Bangalore District Court
) Mrs.M.C.Pankajakshamma vs M/S.Metro Space Developers on 5 November, 2019
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY : (CCCH.11)
Dated this the 5th day of November, 2019
PRESENT: Sri.Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO: 107/2013
PLAINTIFFS : 1) Mrs.M.C.Pankajakshamma,
W/o.late Sri.Srinivasulu Naidu,
Aged about 60 years.
2) Sri.S.Vijaya Kumar,
S/o.late Sri.Srinivasulu Naidu,
Aged about 33 years.
3) Mrs.S.Radhika,
D/o.late Sri.Srinivasulu Naidu,
Aged about 30 years,
Reptd.by her P.A.Holder Plaintiff No.1
All are R/at No.8, Regency Palazzo,
Apartment No.4B, Hall Road,
Richard's Town,
Bengaluru -560 005.
/Vs/
DEFENDANT : M/S.METRO SPACE DEVELOPERS
A Partnership firm having its
Office at No.2, 1st Cross,
G.M.Ramakrishnappa Layout,
Geddalahalli, RMV II Stage,
Bengaluru -560 094.
Reptd.by its Managing Partner-
Sri.P.V.Narayana Reddy.
AS.107/2013
2
JUDGMENT
This suit is filed under Section 34 of the Arbitration and Conciliation Act, 1996, by Plaintiffs, for setting aside the arbitral award dated 14.09.2013 passed by sole Arbitrator in A.C.No.4/2011.
2) Plaintiffs' case, in brief, is that, Defendant had filed claim petition before sole Arbitrator against Plaintiffs for relief of specific enforcement of Joint Development Agreement dated 13.06.2002 and alternative relief of recovery of Rs.5,10,82,500/- as compensation. It is stated that, Plaintiffs, after receipt of notice, filed their objection to claim statement and sought for counter claim of Rs.1,00,00,000/- as damages against Defendant, as Defendant did not come forward to execute Joint Development Agreement.
AS.107/2013 3
3) It is stated that, Defendant's case is that, since vacant possession of schedule property was not delivered to Defendant, Defendant was not able to proceed in terms of Joint Development Agreement and Joint Development Agreement was illegally terminated by Plaintiffs by issuing legal notice dated 08.08.2007.
4) It is stated that, Plaintiffs, after entering their appearance before sole Arbitrator, filed their objection to claim petition contending that Defendant did not get approved plan from concerned authority and also did not get the architectural plan as agreed in Joint Development Agreement. Defendant was aware about the eviction proceedings pending before Small Causes Court, Bengaluru and also HRRP filed before Hon'ble High Court of Karnataka, Bengaluru. In HRRP, the Hon'ble High Court of Karnataka had given 1½ years time to tenant for vacating the premises.
AS.107/2013 4 Tenant vacated the premises on 31.03.2008. Even Defendant, being aware of all these proceedings, did not come forward to perform its part of contract under Joint Development Agreement.
5) It is stated that, Defendant got examined as P.W.1 and got marked Exs.P.1 to P.20 before sole Arbitrator. Plaintiffs got examined 2 nd Plaintiff as R.W.1. Learned Arbitrator, after considering the evidence on record, both oral and documentary, was pleased to hold that, Ex.P.1, Joint Development Agreement is a void document, as same is not registered in accordance with law, since possession of the property has to be delivered for execution of the project and passed impugned award on 14.09.2013 partly allowing the claim petition of Defendant. Plaintiff has challenged the impugned award on the ground that award has been passed by learned Arbitrator contrary to the terms of Agreement and learned Arbitrator has exceeded in AS.107/2013 5 its jurisdiction in passing the impugned award; hence, prays for setting aside the impugned award.
6) Defendant, in its objection, has stated that, it is a registered Firm, registered before Registrar of Firms, Bengaluru, dated 06.06.2008. Joint Development Agreement initially drafted on stamp paper of Rs.200/-; later, deficit stamp duty was paid on 14.09.2009. So far as, covenants of Joint Development Agreement, there is a broad consensus among the parties to the agreement, which contains arbitration clause. Said agreement is valid in the eye of law. As per decision of Hon'ble Supreme Court, Arbitration Agreement is not compulsorily registrable under the Registration Act. It has to be construed as independent agreement for the purpose of resolving the dispute and it can be relied upon for collateral purpose for making good the damages or loss. Tribunal has analysed this aspect of the case in the light of provisions of AS.107/2013 6 Section 65 of the Indian Contract Act. As per Section 24 of the Specific Relief Act, when a contract becomes impossible for no fault of the Claimant, Section 21 enables award of compensation to the claimant in lieu and substitution of specific performance. Mere non registration of the agreement cannot be held that the contract becomes impossible of performance for default of the claimant. Defendant has spent Rs.3,82,700/- as stamp duty on Joint Development Agreement and advanced Rs.2,00,000/- to Plaintiffs under Joint Development Agreement. Defendant prepared a building plan for execution of the project. Expenses incurred for litigation cannot be ignored. Learned Arbitrator, having regard to the decision of the Hon'ble Supreme Court, awarded compensation to Defendant, after placing reliance on materials placed before it and evidence adduced by the parties. Hence, prays for dismissal of the suit.
AS.107/2013 7
7) Heard. Perused the pleadings and record.
8) Point that arises for consideration is :-
"Whether Plaintiffs have made out any of the grounds enumerated in Section 34(2) of the Arbitration and Conciliation Act, 1996 to set aside the impugned award? "
9) My answer to above point is in the affirmative for the following :
REASONS
10) This suit came to be filed by Plaintiffs for setting aside the arbitral award dated 14.09.2013 passed by sole Arbitrator, Sri.A.Mohan Ram, District and Sessions Judge (Retd.) in A.C.No.4/2011, whereby, learned Arbitrator was pleased to award a sum of Rs.16.20 lakhs with interest at 9% and costs in favour of Defendant and against Plaintiffs.
11) Challenge to arbitral award is that, arbitral award has been passed contrary to the terms of AS.107/2013 8 agreement and learned Arbitrator has exceeded its jurisdiction in passing the impugned award and same is liable to be set aside.
12) Defendant's [Claimant] case before learned Arbitrator is that, Joint Development Agreement dated 13.06.2002 got entered into between Plaintiffs and Defendant came to be terminated by Plaintiffs illegally, whereunder, Defendant undertook to construct residential complex on the terms and conditions as set out therein and on account of illegal termination, it is entitled to relief of specific performance of Joint Development Agreement and for relief of recovery of Rs.5,10,82,500/-. Learned Arbitrator, by impugned award, partly allowed the claim petition.
AS.107/2013 9
13) Learned Arbitrator has considered in all 14 points while determining claim of Defendant, in which, Point-(b) is that :
" (b) Whether the claimant proves there is a concluded contract by virtue of agreement dated 13.06.2002? "
14) Learned Arbitrator has answered this point in the 'Negative' holding that, Ex.P.1 has to be construed as void agreement apart from the arbitration clause. Findings of learned Arbitrator read as follows :
"9.(b) .................The JDA is not registered in accordance with law since the possession of the property has to be delivered for execution of the Project; the Ex.P1 has to be construed as the void agreement apart from the Arbitration clause. However it can be relied on for collateral purposes i.e. for making good to the parties concerned the damages or loss suffered. Thus it can be held to be void agreement or contract as far as the grounds for refusal of the specific performance of the agreement in favour of any of the parties to the dispute. The Tribunal has to analyze the case in the light of provisions of Section 65 of the Indian Contract Act, 1872. However, there is no case as such for allowing the specific performance or the agreement dated AS.107/2013 10 13.06.2002 though it is comprehensive in nature. The point no.(b) is answered in the negative."
15) Said part of the award has not been challenged and therefore, findings as to 'agreement becomes void' has attained finality. Plaintiffs' contention is that, learned Arbitrator, even after holding that Joint Development Agreement is void in law, went on to grant compensation by way of damages for a sum of Rs.16.20 lakhs, mainly relying on the provision of Section 65 of the Indian Contract Act. Learned Arbitrator has erroneously interpreted the said provision. Under the said provision, Defendant is only entitled for any advantages, if any, has been paid to Plaintiffs. Thus, applying said principle, Defendant is entitled for not more than Rs.2,00,000/-, which is the advance amount paid to Plaintiffs under Joint Development Agreement.
16) Per contra, Defendant contends that, initially Joint Development Agreement dated AS.107/2013 11 13.06.2002 entered into between Plaintiff and Defendant on stamp paper of Rs.200/- and later, Defendant paid deficit stamp duty of Rs.3,82,500/- on 14.09.2009 and so far as covenants of Joint Development Agreement, there is broad consensus among the parties to the agreement, which contains arbitration clause and the said agreement is valid in the eye of law. Arbitration agreement is not compulsorily registrable under the Registration Act. Same has to be considered as an independent agreement solely for the purpose of dispute resolution and same can be relied upon for collateral purposes for making good to the parties, the damages or loss suffered by the parties.
17) Rival contentions of the parties make this Court to consider a point that, once the agreement is termed as void agreement, is it justifiable for learned Arbitrator to proceed with said agreement in granting relief as prayed for?
AS.107/2013 12
18) Admittedly, Joint Development Agreement [Agreement] got entered into between Plaintiffs and Defendant on 13.06.2002, whereunder, Defendant undertook to construct residential complex as per sanctioned plan by investing its funds in schedule property as described in Agreement with a specific understanding that, 40% of super built up area has to be allotted to Plaintiffs and the remaining 60% has to be retained by Defendant. Initially, said agreement came to be entered in stamp paper of Rs.200/- and same was not registered. Later, said agreement got terminated by Plaintiffs vide legal notice dated 08.08.2007 at Ex.P.6 on the alleged violation of terms and conditions of Agreement by Defendant. On the contrary, Defendant issued notice at Ex.P.9 to Plaintiffs on 17.08.2009 for initiation of arbitral proceedings after raising certain disputes. Later, Defendant paid deficit stamp duty of Rs.3,77,500/- on 14.09.2009 under Section 32 of Karnataka Stamp Act, 1957 in the office of the AS.107/2013 13 District Registrar and Deputy Commissioner of Stamps, Shivajingar, Bengaluru and got the agreement duly stamped. Thereafter, Defendant filed CMP in No.105/2010 before the Hon'ble High Court of Karnataka, whereby, the Hon'ble High Court of Karnataka was pleased to appoint sole Arbitrator to arbitrate the dispute raised by Defendant vide order dated 22.02.2011.
19) Plaintiffs' contention is that, once the agreement is held as void, question of granting compensation by way of damages under void agreement does not arise. At the most, what has been paid under the agreement by Defendant, that can be ordered to be restored to Defendant under Section 65 of the Indian Contract Act. Section 65 of the Indian Contract Act has been erroneously interpreted. On the other hand, Defendant contends that, Agreement or contract may be termed as void as far as grounds for refusal of the specific AS.107/2013 14 performance of agreement in favour of parties to the dispute. It can be relied upon for collateral purpose for making good the damages under Section 65 of the Indian Contract Act. At this juncture, it is relevant to extract Section 2(g), 2(h), 2(i) and Section 65 of the Indian Contract Act, 1872. They read thus :
" 2. Interpretation - clause. -
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract.
(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract".
"65. Obligation of person who has received advantage under void agreement, or contract that becomes void.- When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it."
AS.107/2013 15
20) It is also relevant to mention Section 49 of the Registration Act, 1908. It reads as follows :
" 49. Effect of non-registration of documents required to be registered.- No document required by Section 17 [or by any provision of the Transfer of Property Act, 1882 (4 of 1882) to be registered shall .-
(a) affect any immovable property comprised therein; or
(b) confer any power to adopt; or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:
[Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, 91 of 1877), or as evidence of any collateral transaction not required to be effected by registered instrument.]"
21) A plain reading of the above provisions of law makes it clear that, an Agreement may be valid, void or voidable. An agreement is not enforceable by law, is said to be void. If it is enforceable at the AS.107/2013 16 option of one party, but not at the option of the other is voidable contract. If it is enforceable by law, is a contract. Section 65 of the Contract Act deals with two situation. They are, agreement is discovered to be void or contract that becomes void. Under such circumstances, said provision of law specifically states that, it is the bounden duty of the person who has received advantage under void agreement, or contract that becomes void to restore it, or to make compensation for it to the person from whom he received it.
22) Section 49 of the Registration Act, 1908, deals with effect of non-registration of documents required to be registered under Section 17 or by any provisions of Transfer of Property Act, 1882. It states that, no documents required by Section 17 or by any provisions of Transfer of Property Act, to be registered shall affect any immovable property comprised in the document or confer any power to AS.107/2013 17 adopt or be received as evidence. Proviso to Section 49 confers power to rely on unregistered document as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1873 or as evidence of part performance of a contract for the purpose of Section 53-A of the Transfer of Property Act or as evidence of any collateral transaction not required to be effected by registered instrument.
23) To substantiate Plaintiff's contention, learned counsel for Plaintiff is pleased to rely upon judgment in Kuju Collieries Ltd. Vs. Jharkhand Mines Ltd. And Others [AIR 1974 SC 1892], wherein, it is held that :
" Index Note :- Contract Act (9 of 1872), S.65 - Scope of Section 65 -
Agreement void ab inito - Mining lease contrary to mineral regulations and void - Parties in pari delicto -
Section 65 does not apply - Nor does Section 70 or 72. X-Ref:- Mines and Minerals (Regulation and Development) Act (53 of 1948), S.4 -
AS.107/2013 18 Brief Note :- (A) Section 65 makes a distinction between an agreement and a contract. According to Section 2 of the Contract Act an agreement which is enforceable by law is a contract and an agreement which is not enforceable by law is said to be void. Therefore, when the earlier part of Section 65 speaks of an agreement being discovered to be void, it means that the agreement is not enforceable and is, therefore, not a contract. It means that it was void. It may be that the parties or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. The second part of the section refers to a contract becoming void. That refers to a case where an agreement which was originally enforceable and was, therefore, a contract, becomes void due to subsequent happenings. In both these cases, any person who has received any advantage under such agreement or contract is bound to restore such advantage, or to make compensation for it to the person from who he received it. But where even at the time when the agreement is entered into both the parties knew that it was not lawful and, therefore, void, there was no contract but only an agreement and it is not a case where it is discovered to be void subsequently. Nor is it a case of the contract becoming void due to subsequent happenings. Therefore, Section 65 of the Contract Act did not apply."
24) In the above judgment, the Hon'ble Supreme Court was pleased to distinguish between AS.107/2013 19 Agreement and Contract, the two terms used in Section 65 of the Contract Act. It is distinguished that, in void agreement, the parties or one of the parties to the agreement may not have, when they entered into the agreement, known that the agreement was in law not enforceable. They might have come to know later that the agreement was not enforceable. In a contract becoming void, in which, an agreement which was originally enforceable and which becomes void due to subsequent happenings, it is specifically held that, in both cases, any person who has received any advantage under such agreement or contract is bound to restore such advantage, or to make compensation for it to the person from whom he received it. Having regard to the factual matrix of the case, the Hon'ble Supreme Court was pleased to make it clear that, but where even at the time when the agreement is entered into both the parties knew that it was not lawful, and therefore, void, there AS.107/2013 20 was no contract, but only an agreement and it is not a case where it is discovered to be void subsequently. Nor is it a case of the contract becoming void due to subsequent happenings, therefore, Section 65 of the Contract Act, did not apply.
25) From Section 65 of the Indian Contract Act and legal dictum as laid down by Hon'ble Supreme Court, it is abundantly clear that, agreement and contract are two different phraseologies and both are not operating in the same sphere. Agreement, in which the parties might not have known that agreement was not enforceable when they had entered into such agreement and they might have come to know later that the agreement was not enforceable. However, an agreement which was originally enforceable is contract and it becomes void due to subsequent happenings. In simple way, it can be said that, all agreements are not contract, AS.107/2013 21 but all contracts are agreements. In both cases, the party, who is in advantageous position is bound to restore the other party from whom he received such advantages under the agreement. It is further clear that, at the time when the agreement is entered into, both the parties knew that it was not lawful, under such circumstances, Section 65 cannot be made applicable to enforce the rights of aggrieved party.
26) Here, in this case, Joint Development Agreement is held to be void, on the ground that same is not registered in accordance with law. Section 17(2)(v) of the Registration Act, 1908 clearly states that, "any document not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to obtain another document which will, when AS.107/2013 22 executed, create, declare, assign, limit or extinguish any such right, title or interest; is not compulsorily registrable document". Having come to the Joint Development Agreement, it is fairly understandable that, Joint Development Agreement came to be executed for construction of residential complex, whereunder, the parties agreed to enter into supplementary agreement identifying the flats being alloted to their respective share. Nothing has been created in Joint Development Agreement as to right, title and interest in favour of Defendant except execution of supplementary agreement for sharing of flats. Under such circumstances, there can be no occasion to hold that Joint Development Agreement is void agreement.
27) Be that as it may. There exists a finding to the effect that agreement is void and said finding remains not challenged by Defendant. It is not the case of the parties before learned Arbitrator that AS.107/2013 23 agreement has become void ab initio or that parties had known that agreement was not lawful at the time of entering into said agreement. Under such circumstances, it can be said that, said agreement is enforceable contract. Said contract is held to be void by learned Arbitrator due to its non- registration. In that situation, certainly, Section 65 of the Contract Act is applicable to the instant case. When such is the case, legality of the award in awarding compensation under Section 73 of the Contract Act by learned Arbitrator would arise. When learned Arbitrator held the contract as void, same contract cannot be relied upon in granting relief of specific performance of contract or in awarding compensation by invoking Section 73 of the Contract Act. When contract is held as void, as observed above, the only option is that, the person, who received advantage under such contract, is bound to restore it to the person from whom he received it.
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28) Here, in this case, under Joint Development Agreement, Plaintiffs received a sum of Rs.2,00,000/- from Defendant. In view of contract being held as void, Defendant is entitled to receive back the said amount of Rs.2,00,000/- from Plaintiffs. Instead, Defendant cannot be awarded damages by way of compensation under Section 73 of the Contract Act, saying that, if agreement was not terminated, he would have completed the project and would have made profits. This position of law has been further clarified by illustration given under Section 65 of the Contract Act. Illustration (d) reads as follows :
" (d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing. A is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance."
Hence, it is crystal clear that, awarding of damages by way of compensation under Section 73 AS.107/2013 25 of the Contract Act, after holding the agreement as void by learned Arbitrator is in contravention of Section 65 of the Contract Act.
29) Learned counsel for Plaintiffs is pleased to submit that arbitration agreement is not registered and as such, Arbitration Clause therein cannot be pressed into service for arbitrability of the dispute. On the contrary, Defendant contends that, Arbitration agreement is not compulsorily registrable under Registration Act. Arbitration Clause shall be considered as an independent agreement solely for the purpose of dispute resolution and it can be very much relied upon for collateral purpose for making good the loss.
30) In support of Defendant's contention, learned counsel for Defendant is pleased to rely upon judgment in SMS Tea Estates Private Limited Vs. Chandmari Tea Company Private AS.107/2013 26 Limited [(2011) 14 Supreme Court Cases 66], wherein, the Hon'ble Supreme Court was pleased to hold as follows :-
"When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of dispute, 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. 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 registrable - 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.
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 AS.107/2013 27 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 rescinds the agreement on that ground, not only the agreement for sale, but any arbitration agreement therein will not be binding.
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 Arbitration and Conciliation Act, 1996 an arbitration agreement in a compulsorily registrable document but which is unregistered can be acted upon and enforced for the purpose of dispute resolution by arbitration.
However, having regard to Section 35 of the Stamp Act, 1899 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 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. Therefore, when a lease deed or any other instrument is relied upon as containing 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 AS.107/2013 28 manner set out in Section 35 or Section 40 of the Stamp Act, 1899 the document can be acted upon or admitted in evidence.
The procedure to be adopted where the arbitration clause is contained in a document which is compulsorily registrable but which is not registered and which is not duly stamped is summed up as follows:
1. The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.
2. If the document is found to be not duly stamped, Section 35 of the Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be aced upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Sections 35 and 38 of the Stamp Act.
3. If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the court or before the Collector (as contemplated in Sections 35 or 40 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.
4. Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.
5. If the document is compulsorily registrable but is not registered, having regard to Section 16(1)(a) of the 1996 Act, the court can delink the arbitration agreement from the main document, as an agreement independent of the other AS.107/2013 29 terms of the document, eve if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the respondent in the application demonstrates that the arbitration agreement is also void and unenforceable, as point out in para 15 above. If the respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator.
6. Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance, and (b) as evidence of any collateral transaction which does not required registration."
31) Thus, from the ratio laid down in the above judgment, it is crystal clear that, arbitration clause is an agreement independent of the other terms of contract and arbitration agreement does not require registration under the Registration Act. It is further clear that, if the document is found to be not duly stamped, arbitration clause therein cannot be acted upon, unless deficit stamp duty and AS.107/2013 30 penalty is paid. It is also clear that, if the contract is compulsorily registrable, but is not registered, Court can delink the arbitration agreement from the main document, having regard to Section 16(1)
(a) of the Arbitration and Conciliation Act.
32) Here, in this case, Defendant, before initiation of arbitral proceedings, paid deficit stamp duty in the Office of District Registrar and Deputy Commissioner of Stamps, Shivajinagar, Bangalore on 14.09.2009 and Joint Development Agreement got duly stamped. Hence, question of impounding of agreement and collecting of deficit stamp duty do not arise at all in this case. As per learned Arbitrator, Joint Development Agreement was compulsorily registrable document. In that situation, arbitration clause could have been delinked from main agreement having regard to Section 16(1)(a) of the Arbitration and Conciliation Act, 1996. However, learned Arbitrator held that, AS.107/2013 31 agreement is void. Under such circumstances, as held in judgment supra, invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement. Under such circumstances, once learned Arbitrator has come to the conclusion that Joint Development Agreement is void document, there is no reason for learned Arbitrator to arbitrate the dispute holding that arbitration clause is independent of the terms of the agreement. Only option, which was left for learned Arbitrator is that, he had to pass an award for refund of Rs.2,00,000/- which had been received by Plaintiffs from Defendant under Joint Development Agreement by invoking Section 65 of the Contract Act. It is, therefore, clear that, learned Arbitrator, after holding Joint Development Agreement as void document, awarded compensation under Section 73 of the Contract Act, which is against Section 65 of the Contract Act and AS.107/2013 32 legal dictum as laid down by the Hon'ble Supreme Court in the judgments supra.
33) In Associate Builders Vs. Delhi Development Authority [(2015) 3 Supreme Court Cases 49], the Hon'ble Supreme Court was pleased to hold that :
" (i) Contravention of the substantive law of India A contravention of the substantive law of India would result in the death knell of an arbitral award. Violation of Indian statutes i.e. the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice and would be regarded as being contrary to the fundamental policy of Indian law. Furthermore, the binding effect of the judgment of a superior court being disregarded would be equally violative of the fundamental policy of Indian law. This must be understood in the sense that such illegality must go to the root of the matter and cannot be of a trivial nature.
This again is a really a contravention of Section 28(1)(a) of the 1996 Act."
34) Hence, this Court is of the view that, award has been passed in violation of statutory provisions as laid down in Contract Act and award suffers AS.107/2013 33 from patent illegally. Said illegality goes to the root of the matter and same warrants interference. Accordingly, I answer the above point in the affirmative and pass the following :
ORDER (1) Suit filed under Section 34 of the Arbitration and Conciliation Act,1996 by Plaintiffs for setting aside the arbitral award dated
14.09.2013 passed by learned sole Arbitrator, in A.C.No.4/2011; is hereby allowed.
(2) The arbitral award dated 14.09.2013 passed by learned sole Arbitrator, in A.C.No.4/2011; is hereby set aside.
(Dictated to the Judgment Writer, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open court, dated this the 5th day of November, 2019.) (RAMA NAIK) VI Addl.City Civil & Sessions Judge, Bengaluru City.
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