Supreme Court of India
M/S. SMS TEA ESTATES PVT. LTD.versusM/S. CHANDMARI TEA CO. PVT. LTD.
- Citation
- 2011 INSC 508
- Decided
- 20 July 2011
- Bench
- R V RAVEENDRAN
Holding
An arbitration agreement is enforceable even if embedded in an unregistered but compulsorily registrable document, provided the document is duly stamped; otherwise the agreement cannot be acted upon until stamp duty and any penalty are paid.
Summary
The appellant, SMS Tea Estates, entered into a 30‑year lease deed with the respondent, Chandmari Tea Co., which contained Clause 35 mandating arbitration of disputes. The lease deed was not registered, though registration was compulsory, and it was also not duly stamped. The appellant sought appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, but the High Court dismissed the application, holding that the unregistered lease rendered the arbitration clause unenforceable. The Supreme Court examined whether an arbitration agreement in an unregistered but compulsorily registrable instrument is valid, and whether lack of stamp duty defeats its enforceability. It held that registration is not required for an arbitration clause, which is a collateral agreement, but the instrument must be duly stamped before a court can act upon it; otherwise the clause cannot be invoked. Consequently, the Court set aside the High Court order and remitted the matter to the Chief Justice to first determine stamp duty compliance and, if satisfied, to appoint an arbitrator.
Issues considered
- Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable.
- Whether an arbitration agreement in an unregistered instrument which is not duly stamped is valid and enforceable.
- Whether an arbitration agreement exists between the parties and whether an arbitrator should be appointed.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11, s. 16(1)(a)
- Indian Stamp Act, 1899s. 33, s. 35, s. 38, s. 40
- Registration Act, 1908s. 49
- Specific Relief Act, 1877
- Transfer of Property Act, 1882s. 106, s. 107
Subjects
arbitration agreementunregistered documentregistration actstamp dutycollateral transactionlease deedSection 49 Registration ActSection 35 Stamp Actappointment of arbitrator
Judgment
[2011] 9 S.C.R. 382
A M/S. SMS TEA ESTATES PVT. LTD.
v.
M/S. CHANDMARI TEA CO. PVT. LTD.
(Civil Appeal No. 5820 of 2011)
JULY 20, 2011 i
B
[R.V. RAVEENDRAN AND A.K. PATNAIK, JJ.)
Arbitration and Conciliation Act, 1996:
c ss. 11and16(1)(a) read with s.49 of Registration Act and
ss. 33, 35, 38 and 40 of Stamp Act - Arbitration clause in an
unregistered lease deed granting lease of two tea states for
30 years - Dispute between the parties - Application for
appointment of arbitrator - Rejected by Chief Justice of High •
Court - HELD: An arbitration agreement does not require
D
registration under the Registration Act - When a contract
contains an arbitration clause, it is a collateral term relating
to the resolution of disputes, unrelated to the performance of
the contract - Therefore, having regard to the proviso to s. 49
of Registration Act read with s.16(1)(a) of the 1966 Act, an
E arbitration agreement in an unregistered but compulsorily
registrable document can be acted upon and enforced for the
purpose of dispute resolution by arbitration - However, having
regard to s. 35, unless the stamp duty and penalty due in
I-
respect of the instrument is paid, the court cannot act upon '
F the instrument, which means that it cannot act upon the
arbitration agreement also which is part of the instrument -
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
'
G summed up - Order of the High Court set aside and the '
matter remitted to the Chief Justice of the High Court to first
decide the issue of stamp duty, and if the document is duly
stamped, then appoint an arbitrator in accordance with law -
H 382
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 383
CO. PVT. LTD.
Registration Act, 1908 - s. 49, proviso - Stamp Act, 1899 - A
ss. 33,35,38 and 40.
The respondent, under a lease deed dated
21.12.2006, granted lease of its two tea estates with all
appurtenances to the appellant for a term of 30 years. 8
Clause 35 of the said lease deed provided for settlement
of disputes between the parties by arbitration. It was the
case of the appellant that prior to the execution of the
said lease deed, on 29.11.2006 the respondent had
offered to sell the said two tea estates to the appellant C
for a consideration of Rupees four crores and the
appellant agreed to purchase them subject to detailed
verification; the appellant wrote a letter dated 27.6.2007
to the respondent agreeing to purchase the said two tea
estates; the appellant invested huge sums of money for
improving the tea estates in the expectation that it would D
either be purchasing the said estates or have a lease for
30 years; the respondent, however, abruptly and illegally
evicted the appellant from the tea estates and took over
their management in January 2008; the appellant issued
a notice dated 5.5.2008 calling upon the respondent to E
refer the matter to arbitration under Clause 35 of the lease
deed and, ultimately, filed an application for appointment .
of arbitrator. The Chief Justice of the Guwahati High
Court dismissed the application holding that the lease
deed was compulsorily registrable u/s 17 of the F
Registration Act and s. 106 of the Transfer of Property
Act; and as the lease deed was not registered, no term
therein could be relied upon for any purpose and,
therefore, Clause 35 could not be relied upon for seeking
reference to arbitration. The High Court also held that the G
arbitration agreement contained in Clause 35 could not
be termed as a collateral transaction and, therefore, the
proviso to s 49 of the Registration Act would not assist
the appellant.
H
384 SUPREME COURT REPORTS [2011] 9 S.C.R
A In the instant appeal, the questions for consideration
before the Court were: (i) "Whether an arbitration
agreement contained in an unregistered (but
compulsorily registrable) instrument is valid and
enforceable?" (ii) "Whether an arbitration agreement in an
B unregistered instrument which is not duly stamped, is
valid and enforceable?" and (iii) "Whether there is an
arbitration agreement between the appellant and
respondent and whether an Arbitrator should be
appointed?"
c Allowing of the appeal, the Court
HELD: 1. An arbitration agreement does not require
registration under the Registration Act, 1908. Even if it is
found as one of the clauses in a contract or instrument,
D it is an agreement to refer the disputes to arbitration,
which is independent of the main contract or instrument.
When a contract contains an arbitration agreement, it is
a· collateral term relating to thl' resolution of disputes,
unrelated to the performance of the contract. Therefore,
E having regard to the proviso to s. 49 of Registration Act
read with s.16(1 )(a) of the Arbitration and Conciliation Act,
1996 an arbitration agreement in an unregistered but
compulsorily registrable document can be acted upon
and enforced for the purpose of dispute resolution by \
F arbitration. [para 7 and 9] [393-E-F; 394-H; 395-A]
2.1 Section 35 of Stamp Act, 1899 provides that an
instrument not duly stamped is inadmissible in evidence
and cannot be acted upon. Having regard to s. 35, unless
the stamp duty and penalty due in respect of the
G instrument is paid, the court cannot act upon the
instrument, which means that it cannot act upon the
arbitration agreement also which is part of the instrument.
Section 35 of Stamp Act is distinct and different from s.
49 of Registration Act in regard to an unregistered
H
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 385
~
CO. PVT. LTD.
* document. Section 35 of Stamp Act, does not contain a A
proviso like to s.49 of Registration Act enabling the
instrument to be used to establish a collateral transaction.
But if the deficit duty and penalty is paid in the manner
~ set out in s. 35 or s. 40 of the Stamp Act, the document
'· can be acted upon or admitted in evidence. [para 10-11) B
(395-G; 396-D-E; 397-C-D]
2.2 The scheme for appointment of arbitrators by the
Chief Justice of Guwahati High Court 1996 requires an
application u/s 11 of the Act to be accompanied by the
original arbitration agreement or a duly certified copy
c
thereof. In fact, such a requirement is found in the
schemes/rules of almost all the High Courts. If what is
' produced is a certified copy of the agreement/contract/
_,
instrument containing the arbitration clause, it should
disclose the stamp duty that has been paid on the D
original. [para 11] (396-F-H]
2.3 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 E
duly stamped is summed up as follows:
(i) The court should, before admitting any document
into evidence or acting upon such document,
..-f examine whether the instrument/document is duly
F
stamped and whether it is an instrument which is
compulsorily registrable.
(ii) If the document is found to be not duly stamped,
s. 35 of Stamp Act bars the said document being
l; acted upon. Consequently, even the arbitration G
clause therein cannot be acted upon. The court
should then proceed to impound the document u/s
33 of the Stamp Act and follow the procedure u/ss
35 and 38 of the Stamp Act.
H
386 SUPREME COURT REPORTS [2011] 9 S.C.R.
A (iii) 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 s. 35 or s.40 of the Stamp Act), and
the defect with reference to deficit stamp is cured, the
B court may treat the document as duly stamped.
(iv) 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
c registrable, the court can act upon the arbitration
agreement, without any impediment.
(v) If the document is not registered, but is
compulsorily registrable, having regard to s. 16(1 )(a)
D 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 carinot in any way affect
the property or cannot be received as evidence of
E 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. If the respondent raises any
objection that the arbitration agreement was invalid,
F the court will consider the said objection before
proceeding to appoint an arbitrator.
(vi) 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
G 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
H require registration. [Para 12] [397-D-H; 398-A-F]
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 387
CO. PVT. LTD.
_.
3.1 Where a lease deed is for a term of thirty years A
and is unregistered, the terms of such a deed cannot be
relied upon to claim or enforce any right under or in
respect of such lease. It can be relied upon for the limited
purposes of showing that the possession of the lessee
t, is lawful possession or as evidence of some collateral B
transaction. Even if an arbitrator is appointed, he cannot
rely upon or enforce any term of the unregistered lease
deed. Where the arbitration agreement is not wide and
does not provide for arbitration in regard to all and
whatsoever disputes, but provides only for settlement of c
disputes and differences arising in relation to the lease
deed, the arbitration clause though available in theory is
of little practical assistance, as it cannot be used for
-.., deciding any dispute or difference with reference to the
unregistered deed. [Para 13] [398-G-H; 399-A-B]
-i
D
3.2 In the instant case, in view of Clause 35 of the
lease deed and having regard to the limited scope of the
said arbitration agreement (restricting it to disputes in
relation to or in any manner touching upon the lease
deed), the arbitrator will have no jurisdiction to decide E
any dispute which does not relate to the lease deed.
Though the arbitrator will have jurisdiction to decide any
dispute touching upon or relating to the lease deed, as
the lease deed is unregistered, the arbitration will virtually
-J be a non-starter. [Para 14] [399-B-F] .F
3.3 Before an arbitrator can be appointed u/s 11 of
the Act, the applicant should satisfy the Chief Justice or
his designate that the arbitration agreement is available
in regard to the contract/document in regard to which the
G
dispute has arisen. [para 15] [399-G-H]
Yogi Agarwal vs. Inspiration Clothes & U 2008 (16)
=
SCR 895 (2009) 1 sec 372 - referred to.
3.4 In the instant case, the appellant seeks arbitration H
388 SUPREME COURT REPORTS [2011] 9 S.C.R.
A in regard to three distinct disputes: (a) for enforcing an
alleged agreement of sale of two tea estates, (b) for
enforcing the lease for thirty years; and (c) for recovery
of amounts spent by it in regard to the estates on the
assumption that it was entitled to purchase the property
B or at least have a lease of 30 years. It is clear from the .I
petition averments that the alleged agreement of sale was
entered prior to the lease deed dated 21.12.2006 and
there was no arbitration agreement in regard to such
agreement of sale, and, as such, the appellant cannot
C seek arbitration with reference to any dispute regarding
such agreement of sale, whether it is for performance or
for damages for breach or any other relief arising out of
or with reference to the agreement of sale. [Para 16 and
17] [400-G-H] •
D 3.5 An arbitrator can no doubt be appointed in regard
to any disputes relating to the lease deed. But, in the
instant case, as the lease deed was not registered, the
arbitrator can not rely upon the lease deed or any term
thereof and the lease deed cannot affect the immovable
E property which is the subject matter of the lease nor be
received as evidence of any transaction affecting such
property. Therefore, the arbitrator will not be able to
entertain any claim for enforcement of the lease. [Para 18]
[400-H; 401-A-B]
F 3.6 As regards the claim for recovery of the amounts
allegedly spent towards the tea estates, as a
consequence of respondents not selling the estates or
not permitting the appellant to enjoy the lease for 30
years, if this claim is treated as a claim for damages for
G breach in not granting the lease for 30 years then it would
be for enforcement of the terms of the lease deed which
is impermissible u/s 49 of the Registration Act. If it is
treated as claim de hors the lease deed then the arbitrator
may not have jurisdiction to decide the dispute as the
H arbitration agreement (clause 35) is available only to settle
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 389
CO. PVT. LTD.
any dispute or difference arising between the parties in A
relation to or in any manner touching upon the lease
deed and not in regard to disputes in general. [Para 19)
[401-8-D]
4. In the result, the order of the High Court is set 8
aside and the matter remitted to the Chief Justice of
Guwahati High Court to first decide the issue of stamp
duty, and if the document is duly stamped, then appoint
an arbitrator in accordance with law. [Para 21] [401-F-G]
Case Law Reference: c
2008 (16) SCR 895 referred to Para 15
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
~ 5820 of 2011.
~ D
From the Judgment & Order dated 28.05.2010 of the
Gauhati High Court in Arbitration Petition No. 12 of 2008:
Suman Shyam, Rameshwar Prasad Goyal for the
Appellant.
E
Anish Shrestha, Satpal Singh for the Respondent.
The Judgment of the Court was delivered by
R.V.RAVEENDRAN, J. 1. Leave granted. Heard.
F
2. The appellant filed an application under section 11 of
the Arbitration & Conciliation Act, 199Q ('Act' for short) for
appointment of an arbitrator. The averments made in the said
application in brief were as under :
.\ 2.1) On 7.10.2006 the appellant requested the respondent G
to grant a long term lease in respect of two Tea estates
{Chandmari Tea Estate and Burahapahar Tea Estate). A lease
deed dated 21.12.2006 was executed between the respondent
and appellant under which respondent granted a lease to the
appellant for a term of 30 years in regard to the said two Tea H
390 SUPREME COURT REPORTS [2011] 9 S.C.R.
A estates with all appurtenances. Clause 35 of the said lease
deed provided for settlement of disputes between the parties
by arbitration. As the estates were hypothecated to United Bank
of India, on 27.12.2006, the respondent requested the said
bank for issue of a no objection certificate for entering into a
B long term lease. The Bank sent a reply dated 17.7.2007, stating ;
•
that it would issue a no objection certificate for the lease, if the
entire balance amount due to it was deposited by 14.8.2007.
2.2) Prior to the execution of the said lease deed, on
29.11.2006 the respondent had offered to sell the two Tea
C estates to the appellant for a consideration of Rupees four
crores. The appellant agreed to purchase them subject to
detailed verification. The appellant wrote a letter dated
27.6.2007 to the respondent agreeing to purchase the said two
D
Tea estates.
..
2.3) The appellant invested huge sums of money for
improving the tea estates in the expectation that it would either
be purchasing the said estates or have a lease for 30 years.
The respondent however abruptly and illegally evicted the
E appellant from the two estates and took over their management
in January 2008. The appellant thereafter wrote a letter dated
28.3.2008 to the respondent expressing its willingness to
purchase the said two estates for a mutually agreed upon
consideration and also discharge the liability towards the bank.
F 2.4) The appellant issued a notice dated 5.5.2008 calling
upon the respondent to refer the matter to arbitration under
section 35 of the lease deed. The respondent failed to comply.
According to appellant the dispute between the parties related
to the claim of the appellant that the respondent should either
G sell the estates to the appellant, or permit the appellant to
continue in occupation of the estates for 30 years as lessees
,
or reimburse the amounts invested by it in the two estates and
the payments made to the Bank.
3. The respondents opposed the said application. The
H respondents contended that the unreaistered lease deed dated
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 391
CO. PVT. LTD. [R.V. RAVEENDRAN, J.]
21.12.2006 for thirty years was invalid, unenforceable and not A
binding upon the parties, having regard to section 107 of
Transfer of Property Act 1882 ('TP Act' for short) and section
17 and section 49 of the Registration Act, 1908 ('Registration
Act' for short); that the said lease deed was also not duly
stamped and was therefore invalid, unenforceable and not s
binding, having regard to section 35 of Indian Stamp Act, 1899;
that clause 35 providing for arbitration, being part of the said
lease deed, was also invalid and unenforceable. The
respondent denied that they had agreed to sell the two tea
estates to the respondent for a consideration of Rupees four · c
crores. The appellant also denied that the respondent had
invested any amount in the tea estates. It contended that as the
· lease deed itself was invalid, the appellant could not claim
appointment of an arbitrator under the arbitration agreement
forming part of the said deed.
D
4. The learned Chief Justice of Guwahati High Court
dismissed the appellant's application by order dated
28.5.2010. He held that the lease deed was compulsorily
registrable under section 17 of the Registration Act and section
106 of the TP Act; and as the lease deed was not registered, E
no term in the said lease deed could be relied upon for any
purpose and therefore clause 35 could not be relied upon for
seeking reference to arbitration. The High Court also held that
the arbitration agreement contained in clause 35 could not be
termed as a collateral transaction, and therefore, the proviso F
to section 49 of the Registration Act would not assist the
appellant. The said order is challenged in this appeal by special
leave.
5. On the contentions urged the following questions arise
for consideration : G
(i) Whether an arbitration agreement contained in an
unregistered (but compulsorily registrable) instrument is
valid and enforceable?
H
392 SUPREME COURT REPORTS [2011] 9 S.C.R.
A (ii) Whether an arbitration agreement in an unregistered ..
instrument which is not duly stamped, is valid and
enforceable?
(iii) Whether there is an arbitration agreement between the
appellant and respondent and whether an Arbitrator should
B be appointed? ·'
Re : Question (i)
6. Section 17(1)(d) of Registration Act and section 107 of
TP Act provides that leases of immovable property from year
c to year, or for any term exceeding one year or reserving a yearly
rent, can be made only by a registered instrument. Section 49
of the Registration Act, 1908, sets out the effect of non-
registration of documents required to be registered. The said
I
section is extracted below :
D
"49.Effect of non-registration of documents required
to be Registered.- No document required by section 17
or by any provision of the Transfer of Property Act, 1882
(4 of 1882)], to be registered shall--
E (a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting
such property or conferring such power,
F ~
unless it has been registered:
provided that an unregistered document affecting
immovable property and required by this Act or the Transfer
of Property Act, 1882 (4 of 1882); to be registered may
G be received as evidence of a contract in a suit for specific ;
performance under Chapter II of the Specific Relief Act,
1877 (3 of 1877) as evidence of any collateral transaction
not required to be effected by registered instrument."
H Section 49 makes it clear that a document which is
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 393
CO. PVT. LTD. [R.V. RAVEENDRAN, J.]
compulsorily registrable, if not registered, will not affect the A
immovable property comprised therein in any manner. It will also
not be received as evidence of any transaction affecting such
property, except for two limited purposes. First is as evidence
of a contract in a suit for specific performance. Second is as
'• evidence of any collateral transaction which by itself is not B
required to be effected by registered instrument. A collateral
transaction is not the transaction affecting the immovable
property, but a transaction which is incidentally connected with
that transaction. The question is whether a provision for
arbitration in an unregistered document (which is compulsorily
registrable) is a collateral transaction, in respect of which such
c
unregistered document can be received as evidence under the
proviso to section 49 of the Registration Act.
-<.
>.
7. When a contract contains an arbitration agreement, it
is a collateral term relating to the resolution of disputes, D
unrelated to the performance of the contract. It is as if two
contracts -- one in regard to the substantive terms of the main
contract and the other relating to resolution of disputes -- had
been rolled into one, for purposes of convenience. An arbitration
clause is therefore an agreement independent of the other E
terms of the contract or the instrument. Resultantly, even if the
contract or its performance is terminated or comes to an end
on account of repudiation, frustration or breach of contract, the
arbitration agreement would survive for the purpose of resolution
J of disputes arising under or in connection with the contract. F
Similarly, when an instrument or deed of transfer (or a document
affecting immovable property) contains an arbitration
agreement, it is a collateral term relating to resolution of
disputes, unrelated to the transfer or transaction affecting the
immovable property. It is as if two documents - one affecting G
"' the immovable property requiring registration and the other
relating to resolution of disputes which is not compulsorily
registrable - are rolled into a single instrument. Therefore, even
if a deed of transfer of immovable property is challenged as
not valid or enforceable, the arbitration agreement would remain
H
394 SUPREME COURT REPORTS (2011] 9 S.C.R.
A unaffected for the purpose of resolution of disputes arising with
reference to the deed of transfer. These principles have now
found statutory recognition in sub-section (1) of section 16 of
the Arbitration and Conciliation Act 1996 ('Act' for short) which
is extracted below :
B "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,--
c
(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
D null and void shall not entail ipso jure the invalidity of the
arbitration clause."
8. But where the contract or instrument is voidable at the
option of a party (as for example under section 19 of the Indian
E Contract Act, 1872), the invalidity that attaches itself to the main
agreement may also attach itself to the arbitration agreement,
if the reasons which make the main agreement voidable, exist
in relation to the making of the arbitration agreement also. For
example, if a person is made to sign an agreement to sell his
F property under threat of physical harm or threat to life, and the
said person repudiates the agreement on that ground, not only
the agreement for sale, but any arbitration agreement therein
will not be binding.
9. An arbitration agreement does not require registration
G under the Registration Act. Even if it is found as one of the
clauses in a contract or instrument, it is an independent
agreement to refer the disputes to arbitration, which is
independent of the main contract or instrument. Therefore
having regard to the proviso to section 49 of Registration Act
H read with section 16(1)(a) of the Act, an arbitration agreement
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 395
CO. PVT. LTD. [R.V. RAVEENDRAN, J.]
),.
in an unregistered but compulsorily registrable document can A
be acted upon and enforced for the purpose of dispute
resolution by arbitration.
Re : Question (ii)
r..
10. What if an arbitration agreement is contained in an B
unregistered (but compulsorily registrable) instrument which is
not duly stamped? To find an answer, it may be necessary to
refer to the provisions of the Indian Stamp Act, 1899 ('Stamp
Act' for short). Section 33 of the Stamp Act relates to
examination and impounding of instruments. The relevant c
portion thereof is extracted below :
"33.Examination and impounding of instruments.-(1) Every
person having by law or consent of parties authority to
..' receive evidence, ahd every person in charge of a pubic
D
office, except an officer of police, 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 dull
stamped, impound the same.
E
(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
,.) in force in India when such instrument was executed or first
F
executed:
xxxx"
Section 35 of Stamp Act provides that instruments not duly
stamped is inadmissible in evidence and cannot be acted
G
upon. The relevant portion of the said section is extracted below:
"'·
"35. Instruments not duly stamped inadmissible in
evidence, etc. -- No instrument chargeable with duty shall
be admitted in evidence for any purpose by any person
having by law or consent of parties authority to receive H
396 SUPREME COURT REPORTS [2011] 9 S.C.R.
A evidence, or shall be acted upon, registered or
authenticated by any such person or by any public officer,
unless such instrument is duly stamped :
Provided that--
)
B (a) any such instrument shall be admitted in
evidence on payment of the duty with which the
same is chargeable, or, in the case of an instrument
insufficiently stamped, of the amount required to
make up such duty, together with a penalty of five
c rupees, or, when ten times the amount of the proper
duty or deficient portion thereof exceeds five
rupees, of a sum equal to ten times such duty or
portion."
xxxxx •
D
Having regard to section 35 of Stamp Act, unless the stamp
duty and penalty due in respect of the instrument is paid, the
court cannot act upon the instrument, which means that it cannot
act upon the arbitration agreement also which is part of the
E instrument. Section 35 of Stamp Act is distinct and different
from section 49 of Registration Act in regard to an unregistered
document. Section 35 of Stamp Act, does not contain a proviso
like to section 49 of Registration Act enabling the instrument
to be used to establish a collateral transaction. ......
F 11. The scheme for appointment of arbitrators by the Chief
Justice of Guwahati High Court 1996 requires an application
under section 11 of the Act to be accompanied by the original
arbitration agreement or a duly certified copy thereof. In fact,
such a requirement is found in the scheme/rules of almost all
G the High Courts. If what is produced is a certified copy of the
agreement/contract/instrument containing the arbitration clause,
it should disclose the stamp duty that has been paid on the
original. Section 33 casts a duty upon every court, that is a
person having by law authority to receive evidence (as also
H every arbitrator who is a person having by consent of parties,
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 397
~
CO. PVT. LTD. [R.Y. RAVEENDRAN, J.]
authority to receive evidence) before whom an unregistered A
instrument chargeable with duty is produced, to examine the
instrument in order to ascertain whether it is duly stamped. If
the court comes to the conclusion that the instrument is not duly
stamped, it has to impound the document and deal with it as
t per section 38 of the Stamp Act. Therefore, when a lease deed B
or any other instrument is relied upon as contending the
arbitration agreernent, the court should consider at the outset,
whether an objection in that behalf is raised or not, whether the
document is properly stamped. If it comes to the conclusion that
it is not properly stamped, it should be impounded and dealt c
with in the manner specified in section 38 of Stamp Act. The
court cannot act upon such a document or the arbitration clause
therein. But if the deficit duty and penalty is paid in the manner
Jo
>
set out in section 35 or section 40 of the Stamp Act, the
document can be acted upon or admitted in evidence.
D
12. We may 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 :
E
(i) The court should, before admitting any document into
evidence or acting upon such document, examine whether the
instrumenUdocument is duly stamped and whether it is an
~-
I
• instrument which is compulsorily registrable.
(ii) If the document is found to be not duly stamped, Section F
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. G
(iii) 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. H
398 SUPREME COURT REPORTS [2011] 9 S.C.R.
A (iv) 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.
B
(v) 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
c 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 •
D objection that the arbitration agreement was invalid, the court
will consider the said objection before proceeding to appoint
an arbitrator.
(vi) Where the document is compulsorily registrable, but
is not registered, but the arbitration agreement is valid and
E
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
F require registration.
..
•
Re : Question (iii)
13. Where a lease deed is for a term of thirty years and is
unregistered, the terms of such a deed cannot be relied upon
G to claim or enforce any right under or in respect of such lease. ,
It can be relied upon for the limited purposes of showing that
the possession of the lessee is lawful possession or as
evidence of some collateral transaction. Even if an arbitrator
is appointed, he cannot rely upon or enforce any term of the
H unregistered lease deed. Where the arbitration agreement is
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 399
CO. PVT. LTD. [R.V. RAVEENDRAN, J.)
~
not wide and does not provide for arbitration in regard to all A
and whatsoever disputes, but provides only for settlement of
disputes and differences arising in relation to the lease deed,
the arbitration clause though available in theory is of little
practical assistance, as it cannot be used for deciding any
t dispute or difference with reference to the unregistered deed. B
14. In this case, clause 35 of the lease deed reads as
under:
"That any dispute or difference arising between the parties
in relation to or in any manner touching upon this deed c
·I shall be settled by Arbitration in accordance with the
provisions of the Arbitration and Conciliation Act, 1996
which shall be final and binding on the parties hereto. The
I Government law will be Indian. The venue of Arbitration
> shall be at Assam and Court at Assam alone shall have D
jurisdiction for disputes and litigations arising between the
lessor/first party and the lessee/second party in context
with the above mentioned scheduled property."
Having regard to the limited scope of the said arbitration
agreement (restricting it to disputes in relation to or in any E
manner touching upon the lease deed), the arbitrator will have
no jurisdiction to decide any dispute which does not relate to
the lease deed. Though the Arbitrator will have jurisdiction to
.-•·
.
decide any dispute touching upon or relating to the lease deed,
as the lease deed is unregistered, the arbitration will virtually F
be a non-starter. A party under such a deed may have the luxury
of having an arbitrator appointed, but little else. Be that as it
may.
15. Before an Arbitrator can be appointed under section
G
' · 11 of the Act, the applicant should satisfy the learned Chief
Justice or his designate that the arbitration agreement is
available in regard to the contract/document in regard to which
the dispute has arisen. For example if the parties had entered
into two agreements and arbitration clause is found only in the
first agreement and not in the second agreement, necessarily H
400 SUPREME COURT REPORTS [2011} 9 S.C.R. •
1-
A an arbitrator can be appointed only in regard to disputes
relating to the first agreement and not in regard to any dispute
relating to the second agreement. This court in Yogi Agarwal
vs. Inspiration Clothes & U - (2009) 1 SCC 372 held :
"When Sections 7 and 8 of the Act refer to the existence •
'
B of an arbitration agreement in regard to the current dispute
between the parties, they necessarily refer to an arbitration
agreement in regard to the current dispute between the
parties or the subject-matter of the suit. It is fundamental
that a provision for arbitration, to constitute an arbitration
c agreement for the purposes of Sections 7 and 8 of the Act,
should satisfy two conditions. Firstly, it should be between
•
the parties to the dispute. Secondly, it should relate to or
be applicable to the dispute."
•
16. In this case, the appellant seeks arbitration in regard
D
to the following three distinct disputes: (a) for enforcing an
alleged agreement of sale of two tea estates, (b) for enforcing
the lease for thirty years; and (c) for recovery of amounts spent
by it in regard to the estates on the assumption that it was
entitled to purchase the property or at least have a lease of 30
E years.
17. It is clear from the petition averments (Para 11 of the
application) that the alleged agreement of sale was entered
prior to the lease deed dated 21.12.2006 and there was no
F arbitration agreement in regard to such agreement of sale.
When admittedly there is no arbitration agreement in regard to
the alleged agreement of sale, the appellant cannot seek
arbitration with reference to any dispute regarding such
agreement of sale, whether it is for performance or for
G
damages for breach or any other relief arising out of or with
reference to the agreement of sale.
'
18. An Arbitrator can no doubt be appointed in regard to
any disputes relating to the lease deed. But as noticed above,
as the lease deed was not registered, the Arbitrator can not
H rely upon the lease deed or any term thereof and the lease deed
SMS TEA ESTATES PVT. LTD. v. CHANDMARI TEA 401
k CO. PVT. LTD. [R.V. RAVEENDRAN, J.]
A
cannot affect the immovable property which is the subject
matter of the lease nor be received as evidence of any
transaction affecting such property. Therefore, the Arbitrator will
not be able to entertain any claim for enforcement of the lease.
19. Lastly we may consider the claim for recovery of the B
amounts allegedly spent towards the tea estates, as a
consequence of respondents not selling the estates or not
permitting the appellant to enjoy the lease for 30 years. If this
claim is treated as a claim for damages for breach in not
granting the lease for 30 years then it would be for enforcement c
of the terms of the lease deed which is impermissible under
section 49 of the Registration Act. If it is treated as claim de
hors the lease deed then the arbitrator may not have jurisdiction
.;. to decide the dispute as the arbitration agreement (clause 35)
is available only to settle any dispute or difference arising D
between the parties in relation to or in any manner touching
upon the lease deed and not in regard to disputes in general.
20. In paras 18 and 19 above, we have considered and
stated the general legal position for guidance in arbitrations,
even though the same does not directly arise for consideration E
within the limited scope of the proceedings under section 11
of the Act.
.J Conclusion
21. In view of the above this appeal is allowed, the order F
of the High Court is set aside and the matter is remitted to the
learned Chief Justice of Guwahati High Court to first decide the
issue of stamp duty, and if the document is duly stamped, then
appoint an arbitrator in accordance with law.
G
R.P. Appeal allowed.
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