Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209
Judgment Link https://main.sci.gov.in/supremecourt/2018/12561/12561_2018_Judgement_10-Apr-2019.pdf
Paragraph 15. In SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66, this Court was confronted with an arbitration clause, namely, Clause 35 of a lease deed dated 21-12-2006 for a term of 30 years in regard to two tea estates. The lease deed was neither stamped nor registered. Para 9 of the judgment set out the questions that arose for consideration as follows: (SCC p. 71)
“9. On the contentions urged the following questions arise for consideration:
(i) Whether an arbitration agreement contained in an unregistered (but compulsorily registerable) instrument is valid and enforceable?
(ii) Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable?
(iii) Whether there is an arbitration agreement between the appellant and the respondent and whether an arbitrator should be appointed?”
16. When it came to the question of an arbitration clause contained in an unregistered lease deed, this Court held: (SMS Tea Estates2, SCC pp. 72-73, paras 12-16)
“12. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts—one in regard to the substantive terms of the main contract and the other relating to resolution of disputes—had been rolled into one, for purposes of convenience. An arbitration clause is therefore an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance is terminated or comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract.
13. Similarly, when an instrument or deed of transfer (or a document affecting immovable property) contains an arbitration agreement, it is a collateral term relating to resolution of disputes, unrelated to the transfer or transaction affecting the immovable property. It is as if two documents—one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registerable—are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer.
15. But where the contract or instrument is voidable at the option of a party (as for example under Section 19 of the Contract Act, 1872), the invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement, if the reasons which make the main agreement voidable, exist in relation to the making of the arbitration agreement also. For example, if a person is made to sign an agreement to sell his property under threat of physical harm or threat to life, and the said person repudiates the agreement on that ground, not only the agreement for sale, but any arbitration agreement therein will not be binding.
16. An arbitration agreement does not require registration under the Registration Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to Section 49 of the Registration Act read with Section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registerable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.”
Compiled by S. Basavaraj, Advocate, Daksha Legal.
Daksha Legal 