GARWARE WALL ROPES LTD. versus COASTAL MARINE CONSTRUCTIONS & ENGINEERING LTD.

GARWARE WALL ROPES LTD.

COASTAL MARINE CONSTRUCTIONS & ENGINEERINGLTD.

(Civil Appeal No. 3631 of 2019)

APRIL 10, 2019

[R. F. NARIMAN AND VINEET SARAN, JJ.]

Arbitration and Conciliation Act, 1996: s. 11(4), 11(6) and11(6A) – Appointment of arbitrator – Arbitration clause containedin contract not stamped – Effect of – Held: When Supreme Courtor the High Court considers an application u/s. 11(4) to 11(6), andcomes across an arbitration clause in an agreement or conveyancewhich is unstamped, the Court must impound the instrument whichis unstamped and hand it over to the authority under the Stamp Act,who would decide issues qua payment of stamp duty and penalty asexpeditiously as possible, within the stipulated period – As soon asstamp duty and penalty are paid on the instrument, any of the partiescan bring the instrument to the notice of the Court, which wouldthen dispose of the application u/s. 11 – Harmonious constructionis to be given to the provisions of the Stamp Act and s. 11(13) of the1996 Act by which, if it is possible, both provisions ought to besubserved – Furthermore, introduction of s. 11(6A) does not, in anymanner, deal with or get over the basis of the judgment in SMS TeaEstates’s case that the mandatory provisions contained in the StampAct are applicable to judicial authorities acting u/s. 11, continuesto apply even after the amendment of s. 11(6A) – On facts, thearbitration clause contained in the sub-contract would not “exist”as matter of law until the sub-contract is duly stamped – Orderpassed by the High Court allowing the application u/s. forappointment of the arbitrator, to adjudicate upon the dispute, eventhough the sub-contract was unstamped, is set aside and matter isremitted back to the High Court – Maharashtra Stamp Act, 1958 –ss. 33 and 34.

Allowing the appeal, the Court

HELD: 1.1 It will be noticed from the *SMS Tea Estates’case that where an arbitration clause is contained in an agreement

Aor conveyance, different consequences ensue depending onwhether the agreement or conveyance is unregistered orunstamped. It is settled by **SBP & Co.’s case that Section 16 ofthe Arbitration and Conciliation Act, 1996 Act has full play onlyafter the arbitral tribunal is constituted, without intervention ofthe Court under Section 11. In view of the law laid down by seven-BJudge Bench, it is difficult to accept the submission that Section16 makes it clear that an arbitration agreement has anindependent existence of its own, and must be applied whiledeciding an application under Section 11 of the 1996 Act. It willbe seen that neither in the Statement of Objects and ReasonsCnor in the Law Commission Report is there any mention of SMSTea Estates’s case. This is for the very good reason that theSupreme Court or the High Court, while deciding Section 11application, does not, in any manner, decide any preliminaryquestion that arises between the parties. The Supreme Court orthe High Court is only giving effect to the provisions of aDmandatory enactment which, no doubt, is to protect revenue. SMSTea Estates case has taken account of the mandatory provisionscontained in the Stamp Act and held them applicable to judicialauthorities, which would include the Supreme Court and the HighCourt acting under Section 11. close look at Section 11(6A)Ewould show that when the Supreme Court or the High Courtconsiders an application under Section 11(4) to 11(6), and comesacross an arbitration clause in an agreement or conveyance whichis unstamped, it is enjoined by the provisions of the Stamp Act tofirst impound the agreement or conveyance and see that stampduty and penalty (if any) is paid before the agreement, as whole,Fcan be acted upon. The Stamp Act applies to the agreement orconveyance as whole. Therefore, it is not possible to bifurcatethe arbitration clause contained in such agreement or conveyanceso as to give it an independent existence. It is clear, therefore,that the introduction of Section 11(6A) does not, in any manner,Gdeal with or get over the basis of the judgment in SMS TeaEstates’s case, which continues to apply even after the amendmentof Section 11(6A). [Para 15, 16][602-G-H; 604-E-H; 605-A-D]1.2 When an arbitration clause is contained “in contract”,it is significant that the agreement only becomes contract if it is

enforceable by law. Under the Stamp Act, an agreement does notbecome contract, namely, that it is not enforceable in law, unlessit is duly stamped. Therefore, even plain reading of Section11(6A), when read with Section 7(2) of the 1996 Act and Section2(h) of the Contract Act, would make it clear that an arbitrationclause in an agreement would not exist when it is not enforceableby law. This is also an indicator that SMS Tea Estates case has, inno manner, been touched by the amendment of Section 11(6A).[Para 19][606-B-C]

1.3 In the facts of the instant case, it is clear that thearbitration clause that is contained in the sub-contract would not“exist” as matter of law until the sub–contract is duly stamped.The argument that Section 11(6A) deals with “existence”, asopposed to Section 8, Section 16, and Section 45, which deal with“validity” of an arbitration agreement is answered by this Court’sunderstanding of the expression “existence” in United IndiaInsurance Co.’s case as followed by this Court. [Para 24][612-B-C]

United India Insurance Co. Ltd. and Ors. v. HyundaiEngineering and Construction Co. Ltd. and Ors.2018SCC OnLine SC 1045 – relied on.

1.4 It was submitted that the 60-day period under section11(13) would be breached if document were to be impounded atthe stage of section 11(6) application. Stamp duty, when paidwith penalty (if any), would require adjudication by the stampauthorities, which would take far more than the 60-day periodthat is laid down by Section 11(13). Undoubtedly, Section 11(13),which was also introduced by Amendment Act 3 of 2016, wasenacted keeping one of the important objectives of the 1996 Actin mind, namely, speedy disposal of disputes by the arbitraltribunal, and appointment of an arbitrator having to be made asexpeditiously as possible. Thus, harmonious construction needsto be given to the provisions of the Maharashtra Stamp Act andSection 11(13) of the 1996 Act by which, if it is possible, bothprovisions ought to be subserved. Under the Maharashtra StampAct, the object of impounding an instrument that is unstamped isto ensure that stamp duty and penalty (if any) must be paid on

Asuch instrument before it is acted upon by any authority. Likewise,under Section 11(13) of the 1996 Act, an application made underSection 11 for appointment of an arbitrator should be disposed ofas expeditiously as possible, and, in any event, an endeavourshall be made to dispose of such application at least within periodof 60 days from the date of service of notice on the oppositeBparty. [Para 26][613-C-F]

1.5 The doctrine of harmonious construction of statutes isstrongly imbedded in the interpretative canon. One reasonableway of harmonising the provisions contained in Sections 33 and34 of the Maharashtra Stamp Act, which is general statute insofarCas it relates to safeguarding revenue, and Section 11(13) of the1996 Act, which applies specifically to speedy resolution ofdisputes by appointment of an arbitrator expeditiously, is bydeclaring that while proceeding with the Section 11 application,the High Court must impound the instrument which has not borneDstamp duty and hand it over to the authority under theMaharashtra Stamp Act, who will then decide issues qua paymentof stamp duty and penalty (if any) as expeditiously as possible,and preferably within period of 45 days from the date on whichthe authority receives the instrument. As soon as stamp dutyand penalty (if any) are paid on the instrument, any of the partiesEcan bring the instrument to the notice of the High Court, whichwill then proceed to expeditiously hear and dispose of the Section11 application. This will also ensure that once Section 11application is allowed and an arbitrator is appointed, the arbitratorcan then proceed to decide the dispute within the time frameFprovided by Section 29A of the 1996 Act. [Paras 27, 28][613-G;616-F-H; 617-A-B]

Sri Venkataramana Devaru v. State of Mysore [1958]SCR 895; J.K. Cotton Spinning & Weaving MillsCo. Ltd. v. State of U.P. [1961] 3 SCR 185 ; ChiefGInspector of Mines v. Lala Karam Chand Thapar [1962]1 SCR 9; Anwar Hasan Khan v. Mohd. Shafi (2001) 8SCC 540 – referred to.

1.6 The judgment of the High Court is set aside. The matteris remitted to the High Court to dispose of the same in the lightHof this judgment. [Para 29][617-C]

GARWARE WALL ROPES LTD. v. COASTAL MARINECONSTRUCTIONS & ENGINEERING LTD.

*SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P)Ltd. (2011) 14 SCC 66 : [2011] 9 SCR 382 - followed.

Ashapura Mine–Chem Ltd. v. Gujarat MineralDevelopment Corporation (2015) 8 SCC 193 : [2015]4 SCR 880 – held inapplicable.

JMD Ltd. v. Celebrity Fitness India Pvt. Ltd. (2019) SCCOnLine Del 6483 ; B.D. Sharma v. Swastik Infra EstatePvt. Ltd. & Ors. (2018) SCC OnLine Del 13279 ;Sandeep Soni v. Sanjay Roy (2018) SCC OnLine Del11169 ; N.D. Developers Pvt. Ltd. v. Bharathi & Ors.(2018) SCC OnLine Kar 2938 ; Gautam LandscapesPvt. Ltd. v. Shailesh Shah and Ors. Arb. Pet. No. 466of 2017 – disapproved.

**SBP & Co. v. Patel Engineering Ltd. (2005) 8SCC 618 : [2005] 4 Suppl. SCR 688; NationalInsurance Co. Ltd. v. Boghara Polyfab (P) Ltd. (2009)1 SCC 267 : [2008] 13 SCR 638 ; Konkan RailwayCorporation Ltd. v. Mehul Construction Co. (2000) 7SCC 201 : [2000] 2 Suppl. SCR 563 ; Konkan RailwayCorporation Ltd. v. Rani Construction (P) Ltd. (2002)2 SCC 388 : [2002] 1 SCR 728 ; Enercon (India) Ltd.& Ors. v. Enercon GmbH & Anr. (2014) 5 SCC 1 :[2014] 2 SCR 855 ; Duro Felguera, S.A. v. GangavaramPort Ltd. (2017) 9 SCC 729 : [2017] 10 SCR 285 –referred to.

Case Law Reference

[2019] 5 S.C.R.

BCIVIL APPELLATE JURISDICTION : Civil Appeal No. 3631of 2019.

From the Judgment and Order dated 09.03.2018 of the High Courtof Judicature at Bombay in Arbitration Petition No. 24 of 2017.

Dhruv Mehta, Sr. Adv., Ashish Wad, Mrs. Jayashree Wad, SidharthCMahajan, Ms. Sukriti Jaggi (for M/s. J. S. Wad And Co.), Advs. for theAppellant.

Ms. Ridhi Nyati, Ashwin Shanker, Aditya Verma, Shrey Patnaik,Advs. for the Respondent.

DThe Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. Leave granted.

2. This appeal arises out of sub-contract given by the appellantto the respondent in respect of work to be done for installation of geo-textile tubes embankment with toe mound at village Pentha in OdishaEfor protection against coastal erosion. The sub-contract agreement isdated 14.06.2013, Annexure III of which contains the following arbitrationclause:

“Any and all claims, disputes, questions or controversiesinvolving the parties and arising in connection with theFAgreement or execution, interpretation, validity,performance, termination hereof which cannot be finallyresolved by such parties [sic through] negotiation shall beresolved by final and binding arbitration held in Pune. Thedisputes shall be referred to sole arbitrator to be appointedby GWRL and COMACOE jointly in agreement.”G

3. Disputes arose between the parties, and on 02.01.2015, theappellant terminated the sub-contract. As result, on 20.07.2016, therespondent wrote to the appellant stating that as disputes and differenceshad arisen between the parties, notice was given of appointment of Mr.Mihir Naniwadekar, Advocate, as sole arbitrator. The appellant replied

on 17.08.2016, stating that the appointment of Mr. Naniwadekar as solearbitrator was not acceptable as invocation of arbitration in pursuanceof the agreement is premature. The respondent, therefore, filed petitionunder Section 11 of the Arbitration and Conciliation Act, 1996 [“1996Act”] on 10.02.2017 before the Bombay High Court. By the impugnedjudgment dated 09.03.2018, the Section 11 petition was allowed and Mr.Naniwadekar was appointed as sole arbitrator to adjudicate upon disputesand differences which have arisen between the appellant and therespondent in relation to the sub-contract dated 14.06.2013.4. The question raised in this appeal is as to what is the effect ofan arbitration clause contained in contract which requires to be stamped.This Court, in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P)Ltd., (2011) 14 SCC 66 [“SMS Tea Estates”], has held that where anarbitration clause is contained in an unstamped agreement, the provisionsof the Indian Stamp Act, 1899 [“Indian Stamp Act”] require the Judgehearing the Section 11 application to impound the agreement and ensurethat stamp duty and penalty (if any) are paid thereon before proceedingwith the Section 11 application. The question is whether Section 11(6A),which has been introduced by way of the Arbitration and Conciliation(Amendment) Act, 2015 [“Amendment Act, 2015”], has removed thebasis of this judgment, so that the stage at which the instrument is to beimpounded is not by the Judge hearing the Section 11 application, but byan arbitrator who is appointed under Section 11, as has been held by theimpugned judgment.

5. Mr. Dhruv Mehta, learned Senior Advocate appearing on behalfof the appellant, has taken us through the sub-contract as well as thearbitration clause contained therein. He relied strongly upon theMaharashtra Stamp Act, 1958 [“Maharashtra Stamp Act”], andSections 33 and 34 thereof, in particular. According to him, these areprovisions which are similar to the provisions contained in Sections 33and 35 of the Indian Stamp Act, which, as held in SMS Tea Estates(supra), requires judicial authorities to impound such instruments, whichcannot be admitted in evidence or cannot be acted upon until duly stamped.According to him, the judgment in SMS Tea Estates (supra) continuesto apply even after the introduction of Section 11(6A) to the 1996 Act,by which the Court is now to confine itself to the examination of theexistence of an arbitration agreement. Relying upon the 246th LawCommission Report, which led to the amendment contained in Section

A11(6A), together with the Statement of Objects and Reasons appendedto the Arbitration and Conciliation (Amendment) Bill, 2015, Mr. Mehtaargued that it was clear that the amendment was necessitated as resultof two Supreme Court judgments in particular, namely, SBP & Co. v.Patel Engineering Ltd., (2005) 8 SCC 618 [“SBP & Co.”] andNational Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1BSCC 267 [“Boghara Polyfab”], by which the door was opened toowide, so that many preliminary issues which do not relate to the existenceof an arbitration agreement were to be decided by the Court hearing theSection 11 application instead of by the arbitrator. The focus being onthese two judgments, it is clear that it is these two judgments whoseCbasis has been removed, leaving SMS Tea Estates (supra) untouched.According to him, it is clear that if, as result of operation of law, aninstrument is to be impounded, upon which stamp duty and penalty (ifany) are then to be paid, must be followed as Section 11(6A) does notseek to interfere with the Indian Stamp Act at all. He relied upon certainjudgments to buttress his submissions.D6. Ms. Ridhi Nyati, learned Advocate appearing on behalf of therespondent, referred us to Sections 8, 16, and 45 of the 1996 Act inparticular, and made it clear that the object of the Amendment Act, 2015,in introducing Section 11(6A), was to confine the Court hearing theSection 11 application to examination of the existence of an arbitrationEagreement and nothing more. She made distinction between “validity”and “existence” of an arbitration agreement, and argued that the provisionsof the Indian Stamp Act are fiscal measure intended merely to collectrevenue and, if at all, will go to “validity” of an arbitration agreement andnot to its “existence”. She relied strongly upon certain judgments whichFmade it clear that an arbitration agreement is independent of the agreementin which it is contained. So long as it is in writing, and therefore, exists infact, the Court hearing the Section 11 application is to appoint an arbitratorand thereafter leave all other preliminary issues to the arbitrator, as ismandated by Section 11 of the 1996 Act. The whole object of the

amendment would be defeated as otherwise, mini-trial would beGconducted at the Section 11 stage, requiring impounding of the agreementcontaining the arbitration clause. She also relied upon Section 11(13) ofthe 1996 Act, making it clear that the application under Section 11 oughtto be disposed of within period of 60 days from the date of service ofnotice, and that this would not be possible if questions relating to theHIndian Stamp Act were to be decided at the Section 11 stage. Equally,

according to her, no prejudice would be caused to any party if thearbitrator were to commence the arbitration and then impound thedocuments containing the arbitration clause by applying the Indian StampAct. She also argued that, in the present case, it is the appellant who isto pay stamp duty under the Indian Contract Act, 1872, and therefore,cannot take advantage of its own wrong in not doing so, as has beencorrectly held in the impugned judgment. She also relied upon severalother judgments to buttress her submissions.

7. Having heard learned counsel for both sides, it is important tofirst set out the relevant provisions contained in the 1996 Act. Section2(1)(b) defines “arbitration agreement” as follows:

“2. Definitions.—(1) In this Part, unless the context otherwiserequires,—

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(b) “arbitration agreement” means an agreement referred to in Section 7;

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Section 7 is important and deals with what is meant by anarbitration agreement. Section 7 states:

“7. Arbitration agreement.—(1) In this Part, “arbitrationagreement” means an agreement by the parties to submit toarbitration all or certain disputes which have arisen or which mayarise between them in respect of defined legal relationship,whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitrationclause in contract or in the form of separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) document signed by the parties;

(b) an exchange of letters, telex, telegrams or othermeans of telecommunication includingcommunication through electronic means whichprovide record of the agreement; or

(c)an exchange of statements of claim and defence inwhich the existence of the agreement is alleged byone party and not denied by the other.

(5) The reference in contract to document containing anarbitration clause constitutes an arbitration agreement if thecontract is in writing and the reference is such as to make thatarbitration clause part of the contract.”

Section 8, which speaks of the power to refer parties to arbitrationwhere there is an arbitration agreement is also relevant, and states:

“8. Power to refer parties to arbitration where there is anarbitration agreement.—(1) judicial authority, before whichan action is brought in matter which is the subject of an arbitrationagreement shall, if party to the arbitration agreement or anyperson claiming through or under him, so applies not later than thedate of submitting his first statement on the substance of the dispute,then, notwithstanding any judgment, decree or order of theSupreme Court or any Court, refer the parties to arbitration unlessit finds that prima facie no valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall not beentertained unless it is accompanied by the original arbitrationagreement or duly certified copy thereof.

Provided that where the original arbitration agreement or acertified copy thereof is not available with the party applying forreference to arbitration under sub-section (1), and the saidagreement or certified copy is retained by the other party to thatagreement, then, the party so applying shall file such applicationalong with copy of the arbitration agreement and petitionpraying the court to call upon the other party to produce the originalarbitration agreement or its duly certified copy before that court.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority,an arbitration may be commenced or continued and an arbitralaward made.”

Section 11(6A), 11(7), and 11(13) are important for decision inthis case and are set out hereinbelow:

“11. Appointment of arbitrators.—

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(6A) The Supreme Court or, as the case may be, the High Court,while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment,decree or order of any court, confine to the examination of theexistence of an arbitration agreement.

xxx xxx xxx

(7) decision on matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Supreme Court or, as thecase may be, the High Court or the person or institution designatedby such court is final and no appeal including Letters Patent Appealshall lie against such decision.

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(13) An application made under this section for appointment of anarbitrator or arbitrators shall be disposed of by the Supreme Courtor the High Court or the person or institution designated by suchcourt, as the case may be, as expeditiously as possible and anendeavour shall be made to dispose of the matter within periodof sixty days from the date of service of notice on the oppositeparty.

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Section 16(1) reads as follows:

“16. Competence of arbitral tribunal to rule on itsjurisdiction.—(1) The arbitral tribunal may rule on its ownjurisdiction, including ruling on any objections with respect to theexistence or validity of the arbitration agreement, and for thatpurpose,—

(a) an arbitration clause which forms part of contract shallbe treated as an agreement independent of the other termsof the contract; and

(b) decision by the arbitral tribunal that the contract is nulland void shall not entail ipso jure the invalidity of thearbitration clause.

xxx xxx xxx”

Section 45, which speaks of the power of judicial authority torefer parties to arbitration, when it comes to agreements referred to bythe New York Convention of 1958, states as follows:

“45. Power of judicial authority to refer parties toarbitration.—Notwithstanding anything contained in Part I or inBthe Code of Civil Procedure, 1908 (V of 1908), judicial authority,when seized of an action in matter in respect of which the partieshave made an agreement referred to in Section 44, shall, at therequest of one of the parties or any person claiming through orunder him, refer the parties to arbitration, unless it finds that thesaid agreement is null and void, inoperative or incapable of beingCperformed.”

8. Sections 33 and 34 of the Maharashtra Stamp Act, with whichwe are directly concerned, read as follows:

“33. Examination and impounding of instruments.—(1)Subject to the provisions of section 32-A, every person having bylaw or consent of parties authority to receive evidence and everyperson in charge of public office, except an officer of police orany other officer, empowered by law to investigate offences underany law for the time being in force, before whom any instrumentchargeable, in his opinion, with duty, is produced or comes in theperformance of his functions shall, if it appears to him that suchinstrument is not duly stamped, impound the same irrespectivewhether the instrument is or is not valid in law.

(2) For that purpose every such person shall examine everyinstrument so chargeable and so produced or coming before himFin order to ascertain whether it is stamped with stamp of thevalue and description required by the law for the time being inforce in the State when such instrument was executed or firstexecuted:

Provided that,—

(a) nothing herein contained shall be deemed to require anyMagistrate or Judge of Criminal Court to examine or impound,if he does not think fit so to do any instrument coming beforehim in the course of any proceeding other than proceedingunder Chapter IX or Part of Chapter X of the Code ofCriminal Procedure, 1973;

(b) in the case of judge of High Court, the duty of examiningand impounding any instrument under this section may bedelegated to such officer as the Court may appoint in this behalf.

(3) For the purposes of this section, in cases of doubt,—

(a) the State Government may determine what offices shall bedeemed to be public offices; and

(b) the State Government may determine who shall be deemedto be persons in charge of public offices.

34. Instruments not duly stamped inadmissible in evidence,etc.—No instrument chargeable with duty shall be admitted inevidence for any purpose by any person having by law or consentof parties authority to receive evidence, or shall be acted upon,registered or authenticated by any such person or by any publicofficer unless such instrument is duly stamped or if the instrumentis written on sheet of paper with impressed stamp such stamppaper is purchased in the name of one of the parties to theinstrument:

Provided that,—

(a) any such instrument shall, subject to all just exceptions, beadmitted in evidence on payment of,—

(i) the duty with which the same is chargeable, or in thecase of an instrument insufficiently stamped, the amountrequired to make up such duty, and

(ii) penalty at the rate of 2 per cent of the deficient portionof the stamp duty for every month or part thereof, from thedate of execution of such instrument:

Provided that, in no case, the amount of the penalty shallexceed double the deficient portion of the stamp duty.

(b) where contract or agreement of any kind is effected bycorrespondence consisting of two or more letters and any oneof the letters bears the proper stamp; the contract or agreementshall be deemed to be duly stamped;

(c) nothing herein contained shall prevent the admission of anyinstrument in evidence in any proceeding in Criminal Court,

other than proceeding under Chapter IX or Part of ChapterX of the Code of Criminal Procedure, 1973;

(d) nothing herein contained shall prevent the admission of anyinstrument in any Court when such instrument has been executedby or on behalf of the Government or where it bears thecertificate of the Collector as provided by section 32 or anyother provision of this Act;

(e) nothing herein contained shall prevent the admission of acopy of any instrument or of an oral admission of the contentsof any instrument, if the stamp duty or deficient portion ofthe stamp duty and penalty as specified in clause (a) is paid.”

9. The case law under Section 11(6) of the Arbitration Act, as itstood prior to the Amendment Act, 2015, has had chequered history.In Konkan Railway Corporation Ltd. v. Mehul Construction Co.,(2000) 7 SCC 201 [“Konkan Railway I”], it was held that the powersDof the Chief Justice under Section 11(6) of the 1996 Act are administrativein nature, and that the Chief Justice or his designate does not act as ajudicial authority while appointing an arbitrator. The same view wasreiterated in Konkan Railway Corporation Ltd. v. Rani Construction(P) Ltd., (2002) 2 SCC 388 [“Konkan Railway II”].

E10. However, in SBP & Co. (supra), seven-Judge Benchoverruled this view and held that the power to appoint an arbitrator underSection 11 is judicial and not administrative. The conclusions of the seven-Judge Bench were summarised in paragraph 47 of the aforesaid judgment.We are concerned directly with sub-paragraphs (i), (iv), and (xii), whichread as follows:F

“(i) The power exercised by the Chief Justice of the High Courtor the Chief Justice of India under Section 11(6) of the Act is notan administrative power. It is judicial power.

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(iv) The Chief Justice or the designated Judge will have the rightto decide the preliminary aspects as indicated in the earlier part ofthis judgment. These will be his own jurisdiction to entertain therequest, the existence of valid arbitration agreement, theexistence or otherwise of live claim, the existence of the conditionfor the exercise of his power and on the qualifications of the

arbitrator or arbitrators. The Chief Justice or the designated Judgewould be entitled to seek the opinion of an institution in the matterof nominating an arbitrator qualified in terms of Section 11(8) ofthe Act if the need arises but the order appointing the arbitratorcould only be that of the Chief Justice or the designated Judge.

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(xii) The decision in Konkan Rly. Corpn. Ltd. v. RaniConstruction (P) Ltd. [(2002) 2 SCC 388] is overruled.”

This position was further clarified in Boghara Polyfab (supra) as follows:

“22. Where the intervention of the court is sought for appointmentof an Arbitral Tribunal under Section 11, the duty of the ChiefJustice or his designate is defined in SBP & Co. [(2005) 8 SCC618]. This Court identified and segregated the preliminary issuesthat may arise for consideration in an application under Section 11of the Act into three categories, that is, (i) issues which the ChiefJustice or his designate is bound to decide; (ii) issues which hecan also decide, that is, issues which he may choose to decide;and (iii) issues which should be left to the Arbitral Tribunal todecide.

22.1. The issues (first category) which the Chief Justice/hisdesignate will have to decide are:

(a) Whether the party making the application has approachedthe appropriate High Court.

(b) Whether there is an arbitration agreement and whetherthe party who has applied under Section 11 of the Act, is aparty to such an agreement.

22.2. The issues (second category) which the Chief Justice/hisdesignate may choose to decide (or leave them to the decision ofthe Arbitral Tribunal) are:

(a) Whether the claim is dead (long-barred) claim or liveclaim.

(b) Whether the parties have concluded the contract/transactionby recording satisfaction of their mutual rights and obligationor by receiving the final payment without objection.

A22.3. The issues (third category) which the Chief Justice/hisdesignate should leave exclusively to the Arbitral Tribunal are:

(i) Whether claim made falls within the arbitration clause (asfor example, matter which is reserved for final decision of adepartmental authority and excepted or excluded fromBarbitration).

(ii) Merits or any claim involved in the arbitration.”

11. As result of these judgments, the door was wide open forthe Chief Justice or his designate to decide large number of preliminaryaspects which could otherwise have been left to be decided by theCarbitrator under Section 16 of the 1996 Act. As result, the LawCommission of India, by its Report No. 246 submitted in August 2014,suggested that various sweeping changes be made in the 1996 Act.Insofar as SBP & Co. (supra) and Boghara Polyfab (supra) areconcerned, the Law Commission examined the matter and recommendedDthe addition of new sub-section, namely, sub-section (6A) in Section11. In so doing, the Law Commission recommendations which are relevantand which led to the introduction of Section 11(6A) are as follows:

“28. The Act recognizes situations where the intervention of theCourt is envisaged at the pre-arbitral stage, i.e. prior to theEconstitution of the arbitral tribunal, which includes sections 8, 9,11 in the case of Part I arbitrations and section 45 in the case ofPart II arbitrations. Sections 8, 45 and also section 11 relating to“reference to arbitration” and “appointment of the tribunal”, directlyaffect the constitution of the tribunal and functioning of the arbitralproceedings. Therefore, their operation has direct and significantFimpact on the “conduct” of arbitrations. Section 9, being solelyfor the purpose of securing interim relief, although having thepotential to affect the rights of parties, does not affect the“conduct” of the arbitration in the same way as these otherprovisions. It is in this context the Commission has examined andGdeliberated the working of these provisions and proposed certainamendments.

29. The Supreme Court has had occasion to deliberate upon thescope and nature of permissible pre-arbitral judicial intervention,especially in the context of section 11 of the Act. Unfortunately,however, the question before the Supreme Court was framed in

terms of whether such power is “judicial” or an “administrative”power – which obfuscates the real issue underlying suchnomenclature/description as to –

-the scope of such powers – i.e. the scope of argumentswhich Court (Chief Justice) will consider while decidingwhether to appoint an arbitrator or not – i.e. whether thearbitration agreement exists, whether it is null and void,whether it is voidable etc.; and which of these it shouldleave for decision of the arbitral tribunal.

-the nature of such intervention – i.e. would the Court(Chief Justice) consider the issues upon detailed trialand whether the same would be decided finally or be leftfor determination of the arbitral tribunal.

30. After series of cases culminating in the decision in SBP v.Patel Engineering, (2005) 8 SCC 618, the Supreme Court heldthat the power to appoint an arbitrator under section 11 is “judicial”power. The underlying issues in this judgment, relating to the scopeof intervention, were subsequently clarified by raveendran j inNational Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.,(2009) 1 SCC 267, where the Supreme Court laid down asfollows –

“1. The issues (first category) which Chief Justice/his designatewill have to decide are:

(a) Whether the party making the application has approachedthe appropriate High Court?

(b) Whether there is an arbitration agreement and whetherthe party who has applied under section 11 of the Act, is aparty to such an agreement?

2. The issues (second category) which the Chief Justice/hisdesignate may choose to decide are:

(a) Whether the claim is dead (long barred) claim or alive claim?

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rightsand obligation or by receiving the final payment withoutobjection?

3. The issues (third category) which the Chief Justice/hisdesignate should leave exclusively to the arbitral tribunal are:

(a) Whether claim falls within the arbitration clause (asfor example, matter which is reserved for final decisionof departmental authority and excepted or excluded fromarbitration)?

(b) Merits of any claim involved in the arbitration.”

31. The Commission is of the view that, in this context, the sametest regarding scope and nature of judicial intervention, asapplicable in the context of section 11, should also apply to sections8 and 45 of the Act – since the scope and nature of judicialintervention should not change upon whether party (intending todefeat the arbitration agreement) refuses to appoint an arbitratorin terms of the arbitration agreement, or moves proceeding beforea judicial authority in the face of such an arbitration agreement.

32. In relation to the nature of intervention, the exposition of thelaw is to be found in the decision of the Supreme Court in ShinEtsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234,(in the context of section 45 of the Act), where the SupremeCourt has ruled in favour of looking at the issues/controversy onlyprima facie.

33. It is in this context, the Commission has recommendedamendments to sections 8 and 11 of the Arbitration and ConciliationAct, 1996. The scope of the judicial intervention is only restrictedto situations where the Court/Judicial Authority finds that thearbitration agreement does not exist or is null and void. In so faras the nature of intervention is concerned, it is recommended thatin the event the Court/Judicial Authority is prima facie satisfiedagainst the argument challenging the arbitration agreement, it shallappoint the arbitrator and/or refer the parties to arbitration, as thecase may be. The amendment envisages that the judicial authorityshall not refer the parties to arbitration only if it finds that theredoes not exist an arbitration agreement or that it is null and void.If the judicial authority is of the opinion that prima facie thearbitration agreement exists, then it shall refer the dispute toarbitration, and leave the existence of the arbitration agreementto be finally determined by the arbitral tribunal. However, if thejudicial authority concludes that the agreement does not exist, thenthe conclusion will be final and not prima facie. The amendmentalso envisages that there shall be conclusive determination as towhether the arbitration agreement is null and void. In the eventthat the judicial authority refers the dispute to arbitration and/orappoints an arbitrator, under sections 8 and 11 respectively, sucha decision will be final and non-appealable. An appeal can bemaintained under section 37 only in the event of refusal to referparties to arbitration, or refusal to appoint an arbitrator.”

12. Pursuant to the Law Commission recommendations, Section11(6A) was introduced first by Ordinance and then by the AmendmentAct, 2015. The Statement of Objects and Reasons which were appendedto the Arbitration and Conciliation (Amendment) Bill, 2015 whichintroduced the Amendment Act, 2015 read as follows:

“STATEMENT OF OBJECTS AND REASONS

xxx xxx xxx

6. It is proposed to introduce the Arbitration and Conciliation(Amendment) Bill, 2015, to replace the Arbitration and Conciliation(Amendment) Ordinance, 2015, which inter alia, provides for thefollowing, namely:—

(i) to amend the definition of “Court” to provide that in the case ofinternational commercial arbitrations, the Court should be the HighCourt;

(ii) to ensure that an Indian Court can exercise jurisdiction to grantinterim measures, etc., even where the seat of the arbitration isoutside India;

(iii) an application for appointment of an arbitrator shall be disposedof by the High Court or Supreme Court, as the case may be, asexpeditiously as possible and an endeavour should be made todispose of the matter within period of sixty days;

(iv) to provide that while considering any application forappointment of arbitrator, the High Court or the Supreme Courtshall examine the existence of prima facie arbitration agreementand not other issues;

(v) to provide that the arbitral tribunal shall make its award withina period of twelve months from the date it enters upon the referenceand that the parties may, however, extend such period up to sixmonths, beyond which period any extension can only be grantedby the Court, on sufficient cause;

(vi) to provide that model fee Schedule on the basis of whichHigh Courts may frame rules for the purpose of determination offees of arbitral tribunal, where High Court appoints arbitrator interms of section 11 of the Act;

(vii) to provide that the parties to dispute may at any stage agreein writing that their dispute be resolved through fast trackprocedure and the award in such cases shall be made within aperiod of six months;

(viii) to provide for neutrality of arbitrators, when person isapproached in connection with possible appointment as anarbitrator;

(ix) to provide that application to challenge the award is to bedisposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure that arbitrationprocess becomes more user-friendly, cost effective and lead toexpeditious disposal of cases.

xxx xxx xxx”

13. reading of the Law Commission Report, together with theStatement of Objects and Reasons, shows that the Law Commissionfelt that the judgments in SBP & Co. (supra) and Boghara PolyfabF(supra) required relook, as result of which, so far as Section 11 isconcerned, the Supreme Court or, as the case may be, the High Court,while considering any application under Section 11(4) to 11(6) is to confineitself to the examination of the existence of an arbitration agreementand leave all other preliminary issues to be decided by the arbitrator.GThe question is as to whether the decision in SMS Tea Estates (supra)has also been done away with by the expression “notwithstanding anyjudgment, decree or order of any Court” contained in Section 11(6A).14. In SMS Tea Estates (supra), this Court was confronted withan arbitration clause, namely, Clause 35 of lease deed dated 21.12.2006Hfor term of 30 years in regard to two tea estates. The lease deed was

neither stamped nor registered. Paragraph 9 of the judgment set out thequestions that arose for consideration as follows:

“9. On the contentions urged the following questions arise forconsideration:

(i) Whether an arbitration agreement contained in anunregistered (but compulsorily registerable) instrument is validand enforceable?

(ii) Whether an arbitration agreement in an unregisteredinstrument which is not duly stamped, is valid and enforceable?

(iii) Whether there is an arbitration agreement between theappellant and the respondent and whether an arbitrator shouldbe appointed?”

When it came to the question of an arbitration clause contained inan unregistered lease deed, this Court held:

“12. When contract contains an arbitration agreement, it is acollateral term relating to the resolution of disputes, unrelated tothe performance of the contract. It is as if two contracts—one inregard to the substantive terms of the main contract and the otherrelating to resolution of disputes—had been rolled into one, forpurposes of convenience. An arbitration clause is therefore anagreement independent of the other terms of the contract or theinstrument. Resultantly, even if the contract or its performance isterminated or comes to an end on account of repudiation, frustrationor breach of contract, the arbitration agreement would survivefor the purpose of resolution of disputes arising under or inconnection with the contract.

13. Similarly, when an instrument or deed of transfer (or adocument affecting immovable property) contains an arbitrationagreement, it is collateral term relating to resolution of disputes,unrelated to the transfer or transaction affecting the immovableproperty. It is as if two documents—one affecting the immovableproperty requiring registration and the other relating to resolutionof disputes which is not compulsorily registerable—are rolled intoa single instrument. Therefore, even if deed of transfer ofimmovable property is challenged as not valid or enforceable, thearbitration agreement would remain unaffected for the purpose

of resolution of disputes arising with reference to the deed oftransfer.

14. These principles have now found statutory recognition in sub-section (1) of Section 16 of the Arbitration and Conciliation Act,1996 which is extracted below:

“16. Competence of Arbitral Tribunal to rule on itsjurisdiction.—(1) The Arbitral Tribunal may rule on its ownjurisdiction, including ruling on any objections with respect to theexistence or validity of the arbitration agreement, and for thatpurpose—

(a) an arbitration clause which forms part of contract shallbe treated as an agreement independent of the other terms of thecontract; and

(b) decision by the Arbitral Tribunal that the contract is nulland void shall not entail ipso jure the invalidity of the arbitrationclause.”

15. But where the contract or instrument is voidable at theoption of party (as for example under Section 19 of the ContractAct, 1872), the invalidity that attaches itself to the main agreementmay also attach itself to the arbitration agreement, if the reasonswhich make the main agreement voidable, exist in relation to themaking of the arbitration agreement also. For example, if personis made to sign an agreement to sell his property under threat ofphysical harm or threat to life, and the said person repudiates theagreement on that ground, not only the agreement for sale, butany arbitration agreement therein will not be binding.16. An arbitration agreement does not require registration underthe Registration Act. Even if it is found as one of the clauses in acontract or instrument, it is an independent agreement to refer thedisputes to arbitration, which is independent of the main contractor instrument. Therefore having regard to the proviso to Section49 of the Registration Act read with Section 16(1)(a) of the Act,an arbitration agreement in an unregistered but compulsorilyregisterable document can be acted upon and enforced for thepurpose of dispute resolution by arbitration.”

However, when it came to an unstamped lease deed whichcontained an arbitration clause, this Court, after setting out Sections 33and 35 of the Indian Stamp Act held:

“19. Having regard to Section 35 of the Stamp Act, unless thestamp duty and penalty due in respect of the instrument is paid,the court cannot act upon the instrument, which means that itcannot act upon the arbitration agreement also which is part ofthe instrument. Section 35 of the Stamp Act is distinct and differentfrom Section 49 of the Registration Act in regard to an unregistereddocument. Section 35 of the Stamp Act, does not contain provisolike Section 49 of the Registration Act enabling the instrument tobe used to establish collateral transaction.

20. The Scheme for Appointment of Arbitrators by the ChiefJustice of Gauhati High Court, 1996 requires an application underSection 11 of the Act to be accompanied by the original arbitrationagreement or duly certified copy thereof. In fact, such arequirement is found in the scheme/rules of almost all the HighCourts. If what is produced is certified copy of the agreement/contract/instrument containing the arbitration clause, it shoulddisclose the stamp duty that has been paid on the original. Section33 casts duty upon every court, that is, person having by lawauthority to receive evidence (as also every arbitrator who is aperson having by consent of parties, authority to receive evidence)before whom an unregistered instrument chargeable with duty isproduced, to examine the instrument in order to ascertain whetherit is duly stamped. If the court comes to the conclusion that theinstrument is not duly stamped, it has to impound the documentand deal with it as per Section 38 of the Stamp Act.

21. Therefore, when lease deed or any other instrument is reliedupon as contending the arbitration agreement, the court shouldconsider at the outset, whether an objection in that behalf is raisedor not, whether the document is properly stamped. If it comes tothe conclusion that it is not properly stamped, it should beimpounded and dealt with in the manner specified in Section 38 ofthe Stamp Act. The court cannot act upon such document orthe arbitration clause therein. But if the deficit duty and penalty ispaid in the manner set out in Section 35 or Section 40 of the

ABC

Stamp Act, the document can be acted upon or admitted inevidence.

22. We may therefore sum up the procedure to be adopted wherethe arbitration clause is contained in document which is notregistered (but compulsorily registerable) and which is not dulyBstamped:

22.1. The court should, before admitting any document intoevidence or acting upon such document, examine whether theinstrument/document is duly stamped and whether it is aninstrument which is compulsorily registerable.

22.2. If the document is found to be not duly stamped, Section 35of the Stamp Act bars the said document being acted upon.Consequently, even the arbitration clause therein cannot be actedupon. The court should then proceed to impound the documentunder Section 33 of the Stamp Act and follow the procedure underSections 35 and 38 of the Stamp Act.

22.3. If the document is found to be duly stamped, or if the deficitstamp duty and penalty is paid, either before the court or beforethe Collector (as contemplated in Section 35 or 40 Section of theStamp Act), and the defect with reference to deficit stamp iscured, the court may treat the document as duly stamped.

xxx xxx xxx”

In conclusion, this Court held:

“32. In view of the above this appeal is allowed, the order of theHigh Court is set aside and the matter is remitted to the learnedFChief Justice of the Gauhati High Court to first decide the issueof stamp duty, and if the document is duly stamped, then appointan arbitrator in accordance with law.”

15. It will be noticed from the aforesaid judgment that where anarbitration clause is contained in an agreement or conveyance, differentGconsequences ensue depending on whether the agreement or conveyanceis unregistered or unstamped. It is settled by SBP & Co. (supra) thatSection 16 of the 1996 Act has full play only after the arbitral tribunal isconstituted, without intervention of the Court under Section 11. This Court,in the aforesaid judgment, held:

“12. Section 16 of the Act only makes explicit what is evenotherwise implicit, namely, that the Arbitral Tribunal constitutedunder the Act has the jurisdiction to rule on its own jurisdiction,including ruling on objections with respect to the existence or validityof the arbitration agreement. Sub-section (1) also directs that anarbitration clause which forms part of contract shall be treatedas an agreement independent of the other terms of the contract.It also clarifies that decision by the Arbitral Tribunal that thecontract is null and void shall not entail ipso jure the invalidity ofthe arbitration clause. Sub-section (2) of Section 16 enjoins that aparty wanting to raise plea that the Arbitral Tribunal does nothave jurisdiction, has to raise that objection not later than thesubmission of the statement of defence, and that the party shallnot be precluded from raising the plea of jurisdiction merely becausehe has appointed or participated in the appointment of an arbitrator.Sub-section (3) lays down that plea that the Arbitral Tribunal isexceeding the scope of its authority, shall be raised as soon as thematter alleged to be beyond the scope of its authority is raisedduring the arbitral proceedings. When the Tribunal decides thesetwo questions, namely, the question of jurisdiction and the questionof exceeding the scope of authority or either of them, the same isopen to immediate challenge in an appeal, when the objection isupheld and only in an appeal against the final award, when theobjection is overruled. Sub-section (5) enjoins that if the ArbitralTribunal overrules the objections under sub-section (2) or (3), itshould continue with the arbitral proceedings and make an arbitralaward. Sub-section (6) provides that party aggrieved by suchan arbitral award overruling the plea on lack of jurisdiction andthe exceeding of the scope of authority, may make an applicationon these grounds for setting aside the award in accordance withSection 34 of the Act. The question, in the context of sub-section(7) of Section 11 is, what is the scope of the right conferred on theArbitral Tribunal to rule upon its own jurisdiction and the existenceof the arbitration clause, envisaged by Section 16(1), once theChief Justice or the person designated by him had appointed anarbitrator after satisfying himself that the conditions for the exerciseof power to appoint an arbitrator are present in the case. Primafacie, it would be difficult to say that in spite of the finality conferredby sub-section (7) of Section 11 of the Act, to such decision of

ABCDEF

Athe Chief Justice, the Arbitral Tribunal can still go behind thatdecision and rule on its own jurisdiction or on the existence of anarbitration clause. It also appears to us to be incongruous to saythat after the Chief Justice had appointed an Arbitral Tribunal, theArbitral Tribunal can turn round and say that the Chief Justicehad no jurisdiction or authority to appoint the Tribunal, the veryBcreature brought into existence by the exercise of power by itscreator, the Chief Justice. The argument of the learned SeniorCounsel, Mr K.K. Venugopal that Section 16 has full play onlywhen an Arbitral Tribunal is constituted without intervention underSection 11(6) of the Act, is one way of reconciling that provisionCwith Section 11 of the Act, especially in the context of sub-section(7) thereof. We are inclined to the view that the decision of theChief Justice on the issue of jurisdiction and the existence of avalid arbitration agreement would be binding on the parties whenthe matter goes to the Arbitral Tribunal and at subsequent stagesof the proceeding except in an appeal in the Supreme Court in theDcase of the decision being by the Chief Justice of the High Courtor by Judge of the High Court designated by him.”

In view of the law laid down by seven-Judge Bench, it is difficultto accede to the argument made by the learned counsel on behalf of therespondent that Section 16 makes it clear that an arbitration agreementEhas an independent existence of its own, and must be applied whiledeciding an application under Section 11 of the 1996 Act.

16. It will be seen that neither in the Statement of Objects andReasons nor in the Law Commission Report is there any mention ofSMS Tea Estates (supra). This is for the very good reason that theFSupreme Court or the High Court, while deciding Section 11 application,does not, in any manner, decide any preliminary question that arisesbetween the parties. The Supreme Court or the High Court is only givingeffect to the provisions of mandatory enactment which, no doubt, is toprotect revenue. SMS Tea Estates (supra) has taken account of theGmandatory provisions contained in the Indian Stamp Act and held themapplicable to judicial authorities, which would include the Supreme Courtand the High Court acting under Section 11. close look at Section11(6A) would show that when the Supreme Court or the High Courtconsiders an application under Section 11(4) to 11(6), and comes acrossan arbitration clause in an agreement or conveyance which is unstamped,Hit is enjoined by the provisions of the Indian Stamp Act to first impound

the agreement or conveyance and see that stamp duty and penalty (ifany) is paid before the agreement, as whole, can be acted upon. It isimportant to remember that the Indian Stamp Act applies to the agreementor conveyance as whole. Therefore, it is not possible to bifurcate thearbitration clause contained in such agreement or conveyance so as togive it an independent existence, as has been contended for by therespondent. The independent existence that could be given for certainlimited purposes, on harmonious reading of the Registration Act, 1908and the 1996 Act has been referred to by Raveendran, J. in SMS TeaEstates (supra) when it comes to an unregistered agreement orconveyance. However, the Indian Stamp Act, containing no such provisionas is contained in Section 49 of the Registration Act, 1908, has been heldby the said judgment to apply to the agreement or conveyance as awhole, which would include the arbitration clause contained therein. It isclear, therefore, that the introduction of Section 11(6A) does not, in anymanner, deal with or get over the basis of the judgment in SMS TeaEstates (supra), which continues to apply even after the amendment ofSection 11(6A).17. Looked at from slightly different angle, an arbitrationagreement which is contained in an agreement or conveyance is dealtwith in Section 7(2) of the 1996 Act. We are concerned with the firstpart of Section 7(2) on the facts of the present case, and therefore, thearbitration clause that is contained in the sub-contract in question is thesubject matter of the present appeal. It is significant that an arbitrationagreement may be in the form of an arbitration clause “in contract”.

18. Sections 2(a), 2(b), 2(g) and 2(h) of the Indian Contract Act,1872 [“Contract Act”] read as under:

“2. Interpretation clause.—In this Act the following words andexpressions are used in the following senses, unless contraryintention appears from the context:—

(a) When one person signifies to another his willingness to door to abstain from doing anything, with view to obtaining theassent of that other to such act or abstinence, he is said tomake proposal;

(b) When the person to whom the proposal is made signifieshis assent thereto, the proposal is said to be accepted. proposal,when accepted, becomes promise;

xxx xxx xxx

606SUPREME COURT REPORTS

A(g) An agreement not enforceable by law is said to be void;

(h) An agreement enforceable by law is contract;

xxx xxx xxx”

19. When an arbitration clause is contained “in contract”, it isBsignificant that the agreement only becomes contract if it is enforceableby law. We have seen how, under the Indian Stamp Act, an agreementdoes not become contract, namely, that it is not enforceable in law,unless it is duly stamped. Therefore, even plain reading of Section11(6A), when read with Section 7(2) of the 1996 Act and Section 2(h) ofthe Contract Act, would make it clear that an arbitration clause in anCagreement would not exist when it is not enforceable by law. This is alsoan indicator that SMS Tea Estates (supra) has, in no manner, beentouched by the amendment of Section 11(6A).

20. We now come to some of the judgments cited by both thesides.D

21. Learned counsel for the respondent relied heavily uponEnercon (India) Ltd. & Ors. v. Enercon GmbH & Anr., (2014) 5SCC 1 [“Enercon”], in particular, paragraph 83 thereof, which reads asfollows:

“83. The concept of separability of the arbitration clause/Eagreement from the underlying contract is necessity to ensurethat the intention of the parties to resolve the disputes by arbitrationdoes not evaporate into thin air with every challenge to the legality,validity, finality or breach of the underlying contract. The IndianArbitration Act, 1996, as noticed above, under Section 16 acceptsFthe concept that the main contract and the arbitration agreementform two independent contracts. Commercial rights and obligationsare contained in the underlying, substantive, or the main contract.It is followed by second contract, which expresses theagreement and the intention of the parties to resolve the disputesrelating to the underlying contract through arbitration. remedyGis elected by parties outside the normal civil court remedy. It istrue that support of the national courts would be required to ensurethe success of arbitration, but this would not detract from thelegitimacy or independence of the collateral arbitration agreement,even if it is contained in contract, which is claimed to be void orHvoidable or unconcluded by one of the parties.”

Paragraph 83 follows upon paragraph 79 of the judgment, whichreads as follows:

“79. In our opinion, all the issues raised by the appellants aboutthe non-existence of concluded contract pale into insignificancein the face of “Heads of Agreement on the proposed IPLA dated23-5-2006”. Clause 3 of the Heads of Agreement provides asunder:

“3. Governing law and jurisdiction

3.1 This paragraph is legally binding.

3.2 This Heads of Agreement is (and all negotiations andany legal agreements prepared in connection with the IPLAshall be) governed by and construed in accordance with thelaw of Germany.

3.3 The parties irrevocably agree that Clause 18 of theproposed draft IPLA shall apply to settle any dispute or claimthat arises out of or in connection with this memorandum ofunderstanding and negotiations relating to the proposed IPLA.”

bare perusal of this clause makes it abundantly clear that theparties have irrevocably agreed that Clause 18 of the proposedIPLA shall apply to settle any dispute or claim that arises out of orin connection with this memorandum of understanding andnegotiations relating to IPLA.”

The focus in Enercon (supra) was as to whether an arbitrationclause will apply even if there is no concluded contract entered intobetween the parties. Since the “Heads of Agreement” provided thatdisputes which arose out of the Memorandum of Understanding andnegotiations relating to the Intellectual Property Licence Agreement(IPLA) were arbitrable, this Court held that the arbitration agreement inthe facts of that case was separate from the main contract, making it acase which falls under the second part (and not under the first part) toSection 7(2), namely, that an arbitration agreement may be in the formof separate agreement. This judgment, therefore, does not take therespondent very much further. It may only be noted that the judgment inAshapura Mine-Chem Ltd. v. Gujarat Mineral DevelopmentCorporation, (2015) 8 SCC 193 merely followed Enercon (supra) andwould be inapplicable for the same reasons outlined by us above.

A22. The other judgment strongly relied upon by the learned counselfor the respondent is Duro Felguera, S.A. v. Gangavaram Port Ltd.,(2017) 9 SCC 729 [“Duro Felguera”], and in particular, paragraph 59of the judgment of Kurian Joseph, J. Paragraph 59 reads as follows:

“59. The scope of the power under Section 11(6) of the 1996 ActBwas considerably wide in view of the decisions in SBP and Co.[SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] andBoghara Polyfab [National Insurance Co. Ltd. v. BogharaPolyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117].This position continued till the amendment brought about in 2015.After the amendment, all that the courts need to see is whetherCan arbitration agreement exists—nothing more, nothing less. Thelegislative policy and purpose is essentially to minimise the Court’sintervention at the stage of appointing the arbitrator and this intentionas incorporated in Section 11(6-A) ought to be respected.”

This judgment also makes it clear that the mischief that was soughtDto be remedied by the introduction of Section 11(6A) was contained inthe judgments of SBP & Co. (supra) and Boghara Polyfab (supra).This judgment does not, in any manner, answer the precise issue that isbefore us.

23. Indeed, in United India Insurance Co. Ltd. and Ors. v.EHyundai Engineering and Construction Co. Ltd. and Ors., 2018SCC OnLine SC 1045 [“United India Insurance Co.”], three-JudgeBench of this Court, while dealing with an arbitration clause that aroseunder an insurance policy, distinguished Duro Felguera (supra) asfollows:F“12. The other decision heavily relied upon by the High Courtand also by the respondents in Duro Felguera [Duro Felguera,S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729], will be of noavail. Firstly, because it is two-Judge Bench decision and alsobecause the Court was not called upon to consider the questionGwhich arises in the present case, in reference to clause 7 of thesubject Insurance Policy. The exposition in this decision is generalobservation about the effect of the amended provision and notspecific to the issue under consideration. The issue underconsideration has been directly dealt with by three-Judge Benchof this Court in Oriental Insurance Company Limited [OrientalHInsurance Company Ltd. v. Narbheram Power and Steel (P)Ltd., (2018) 6 SCC 534], following the exposition in VulcanInsurance Co. Ltd. v. Maharaj Singh [Vulcan Insurance Co.Ltd. v. Maharaj Singh, (1976) 1 SCC 943], which, again, is athree-Judge Bench decision having construed clause similar tothe subject clause 7 of the Insurance Policy. In paragraphs 11 &12 of Vulcan Insurance Co. Ltd. (supra), the Court answeredthe issue thus:

“11. Although the surveyors in their letter dated April 26,1963 had raised dispute as to the amount of any loss ordamage alleged to have been suffered by Respondent 1, theappellant at no point of time raised any such dispute. Theappellant company in its letter dated July 5 and 29, 1963repudiated the claim altogether. Under clause 13 thecompany was not required to mention any reason ofrejection of the claim nor did it mention any. But therepudiation of the claim could not amount to the raising ofa dispute as to the amount of any loss or damage allegedto have been suffered by Respondent 1. If the rejection ofthe claim made by the insured be on the ground that hehad suffered no loss as result of the fire or the amount ofloss was not to the extent claimed by him, then and thenonly, difference could have arisen as to the amount ofany loss or damage within the meaning of clause 18. Inthis case, however, the company repudiated its liability to payany amount of loss or damage as claimed by Respondent 1. Inother words, the dispute raised by the company appertained toits liability to pay any amount of damage whatsoever. In ouropinion, therefore, the dispute raised by the appellant companywas not covered by the arbitration clause.

12. As per clause 13 on rejection of the claim by thecompany an action or suit, meaning thereby legalproceeding which almost invariably in India will be in thenature of suit, has got to be commenced within threemonths from the date of such rejection; otherwise, allbenefits under the policy stand forfeited. The rejection ofthe claim may be for the reasons indicated in the first part ofclause 13, such as, false declaration, fraud or wilful neglect ofthe claimant or on any other ground disclosed or undisclosed.But as soon as there is rejection of the claim and not the

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raising of dispute as to the amount of any loss or damage, theonly remedy open to the claimant is to commence legalproceeding, namely, suit, for establishment of the company’sliability. It may well be that after the liability of the company isestablished in such suit, for determination of the quantum ofthe loss or damage reference to arbitration will have to beresorted to in accordance with clause 18. But the arbitrationclause, restricted as it is by the use of the words ‘if anydifference arises as to the amount of any loss or damage’,cannot take within its sweep dispute as to the liability ofthe company when it refuses to pay any damage at all.”

xxx xxx xxx

14. From the line of authorities, it is clear that the arbitration clausehas to be interpreted strictly. The subject clause 7 which is in parimateria to clause 13 of the policy considered by three-JudgeBench in Oriental Insurance Company Limited (supra), is aconditional expression of intent. Such an arbitration clause willget activated or kindled only if the dispute between the parties islimited to the quantum to be paid under the policy. The liabilityshould be unequivocally admitted by the insurer. That is theprecondition and sine qua non for triggering the arbitration clause.To put it differently, an arbitration clause would enliven orinvigorate only if the insurer admits or accepts its liability under orin respect of the concerned policy. That has been expresslypredicated in the opening part of clause 7 as well as the secondparagraph of the same clause. In the opening part, it is stated thatthe “(liability being otherwise admitted)”. This is reinforced andre-stated in the second paragraph in the following words:“It is clearly agreed and understood that no difference or disputeshall be referable to arbitration as herein before provided, ifthe Company has disputed or not accepted liability under or inrespect of this Policy.”

15. Thus understood, there can be no arbitration in cases wherethe insurance company disputes or does not accept the liabilityunder or in respect of the policy.

16. The core issue is whether the communication sent on21st April, 2011 falls in the excepted category of repudiation and

denial of liability in toto or has the effect of acceptance of liabilityby the insurer under or in respect of the policy and limited todisputation of quantum. The High Court has made no effort toexamine this aspect at all. It only reproduced clause 7 of the policyand in reference to the dictum in Duro Felguera (supra) heldthat no other enquiry can be made by the Court in that regard.This is misreading of the said decision and the amended provisionand, in particular, mis-application of the three-Judge Benchdecisions of this Court in Vulcan Insurance Co. Ltd. (supra) andin Oriental Insurance Company Ltd. (supra).

17. Reverting to the communication dated 21st April, 2011, wehave no hesitation in taking the view that the appellants completelydenied their liability and repudiated the claim of the JV (respondentNos. 1 & 2) for the reasons mentioned in the communication.The reasons are specific. No plea was raised by the respondentsthat the policy or the said clause 7 was void. The appellantsrepudiated the claim of the JV and denied their liability in totounder or in respect of the subject policy. It was not plea todispute the quantum to be paid under the policy, which alone couldbe referred to arbitration in terms of clause 7. Thus, the pleataken by the appellants is of denial of its liability to indemnify theloss as claimed by the JV, which falls in the excepted category,thereby making the arbitration clause ineffective and incapable ofbeing enforced, if not non-existent. It is not actuated so as tomake reference to arbitration. In other words, the plea of theappellants is about falling in an excepted category and non-arbitrable matter within the meaning of the opening part of clause7 and as re-stated in the second paragraph of the same clause.

18. In view of the above, it must be held that the dispute in questionis non-arbitrable and respondent Nos. 1 & 2 ought to have resortedto the remedy of suit. The plea of respondent Nos. 1 & 2 aboutthe final repudiation expressed by the appellants videcommunication dated 17th April, 2017 will be of no avail. However,whether that factum can be taken as the cause of action forinstitution of the suit is matter which can be debated in thoseproceedings. We may not be understood to have expressed anyopinion either way in that regard.

(emphasis in original)

A24. This judgment is important in that what was specifically underconsideration was an arbitration clause which would get activated onlyif an insurer admits or accepts liability. Since on facts it was found thatthe insurer repudiated the claim, though an arbitration clause did “exist”,so to speak, in the policy, it would not exist in law, as was held in thatjudgment, when one important fact is introduced, namely, that the insurerBhas not admitted or accepted liability. Likewise, in the facts of the presentcase, it is clear that the arbitration clause that is contained in the sub-contract would not “exist” as matter of law until the sub-contract isduly stamped, as has been held by us above. The argument that Section11(6A) deals with “existence”, as opposed to Section 8, Section 16, andCSection 45, which deal with “validity” of an arbitration agreement isanswered by this Court’s understanding of the expression “existence” inUnited India Insurance Co. (supra), as followed by us.25. Other High Court judgments were relied upon in the contextof stamp duty, being the judgments contained in JMD Ltd. v. CelebrityDFitness India Pvt. Ltd., (2019) SCC OnLine Del 6483, B.D. Sharmav. Swastik Infra Estate Pvt. Ltd. & Ors., (2018) SCC OnLine Del13279, Sandeep Soni v. Sanjay Roy, (2018) SCC OnLine Del 11169,and N.D. Developers Pvt. Ltd. v. Bharathi & Ors., (2018) SCCOnLine Kar 2938. In view of our holding in this judgment, these judgmentshave not declared the law correctly, and are consequently, overruled. AErecent Full Bench judgment of the Bombay High Court in GautamLandscapes Pvt. Ltd. v. Shailesh Shah and Ors., Arb. Pet. No. 466of 2017 [decided on 04.04.2019] has also been brought to our notice. Inparagraph 120 thereof, the Full Bench answered two questions framedby it as follows:F“

“120. In view of the above deliberation, we answer the questionsas framed by us as follows:

(1) Whether court, under the Arbitration and Conciliation Act,1996, can entertain and grant any interim or ad-interim relief in anapplication under Section 9 of the said Act when documentGcontaining arbitration clause is unstamped or insufficientlystamped?

In the Affirmative

(2) Whether, inter alia, in view of Section 11 (6A) of the Arbitrationand Conciliation Act, 1996, inserted by Arbitration and Conciliation

(Amendment) Act, 2016, it would be necessary for the Courtbefore considering and passing final orders on an application underSection 11(6) of the Act to await the adjudication by the stampauthorities, in case where the document objected to, is notadequately stamped?

In the Negative”

Question (2), having been answered contrary to our judgment, isheld to be incorrectly decided.

26. Learned counsel for the respondent relied strongly upon Section11(13) of the 1996 Act to show that the 60-day period would be breachedif document were to be impounded at the stage of Section 11(6)application. Stamp duty, when paid with penalty (if any), would requireadjudication by the stamp authorities, which would take far more thanthe 60-day period that is laid down by Section 11(13). Undoubtedly,Section 11(13), which was also introduced by Amendment Act 3 of 2016,was enacted keeping one of the important objectives of the 1996 Act inmind, namely, speedy disposal of disputes by the arbitral tribunal, andappointment of an arbitrator having to be made as expeditiously as possible,therefore. Thus, harmonious construction needs to be given to theprovisions of the Maharashtra Stamp Act and Section 11(13) of the 1996Act by which, if it is possible, both provisions ought to be subserved. Wehave already seen that under the Maharashtra Stamp Act, the object ofimpounding an instrument that is unstamped is to ensure that stamp dutyand penalty (if any) must be paid on such instrument before it is actedupon by any authority. Likewise, under Section 11(13) of the 1996 Act,an application made under Section 11 for appointment of an arbitratorshould be disposed of as expeditiously as possible, and, in any event, anendeavour shall be made to dispose of such application at least within aperiod of 60 days from the date of service of notice on the oppositeparty.

27. The doctrine of harmonious construction of statutes is stronglyimbedded in our interpretative canon. In Sri Venkataramana Devaruv. State of Mysore, [1958] SCR 895, Articles 25 and 26 of theConstitution of India were reconciled by applying the rule of harmoniousconstruction thus:

“The result then is that there are two provisions of equal authority,neither of them being subject to the other. The question is how the

apparent conflict between them is to be resolved. The rule ofconstruction is well settled that when there are in an enactmenttwo provisions which cannot be reconciled with each other, theyshould be so interpreted that, if possible, effect could be given toboth. This is what is known as the rule of harmonious construction.Applying this rule, if the contention of the appellants is to beaccepted, then Article 25(2)(b) will become wholly nugatory in itsapplication to denominational temples, though, as stated above,the language of that Article includes them. On the other hand, ifthe contention of the respondents is accepted, then full effect canbe given to Article 26(b) in all matters of religion, subject only tothis that as regards one aspect of them, entry into temple forworship, the rights declared under Article 25(2)(b) will prevail.While, in the former case, Article 25(2)(b) will be put wholly outof operation, in the latter, effect can be given to both that provisionand Article 26(b). We must accordingly hold that Article 26(b)must be read subject to Article 25(2)(b).”

(at page 918)

In J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Stateof U.P., (1961) 3 SCR 185, this Court applied the rule of harmoniousconstruction so that both provisions of legislative instrument be givenEeffect to thus:

“To remove this incongruity, says the learned Attorney-General,apply the rule of harmonious construction and hold that clause 23of the order has no application when an order is made on anapplication under clause 5(a). On the assumption that under clause5(a) an employer can raise dispute sought to be created by hisown proposed order of dismissal of workmen there is clearly thisdisharmony as pointed out above between two provisions viz. clause5(a) and clause 23; and undoubtedly we have to apply the rule ofharmonious construction. In applying the rule, however, we haveto remember that to harmonise is not to destroy. In theinterpretation of statutes the court, always presumes that thelegislature inserted every part thereof for purpose and thelegislative intention is that every part of the statute should haveeffect. These presumptions will have to be made in the case ofrule-making authority also. On the construction suggested by thelearned Attorney-General it is obvious that by merely making an

application under clause (5) on the allegation that dispute hasarisen about the proposed action to dismiss workmen the employercan in every case escape the requirements of clause 23 and if forone reason or other every employer when proposing dismissalprefers to proceed under clause 5(a) instead of making anapplication under clause 23, clause 23 will be dead letter. Aconstruction like this which defeats the intention of the rule-makingauthority in clause 23 must, if possible, be avoided.”

(at page 193)

In Chief Inspector of Mines v. Lala Karam Chand Thapar,(1962) 1 SCR 9, the rule of harmonious construction was used to reconcileSection 31(4) of the Mines Act, 1952 and Section 24 of the GeneralClauses Act. This Court held:

“If the words of Section 31(4) are construed to mean that theregulations became part of the Act to the extent that when theAct is repealed, the regulations also stand repealed, conflict atonce arises between Section 31(4) and the provisions of Section24 of the General Clauses Act. In other words, the Mines Act,1923, while saying in Section 31(4) that the repeal of the Act willresult in the repeal of the regulations, will be saying, in the provisionsof Section 24 of the General Clauses Act as read into it, that onthe repeal of the Act, when the Act is repealed and re-enacted,the regulations will not stand repealed but will continue in force tillsuperseded by regulations made under the re-enacted Act. Tosolve this conflict the courts must apply the rule of harmoniousconstruction. According to Mr Pathak we have perfect harmonyif it is held that the provisions of Section 24 of the General ClausesAct will have effect only if the regulations are such as survive therepeal of the parent Act and at the same time, construe Section31(4) to mean that the regulations became for all purposes partand parcel of the Act. To harmonise is not however to destroy.The so-called harmony on the learned counsel’s argument isachieved by making the provisions of Section 24 of the GeneralClauses Act nugatory and in effects destroying them in relation tothe Mines Act, 1923. We have to seek therefore some other meansof harmonising the two provisions. The reasonable way ofharmonising that obviously suggests itself is to construe Section31(4) to mean that the regulations on publication shall have for

DEFGH

Asome purposes, say, for example, the purpose of deciding thevalidity of the regulations, the same effect as if they were part ofthe Act, but for the purpose of the continuity of existence, theywill not be considered part of the Act, so that even though the Actis repealed, the regulations will continue to exist, in accordancewith the provisions of Section 24 of the General Clauses Act.BThis construction will give reasonable effect to Section 31(4) ofthe Mines Act, 1923 and at the same time not frustrate the verysalutary object of Section 24 of the General Clauses Act. ……”

(at pp. 19-20)

CIn Anwar Hasan Khan v. Mohd. Shafi, (2001) 8 SCC 540, thisCourt succinctly laid down what is meant by the doctrine of harmoniousconstruction, thus:

“8. It is settled that for interpreting particular provision of anAct, the import and effect of the meaning of the words and phrasesDused in the statute have to be gathered from the text, the natureof the subject-matter and the purpose and intention of the statute.It is cardinal principle of construction of statute that effortshould be made in construing its provisions by avoiding conflictand adopting harmonious construction. The statute or rules madethereunder should be read as whole and one provision should beEconstrued with reference to the other provision to make theprovision consistent with the object sought to be achieved. Thewell-known principle of harmonious construction is that effectshould be given to all the provisions and construction that reducesone of the provisions to “dead letter” is not harmoniousconstruction. ……”FOne reasonable way of harmonising the provisions contained inSections 33 and 34 of the Maharashtra Stamp Act, which is generalstatute insofar as it relates to safeguarding revenue, and Section 11(13)of the 1996 Act, which applies specifically to speedy resolution of disputesGby appointment of an arbitrator expeditiously, is by declaring that whileproceeding with the Section 11 application, the High Court must impoundthe instrument which has not borne stamp duty and hand it over to theauthority under the Maharashtra Stamp Act, who will then decide issuesqua payment of stamp duty and penalty (if any) as expeditiously aspossible, and preferably within period of 45 days from the date onHwhich the authority receives the instrument. As soon as stamp duty and

penalty (if any) are paid on the instrument, any of the parties can bringthe instrument to the notice of the High Court, which will then proceedto expeditiously hear and dispose of the Section 11 application. This willalso ensure that once Section 11 application is allowed and an arbitratoris appointed, the arbitrator can then proceed to decide the dispute withinthe time frame provided by Section 29A of the 1996 Act.

28. Arguments taken of prejudice, namely, that on the facts of thiscase, the appellant had to pay the stamp duty and cannot take advantageof his own wrong, are of no avail when it comes to the application ofmandatory provisions of law. Even this argument, therefore, must berejected.

29. We, therefore, allow the appeal and set aside the judgment ofthe Bombay High Court. The matter is remitted to the Bombay HighCourt to dispose of the same in the light of this judgment.

Nidhi Jain

Appeal allowed.