Court cannot appoint an Arbitrator when the contract containing the Arbitration Clause is Insufficiently Stamped

The Supreme Court has held that it would be necessary for the Court before considering and passing final orders on an application under Section 11(6) of the Arbitration Act to await the adjudication by the stamp authorities, in a case where the document objected to, is not adequately stamped.

The said ruling was held in the matter of Garware Wall Ropes Ltd. Vs. Coastal Marine Constructions and Engineering Ltd., decided on 10.04.2019.

Challenge

The question considered by the bench in the instant case was whether Section 11(6A), has removed the basis of the judgment in SMS Tea Estates (P) Ltd., so that the stage at which the instrument is to be impounded is not by the Judge hearing the Section 11 application but by an arbitrator who is appointed under Section 11.

Held

The Division Bench observed that Section 11(6A) states that when the Supreme Court or the High Court considers an application under Section 11(4) to 11(6) and comes across an arbitration clause in an agreement or conveyance which is unstamped, it is enjoined by the provisions of the Indian Stamp Act to first impound the agreement or conveyance and see that stamp duty and penalty (if any) is paid before the agreement, as a whole, can be acted upon.

It is pertinent to remember that the Indian Stamp Act applies to the agreement or conveyance as a whole. Therefore, it is not possible to bifurcate the arbitration clause contained in such agreement or conveyance so as to give it an independent existence.

The Bench further held that the law laid down in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd. still applies, even after introduction of Section 11(6A), by way of the Arbitration and Conciliation (Amendment) Act, 2015.