14 February 2022, Monday

2 years ago

Sufficiency of stamping of the arbitration agreement is a jurisdictional issue. A loan agreement is “executed” when it is signed by both parties: Delhi High Court

24 January 2022 | Religare Finvest Ltd v. Asian Satellite Broadcast (P) Ltd | Arb A (Comm) 02/2021 | Sanjeev Narula J | Delhi High Court | 2022 SCC OnLine Del 221

In a case involving the question of stamping of the arbitration agreement, following NN Global Mercantile 2021 SCC OnLine SC 13, the court has ruled that insufficiency of stamping is a jurisdictional issue within the meaning of Section 16 ACA. The petitioner had contended that it was “instead purely a question of fact”, and the tribunal was wrong to deal with it as a preliminary issue of jurisdiction.

The court added that the doctrine of severability did not mean that the question of stamping, which makes the arbitration agreement inadmissible, could be ignored. Moreover, a tribunal is vested with broad powers to rule on its jurisdiction, which includes examining a question of existence or validity of the arbitration agreement, which includes the question of enforceability of a document deficiently stamped.

Zee had taken a loan from Religare under several loan agreements and failed to repay. When Religare invoked arbitration, Zee applied under Section 16 ACA challenging the tribunal's jurisdiction based on the argument that the arbitration agreements were not sufficiently stamped under the Maharashtra Stamp Act, 1958 (“MSA”). The arbitrator adjourned the proceedings sine die and advised Religare to get the agreements stamped in Maharashtra and then continue with the claim if it wished.

However, in appeal, the court remanded back the matter to the arbitrator to consider whether MSA applied in the first place? The question arose because the loan agreements were signed first in Mumbai by Zee and then by Religare in Delhi. So, the specific question was whether the initial appending of signatures in Mumbai would render the documents chargeable to stamp duty under the MSA. The court ruled that:

  1. For an instrument to be “chargeable” under Section 3, read with Section 2(d) MSA, every instrument must be executed within the State of Maharashtra.
  2. The loan agreements were documents of such character that they became “executed” documents as defined by Section 2 (i) MSA only when both parties signed, that is, only when Religare signed it in Delhi.
  3. The phrase “first executed” in Section 2(d) MSA could not be construed to mean that signatures of only one of the parties to a bilateral or multilateral document are sufficient to attract stamp duty.

Read the decision here.


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