L.Ramareddy vs The State of Karnataka and others. Writ Appeal 1415/2018 decided on 1 December 2020. Justice B.V. Nagarathna and Justice N.S. Sanjay Gowda.

Judgment Link: https://karnatakajudiciary.kar.nic.in/noticeBoard/wa-1415-2018-LA-BDA-01122020.pdf

Relevant paragraphs: 18. The object and purpose of the LA Act, 1894, is for acquisition of the land for public purposes and for companies. The expression public purpose is defined in Section 3(f) of the said Act. It is an inclusive definition and not an exhaustive one. Section 3(f) is substituted by the Karnataka Amendment with effect from 24.08.1961. On the other hand, the object of the BDA Act, which has substituted City Improvement Trust Board Act, is to provide for the establishment of a Development Authority for the development of the city of Bangalore, now Bengaluru, and areas adjacent thereto and matters connected therewith. Whereas, the provisions of LA Act, 1894, is to acquire land for public purposes, determination of compensation and matters connected therewith and is a general enactment, the object and purpose of the BDA Act is for planned development of Bangalore Metropolitan Area and acquisition of land under Sections 17 and 19 of the BDA Act by issuance of Preliminary and Final Notifications is incidental which is for the purpose of development schemes, as enunciated in Chapter III of the BDA Act, for Bangalore Metropolitan Area.

22. Adverting to Section 27 of BDA Act, the Hon’ble Supreme Court has observed that it places an obligation upon the Authority (BDA), to complete the scheme within a period of five years and if the scheme is not substantially carried out within that period, it shall lapse and the provisions of Section 36 shall become inoperative, i.e. this is a provision which provides for serious consequences in the event the requisite steps are not taken within the specified time.

30. Further, from the words of Section 24 of the 2013 Act, what is significant to note is the fact that the said Section expressly refers to land acquisition proceedings initiated under the LA Act, 1894. The said Section does not incorporate the words “or proceedings initiated under any other enactment”. Therefore, the expression “land acquisition proceedings initiated under the LA Act, 1894” are significant and must be given its natural and plain meaning and the said expression cannot be given an expansive interpretation by adding words to the provision, in the absence of the provision itself giving rise to any such implication. In this regard, the rules of interpretation of a statute would become relevant and reliance could be placed on guiding principles of interpretation of statute. One such principle is that the Court is not entitled to read words into a provision of an Act or Rule for, the meaning is to be found within the four corners of the provision of an act or rule, as in the instant case. Therefore, while it is not permissible to add words or to fill in a gap or lacuna, on the other hand, effort should be made to give meaning to each and every word used by the legislature. Thus, the golden rule of construction is that the words of a provision of a statute, or rule must be first understood in the natural, ordinary or popular sense. Phrases and sentences must be construed according to their grammatical meaning, unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest the contrary.

33. Further, Section 24 creates a new right in favour of land owners in as much as they are entitled to relief under certain circumstances as stipulated in Section 24 of the Act. One such relief is under sub-section(2) of Section 24 of the Act, dealing with lapse of acquisition by a fiction. It is a deeming provision, provided the stipulations therein are complied with or the conditions mentioned therein exist. One overbearing condition is that the acquisition must have been initiated under the provisions of LA Act, 1894. Thus, if acquisition is initiated under any other Central or State enactment, Section 24 does not apply.

41. Therefore, for a declaration of lapse of acquisition, the pre-conditions or conditions precedent mentioned under sub-section (2) of Section 24 of the 2013 Act must apply. Most importantly the said conditions must prevail in an acquisition initiated under the provisions of the LA Act, 1894, and not with regard to acquisition initiated under any other enactment be it Central or State enactment. Hence, before land owners could seek relief under sub-section (2) of Section 24 of 2013 Act, which is a right created in their favour, the basic postulate that must be borne in mind is to ascertain, in the first instance, as to under which law, acquisition has been initiated; whether under the provisions of the LA Act, 1894 or any other law. If it is under any other law, then in my view Section 24 would not be applicable to such acquisitions.

42. As already observed, Section 24 of the 2013 Act creates a new right in the land owners. For the exercise of said right, certain conditions have to exist, the most significant of them being, the initiation of proceedings for acquisition under the provisions of the LA Act, 1894. Therefore, the said words must be given a natural interpretation and not an expansive or wide interpretation, so as to extend the right under Section 24 even in respect of land owners whose lands are subjected to acquisition under any State enactment, such as the BDA Act or KUDA Act. In fact, the Parliament itself has been conscious of the fact that 2013 Act repeals and substitutes only LA Act, 1894, and not any other Central enactment or for that matter any other State enactment dealing with acquisition of lands.

44. In the circumstances, it is concluded and held that Section 24 does not take within its scope nor does it apply to acquisitions which have been initiated under the provisions of any other enactment particularly, State enactment, such as, BDA Act. The said Section is restricted to only those acquisitions which have been initiated under the provisions of the LA Act, 1894 only. Subject to compliance of the conditions mentioned under sub-section (2) of Section 24, the land owner would be entitled to the deeming provision regarding lapse of acquisition and not otherwise.

Compiled by S Basavaraj, Daksha Legal.

The Karnataka Housing Board and another vs The State of Karnataka and others. Writ Appeal 5712/2012 decided on 1 December 2020. Justice B.V. Nagaratha and Justice N.S. Sanjay Gowda.

Judgment Link: https://karnatakajudiciary.kar.nic.in/noticeBoard/wa-5712-2012-LA-KHB-01122020.pdf

Relevant paragraphs: 20. Before proceeding to answer the points for consideration, the pertinent point that would arise for consideration in this appeal is, whether sanction under the provisions of sub-section (2) of Section 24 of the Act for execution of a housing scheme, land development scheme or labour housing scheme is a mandatory requirement or not has to be answered. Before venturing to answer the said point, it would be useful to deal with the scheme of the Act

25. A cumulative reading of the aforesaid provisions would indicate that it is the duty of the Housing Board to undertake housing schemes and land development  schemes as it may consider necessary from time to time and as may be entrusted to it by the State Government. What has to be provided for in a housing scheme is stated in Sections 18 and 18-A of the Act which would include, inter alia, the acquisition of property by purchase, exchange or otherwise i.e., by way of acquisition of any property necessary for or affected by the execution of the scheme. Under Section 19 of the Act before the first day of December in each year, the Board has to prepare and forward, inter alia, a programme and a budget for the next year and the programme shall contain the particulars of the housing schemes, land developments schemes and labour housing schemes which the Board proposes to execute whether in part or whole during the next year as may be prescribed and such other particulars as may be prescribed. The State Government may sanction the programme, the budget and the schedule of the staff of officers and servants forwarded to it with such modifications as it deems fit. The State Government has to then publish the programmes sanctioned by it under Section 20 in the Official Gazette. A supplementary programme and budget may also be sought by the Board and the State Government may sanction such a supplementary programme. The Board can vary any programme or any part of it, even after the sanction made by the State Government, provided that no such variation shall be made if it involves an expenditure in excess of 20% of the amount as originally sanctioned for execution of any housing scheme or land development scheme included in such programme or affects its scope or purpose.

28. In this regard, it is necessary to emphasize the expressions ‘the Board shall not execute’ and ‘unless the same has been sanctioned by the State Government’ which mean that no housing scheme, land development scheme and labour housing scheme can be executed, unless it has received the sanction of the State Government. The object and purpose of insertion of sub-section (2) to Section 24 are not for to seek, the same being to ensure that the State Government is made aware of which one of the housing schemes, land development schemes or labour housing schemes, included in the programme, which has been sanctioned under Section 20 of the Act would be executed and further, where such a scheme involves acquisition of land, the State Government is appraised of the said fact also, as it has to make available the budget for the purpose of paying compensation to the land owners, where the land is sought to be acquired for execution of the housing schemes, land development schemes or labour housing schemes.

31. The decision of the Board to execute a particular housing scheme, land development scheme or labour housing scheme must therefore be brought to the knowledge of the State Government particularly when it entails acquisition of land. This is because the State Government has to make budgetary allocation and find source of funds to pay compensation to the land losers, if the Housing Board intends to execute any such scheme on the land belonging to private land owners. Therefore, the use of the words “shall not execute” and the words “unless the same has been sanctioned by the State Government” have been intentionally used by the State Legislature so as to make it a mandatory requirement.

45. In the circumstances, we are of the view that the sanction of a scheme by the State Government under sub-section (2) of Section 24 of the Act is a condition precedent and a mandatory requirement before the Housing Board would execute any housing scheme, land development scheme or labour housing scheme. This is irrespective of whether any housing scheme would entail acquisition of land or not as opposed to a scheme entrusted by the Board under Section 32 of the Act.

Compiled by S. Basavaraj, Daksha Legal.

Dr. Sunilkumar Biradar vs The State of Karnataka and others. Writ Appeal 100040/2016 decided on 7 December 2020.

Judgment Link: http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/353107/1/WA100040-16-07-12-2020.pdf

Cases referred – W.A.No.245/2006 (S-PRO), disposed of on 31^st July 2006, P. Srinivas Vs. M. Radhakrishna Murthy and others reported in (2004) 2 SCC 459, Suresh Chandra Jha vs. State of Bihar and others reported in (2007) 1 SCC 405, Chairman, Puri Gramya Bank v. Ananda Chandra Das in 1994 (6) SCC 301, Dharmendra Prasad and Others Vs. Sunil Kumar and Others reported in (2020) 2 SCC 146.

Relevant paragraph: 16. The above decisions clearly establish  that what  is important and the touchstone to  determine the seniority is the selection list, which is based on merit and not the date of joining. …Thus, the fact of issuance of appointment letter to respondent No.3 subsequent to issuance of the same to the appellant and respondent No.3 joining later than the appellant into service of respondent No.2– KIMS, does not alter his seniority over the appellant as the touch stone should be  the  “Merit List” and not the  fortuitous  circumstances, which in out opinion is the result of a motivated action and not bona fide. Under the given facts and circumstances of the case, both the appellant and respondent No.3 have been selected in the same list and respondent No.3 is more meritorious than the  appellant and  thus, he needs to be placed above the appellant.

Compiled by S. Basavaraj, Daksha Legal.

Ajay J Nandalike, Advocate, Bengaluru

The Commercial Courts Act, 2015 (‘the Act’) was promulgated with an intention to provide for speedy disposal of high value commercial disputes involving complex facts and questions of law and to create a positive image to investors about the independence and responsiveness of the Indian legal system^[1]. The Act provided for constitution of Commercial Courts and designation of Commercial Appellate Courts or Commercial Division of High Court to deal with appeals arising from Commercial Courts.

Detailed amendments were made to the Civil Procedure Code, 1908 (‘CPC’) insofar as it applies to a commercial dispute including provisions limiting the period for filing of written statement, provisions for disclosure and discovery of documents, Case Management hearing to resolve all pending issues such as framing of issues, providing for list of dates for completion of various stages of the Trial etc, filing of written arguments etc. The procedure for filing of evidence affidavits, restricting the scope of cross-examination, day to day trial are meant to expedite the disposal of commercial disputes.  Any judgment or decree passed in a Commercial Dispute is made appealable under Section 13.

This article explores the provisions of the Commercial Courts Act, 2015 to examine whether the intention of the Act to provide for speedy disposal is achieved insofar as it applies to Commercial Appeals.

In order to ensure a speedy disposal of appeals, the Legislature provided for the following:

1. Designating specific courts as Commercial Appellate Courts or creating Commercial Division of High Court so that judges having experience in commercial disputes would adjudicate the appeals.
2. reduce the period of appeal from 90 days as provided in the Limitation Act to 60 days in terms of Section 13(3) of the Act.
3. Section 14 which provided that the Appellate Court shall endeavour dispose the appeal within a period of 60 days from the date of filing.

Commercial Appeals under Section 13 of the Act would be governed by the procedure provided under Section 96 read with Order XLI CPC.  Interestingly, the endeavour under Section 14 to dispose the appeal within 60 days is reflected in Order 41 Rule 11-A of CPC. A suggestion was made to include a proviso that the Court must give reasons if it is unable to dispose the appeal within 60 days akin to TDSAT which was not heeded. Given the huge pendency of matters, designating a specific court to hear commercial appeals is an excellent idea but the overburdening of courts with regular matters has ensured that the Commercial Appellate Courts or Commercial Divisions of High Court also deal with other roster matters. The appeals are listed along with those matters thus ensuring that the statutory intent is reduced to dust.

Additionally, appeals involve a series of other miscellaneous matters such as interim applications for stay of execution of decree, furnishing of security if necessary, applications for additional evidence, filing of paper books (which is governed by the procedure of the respective High Courts). There is a possibility that issuance of court notice to the other side would take a few weeks and the matter is listed thereafter. If sufficient process fee is not paid, then notice is not sent and the matter has to be listed again for issuance of notice.

In fact, many High Courts provide for 30 to 60 days’ time to comply with office objections which is applicable to every filing including a Commercial Appeal.  The non-compliance with office objections is first listed before Registrar / Court Master and later on before Court and opportunities are granted to comply with the objections. In fact, Order XLI Rule 19 CPC itself provides for readmission of appeal if it is dismissed for any default.

When Courts have failed to achieve the mandate provided for in Order 41 Rule 11-A for disposal of appeals within 60 days, compliance of Section 14 of the Act is unlikely. Therefore, the Act has failed to deliver on the promise of an expedited disposal of the commercial dispute. Even if the Commercial Court passes a judgment in terms of the Act, there are no special procedures contemplated for disposal of appeals under the Act.

This article recommends certain measures which can be considered by High Courts to be issued as Practice Directions under Section 18 of the Act or by framing appropriate Rules under the High Court Act or Letters Patent Rules.

First measure would be for compulsory issuance of notice to the other side before filing of the appeal. This would be akin to the amendment made to the Arbitration and Conciliation Act, 1996 under which Section 34 (5) was inserted which requires that an application under Section 34 for setting aside the arbitral award be filed only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. This would save considerable time in issuance of notices to the other side.

Second measure would be to ensure that the Commercial Appellate Court becomes a paperless court. This means that all the Trial Court records must be scanned and cross-referenced. The High Court can frame guidelines for hyperlinking (online equivalent of Post-It) and indexing of the records such that it is as easily accessible as a piece of paper. The instructing counsel / arguing counsel should be able to point at a relevant portion and it gets highlighted for all persons in Court. Software of this nature exists and is in use in the United States and United Kingdom. One would have noticed situations wherein paper books are not numbered properly resulting in wastage of time in identifying the appropriate page delaying the hearing and hampering the flow of arguments. Imagine if one can hyperlink or provide an e-index such that one can refer to one document in a separate window while reading from another document.

Third measure would be to have a two-tier case management hearing. In the first case management hearing, direct the Appellant to file written arguments and Respondent to file reply written arguments within stipulated periods. The written arguments must hyperlink the relevant exhibit / pleading for ease of reference. Both parties must also thereafter file their draft points for determination based on the written arguments. They must also make a list of all preliminary / interlocutory matters which they want the Court to adjudicate on such as stay of execution of decree, furnishing security, additional evidence and other miscellaneous matters. Parties must be directed to have a conference to discuss amongst themselves to arrive at consensus on these matters. This can be hearing before the Registrar / Court Master wherein a standard template order can be furnished providing a date for hearing.

The Court will have all the information in two lists: (i) containing all interlocutory matters on which parties want a decision as they have been unable to arrive at an understanding; (ii) Points for determination as per both parties. On the date fixed for the second case management hearing,  the Court will decide on the following: (i) All interlocutory matters including stay of execution of decree, furnishing security, additional evidence and other miscellaneous matters; (ii) Arrive at the points for controversy and develop the points for determination in consultation with counsel so as to avoid adjudication on unnecessary aspects. This will be an order of the Court which will be incorporated into the final judgment that the Court will pass.

Fourth measure would be to specify a day in a week wherein an afternoon is spared for hearing of commercial appeals having an advance list on the basis of the case management hearing dates. Even for preparation of this list, consent letters from both counsel indicating their list of favourable dates may be taken at the case management hearing stage.

As written arguments are already filed, the Court will be familiar with the issues involved and the oral arguments can be cut short or a time be fixed for completing oral submissions. This is followed even by the US Supreme Court and host of other Courts across the world and is not considered as impinging the access to justice.

Ultimately, the intention of the parties and the Courts collectively will result in an expedited disposal of the Commercial Appeal no matter whatever law or practice direction is issued. The measures suggested in this article are used throughout the world in some form or another. While incorporating some of the best trial practices for adjudication of a commercial suit, the legislature has failed to show the same effort while framing provisions for Commercial Appeals resulting in an undelivered promise of speedy disposal. One can only hope that the High Courts take the matters into their own hands to fulfil the legislative mandate.

(Ajay J Nandalike is an Advocate practicing in the High Court of Karnataka. He thanks Mr. Sumit Rai, Advocate, Bombay High Court for his inputs and Ms. Drishya Shetty, Law Student, 5^th Year Christ University, Bengaluru for her research).

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[1] See Statement of Objections and Reasons, Commercial Courts Act, 2015

Public Interest Litigation by S.Basavaraj, Advocate and Member, Karnataka State Bar Council challenges establishment of caste based Corporations and bodies. The bodies whose establishment are challenged are.

1. Karnataka Maratha Development Authority, c/o Backward Classes Welfare department, VidhanaSoudha, Dr. Ambedkar Road, Bangalore 560001      

2. KARNATAKA ARYAVYSYA COMMUNITY DEVELOPMENT CORPORATION, 21^st floor, V.V.Towers, Dr.B.R.Ambedkar Road, Vasanth Nagar, Bangalore 560001

4. KARNATAKA VISHWAKARMA COMMUNITIES DEVELOPMENT CORPORATION LIMITED, 4^th floor, DevarajUrs Bhavan 16/d, Miller Tank Bed Area, Vasanthanagar, Bangalore 560052      

5.Karnataka State CHRISTIAN DEVELOPMENT BOARD, Karnataka Minorities Development Corporation Ltd, ‘Vishveswarayya Centre’, 12^thFloor, Main Tower, Dr Ambedkar Rd, Ambedkar Veedhi, Vasanth Nagar, Bengaluru, Karnataka 560001       

6. KARNATAKA BRAHMIN DEVELOPMENT BOARD, No.1 4/3, Annexe Building, 3^rd floor, Sri Aravinda Bhavan, Mythic Society, Bengaluru- 560001

7. Karnataka Kadugolla Development Authority c/o Backward Classes Welfare department, VidhanaSoudha, Dr. Ambedkar Road, Bangalore 560001      

The interim prayer seeks a direction to the State Government to submit details of all caste based bodies established in the State of Karnataka and the financial contribution made to them.

PDF copy

Public Interest Litigation by S.Basavaraj, Advocate and Member, Karnataka State Bar Council challenges establishment of caste based Corporations and bodies. The bodies whose establishment are challenged are.

1. Karnataka Maratha Development Authority, c/o Backward Classes Welfare department, VidhanaSoudha, Dr. Ambedkar Road, Bangalore 560001      

2. KARNATAKA ARYAVYSYA COMMUNITY DEVELOPMENT CORPORATION, 21^st floor, V.V.Towers, Dr.B.R.Ambedkar Road, Vasanth Nagar, Bangalore 560001

4. KARNATAKA VISHWAKARMA COMMUNITIES DEVELOPMENT CORPORATION LIMITED, 4^th floor, DevarajUrs Bhavan 16/d, Miller Tank Bed Area, Vasanthanagar, Bangalore 560052      

5.Karnataka State CHRISTIAN DEVELOPMENT BOARD, Karnataka Minorities Development Corporation Ltd, ‘Vishveswarayya Centre’, 12^thFloor, Main Tower, Dr Ambedkar Rd, Ambedkar Veedhi, Vasanth Nagar, Bengaluru, Karnataka 560001       

6. KARNATAKA BRAHMIN DEVELOPMENT BOARD, No.1 4/3, Annexe Building, 3^rd floor, Sri Aravinda Bhavan, Mythic Society, Bengaluru- 560001

7. Karnataka Kadugolla Development Authority c/o Backward Classes Welfare department, VidhanaSoudha, Dr. Ambedkar Road, Bangalore 560001      

The interim prayer seeks a direction to the State Government to submit details of all caste based bodies established in the State of Karnataka and the financial contribution made to them.

PDF copy

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Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram v. Bhaskar Raju & Bros., (2020) 4 SCC 612.

Judgment Link: https://main.sci.gov.in/supremecourt/2018/12561/12561_2018_Judgement_10-Apr-2019.pdf

Paragraph 16. Admittedly, both the lease deeds are neither registered nor sufficiently stamped as required under the Karnataka Stamp Act, 1957. Admittedly, the Registrar (Judicial) of the High Court of Karnataka had submitted a report to the High Court pointing out, that the document of 1997 executed/entered into between the parties was a lease deed and not an agreement to lease and passed an order directing Respondents 1 and 2 to pay deficit stamp duty and penalty of Rs 1,01,56,388 (Rupees one crore one lakh fifty-six thousand three hundred and eighty-eight only). It is also an admitted fact, that Respondents 1 and 2 have not complied with the said directions and have not paid the deficit stamp duty and penalty. In this background, a question that would arise for consideration is, as to whether Clause 36 in the lease deed dated 12-3-1997 could be acted upon to enforce the arbitration clause contained therein.

17. The issue is no longer res integra. This Court in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.3 had occasion to consider the provisions which are in pari materia with the provisions of the Karnataka Stamp Act, 1957. The relevant paragraphs are as under: (SCC pp. 73-74, paras 17-21)

“17. What if an arbitration agreement is contained in an unregistered (but compulsorily registerable) instrument which is not duly stamped? To find an answer, it may be necessary to refer to the provisions of the Stamp Act, 1899 (“the Stamp Act”, for short). Section 33 of the Stamp Act relates to examination and impounding of instruments. The relevant portion thereof is extracted below:

‘33. Examination and impounding of instruments.—(1) 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, 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.

(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 in force in India when such instrument was executed or first executed:’

18. Section 35 of the Stamp Act provides that instruments not duly stamped are inadmissible in evidence and cannot be acted upon. The relevant portion of the said section is extracted below:

‘35. 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:

Provided that—

(a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;’

19. Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction.

20. The Scheme for Appointment of Arbitrators by the Chief Justice of Gauhati High Court, 1996 requires an application under Section 11 of the Act to be accompanied by the original arbitration agreement or a duly certified copy thereof. In fact, such a requirement is found in the scheme/rules of almost all the High Courts. If what is produced is a certified copy of the agreement/contract/instrument containing the arbitration clause, it should disclose the stamp duty that has been paid on the original. Section 33 casts a duty upon every court, that is, a person having by law authority to receive evidence (as also every arbitrator who is a person having by consent of parties, authority to receive evidence) before whom an unregistered instrument chargeable with duty is produced, to examine the instrument in order to ascertain whether it is duly stamped. If the court comes to the conclusion that the instrument is not duly stamped, it has to impound the document and deal with it as per Section 38 of the Stamp Act.

21. Therefore, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of the Stamp Act. The court cannot act upon such a document or the arbitration clause therein. But if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.”

18. It can thus clearly be seen, that this Court has in unequivocal terms held, that when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the court is required to consider at the outset, whether the document is properly stamped or not. It has been held, that even when an objection in that behalf is not raised, it is the duty of the court to consider the issue. It has further been held, that if the court comes to the conclusion, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899. It has also been held, that the court cannot act upon such a document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, the document can be acted upon or admitted in evidence. It is needless to state, that the provisions that fell for consideration before this Court are analogous with the provisions of Sections 33 and 34 of the Karnataka Stamp Act, 1957. In this view of the matter, we are of the considered view, that in view of the law laid down in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66, that the lease deed containing the arbitration clause which is required to be duly stamped, was not sufficiently stamped and though the Registrar (Judicial) had directed Respondents 1 and 2 to pay deficit stamp duty and penalty of Rs 1,01,56,388 (Rupees one crore one lakh fifty-six thousand three hundred and eighty-eight only), the respondents failed to do so, the High Court has erred in relying on the said lease dated 12-3-1997.

Compiled by S. Basavaraj, Daksha Legal.

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.