inadmissible in evidence, the order passed under Section 9 of the A&C Act on the basis of the arbitration clause contained in the said agreement, was illegal. The appellant submitted that unless the Charter party agreement is impounded and the stamp duty along with penalty under Section 35 of the Indian Stamp Act, 1899 is collected, the Charter party agreement is not admissible before the Court or before the Arbitrator.

As per Section 35 of the Indian Stamp Act, 1899 no instrument chargeable with stamp duty shall be admitted in evidence for any purpose by any person having the authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or public officer, unless such instrument is duly stamped.

The Court ruled that it is a settled law that no document can be admitted in evidence unless it is properly stamped. The Court added that unless the document is impounded and the stamp duty along with the penalty payable on such document is collected, it cannot be received in evidence. The Court held that no Court is competent to pass any decree or judgment based on such unstamped document.

The Court noted that as per Schedule-I of the Indian Stamp Act and Schedule-IA (applicable to the State of Andhra Pradesh), stamp duty is to be paid on Charter party agreement, however, Schedule – I and Schedule – IA do not prescribe any stamp duty to be payable on the arbitration agreement.

The Court observed that as per the doctrine of separability, though an arbitration agreement forms part of a substantive agreement, it is separable from the said substantive agreement i.e., the Charter party agreement.

The Court held that as per the law laid down by the Supreme Court in the case of N.N. Global Mercantile Private Limited versus Indo Unique Flame Limited (2021), an arbitration agreement embedded in an unstamped contract is separable from the substantive contract in which it is embedded. The Court observed that the Supreme Court had ruled that invalidity, ineffectiveness or termination of the substantive commercial contract does not effect the validity of the arbitration agreement.

The Court noted that English law alone was applicable to the arbitration proceedings as per the Charter party agreement, and the seat of arbitration was at Singapore. Hence the Court referred to the decisions under the English law relating to separability of arbitration clause from the original agreement.

The Court noticed that the House of Lords in the case of Fiona Trust & Holding Corp versus Privalov (2007) had ruled that an arbitration agreement must be treated as a distinct agreement and the arbitration agreement can be void or voidable only on grounds which relate directly to the arbitration agreement. The House of Lords had held that the invalidity of the main contract does not necessarily render the arbitration agreement invalid.

Also, the Court observed that there was a separate clause contained in the Singapore Arbitration Act, 2001, providing for separability of the arbitration clause.

Thus, the Court ruled that in view of the law laid down by the United Kingdom, and in view of the separate clause contained in the Singapore Arbitration Act, 2001, the arbitration clause contained in the Charter party agreement was an independent and autonomous clause.

The Court held that though the Charter party agreement was not stamped, however, in view of the separability of the arbitration clause, the arbitration clause was an independent clause and hence it was not liable for stamp duty. Thus, the Court held that it could take into consideration the arbitration clause independently and pass orders under Section 9 of the A&C Act.

The Court ruled that in view of the law laid down by the Supreme Court in the case of N.N. Global Mercantile Private Limited versus Indo Unique Flame Limited (2021), and since the arbitration clause is not chargeable with stamp duty under the Indian Stamp Act, by applying the doctrine of separability the arbitration clause was admissible in evidence before the Court since it was a separate contract.

The Court held that the arbitration clause contained in the substantive agreement which was not duly stamped, can be taken into consideration even to decide an application under Section 9 of the A&C Act. The Court added that it was open to the Arbitral Tribunal to record a finding on the admissibility of the arbitration clause due to the failure to pay stamp duty on the substantive document, i.e., the Charter party agreement.

Hence, the Court dismissed the appeal.

Case Title: VR Commodities Private Limited versus Norvic Shipping Asia Pte. Ltd.

Dated: 05.05.2022 (Andhra Pradesh High Court)

Counsel for the Appellant: Mr. Sanjay Suraneni

Counsel for the Respondent: Mr. Amitava Majumdar

Citation: 2022 LiveLaw (AP) 79

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