# GARWARE WALL ROPES LTD v. COASTAL MARINE CONSTRUCTIONS & ENGINEERING LTD

- **Citation:** [2019] 5 S.C.R. 579
- **Court:** Supreme Court of India
- **Decided:** 2019-04-10
- **Case number:** Civil Appeal No. 3631 of 2019
- **Bench:** R. F. Nariman, Vineet Saran
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/garware-wall-ropes-ltd-v-coastal-marine-constructions-engineering-ltd-33713
- **Pages:** 39

## Headnote

Arbitration and Conciliation Act, 1996: s. 11(4), 11(6) and
11(6A) - Appointment of arbitrator - Arbitration clause contained
in a contract not stamped - Effect of - Held: When Supreme Court
or the High Court considers an application u/s. 11(4) to 11(6), and
comes across an arbitration clause in an agreement or conveyance
which is unstamped, the Court must impound the instrument which
is unstamped and hand it over to the authority under the Stamp Act,
who would decide issues qua payment of stamp duty and penalty as
expeditiously as possible, within the stipulated period - As soon as
stamp duty and penalty are paid on the instrument, any of the parties
can bring the instrument to the notice of the Court, which would
then dispose of the application u/s. 11 - Harmonious construction
is to be given to the provisions of the Stamp Act and s. 11(13) of the
1996 Act by which, if it is possible, both provisions ought to be
subserved - Furthermore, introduction of s. 11(6A) does not, in any
manner, deal with or get over the basis of the judgment in SMS Tea
Estates's case that the mandatory provisions contained in the Stamp
Act are applicable to judicial authorities acting u/s. 11, continues
to apply even after the amendment of s. 11(6A) - On facts, the
arbitration clause contained in the sub-contract would not "exist"
as a matter of law until the sub-contract is duly stamped - Order
passed by the High Court allowing the application u/s. for
appointment of the arbitrator, to adjudicate upon the dispute, even
though the sub-contract was unstamped, is set aside and matter is
remitted 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
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or conveyance, different consequences ensue depending on
whether the agreement or conveyance is unregistered or
unstamped. It is settled by **SBP & Co.'s case that Section 16 of
the Arbitration and Conciliation Act, 1996 Act has full play only
after the arbitral tribunal is constituted, without intervention of
the Court under Section 11. In view of the law laid down by sevenJudge Bench, it is difficult to accept the submission that Section
16 makes it clear that an arbitration agreement has an
independent existence of its own, and must be applied while
deciding an application under Section 11 of the 1996 Act. It will
be seen that neither in the Statement of Objects and Reasons
nor in the Law Commission Report is there any mention of SMS
Tea Estates's case. This is for the very good reason that the
Supreme Court or the High Court, while deciding a Section 11
application, does not, in any manner, decide any preliminary
question that arises between the parties. The Supreme Court or
the High Court is only giving effect to the provisions of a
mandatory enactment which, no doubt, is to protect revenue. SMS
Tea Estates case has taken account of the mandatory provisions
contained in the Stamp Act and held them applicable to judicial
authorities, which would include the Supreme Court and the High
Court acting under Section 11. A close look at Section 11(6A)
would show 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 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. The 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. It is clear, therefore,
that the introduction of Section 11(6A) does not, in any manner,
deal with or g

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GARWARE WALL ROPES LTD.
v.
COASTAL MARINE CONSTRUCTIONS & ENGINEERING
LTD.
(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) and
11(6A) - Appointment of arbitrator - Arbitration clause contained
in a contract not stamped - Effect of - Held: When Supreme Court
or the High Court considers an application u/s. 11(4) to 11(6), and
comes across an arbitration clause in an agreement or conveyance
which is unstamped, the Court must impound the instrument which
is unstamped and hand it over to the authority under the Stamp Act,
who would decide issues qua payment of stamp duty and penalty as
expeditiously as possible, within the stipulated period - As soon as
stamp duty and penalty are paid on the instrument, any of the parties
can bring the instrument to the notice of the Court, which would
then dispose of the application u/s. 11 - Harmonious construction
is to be given to the provisions of the Stamp Act and s. 11(13) of the
1996 Act by which, if it is possible, both provisions ought to be
subserved - Furthermore, introduction of s. 11(6A) does not, in any
manner, deal with or get over the basis of the judgment in SMS Tea
Estates's case that the mandatory provisions contained in the Stamp
Act are applicable to judicial authorities acting u/s. 11, continues
to apply even after the amendment of s. 11(6A) - On facts, the
arbitration clause contained in the sub-contract would not "exist"
as a matter of law until the sub-contract is duly stamped - Order
passed by the High Court allowing the application u/s. for
appointment of the arbitrator, to adjudicate upon the dispute, even
though the sub-contract was unstamped, is set aside and matter is
remitted 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
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or conveyance, different consequences ensue depending on
whether the agreement or conveyance is unregistered or
unstamped. It is settled by **SBP & Co.'s case that Section 16 of
the Arbitration and Conciliation Act, 1996 Act has full play only
after the arbitral tribunal is constituted, without intervention of
the Court under Section 11. In view of the law laid down by sevenJudge Bench, it is difficult to accept the submission that Section
16 makes it clear that an arbitration agreement has an
independent existence of its own, and must be applied while
deciding an application under Section 11 of the 1996 Act. It will
be seen that neither in the Statement of Objects and Reasons
nor in the Law Commission Report is there any mention of SMS
Tea Estates's case. This is for the very good reason that the
Supreme Court or the High Court, while deciding a Section 11
application, does not, in any manner, decide any preliminary
question that arises between the parties. The Supreme Court or
the High Court is only giving effect to the provisions of a
mandatory enactment which, no doubt, is to protect revenue. SMS
Tea Estates case has taken account of the mandatory provisions
contained in the Stamp Act and held them applicable to judicial
authorities, which would include the Supreme Court and the High
Court acting under Section 11. A close look at Section 11(6A)
would show 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 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. The 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. It is clear, therefore,
that the introduction of Section 11(6A) does not, in any manner,
deal with or get over the basis of the judgment in SMS Tea
Estates's case, which continues to apply even after the amendment
of Section 11(6A). [Para 15, 16][602-G-H; 604-E-H; 605-A-D]
1.2 When an arbitration clause is contained "in a contract",
it is significant that the agreement only becomes a contract if it is
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enforceable by law. Under the Stamp Act, an agreement does not
become a contract, namely, that it is not enforceable in law, unless
it is duly stamped. Therefore, even a plain reading of Section
11(6A), when read with Section 7(2) of the 1996 Act and Section
2(h) of the Contract Act, would make it clear that an arbitration
clause in an agreement would not exist when it is not enforceable
by law. This is also an indicator that SMS Tea Estates case has, in
no 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 the
arbitration clause that is contained in the sub-contract would not
"exist" as a matter of law until the sub-contract is duly stamped.
The argument that Section 11(6A) deals with "existence", as
opposed to Section 8, Section 16, and Section 45, which deal with
"validity" of an arbitration agreement is answered by this Court's
understanding of the expression "existence" in United India
Insurance Co.'s case as followed by this Court. [Para 24]
[612-B-C]
United India Insurance Co. Ltd. and Ors. v. Hyundai
Engineering and Construction Co. Ltd. and Ors.2018
SCC OnLine SC 1045 - relied on.
1.4 It was submitted that the 60-day period under section
11(13) would be breached if a document were to be impounded at
the stage of a section 11(6) application. Stamp duty, when paid
with penalty (if any), would require adjudication by the stamp
authorities, which would take far more than the 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
in mind, namely, speedy disposal of disputes by the arbitral
tribunal, and appointment of an arbitrator having to be made as
expeditiously as possible. Thus, a harmonious construction needs
to be given to the provisions of the Maharashtra Stamp Act and
Section 11(13) of the 1996 Act by which, if it is possible, both
provisions ought to be subserved. Under the Maharashtra Stamp
Act, the object of impounding an instrument that is unstamped is
to ensure that stamp duty and penalty (if any) must be paid on
GARWARE WALL ROPES LTD. v. COASTAL MARINE
CONSTRUCTIONS & ENGINEERING LTD.
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such instrument before it is acted upon by any authority. Likewise,
under Section 11(13) of the 1996 Act, an application made under
Section 11 for appointment of an arbitrator should be disposed of
as expeditiously as possible, and, in any event, an endeavour
shall be made to dispose of such application at least within a period
of 60 days from the date of service of notice on the opposite
party. [Para 26][613-C-F]
1.5 The doctrine of harmonious construction of statutes is
strongly imbedded in the interpretative canon. One reasonable
way of harmonising the provisions contained in Sections 33 and
34 of the Maharashtra Stamp Act, which is a general statute insofar
as it relates to safeguarding revenue, and Section 11(13) of the
1996 Act, which applies specifically to speedy resolution of
disputes by appointment of an arbitrator expeditiously, is by
declaring that while proceeding with the Section 11 application,
the High Court must impound the instrument which has not borne
stamp duty and hand it over to the authority under the
Maharashtra Stamp Act, who will then decide issues qua payment
of stamp duty and penalty (if any) as expeditiously as possible,
and preferably within a period of 45 days from the date on which
the authority receives the instrument. As soon as stamp duty
and penalty (if any) are paid on the instrument, any of the parties
can bring the instrument to the notice of the High Court, which
will then proceed to expeditiously hear and dispose of the Section
11 application. This will also ensure that once a Section 11
application is allowed and an arbitrator is appointed, the arbitrator
can then proceed to decide the dispute within the time frame
provided 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 Mills
Co. Ltd. v. State of U.P. [1961] 3 SCR 185 ; Chief
Inspector of Mines v. Lala Karam Chand Thapar [1962]
1 SCR 9; Anwar Hasan Khan v. Mohd. Shafi (2001) 8
SCC 540 - referred to.
1.6 The judgment of the High Court is set aside. The matter
is remitted to the High Court to dispose of the same in the light
of this judgment. [Para 29][617-C]
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*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 Mineral
Development Corporation (2015) 8 SCC 193 : [2015]
4 SCR 880 - held inapplicable.
JMD Ltd. v. Celebrity Fitness India Pvt. Ltd. (2019) SCC
OnLine Del 6483 ; B.D. Sharma v. Swastik Infra Estate
Pvt. Ltd. & Ors. (2018) SCC OnLine Del 13279 ;
Sandeep Soni v. Sanjay Roy (2018) SCC OnLine Del
11169 ; N.D. Developers Pvt. Ltd. v. Bharathi & Ors.
(2018) SCC OnLine Kar 2938 ; Gautam Landscapes
Pvt. Ltd. v. Shailesh Shah and Ors. Arb. Pet. No. 466
of 2017 - disapproved.
**SBP & Co. v. Patel Engineering Ltd. (2005) 8
SCC 618 : [2005] 4 Suppl. SCR 688; National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. (2009)
1 SCC 267 : [2008] 13 SCR 638 ; Konkan Railway
Corporation Ltd. v. Mehul Construction Co. (2000) 7
SCC 201 : [2000] 2 Suppl. SCR 563 ; Konkan Railway
Corporation 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. Gangavaram
Port Ltd. (2017) 9 SCC 729 : [2017] 10 SCR 285 -
referred to.
Case Law Reference
[2005] 4 Suppl. SCR 688
referred to
Para 5
[2008] 13 SCR 638
referred to
Para 5
[2000] 2 Suppl. SCR 563
referred to
Para 9
[2002] 1 SCR 728
referred to
Para 9
[2011] 9 SCR 382
followed
Para 16
[2014] 2 SCR 855
referred to
Para 21
[2015] 4 SCR 880
held inapplicable
Para 21
[2017] 10 SCR 285
referred to
Para 22
GARWARE WALL ROPES LTD. v. COASTAL MARINE
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[1958] SCR 895
referred to
Para 27
[1961] 3 SCR 185
referred to
Para 27
[1962] 1 SCR 9
referred to
Para 27
(2001) 8 SCC 540
referred to
Para 27
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3631
of 2019.
From the Judgment and Order dated 09.03.2018 of the High Court
of Judicature at Bombay in Arbitration Petition No. 24 of 2017.
Dhruv Mehta, Sr. Adv., Ashish Wad, Mrs. Jayashree Wad, Sidharth
Mahajan, Ms. Sukriti Jaggi (for M/s. J. S. Wad And Co.), Advs. for the
Appellant.
Ms. Ridhi Nyati, Ashwin Shanker, Aditya Verma, Shrey Patnaik,
Advs. for the Respondent.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. Leave granted.
2. This appeal arises out of a sub-contract given by the appellant
to the respondent in respect of work to be done for installation of a geotextile tubes embankment with toe mound at village Pentha in Odisha
for protection against coastal erosion. The sub-contract agreement is
dated 14.06.2013, Annexure III of which contains the following arbitration
clause:
"Any and all claims, disputes, questions or controversies
involving the parties and arising in connection with the
Agreement or execution, interpretation, validity,
performance, termination hereof which cannot be finally
resolved by such parties [sic through] negotiation shall be
resolved by final and binding arbitration held in Pune. The
disputes shall be referred to a sole arbitrator to be appointed
by GWRL and COMACOE jointly in agreement."
3. Disputes arose between the parties, and on 02.01.2015, the
appellant terminated the sub-contract. As a result, on 20.07.2016, the
respondent wrote to the appellant stating that as disputes and differences
had arisen between the parties, notice was given of appointment of Mr.
Mihir Naniwadekar, Advocate, as sole arbitrator. The appellant replied
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on 17.08.2016, stating that the appointment of Mr. Naniwadekar as sole
arbitrator was not acceptable as invocation of arbitration in pursuance
of the agreement is premature. The respondent, therefore, filed a petition
under Section 11 of the Arbitration and Conciliation Act, 1996 ["1996
Act"] on 10.02.2017 before the Bombay High Court. By the impugned
judgment dated 09.03.2018, the Section 11 petition was allowed and Mr.
Naniwadekar was appointed as sole arbitrator to adjudicate upon disputes
and differences which have arisen between the appellant and the
respondent in relation to the sub-contract dated 14.06.2013.
4. The question raised in this appeal is as to what is the effect of
an arbitration clause contained in a 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 an
arbitration clause is contained in an unstamped agreement, the provisions
of the Indian Stamp Act, 1899 ["Indian Stamp Act"] require the Judge
hearing the Section 11 application to impound the agreement and ensure
that stamp duty and penalty (if any) are paid thereon before proceeding
with 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 the
basis of this judgment, 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, as has been held by the
impugned judgment.
5. Mr. Dhruv Mehta, learned Senior Advocate appearing on behalf
of the appellant, has taken us through the sub-contract as well as the
arbitration clause contained therein. He relied strongly upon the
Maharashtra Stamp Act, 1958 ["Maharashtra Stamp Act"], and
Sections 33 and 34 thereof, in particular. According to him, these are
provisions which are similar to the provisions contained in Sections 33
and 35 of the Indian Stamp Act, which, as held in SMS Tea Estates
(supra), requires judicial authorities to impound such instruments, which
cannot be admitted in evidence or cannot be acted upon until duly stamped.
According to him, the judgment in SMS Tea Estates (supra) continues
to 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 the
existence of an arbitration agreement. Relying upon the 246th Law
Commission Report, which led to the amendment contained in Section
GARWARE WALL ROPES LTD. v. COASTAL MARINE
CONSTRUCTIONS & ENGINEERING LTD. [R. F. NARIMAN, J.]
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11(6A), together with the Statement of Objects and Reasons appended
to the Arbitration and Conciliation (Amendment) Bill, 2015, Mr. Mehta
argued that it was clear that the amendment was necessitated as a result
of two Supreme Court judgments in particular, namely, SBP & Co. v.
Patel Engineering Ltd., (2005) 8 SCC 618 ["SBP & Co."] and
National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1
SCC 267 ["Boghara Polyfab"], by which the door was opened too
wide, so that many preliminary issues which do not relate to the existence
of an arbitration agreement were to be decided by the Court hearing the
Section 11 application instead of by the arbitrator. The focus being on
these two judgments, it is clear that it is these two judgments whose
basis has been removed, leaving SMS Tea Estates (supra) untouched.
According to him, it is clear that if, as a result of operation of law, an
instrument is to be impounded, upon which stamp duty and penalty (if
any) are then to be paid, must be followed as Section 11(6A) does not
seek to interfere with the Indian Stamp Act at all. He relied upon certain
judgments to buttress his submissions.
6. Ms. Ridhi Nyati, learned Advocate appearing on behalf of the
respondent, referred us to Sections 8, 16, and 45 of the 1996 Act in
particular, and made it clear that the object of the Amendment Act, 2015,
in introducing Section 11(6A), was to confine the Court hearing the
Section 11 application to examination of the existence of an arbitration
agreement and nothing more. She made a distinction between "validity"
and "existence" of an arbitration agreement, and argued that the provisions
of the Indian Stamp Act are a fiscal measure intended merely to collect
revenue and, if at all, will go to "validity" of an arbitration agreement and
not to its "existence". She relied strongly upon certain judgments which
made it clear that an arbitration agreement is independent of the agreement
in which it is contained. So long as it is in writing, and therefore, exists in
fact, the Court hearing the Section 11 application is to appoint an arbitrator
and thereafter leave all other preliminary issues to the arbitrator, as is
mandated by Section 11 of the 1996 Act. The whole object of the
amendment would be defeated as otherwise, a mini-trial would be
conducted at the Section 11 stage, requiring impounding of the agreement
containing the arbitration clause. She also relied upon Section 11(13) of
the 1996 Act, making it clear that the application under Section 11 ought
to be disposed of within a period of 60 days from the date of service of
notice, and that this would not be possible if questions relating to the
Indian Stamp Act were to be decided at the Section 11 stage. Equally,
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according to her, no prejudice would be caused to any party if the
arbitrator were to commence the arbitration and then impound the
documents containing the arbitration clause by applying the Indian Stamp
Act. She also argued that, in the present case, it is the appellant who is
to pay stamp duty under the Indian Contract Act, 1872, and therefore,
cannot take advantage of its own wrong in not doing so, as has been
correctly held in the impugned judgment. She also relied upon several
other judgments to buttress her submissions.
7. Having heard learned counsel for both sides, it is important to
first set out the relevant provisions contained in the 1996 Act. Section
2(1)(b) defines "arbitration agreement" as follows:
"2. Definitions.-(1) In this Part, unless the context otherwise
requires,-
xxx xxx xxx
(b) "arbitration agreement" means an agreement referred to in
 Section 7;
xxx xxx xxx"
Section 7 is important and deals with what is meant by an
arbitration agreement. Section 7 states:
"7. Arbitration agreement.-(1) In this Part, "arbitration
agreement" means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may
arise between them in respect of a defined legal relationship,
whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in-
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other
means
of
telecommunication
including
communication through electronic means which
provide a record of the agreement; or
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(c)
an exchange of statements of claim and defence in
which the existence of the agreement is alleged by
one party and not denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the
contract is in writing and the reference is such as to make that
arbitration clause part of the contract."
Section 8, which speaks of the power to refer parties to arbitration
where there is an arbitration agreement is also relevant, and states:
"8. Power to refer parties to arbitration where there is an
arbitration agreement.-(1) A judicial authority, before which
an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party to the arbitration agreement or any
person claiming through or under him, so applies not later than the
date of submitting his first statement on the substance of the dispute,
then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration unless
it finds that prima facie no valid arbitration agreement exists.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof.
Provided that where the original arbitration agreement or a
certified copy thereof is not available with the party applying for
reference to arbitration under sub-section (1), and the said
agreement or certified copy is retained by the other party to that
agreement, then, the party so applying shall file such application
along with a copy of the arbitration agreement and a petition
praying the court to call upon the other party to produce the original
arbitration agreement or its duly certified copy before that court.
(3) Notwithstanding that an application has been made under subsection (1) and that the issue is pending before the judicial authority,
an arbitration may be commenced or continued and an arbitral
award made."
Section 11(6A), 11(7), and 11(13) are important for decision in
this case and are set out hereinbelow:
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"11. Appointment of arbitrators.-
xxx xxx xxx
(6A) The Supreme Court or, as the case may be, the High Court,
while considering any application under sub-section (4) or subsection (5) or sub-section (6), shall, notwithstanding any judgment,
decree or order of any court, confine to the examination of the
existence of an arbitration agreement.
xxx xxx xxx
(7) A decision on a matter entrusted by sub-section (4) or subsection (5) or sub-section (6) to the Supreme Court or, as the
case may be, the High Court or the person or institution designated
by such court is final and no appeal including Letters Patent Appeal
shall lie against such decision.
xxx xxx xxx
(13) An application made under this section for appointment of an
arbitrator or arbitrators shall be disposed of by the Supreme Court
or the High Court or the person or institution designated by such
court, as the case may be, as expeditiously as possible and an
endeavour shall be made to dispose of the matter within a period
of sixty days from the date of service of notice on the opposite
party.
xxx xxx xxx"
Section 16(1) reads as follows:
"16. Competence of arbitral tribunal to rule on its
jurisdiction.-(1) The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objections with respect to the
existence or validity of the arbitration agreement, and for that
purpose,-
(a) an arbitration clause which forms part of a contract shall
be treated as an agreement independent of the other terms
of the contract; and
(b) a decision by the arbitral tribunal that the contract is null
and void shall not entail ipso jure the invalidity of the
arbitration clause.
xxx xxx xxx"
GARWARE WALL ROPES LTD. v. COASTAL MARINE
CONSTRUCTIONS & ENGINEERING LTD. [R. F. NARIMAN, J.]
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Section 45, which speaks of the power of a judicial authority to
refer parties to arbitration, when it comes to agreements referred to by
the New York Convention of 1958, states as follows:
"45. Power of judicial authority to refer parties to
arbitration.-Notwithstanding anything contained in Part I or in
the Code of Civil Procedure, 1908 (V of 1908), a judicial authority,
when seized of an action in a matter in respect of which the parties
have made an agreement referred to in Section 44, shall, at the
request of one of the parties or any person claiming through or
under him, refer the parties to arbitration, unless it finds that the
said agreement is null and void, inoperative or incapable of being
performed."
8. Sections 33 and 34 of the Maharashtra Stamp Act, with which
we are directly concerned, read as follows:
"33. Examination and impounding of instruments.-(1)
Subject to the provisions of section 32-A, every person having by
law or consent of parties authority to receive evidence and every
person in charge of a public office, except an officer of police or
any other officer, empowered by law to investigate offences under
any law for the time being in force, before whom any instrument
chargeable, in his opinion, with duty, is produced or comes in the
performance of his functions shall, if it appears to him that such
instrument is not duly stamped, impound the same irrespective
whether the instrument is or is not valid in law.
(2) For that purpose every such person shall examine every
instrument so chargeable and so produced or coming before him
in order to ascertain whether it is stamped with a stamp of the
value and description required by the law for the time being in
force in the State when such instrument was executed or first
executed:
Provided that,-
(a) nothing herein contained shall be deemed to require any
Magistrate or Judge of a Criminal Court to examine or impound,
if he does not think fit so to do any instrument coming before
him in the course of any proceeding other than a proceeding
under Chapter IX or Part D of Chapter X of the Code of
Criminal Procedure, 1973;
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(b) in the case of a judge of a High Court, the duty of examining
and impounding any instrument under this section may be
delegated 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 be
deemed to be public offices; and
(b) the State Government may determine who shall be deemed
to be persons in charge of public offices.
34. Instruments not duly stamped inadmissible in evidence,
etc.-No instrument chargeable with duty shall be admitted in
evidence for any purpose by any person having by law or consent
of parties authority to receive evidence, or shall be acted upon,
registered or authenticated by any such person or by any public
officer unless such instrument is duly stamped or if the instrument
is written on sheet of paper with impressed stamp such stamp
paper is purchased in the name of one of the parties to the
instrument:
Provided that,-
(a) any such instrument shall, subject to all just exceptions, be
admitted in evidence on payment of,-
(i) the duty with which the same is chargeable, or in the
case of an instrument insufficiently stamped, the amount
required to make up such duty, and
(ii) a penalty at the rate of 2 per cent of the deficient portion
of the stamp duty for every month or part thereof, from the
date of execution of such instrument:
Provided that, in no case, the amount of the penalty shall
exceed double the deficient portion of the stamp duty.
(b) where a contract or agreement of any kind is effected by
correspondence consisting of two or more letters and any one
of the letters bears the proper stamp; the contract or agreement
shall be deemed to be duly stamped;
(c) nothing herein contained shall prevent the admission of any
instrument in evidence in any proceeding in a Criminal Court,
GARWARE WALL ROPES LTD. v. COASTAL MARINE
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other than a proceeding under Chapter IX or Part D of Chapter
X of the Code of Criminal Procedure, 1973;
(d) nothing herein contained shall prevent the admission of any
instrument in any Court when such instrument has been executed
by or on behalf of the Government or where it bears the
certificate of the Collector as provided by section 32 or any
other provision of this Act;
(e) nothing herein contained shall prevent the admission of a
copy of any instrument or of an oral admission of the contents
of any instrument, if the stamp duty or a deficient portion of
the stamp duty and penalty as specified in clause (a) is paid."
9. The case law under Section 11(6) of the Arbitration Act, as it
stood prior to the Amendment Act, 2015, has had a chequered history.
In Konkan Railway Corporation Ltd. v. Mehul Construction Co.,
(2000) 7 SCC 201 ["Konkan Railway I"], it was held that the powers
of the Chief Justice under Section 11(6) of the 1996 Act are administrative
in nature, and that the Chief Justice or his designate does not act as a
judicial authority while appointing an arbitrator. The same view was
reiterated in Konkan Railway Corporation Ltd. v. Rani Construction
(P) Ltd., (2002) 2 SCC 388 ["Konkan Railway II"].
10. However, in SBP & Co. (supra), a seven-Judge Bench
overruled this view and held that the power to appoint an arbitrator under
Section 11 is judicial and not administrative. The conclusions of the sevenJudge Bench were summarised in paragraph 47 of the aforesaid judgment.
We are concerned directly with sub-paragraphs (i), (iv), and (xii), which
read as follows:
"(i) The power exercised by the Chief Justice of the High Court
or the Chief Justice of India under Section 11(6) of the Act is not
an administrative power. It is a judicial power.
xxx xxx xxx
(iv) The Chief Justice or the designated Judge will have the right
to decide the preliminary aspects as indicated in the earlier part of
this judgment. These will be his own jurisdiction to entertain the
request, the existence of a valid arbitration agreement, the
existence or otherwise of a live claim, the existence of the condition
for the exercise of his power and on the qualifications of the
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arbitrator or arbitrators. The Chief Justice or the designated Judge
would be entitled to seek the opinion of an institution in the matter
of nominating an arbitrator qualified in terms of Section 11(8) of
the Act if the need arises but the order appointing the arbitrator
could only be that of the Chief Justice or the designated Judge.
xxx xxx xxx
(xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani
Construction (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 appointment
of an Arbitral Tribunal under Section 11, the duty of the Chief
Justice or his designate is defined in SBP & Co. [(2005) 8 SCC
618]. This Court identified and segregated the preliminary issues
that may arise for consideration in an application under Section 11
of the Act into three categories, that is, (i) issues which the Chief
Justice or his designate is bound to decide; (ii) issues which he
can also decide, that is, issues which he may choose to decide;
and (iii) issues which should be left to the Arbitral Tribunal to
decide.
22.1. The issues (first category) which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the application has approached
the appropriate High Court.
(b) Whether there is an arbitration agreement and whether
the party who has applied under Section 11 of the Act, is a
party to such an agreement.
22.2. The issues (second category) which the Chief Justice/his
designate may choose to decide (or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live
claim.
(b) Whether the parties have concluded the contract/transaction
by recording satisfaction of their mutual rights and obligation
or by receiving the final payment without objection.
GARWARE WALL ROPES LTD. v. COASTAL MARINE
CONSTRUCTIONS & ENGINEERING LTD. [R. F. NARIMAN, J.]
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22.3. The issues (third category) which the Chief Justice/his
designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as
for example, a matter which is reserved for final decision of a
departmental authority and excepted or excluded from
arbitration).
(ii) Merits or any claim involved in the arbitration."
11. As a result of these judgments, the door was wide open for
the Chief Justice or his designate to decide a large number of preliminary
aspects which could otherwise have been left to be decided by the
arbitrator under Section 16 of the 1996 Act. As a result, the Law
Commission 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) are
concerned, the Law Commission examined the matter and recommended
the addition of a new sub-section, namely, sub-section (6A) in Section
11. In so doing, the Law Commission recommendations which are relevant
and which led to the introduction of Section 11(6A) are as follows:
"28. The Act recognizes situations where the intervention of the
Court is envisaged at the pre-arbitral stage, i.e. prior to the
constitution of the arbitral tribunal, which includes sections 8, 9,
11 in the case of Part I arbitrations and section 45 in the case of
Part II arbitrations. Sections 8, 45 and also section 11 relating to
"reference to arbitration" and "appointment of the tribunal", directly
affect the constitution of the tribunal and functioning of the arbitral
proceedings. Therefore, their operation has a direct and significant
impact on the "conduct" of arbitrations. Section 9, being solely
for the purpose of securing interim relief, although having the
potential to affect the rights of parties, does not affect the
"conduct" of the arbitration in the same way as these other
provisions. It is in this context the Commission has examined and
deliberated the working of these provisions and proposed certain
amendments.
29. The Supreme Court has had occasion to deliberate upon the
scope 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
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terms of whether such a power is a "judicial" or an "administrative"
power - which obfuscates the real issue underlying such
nomenclature/description as to -
-
the scope of such powers - i.e. the scope of arguments
which a Court (Chief Justice) will consider while deciding
whether to appoint an arbitrator or not - i.e. whether the
arbitration agreement exists, whether it is null and void,
whether it is voidable etc.; and which of these it should
leave for decision of the arbitral tribunal.
-
the nature of such intervention - i.e. would the Court
(Chief Justice) consider the issues upon a detailed trial
and whether the same would be decided finally or be left
for determination of the arbitral tribunal.
30. After a series of cases culminating in the decision in SBP v.
Patel Engineering, (2005) 8 SCC 618, the Supreme Court held
that the power to appoint an arbitrator under section 11 is a "judicial"
power. The underlying issues in this judgment, relating to the scope
of intervention, were subsequently clarified by raveendran j in
National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.,
(2009) 1 SCC 267, where the Supreme Court laid down as
follows -
"1. The issues (first category) which Chief Justice/his designate
will have to decide are:
(a) Whether the party making the application has approached
the appropriate High Court?
(b) Whether there is an arbitration agreement and whether
the party who has applied under section 11 of the Act, is a
party to such an agreement?
2. The issues (second category) which the Chief Justice/his
designate may choose to decide are:
(a) Whether the claim is a dead (long barred) claim or a
live claim?
(b) Whether the parties have concluded the contract/
transaction by recording satisfaction of their mutual rights
and obligation or by receiving the final payment without
objection?
GARWARE WALL ROPES LTD. v. COASTAL MARINE
CONSTRUCTIONS & ENGINEERING LTD. [R. F. NARIMAN, J.]
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3. The issues (third category) which the Chief Justice/his
designate should leave exclusively to the arbitral tribunal are:
(a) Whether a claim falls within the arbitration clause (as
for example, a matter which is reserved for final decision
of a departmental authority and excepted or excluded from
arbitration)?
(b) Merits of any claim involved in the arbitration."
31. The Commission is of the view that, in this context, the same
test regarding scope and nature of judicial intervention, as
applicable in the context of section 11, should also apply to sections
8 and 45 of the Act - since the scope and nature of judicial
intervention should not change upon whether a party (intending to
defeat the arbitration agreement) refuses to appoint an arbitrator
in terms of the arbitration agreement, or moves a proceeding before
a judicial authority in the face of such an arbitration agreement.
32. In relation to the nature of intervention, the exposition of the
law is to be found in the decision of the Supreme Court in Shin
Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234,
(in the context of section 45 of the Act), where the Supreme
Court has ruled in favour of looking at the issues/controversy only
prima facie.
33. It is in this context, the Commission has recommended
amendments to sections 8 and 11 of the Arbitration and Conciliation
Act, 1996. The scope of the judicial intervention is only restricted
to situations where the Court/Judicial Authority finds that the
arbitration agreement does not exist or is null and void. In so far
as the nature of intervention is concerned, it is recommended that
in the event the Court/Judicial Authority is prima facie satisfied
against the argument challenging the arbitration agreement, it shall
appoint the arbitrator and/or refer the parties to arbitration, as the
case may be. The amendment envisages that the judicial authority
shall not refer the parties to arbitration only if it finds that there
does not exist an arbitration agreement or that it is null and void.
If the judicial authority is of the opinion that prima facie the
arbitration agreement exists, then it shall refer the dispute to
arbitration, and leave the existence of the arbitration agreement
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to be finally determined by the arbitral tribunal. However, if the
judicial authority concludes that the agreement does not exist, then
the conclusion will be final and not prima facie. The amendment
also envisages that there shall be a conclusive determination as to
whether the arbitration agreement is null and void. In the event
that the judicial authority refers the dispute to arbitration and/or
appoints an arbitrator, under sections 8 and 11 respectively, such
a decision will be final and non-appealable. An appeal can be
maintained under section 37 only in the event of refusal to refer
parties to arbitration, or refusal to appoint an arbitrator."
12. Pursuant to the Law Commission recommendations, Section
11(6A) was introduced first by Ordinance and then by the Amendment
Act, 2015. The Statement of Objects and Reasons which were appended
to the Arbitration and Conciliation (Amendment) Bill, 2015 which
introduced the Amendment Act, 2015 read as follows:
"STATEMENT OF OBJECTS AND REASONS
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6.