Allahabad High Court
M/S A.N. Traders Private Ltd. vs Shipra Motel And Restaurent Ltd. on 28 August, 2017
Author: Suneet Kumar
Bench: Suneet Kumar
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R. Reserved Case :- ARBITRATION AND CONCILI. APPL.U/S11(4) No. - 39 of 2015 Applicant :- M/S A.N. Traders Private Ltd. Opposite Party :- Shipra Motel And Restaurent Ltd. Counsel for Applicant :- Ashim Vachher, Adarsh Bhushan, P. Piyush Counsel for Opposite Party :- S. Shekhar Hon'ble Suneet Kumar,J.
The instant application filed under Section 11(4)/(6) of the Arbitration and Conciliation Act, 19961, seeks appointment of an arbitrator in terms of clause 15 of the Agreement dated 30th August 2006.
I have heard the learned counsel for the parties and perused the record and agreement with the assistance of learned counsel for the parties.
The point for determination is as follows:
(I) whether the agreement is a lease-deed or simpliciter business agreement ?
(ii) whether the arbitration agreement an unregistered instrument, is valid and enforceable ?
(iii) whether unregistered agreement, not duly stamped, is valid and enforceable ?
The applicant and opposite party are a company duly incorporated and registered under the Companies Act, 1956. The opposite party is the owner of the disputed premises i.e. Shop No. 18 admeasuring 3577 sq. feet situated in Shipra Mall, Ghaziabad. The parties entered into a "Business Conducting Agreement" on 30 August 2006, whereby, the shop in dispute was leased to the applicant. As per terms of the agreement, the lease was for three years extendable for further period of three years and thereafter, extendable for another period of two years. The extension was subject to an increase of monthly rent @ 15% on expiry of each period as specified in the agreement. Therefore, in terms of the agreement, premises was leased for a period of eight years. The rent agreed to be paid by the applicant-company was @ 8.5% of the monthly sale of the restaurant, or a fixed sum, as specified, for different periods, in the agreement, whichever is higher.
It is not in dispute between the parties that the initial rent fixed at Rs.1,75,000/- on commencement of the agreement and the final rent paid at Rs.3,71,491/-, on expiry of eight years. The term of the agreement expired on 31 July 2014. In the leased premises, applicant is engaged in the business of running and managing a restaurant in the name and style KFC.
The dispute inter se parties arose with regard to the extension of the lease agreement after expiry of eight years. Till then, admittedly, there is no breach of any term or condition of the agreement. The opposite party on expiry of the agreement, called upon the applicant to vacate the premises to which the applicant responded that the company intends to continue occupying the premises, therefore, sought extension of the lease. The opposite party declined further extension, consequently, demanded that the premises be vacated, which was communicated by the opposite party vide communication dated 1 October 2014. It is alleged that thereafter, opposite party forcibly entered the premises, discontinued the electricity and water supply to coerce the applicant to vacate the premises. Consequently, the applicant had to close down the restaurant for customers. Aggrieved, applicant sought appointment of an arbitrator in terms of clause 15 of the agreement to adjudicate the losses suffered.
In the backdrop of the aforementioned facts, Sri Adarsh Bhushan, learned counsel for the applicant would submit:
(i) applicant suffered huge loss estimated at Rs.10 crore, for the illegal act and vandalism committed by the opposite party;
(ii) the premises was in the occupation of the opposite party for eight years, therefore, the opposite party had no right to forcibly break into the shop and demolish/destroy the interiors, furniture and other articles installed in the premises;
(iii) the dispute is arbitral and referable to clause 15 of the agreement;
(iv) the agreement not being a lease agreement, therefore, does not compulsorily require registration or stamping;
Sri Naveen Sinha, learned Senior Counsel assisted by Sri S. Shekhar, learned counsel for the opposite party would submit:
(i) there is no subsistence of arbitral dispute between the parties;
(ii) agreement is unregistered and not duly stamped, therefore, unenforceable;
(iii) it is judicial function cast upon the Court to determine the nature of the document despite there being no pleading to that effect.
Rival submissions fall for consideration.
Under the Indian Stamp Act, 18992, it is settled principle of law that nomenclature of a document would not determine the nature and content of the instrument. The agreement is titled "Business Conducting Agreement", which, inter alia, incorporates that the owner of the premises i.e. opposite party is entitled to "let out the space being Shop No. 18" for retail business of Fast Food Restaurant to the applicant (opposite party in the agreement). The owner has offered "to grant on lease the Demised Premises" to the applicant. The applicant has agreed to take the Demised Premises "on lease for the aforesaid commercial use". The tenure of the lease is provided in clause-1 of PART-1 of the agreement. Clause-1 is extracted:
"1. TENURE:
1.1 This Agreement shall have an initial term of 3 (Three) extendable for further period of three years and thereafter for another period of two years unless otherwise communicated by the CONDUCTOR; provided always that there shall not be at that time any existing breach or non observance of any of the covenants on the part of the both the parties herein contained, subject to an increase of the minimum assured Conducting Fee by 15% of the last paid monthly minimum assured Conducting Fee after the expiry of every period specified herein above.
1.2 That any such extension of the Agreement beyond the period of eight years shall depend upon the mutual consent of the parties and the same shall be crystallized vide a Fresh Agreement or by a Deed of Supplement.
1.3 This Agreement commences from 18.07.2006 or upon starting of the commercial operations in the premises; whichever is earlier, hereinafter referred to as the Effective Date."
Clause-2 provides for Lock In Period.
"2. LOCK IN PERIOD:
Subject to reasons specified in clause 8 of this agreement, it is clarified that save as provided herein the parties shall not be entitled to terminate this Agreement for 36 (Thirty Six) months from the date of execution of Agreement ("Lock-in Period")."
Clause 6.9 requires the applicant immediately prior to the expiration or upon the sooner termination of the agreement to remove all its employees, staff, agents from the demised premises and shall vacate and surrender the premises to the opposite party failing which, as per Clause 6.11, the applicant would not only be liable to pay a penal 'Conducting Fee' on a day to day basis but also would be liable to indemnify the opposite party for all subsequent damages and losses incurred owing to such non-removal by the applicant.
Clause 15 of the agreement provides for Dispute Resolution Mechanism, which is extracted :
"15 DISPUTE RESOLUTION MECHANISM:
15.1 It is hereby agreed by and between the parties hereto that in case any dispute or difference arises between the parties with regard to the terms and conditions of this Agreement or relating to the interpretation thereof, the same shall be referred to the sole arbitrator and such arbitration shall be in accordance with the provision of the Arbitration and Conciliation Act, 1996, or any statutory modification or re-enactment thereof for the time being in force. The arbitration shall be held in Ghaziabad and the proceedings shall be conducted in the English language. The parties agree that the arbitration award shall be final and may be enforced as a decree.
15.2 That this Agreement and the rights and obligation of the parties under or arising out of the Deed shall be construed and enforced in accordance with the laws of India.
15.3 The parties further agree that only the competent courts of jurisdiction at Ghaziabad or the High Court of judicature at Allahabad shall have exclusive jurisdiction in all matters arising thereunder.
15.4 Notwithstanding the pending of settlement of any dispute or difference between the parties, the CONDUCTOR shall continue to pay the Conducting Fee, subject to escalation as specifically stipulated in Clause 1.1 supra, to the OWNER regularly and punctually, so long as the CONDUCTOR is in use or occupation of the Demised Premise."
The provisions of the agreement extracted herein above would clearly reflect that the premises was leased for a maximum period of eight years to the applicant on a consideration referred to as 'Conducting Fee' to be paid monthly. The agreement commenced on 30 August 2006 and would end on 31 July 2014. The agreement further required that the parties shall not be entitled to terminate the agreement for 36 (Thirty Six) months from the date of execution of agreement ("Lock-in Period"), thereafter, the agreement would automatically be extended for further 36 months and finally for 24 months. The lease extension would be subject to an increase of the minimum assured Conducting Fee @ 15% of the last paid monthly fee. On commencement of the agreement, the minimum assured conducting fee was fixed at Rs.1,71,000/- which was periodically enhanced in terms of the agreement and finally, at Rs.3,71,491/-.
Clause 9.4 and 12 of the agreement stipulates that the cost of stamp duty and registration charges payable in respect of the execution and registration of the agreement has been exclusively fastened upon the applicant.
Section 105 of the Transfer of Property Act3, defines lease― A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, ............, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically ............. to the transferor by the transferee, who accepts the transfer on such terms.
Lessor, lessee, premium and rent defined to mean the transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.
Section 111 of the Transfer of Property Act, provides for determination of lease, relevant portion is extracted :
"111. Determination of lease.--A lease of immoveable property determines--
(a) by efflux of the time limited thereby;
(b) .... .... ... ... ... ... ..."
Section 17 of the Registration Act, 19084, provides -- Document of which registration is compulsory.-- (1) The following documents shall be registered, ............, namely:--
(a) .... .... .... .... ....
(b) .... .... .... .... ....
(c) .... .... .... .... ....
(d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent;
Section 49 of the Registration Act, provides -- 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) .... .... .... .... ....
(b) .... .... .... .... ....
(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 [***]5 [****]or as evidence of any collateral transaction not required to be effected by registered instrument.] In my considered opinion, the agreement, inter se parties, is a lease-deed executed for a specified period on a monthly rent, therefore, the agreement is compulsorily required to be duly stamped and registered.
Learned counsel for the opposite party would urge that clause 1.2 of the tenure clause categorically provides that the agreement beyond the period of eight years shall depend upon mutual consent of the parties and the same "shall be crystallized vide a Fresh Agreement or by a Deed of Supplement", meaning thereby, the terms and conditions of the agreement would bind the parties necessarily for 3 years and not beyond eight years. After eight years parties may re-negotiate and enter into a fresh agreement for extension depending upon mutual consent. The correspondence between the parties brought on record by the applicant would clearly show that the opposite party had declined to re-negotiate or extend the agreement, rather, opposite party sought vacation of the premises. The e-mail dispatch of 5 October 2014 sent by the opposite party clearly stated that "Our decision is final & you have to vacate the premises immediately". The dispute or difference that is referable for arbitration is with regard to the terms and conditions of the agreement or relating to the interpretation thereof. Further, it is urged that the contract is determined by efflux of time and stands concluded by discharge or performance, therefore, the arbitration agreement upon conditions stipulated in Section 111 of the Transfer of Property Act, being satisfied would not survive. The remedy, if any, available to the applicant for the alleged losses caused upon the expiry of the agreement, is to be redressed in civil suit for damages.
In my opinion, the submission of the learned counsel for the opposite party that there is no arbitral dispute between the parties or the dispute that has been raised in the application under Section 11 of Act 1996, is not referable to the agreement, cannot be gone into at this stage unless the document is duly stamped and admissible in evidence. The contention, therefore, is kept open and could be adverted to upon the document being stamped and registered.
In SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited6, the question that was posed before the Court was as to whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable, if not duly stamped, is valid and enforceable? The Court upon referring Section 49 of the Registration Act, 1908, which provides for the consequence of non-registration of documents required to be registered. Upon examination of Section 33 of the Stamp Act, which provides that instruments not duly stamped is inadmissible in evidence and cannot be acted upon unless such instrument is duly stamped. In para 22 of the report, the Court summed up the procedure to be adopted where the arbitration clause is contained in a document which is not registered "but compulsorily registrable" and which is not duly stamped. Paras 22.1 to 22.6 is extracted:
"22.1 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.
22.2 If the document is found to be not duly stamped, Section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under section 33 of the Stamp Act and follow the procedure under section 35 and 38 of the Stamp Act.
22.3 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 section 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.
22.4 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.
22.5 If the document is not registered, but is compulsorily registrable, having regard to section 16(1)(a) of the Act, the court can de-link the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even 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 pointed out in para 8 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.
22.6 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 require registration."
In view of the statement of law, it is the duty of the Court before admitting any document into evidence or acting upon such document, to examine whether the instrument/document is duly stamped and whether the instrument which is compulsorily registerable. The Court is required to 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 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.
Recently, in Black Pearl Hotels Private Limited v. Planet M. Retail Limited7, in the given facts, similar to the facts of the case in hand. The party had entered into an agreement which is titled a "conducting agreement", whereby, agreement enabled the respondent to conduct business from the premises and to pay fixed percentage of its net sales proceeds subject to a minimum guaranteed sum per month. The agreement stipulated that all disputes between the parties shall be referred to arbitration. The dispute arose as to whether the agreement in question is a lease or license or an agreement simpliciter, Supreme Court did not consider nor dwell upon, rather, opined that it was incumbent upon the High Court while dealing with an application under Section 11 of the Act, 1996 to consider the nature of agreement and whether the document requires to be stamped or not and if so, whether requisite stamp duty has been duly paid on the same. If there is dispute as regards the nature and character of the document, that would require determination by the High Court. Para 22 of SMS Tea Estates (supra) was referred. The Court referring to Section 33 and Section 38 of the Stamp Act providing for examination and impounding of instruments, held, that delegation by a Judge of the High Court under Section 33 (2) (b) of the Stamp Act for examining and impounding a instrument may be delegated to such officer as the Court appoints on its behalf. However, will not clothe the officer with the jurisdiction of determination of the nature and character of the instrument, inasmuch as, fact needs to be determined by the Judge while exercising judicial function. Such judicial function is not to be delegated to an officer of the Court by the High Court. What is delegated under the proviso (b) of sub-section (2) of Section 33 is only to examine the instrument for the purpose of determining as to whether the instrument is duly stamped or not and for impounding the same. Section 33(2)(b) does not contemplate or permit any adjudication as regards the nature and character of the instrument. A judicial function has to be done in a judicial manner. It is a part of judicial function and hence, the same cannot be delegated. Consequently, the matter was remitted to the High Court to determine the nature and character of the document.
Sub Section (2) of Section 33 makes it obligatory for the Court, arbitrators and the public officers to examine the instrument produced before them in order to ascertain whether it is properly stamped.
Section 35 mandates that a document not duly stamped is not admissible in evidence even for collateral purpose, but liable to be impounded. (Refer: Avinash Kumar Chauhan vs. Vijay Krishna Mishra8). A document which is neither written on proper stamp paper nor registered under Section 49 of the Registration Act, cannot be admitted in evidence, even for collateral purpose. Therefore, it is obligatory on the part of the Court to apply its mind and decide the same in accordance with law.
This Court in Shree Vakratunda Developer Pvt. Ltd. and another vs. Jan Seva Sehkari Avas Samiti Limited and others9, placing reliance on SMS Tea Estates (supra) and Omprakash v. Laxminarayanand others10, held that the an authority to receive evidence shall not admit any instrument unless it is duly stamped. The Court being an authority to receive a document in evidence has to give effect to the provisions thereto. The Court, therefore, declined to appoint an arbitrator under Section 11 of Act 1996.
In the facts of the case at hand, as noted herein above that the agreement is a lease-deed which is required to be duly stamped. Therefore, the document cannot be read in evidence nor the arbitration clause can be acted upon.
Seven Judge Bench in SBP & Co. v. Patel Engineering Ltd. and another11, as per majority held that in proceeding under Section 11(6), the power exercised by the Chief Justice of the High Court or the Chief Justice of India, is a judicial power and not an administrative power. Therefore, primarily the matter is to be determined by the Chief Justice or his designate the consideration involved for appointment of an arbitrator functioning under Section 11(6) is bound to decide whether― (1) he has jurisdiction, in the sense, the party making the motion has approached the High Court; (2) there is an arbitration agreement in terms of Section 7 of the Act 1996; (3) the person before him with the request, is a party to the arbitration agreement; and (4) there was no dispute subsisting which was capable of being arbitrated upon.
On coming to a conclusion on these aspects, the Chief Justice or his designate has to interfere if conditions for exercise of the power under Section 11(6) of Act 1996 have been fulfilled and satisfy itself that the condition for exercise of power exists. Therefore, as a consequence of law in proceeding under Section 11, it is also incumbent upon the Chief Justice or his designate to decide the nature of the document and whether it is admissible in evidence.
SMS Tea Estates (supra) envisages two step process : (i) there has to be a determination as to the stamp duty payable on the agreement in question; (ii) thereafter, the question of registration of that document would arise. Therefore, after the determination of stamp duty and penalty payable under the Stamp Act and after being paid, the Court should then proceed to consider whether the document is compulsorily registerable.
As far as the present case is concerned, the Court is satisfied that the original agreement dated 30 August 2006 should be impounded and sent to the Collector of Stamps, Ghaziabad, for proper determination of the stamp duty payable thereon.
The Court, accordingly, impounds the agreement dated 30 August 2006 and directs the Registrar General of this Court to sent a certified copy thereof in a sealed cover along with the certified copy of this order to the Collector of Stamps, Ghaziabad, for determination of the proper stamp duty and penalty to be paid by the opposite party. It will be open to the parties to participate in the proceedings before the Collector.
The application under Section 11 of Act 1996, at this stage need not be kept pending, however, liberty is granted to the opposite party to approach the Court after proceedings stands concluded under the Stamp Act.
The application, subject to above, is disposed of.
Order Date :- 28 August 2017 Mukesh Kr.