Court can grant relief under Section 9 of the Arbitration and Conciliation Act 1996 even if the document containing the arbitration agreement is insufficiently stamped (Bombay High Court) [Note: the issue is pending in the Supreme Court in another matter]

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IREP Credit Capital Pvt. Ltd.  v. Tapaswi Mercantile Pvt. Ltd. and another; 2019 SCC OnLine Bom 5719

Bombay High Court; Single-judge bench, Bombay High Court, G.S. Patel, J.; decided on 20 December 2019

 

Can a court grant relief under Section 9 of the Arbitration and Conciliation Act, 1996 (“ACA”) if the agreement containing the arbitration clause is insufficiently stamped? Since the Supreme Court’s ruling in Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Ltd., (2019) 9 SCC 209 does not permit appointment of an arbitral tribunal for insufficiency of stamps, will not the same principle apply to a Section 9 petition?

 Section 9 petitions can be considered, and reliefs granted, concluded the Bombay High Court.

Preface

First, on 04 April 2019, a 3-judge bench of the Bombay High Court in Gautam Landscapes Pvt. Ltd. v. Shailesh S. Shah and Another, 2019 SCC OnLine Bom 563 (“Gautam”) decided two questions referred by two separate single-judge benches on a preliminary issue of stamping. One matter from which the reference arose was a Section 9 petition in Arbitration Petition No. 466 of 2017 (Gautam Landscapes Pvt. Ltd. v. Shailesh S. Shah)[1] and the other was a Section 11 application in Arbitration Application No. 300 of 2018 (Vijay Sharma v. Vivek Makhija).

The 3-judge bench (also called a full-bench) held that an application under Section 9 or under Section 11 of the ACA can be considered, and relief granted, even if a document containing arbitration clause is unstamped or insufficiently stamped[2]. The matters were sent back to the respective single-judge benches for further consideration.

At paragraph 120 (SCC OnLine version) the two questions framed in Gautam were answered as follows:

  1. Question number 1: “Whether a Court, under the Arbitration and Conciliation Act, 1996, can entertain and grant any interim or ad-interim relief in an application under Section 9 of the said Act when a document containing arbitration clause is unstamped or insufficiently stamped? Answer: In the affirmative.”
  2. Question number 2: “Whether, inter alia, in view of Section 11(6A) of the Arbitration and Conciliation Act, 1996, inserted by Arbitration and Conciliation (Amendment) Act, 2016, it would be necessary for the Court before considering and passing final orders on an application under Section 11(6) of the Act to await the adjudication by the stamp authorities, in a case where the document objected to, is not adequately stamped? Answer: In the negative.”

Second, on 10 April 2019, in Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Ltd., (2019) 9 SCC 209, a 2-judge bench of the Supreme Court (R.F. Nariman and Vineet Saran, JJ.) decided in the specific context of a Section 11 application that an arbitration agreement does not exist as a matter of law unless the document which contains it is sufficiently stamped. The court in Garware then over-ruled Gautam’s answer of question number 2 (which related to Section 11 application). It said: “Question (2), having been answered contrary to our judgment, is held to be incorrectly decided” [para 30, Garware, SCC version].

Third, the decision of the 3-judge bench in Gautam was taken in appeal to the Supreme Court in Special Leave Petition (C) No(s). 10232-10233/2019. On 29 April 2019, the court issued notice but said that “the Section 9 proceeding however, may continue in the meanwhile and judgment delivered thereon shall not be implemented without the leave of this Court”. This matter is still pending and will likely ‘settle’ the issue. 

Fourth, then in Saifee Developers Pvt. Ltd. v. Shanklesha Constructions, Commercial Arbitration Petition No. 1060 of 2019, a single-judge bench of the Bombay High Court of G.S. Kulkarni, J. had a Section 9 petition before him. It was argued based on Garware that no ad-interim relief could be granted because the agreement was not sufficiently stamped.

Kulkarni, J. held that the submission can have no bearing on the petition under Section 9. He relied on Gautam, referred to Garware, and the Supreme Court’s order in appeal against Gautam, and concluded that the full-bench decision in Gautam, not having been stayed by the Supreme Court, continued to bind. Kulkarni, J. accordingly granted ad-interim reliefs.

The IREP case[3]

The court was considering a petition under Section 9 of the ACA at an ad-interim stage.

One of the defences to the petition was that the agreement was insufficiently stamped and “if insufficiency of stamps will not permit a Section 11 Petition or will not permit the appointment of an Arbitral Tribunal, then no order can be made in a Section 9 proceeding either”.

The court rejected that argument saying that the question is no longer res integra and was decided by GS Kulkarni J in Saifee.

G.S. Patel, J. noted he was “in complete and most respectful agreement with the decision of GS Kulkarni, J.”. But apart from that he said: –

“it would be complete judicial indiscipline to venture to take different opinions from those of an earlier Bench of coordinate strength. It is nobody’s case that GS Kulkarni J’s decision is one rendered per incuriam and just because another view is desirable, plausible or even convenient is no reason to depart from well settled principles of stare decisis. Our entire system of jurisprudence is predicated on there being some certainty in law and on the value of precedent. Departures are the exceptions and those exceptions must be narrowly tailored”.

The court also addressed another argument that the entire Section 9 action was nothing but one to enforce the mortgage, which was not arbitrable considering Booz Allen & Hamilton Ind v. SBI Home Finance Ltd., (2011) 5 SCC 532.

The court rejected the argument and held that the case “more squarely fall within the ambit of the decision of this Court in Tata Capital Financial Services Ltd. v. Deccan Chronicle Holdings Ltd., 2013 SCC OnLine Bom 307. Only because a lender is secured by a mortgage, this does not mean that his claim in arbitration for recovery of the loan metamorphoses into a mortgage action for foreclosure”.

[1] In Gautam too a Section 9 petition was filed with a Section 11 application. The order referring the matter to the full bench was on the point of Section 9 petition, though the cause title of that order (06 September 2018, S.J. Kathawalla, J.) suggests that the Section 9 petition and 11 application were taken up together.

[2] Bench comprising of Naresh H. Patil, C.J. and R.D. Dhanuka and G.S. Kulkarni, JJ. Several reasons were given, including that even if an instrument is required to be stamped, which is not otherwise stamped at all or insufficiently stamped, such defect is curable on payment of requisite amount of penalty. Postponing an application for consideration, filed under Section 11 or Section 9, to indefinite period till the final decision on the issue of stamping, would not be in conformity of the legislative policy and intent to provide speedy remedy under Section 11 or Section 9 of the ACA.

[3] The arbitration clause in the agreement gave one party the right to appoint a sole-arbitrator. The court referred to Perkins Eastman Architech DPC v. HSSC (India) Ltd., 2019 SCC OnLine SC 1517; Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665; and TRF Limited v. Energo Engineering Products Ltd., (2017) 8 SCC 377 and said that in view of these “recent decisions of the Supreme Court”, the arbitration clause “may not be available in the sense that IREP will not have the unilateral right to appoint an Arbitrator”. But that issue was left “open for an appropriate proceeding” since it “has little or no bearing in this Section 9 Petition even at the stage of ad-interim relief”.

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Categories: Action for foreclosure |  Arbitrability of disputes  |  Arbitrable dispute |  Arbitration agreement  |  Decision of coordinate bench |  Interim measures |  Interim relief  |  Judicial discipline |  Mortgage |  Stamp duty |  Stamping of arbitration agreement |  The Garware principle  

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