Arbitration Clause In An Insufficiently Stamped Agreement Cannot Be Acted Upon By Court: SC [Read Judgment]

The Supreme Court has observed that an arbitration clause in an agreement which is required to be duly stamped, was not sufficiently stamped, cannot be acted upon by the Court.

In this case, one of the parties to the agreement filed a petition under Section 11(6) of the Arbitration Act before the High Court of Karnataka.The other party, entered appearance and contended that the lease deed being insufficiently stamped had to be mandatorily impounded under Section 33 of the Karnataka Stamp Act, 1957 and it could not be relied upon unless proper duty and penalty was paid. However, the High Court invoked the power under Section 11(6) of the Act, and appointed an Arbitrator to decide the dispute between the parties.

In appeal, the Apex Court bench comprising of CJI SA Bobde, Justices BR Gavai and Surya Kant noted that admittedly, both the lease deeds are neither registered nor sufficiently stamped as required under the Karnataka Stamp Act, 1957. Referring to SMS Tea Estates Private Limited vs. Chandmari Tea Company Private Limited., it observed thus:

When a lease deed or any other instrument is relied upon as containing the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not. It has been held, that even when an objection in that behalf is not raised, it is the duty of the Court to consider the issue. It has further been held, that if the Court comes to the conclusion, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899. It has also been held, that the Court cannot act upon such a document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, the document can be acted upon or admitted in evidence. It is needless to state, that the provisions that fell for consideration before this Court are analogous with the provisions of Sections 33 and 34 of the Karnataka Stamp Act, 1957.  

Rejecting the application under Section 11, the bench further observed:

in view of the law laid down in the case of SMS Tea Estates Private Limited (supra), that the lease deed containing the arbitration clause which is required to be duly stamped, was not sufficiently stamped and though the Registrar (Judicial) had directed the respondent Nos. 1 and 2 to pay deficit stamp duty and penalty of Rs.1,01,56,388/­ (Rupees One crore One lakh fifty­ six thousand Three hundred and Eighty ­eight only), the respondents failed to do so, the High Court has erred in relying on the said lease deed.

Case name: M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY MUDALIAR CHATTRAM & OTHER CHARITIES vs. M/S BHASKAR RAJU & BROTHERS
Case no.: CIVIL APPEAL No.   1599        OF 2020
Coram: CJI SA Bobde, Justices BR Gavai and Surya Kant
Counsel: Sr. Adv Nikhil Nayyar and Adv Balaji Srinivasan 

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