As a matter of general practice, the parties, upon reaching a consensus, reduce the terms of their understanding in writing by way of an agreement, which govern the relationship between the parties and set out their rights and obligations. As litigation is a timeconsuming procedure, parties often mutually agree to resolve their disputes through recognized Alternate Dispute Resolution mechanisms, like Arbitration. Thus, most of the agreements have a specific clause related to arbitration.
However, parties often fail to adequately stamp the Agreement in terms of the Stamp Act(s) governing such agreement. Such failure renders the Agreement unenforceable.
This led to a controversy regarding the powers of a Court under Section 9 and 11 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") with respect to such unstamped / inadequately stamped agreements. This article makes an attempt to analyse the recent Supreme Court and Bombay High Court judgements on this issue and whether they give finality to the controversy.
Arbitration and Conciliation Act, 1996
- Section 7 - Arbitration agreement
- Section 9 - Interim Measures etc. by Court
- Section 11 - Appointment of arbitrators
The Maharashtra Stamp Act, 1958
- Section 33 - Examination and impounding of instruments.
- Section 34 - Instruments not duly stamped inadmissible in evidence, etc.
Since inception of the Arbitration Act, the scope of judicial intervention with respect to an arbitration proceeding, more specifically at pre-arbitral stage, became a contentious issue. This section of the article looks at the various judgements passed by the Supreme Court with respect to such judicial intervention as well as the amendment to Section 11 brought about by the Arbitration and Conciliation (Amendment) Act, 2015 ("Amendment Act" ).
Judicial Pronouncements prior to Amendment Act
- Konkan Railway Corporation Limited v Mehul Construction Co. [(2000) 7 SCC 201]: In this judgement, the Supreme Court held that the powers of the Chief Justice to appoint an arbitrator under Section 11 (6) of the Arbitration Act are administrative in nature and the Chief Justice does not act as a judicial authority while appointing an arbitrator
- Konkan Railway Corporation Limited v Rani Construction Pvt. Ltd. [(2002) 2 SCC 388]: The view taken by the Supreme Court in the first Konkan Railway case, was reiterated in this case.
- SBP and Co. v Patel Engineering Ltd. [(2005) 8 SCC 618]: The view rendered in the Konkan Railways case was overruled by a seven-Judge Bench of the Supreme Court. The Court concluded that the powers exercised by the Chief Justice or designated Judge under Section 11 (6) is a judicial function and not an administrative function. Thus, the concerned Judge has the power to decide preliminary aspects, including the jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence of a claim etc.
- National Insurance Co. Ltd. v Boghara Polyfab. [(2009) 1 SCC 267]: The Supreme Court reiterated the view rendered in the SBP judgement and segregated preliminary issues into (i) issues which the Court is bound to decide; (ii) issues which the Court may decide; and (iii) issues which should be left to the Arbitral Tribunal to be decided under Section 16 of the Arbitration Act. Issues (i) and (ii) included determining the existence of an arbitration agreement, existence of claim, limitation etc.
- SMS Tea Estates (P) Ltd. v Chandmari Tea Co. (P) Ltd. [(2011) 14 SCC 66]: The Supreme Court held that where an arbitration clause is contained in an unstamped agreement, the provisions of Indian Stamp Act would require the judge to impound the Agreement first and upon payment of full stamp duty, decide any application under Section 11 (6) of the Arbitration Act. In terms of the clear wording of Section 35 of the Indian Stamp Act, it was held that the Court cannot act upon such agreement without it being impounded and duly stamped.
Amendment Act of 2015
As the SBP Co. and Boghara Polyfab judgment empowered the Court to decide several preliminary issues under Section 11 (6), the Law Commission interalia suggested for amendment to Section 11 (6) by adding a new sub-section Section 11 (6A) to the Act. Section 11 (6A) is reproduced hereunder:
"(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under subsection (4) or sub-section (5) or subsection (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement. "
The Section limits the power of the Court under Section 11 (6) only to examine the existence of an arbitration agreement.
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