Madhya Pradesh High Court
Rajeev Agnihotri vs Ashok Jain on 23 August, 2021
Equivalent citations: AIRONLINE 2021 MP 1775
Author: Rohit Arya
Bench: Rohit Arya
1
A.C.No.9/2020
A.F.R
HIGH COURT OF MADHYA PRADESH
BENCH AT INDORE
Arbitration Case No.9/2020
Rajeev Agnihotri
Vs.
Ashok Jain and Another
ORDER
Post for : 08/2021
(Rohit Arya)
/08/2021
2
A.C.No.9/2020
HIGH COURT OF MADHYA PRADESH
BENCH AT INDORE
Arbitration Case No.9/2020
Rajeev Agnihotri
Vs.
Ashok Jain and Another
--------------------------------------------------------------------------------------- Shri Manoj Munshi, learned counsel for the applicant. Shri Vijayesh Atre, learned counsel for the non-applicant.
----------------------------------------------------------------------------------
WHETHER APPROVED FOR REPORTING - YES Law laid down:
Arbitration and Conciliation Act, 1996 QUESTION NO.1 Admissibility of notarized copy of agreement / MoU dated 14/09/2009 for appointment of arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996.
Sub-rule (a) of rule 2 of the Scheme for appointment of Arbitrator framed by the Hon'ble Chief Justice of M.P., High Court Rules, 1997 provides that the application filed under sub-sections (4) or (5) or (6) of section 11 of the Act shall be accompanied by the original arbitration agreement or certified copy thereof.
The purpose underlying the aforesaid Rule is to ensure existence of agreement containing the arbitration clause and to rule out scope of dispute about existence of such agreement between parties and to pave the way for invoking jurisdiction under Section 11(4) or 11(5) or 11(6) of the Act as the case may be by the Hon"ble Chief Justice or his designate.
Notarized copy of the agreement/MOU dated 14.9.2009 has been attached with the instant application filed under Section 11(6) of the Act, 1996 with an application vide I.A.No.878/2020 seeking leave of the Court to dispense with filing of the original agreement/MOU or certified copy of the agreement dated 14.9.2009 on the premise that the original instrument is in possession of the 3 A.C.No.9/2020 non-applicants. There is no dispute between parties about execution of agreement/MOU dated 14.9.2009 containing arbitration clause. Under such circumstances it is held that compliance of sub-rule (a) of rule 2 of the scheme for appointment of Arbitrator framed by the Hon'ble Chief Justice of the Madhya Pradesh High Court Rules, 1997 is substantially complied with fulfilling its intendment.
Bharat Sewa Sansthan Vs. U.P.Electronic Corporation Limited AIR 2007 SC 2961 and ITC Classic Finance Limited Vs. Grapco Mining and Co. Limited AIR 1997 Calcutta 397. Relied upon QUESTION NO.2 Cancellation of agreement/MOU by a cancellation agreement; whether arbitration clause ceases to exist ? - NO The National Agricultural Co-op Marketing Federation India Ltd. Vs. Gains Trading Ltd., (2007) 5 SCC 692.
The arbitration clause survives and scope of adjudication of dispute between parties exists as when a contract contains a 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 - (i) in regard to the substantive terms of the main contract and (ii) other relating to resolution of disputes.
Allegation of fraud in the context of signature of the applicant in the cancellation agreement dated 26.9.2011 by itself gives rise to the dispute and scope of arbitribility flows from the arbitration clause in the agreement/MOU dated 14.9.2009.
Hon'ble Supreme Court in the case reported in 2016(10) SCC 386[A. Ayyasamy Vs. A. Paramasivam & Others], 2018(15)SCC 678 has observed as under:
It has been observed further that the basic principle which must guide judicial decision making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into 4 A.C.No.9/2020 such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy."
Indian Stamp Act: Interpretation of Provisions of Sections 31 and 32.
QUESTION NO.3 Whether in absence of endorsement on the instrument by the Collector of Stamps under Section 32 of Stamps Act renders the instrument inadmissible in evidence for exercising jurisdiction under section 11(6) of the Arbitration Act. - NO The object of the Stamp Act is to secure revenue for the State. Three-folds object in the scheme of the Act are as under:
(a) to raise the revenue by taking instruments;
(b) to penalise by rendering an unduly stamped instrument, to be inadmissible in evidence and
(c) also to provide for penalty against evasions of stamp duty;
(i) by impounding of instruments;
(ii) imposing penalty under section 35; and
(iii) by prosecuting defaulter for evasion.
The Collector (Stamps) has passed an order under Section 31 of the Stamps Act on 4.9.2020 (Annexure A/7) and vide order dated 10.9.2020 (Annexure A/2) requiring the applicant to pay a stamp duty of Rs.4,53,680/-. The stamp duty has been deposited. Computerized receipts dated 6.9.2020 and 10.9.2020 are on record as Annexure A/3.
Certificate issued on 10.9.2020 under Section 32 of the Stamps Act in fact is in token of factum of deposit of stamp duty as per the order of Collector (Stamps). Such certificate not in the form of endorsement of the Stamps Act shall not render the document inadmissible in evidence, muchless in proceedings under Section 5 A.C.No.9/2020 11(6) of the Arbitration and Conciliation Act, 1996, regard being had to the object of the Indian Stamps Act (supra).
[Chiranjilal (Dr.) Vs. Hari Das (D) by L.Rs. (2005) 10 SCC 746, 755 ], The order of the Collector (Stamps) under section 31 and the certificate issued under section 32 of the Stamp Act cannot be subject matter of review before the Chief Controlling Revenue Authority, i.e., Board of Revenue.
A careful reading of the aforesaid provisions of section 56 of the Stamp Act suggest that under sub-section (1), the power exercisable by the Collector under Chapter IV and Chapter V and under clause (a) of the first proviso to section 26 shall in all cases be subject to the control of the Chief Controlling Revenue Authority. Further, the power exercisable under section 31 relevant for the purpose is not subject to the control of the Chief Controlling Revenue Authority instead if the Collector is doubtful about the amount of duty with which the instrument is chargeable, he may draw up a statement of the case, and refer it, with his own opinion thereon, for the decision of the Chief Controlling Revenue Authority.
The Collector in fact becomes functus officio after an order is passed by him under section 31 of the Stamp Act and the order attains finality, unless; he takes recourse to sub-section (2) of section 56 of the Stamp Act [ Government of Uttar Pradesh and others Vs. Raja Mohammad Amir Ahmad Khan, AIR 1961 SC 787 and State Bank of Hyderabad Vs. Government of Andhra Pradesh, AIR 2005 AP 317] The certificate at issue (supra) has been issued by the Collector of Stamps in consonance with the order passed by the Collector of Stamps under section 31 of the Stamp Act after adjudication of the proper stamp duty payable on an instrument. The provisions of Section 31 and 32 of the Stamp Act in fact are to be read conjointly. The certification u/S 32(2) of the Stamp Act is that the stamp duty paid in terms of the order passed u/S 31 of the Act. Therefore, as a matter of fact, it is a machinery provision as upon certification, the document becomes admissible in evidence.
6 A.C.No.9/2020Arbitration case stands disposed of.
Significant paragraphs: paragraphs 1,2,3,4,5,6,7 & 9-16.
Reserved on 14/07/2021 ORDER (23/08/2021) Rohit Arya, J., This is an application under Section 11(6) of Arbitration and Conciliation Act, 1996 (hereinafter referred as the Act of 1996) r/W Rule 2 of the Scheme for appointment of Arbitrator framed by the Hon'ble Chief Justice of M.P., High Court Rules, 1997 seeking indulgence of this Court in the matter of appointment of sole Arbitrator for resolution of dispute arising out of the agreement/MOU between the parties.
The agreement/MOU dated 14.09.2009 (Annexure A-1) is on record at pg 8. The relevant clauses 1, 2,4,5,6,10,11 and 20 of the agreement/MOU are quoted below:
"1. The First Partner and the Second Partner shall jointly undertake a project to construct multi- storied township on the land.
2.The entire cost of construction shall be on account of the First Partner. The Bank loans, when required, shall be facilitated by the Second partner for which the First Partner shall extend all necessary co-operations including personal guarantee as may be required by the Bank.
4. The prime responsibility of the Second Partner shall be to construct the project.
5. The First Partner shall assist the Second Partner in formulating the project and arranging the infrastructure, material and the required work force and the entire cost shall be borne by the First Partner.
6. The land shall be transferred by the First Partner and his relatives in the Company, cost of which shall be borne by the First Partner and his relatives.7 A.C.No.9/2020
10. The Second Partner shall be paid charges for his services@ Rs. 189 per sq. ft. of the saleable area and if the project is prolonged beyond five years from the date of commissioning of the project i.e. approval of project by all authorities concerned, the charges payable to the Second Partner shall be subject to upward revision by 12.6% of the selling price. The amount and mode of payment shall be mutually decided by the Parties.
11. The initial revenue generated out of the sale of project shall be firstly utilized in bringing the project itself and for repayment of the subsisting Bank loans and if thought appropriate by the First Partner and Second Partner, the same shall be utilized for payment of service charges to the Second Partner and for any other purposes. The entire profit from the project, after payment of charges to the Second Partner, shall belong to the First Partner and his relatives.
20. If for any reason the parties are unable to continue for the mutual benefit and interest due to any reason whatsoever, the applicant and non-applicant no.1 shall resolve their issue amicably under friendly consultation and if they failed to amicably resolve their issues within a period of 60 days, the issues concerning this MOU and matters arising out of it, shall be referred to the sole arbitration of Shri Jitendra Mehta, Architect of the project. The place for arbitration shall be Indore and the language shall be Hindi and English."
2. The factual backdrop culled from the clauses of the agreement/MOU giving rise to the dispute are to the effect that the 8 A.C.No.9/2020 first party i.e. relatives, friends and associates of applicant and applicant himself is the owner of land admeasuring 1,876 hectares (2,01,858 sq.ft. Approximately) situated at Khajrana, Indore. It intended to develop township. For the purpose of construction, non- applicant/respondent no.1 was approached and non-applicant agreed to the proposal of the applicant; first party expressing its willingness to undertake the responsibility of constructing the project for the applicant (Clause B).
The non-applicant had agreed to make available required funds to the applicant through banks on the basis of security of land as collateral security (Clause C).
To make the project functional, parties agreed to undertake the project in the form of a company where the applicant and non- applicant shall have equal share capital in the ratio of 50:50% (Clause 8).
The applicant and his relatives shall appoint two directors as their representatives on the Board of the Company and the non- applicant shall also appoint two directors. (Clause 7) The applicant agreed to transfer the land to the company. Both the parties agreed to jointly undertake the project of constructing multistory township on the land.
Clause 2 of the MOU contemplated that entire cost of construction shall be on account of the applicant; first party.
As per Clause 3 of the MOU, non-applicant; second party shall take all necessary steps for constructing the project and Clause 4 has specifically stipulated the prime responsibility of the non- applicant; second party to construct the project.
Clause 10 of the MOU contemplates the charges payable to the non-applicant; second party (supra)
3. It appears that dispute arose between the parties in the matter of carrying out construction activity of the project besides allegations and counter-allegations against each other in the matter of disturbing the financial discipline of the company etc. The applicant vide notice dated 05.11.2019 sent through speed-post to non- applicant/respondent called upon to appoint an arbitrator in terms of 9 A.C.No.9/2020 Clause 20 of the MOU (Annexure A-2 pg 20). The notice though received by the non-applicant on 07.11.2019 (pg 17), but was not replied to. As a result, the instant application under Section 11(6) of the Act of 1996 has been filed.
4. On an objection that the MOU dated 14.09.2009 is under valued and insufficiently stamped, this Court vide order dated 13.07.2020 had directed the Principal Registrar/Tax Officer to give his report in that behalf. The Tax Officer vide note-sheet dated 28.07.2020 upon due consideration submitted that the agreement is insufficiently stamped. Thereafter, the applicant approached the Collector(Stamps) u/S 31 r/W Section 32 of the Indian Stamps Act for adjudication of proper stamp duty. The Collector(Stamps) vide order dated 04.09.2020 directed the applicant to pay the deficit stamp duty (Annexure A-1) filed alongwith I.A. No. 2843/2020. The applicant made payment of Rs. 4,53,680/- on 10.09.2020 towards deficit stamp duty and thereafter a certificate was issued u/S 32 by the Collector(Stamps) on the same date i.e. 10.09.2020 which is on record with I.A. No. 2843/2020 (Annexure A-5).
5. Shri Munshi submits that in view of the foregoing facts, if this Court is satisfied that arbitration clause exists between the parties, this Court may not enter into the merits of the dispute and appoint an independent sole arbitrator, preferably, a retired High Court Judge to adjudicate upon the dispute u/S 11(6) of the Act of 1996, regard being had to various Clauses of the agreement.
The aforesaid submission is advanced for the reason, the person nominated as Sole Arbitrator under Clause 20 of the MOU Shri Jitendra Mehta who is the Architect of the project in dispute disqualified himself to arbitrate the dispute in the light of the provision of Clause 1 of the Schedule V referable to Section 12 (sub- section 5) which reads as under:
"Arbitrator's relationship with the parties or counsel
1. The arbitrator is an employee, consultant, advisor or has any other past 10 A.C.No.9/2020 or present business relationship with a party."
To bolster his submissions, learned counsel for the applicant relied upon the judgment of Hon'ble Supreme Court reported in 2019(5) SCC 755[Bharat Broadband Network Lt. Vs. United Telecoms Ltd.].
6. Per contra, Shri Atre, made following submissions opposing reference of dispute to sole arbitrator:
I. The original agreement/MOU dated 14.09.2009 is not filed. Therefore, in terms of the scheme framed by Hon'ble Chief Justice under Clause IV thereof, this Court may not invoke jurisdiction u/S 11(6) of the Act of 1996.
II. The agreement/MOU dated 14.09.2009 has been cancelled vide cancellation agreement dated 26.09.2011. Hence, once an agreement has been cancelled, no dispute whatsoever allegedly raised based thereupon can be countenanced for resolution thereof through arbitration by appointment of an Arbitrator u/S 11(6) of the Act of 1996.
To bolster his submissions, learned counsel relied upon the judgement of Hon'ble Supreme Court reported in 2013(10) SCC 535[Young Achievers Vs. IMS Learning Resources Pvt. Ltd].
III. For want of availability of original agreement/MOU, the Collector (Stamps) could not have entertained (i) the application u/S 31/32 of the Indian Stamps Act and thereafter upon deposit of deficit stamp duty, (ii) issued certificate on a piece of paper, whereas he was obliged to make endorsement regarding payment of deficit stamp duty on the original agreement itself.
For the said purpose, learned counsel relied 11 A.C.No.9/2020 upon the judgments of Hon'ble Supreme Court reported in 2020(4) SCC 612 and 2021SCC Online183[Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar & Others Vs. Bhaskar Raju & Brothers, 2021 SCC Online SC 13[N.N. Global Mercantile Pvt. Ltd. Vs. Indo Unique Flame Limited and AC No. 1/2017[Rahbaryar Khan Vs. M/s Idea Cellular Limited & Another].
(IV) Since allegations of fraud and forgery have been made in the context of cancellation of agreement by the applicant, no arbitration can be taken recourse to in the light of the judgments of Hon'ble Supreme Court reported in 2016(10) SCC 386[A. Ayyasamy Vs. A. Paramasivam & Others], 2018(15)SCC 678[Ameet Lalchand Shah Vs. Rishabh Enterprises] and AC No.1/2009 decided on 25.01.2018[OTG Global Finance Limited Vs. Corporation(Area) Basketball Trust & Another].
With the aforesaid submissions, learned counsel for the non applicant prays for dismissal of the application for appointment of sole arbitrator.
7. In rejoinder Shri Munshi submits that Rule 2 of the Scheme for Appointment of Arbitrators by The Chief Justice of Madhya Pradesh High Court, 1996 contemplates as under:
"2. Submission of request. - The request under sub-section (4) or sub-section (5) or sub-section (6) of Section 11 of the Act shall be made in writing, signed and verified and accompanied by:-
(a) the original arbitration agreement or a duly certified copy thereof;
(b) the names and addresses of the parties to the arbitration agreement;
(c) the names and addresses of the arbitrators, if any already appointed;12 A.C.No.9/2020
(d) the name and address of the person or institution, if any, to whom or which any function has been entrusted by the parties to the arbitration agreement under the appointment procedure agreed upon by them;
(e) the qualifications required, if any, of the arbitrators by the agreement of the parties.
(f) a brief written statement describing the general nature of the dispute and the points at issue;
(g) the relief or remedy sought; and
(h) an affidavit, supported by the relevant documents to the effect that the condition to be satisfied under sub-section (4) or sub-section (5) or sub-section (6) of Section 11 of the Act, as the case may be, before making the request has been satisfied and how it has been so satisfied."
There is no dispute about execution of MoU/agreement and clauses incorporated therein including the arbitration clause. The alleged cancellation of MoU on 26/09/2011 bearing a singular clause that the parties have settled claims itself has given rise to a dispute which is required to be settled through arbitration clause 20.
The contention of non-applicant that unless the original agreement is accompanied with the application u/S 11(6) of the Act of 1996, the jurisdiction of this Court cannot be invoked u/S 11(6) of the Act is misdirected and misconceived.
To bolster his submission, learned counsel relies upon the judgments of Hon'ble Supreme Court reported in AIR(2007) SC 2961 para 21[Bharat Sewa Sansthan Vs. U.P. Electronic Corpn. Ltd.] and AIR 1997 Calcutta 397 para 6[ITC Classic Finance Ltd. Vs. Grapco Mining and Co. Ltd. And another].
It is further submitted that no fraud or forgery has been pleaded in relation to MOU/agreement dated 14.09.2009. Instead the allegations are in respect of cancellation of agreement dated 26.09.2011 where applicant's signatures have been forged. The said act of respondent is intended with calculated intention only to scuttle or wriggle out of the rigors of the original agreement dated 14.09.2009 to the grave prejudice of the applicant.
For instance, learned counsel submits that the applicant could not have recorded his satisfaction towards full and final settlement of the dispute after giving the entire land admeasuring 2,01,858 13 A.C.No.9/2020 sq.ft(approx) to the company with no payment either in the form of consideration of land or profit arising therefrom. Moreover, the applicant has already filed criminal case against the non-applicant registered at Crime Case No. 0198/2021 dated 30.03.2021 at Police Station Kanadia, Indore. The non-applicant is now undergoing jail incarceration.
Learned counsel has also relied upon the judgment of Hon'ble Supreme Court in Civil Appeal No. 2402/2019 (para 37)[Vidya Dorliya & Ors. Vs. Durga Trading Corporation].
Learned counsel also submits that even if the agreement dated 14.09.2009 is alleged to have been cancelled on 26.09.2011, the arbitration clause contained in the original agreement is not wiped out and it exists for resolution of dispute between the parties. He relied upon the judgments of Hon'ble Supreme Court reported in 2009(5)SCC 182 para 37[N. Srinivasa Vs. Kuttukaran machine tools Limited], 2009(10)SCC 103 para 18[Branch Manager, Magma Leasing and Finance Limited & Ors. Vs. Potluri Madhavilata and Ors.] and 2007(5) SCC 692 para 5.1 and 6[National Agriculatural Co-op Marketing Federation India Ltd. Vs. Gains Trading Ltd.].
He further submits that Section 48(B) of the Indian Stamp Duty Act contemplates that the Collector(stamps) can also endorse the payment of deficit stamp duty and it is not necessary that original agreement should be produced for the reason, the object of the Act is to ensure protection of revenue. Moreover, in the absence of dispute about existence of the MOU/agreement dated 14.09.2009, even before this Court such objection does not lie in the mouth of non- applicant to resist appointment of an Arbitrator u/S 11(6) of the Act of 1996.
With the aforesaid submission, learned counsel for the applicant prays for appointment of sole Arbitrator.
8. Heard.
9. Following questions arise for determination:
(i) Whether the notarized agreement / MoU 14 A.C.No.9/2020 dated 14/09/2009 (Annexure P/10) can be acted upon by this Court while exercising the powers under section 11(6) of the Act?
(ii) Whether the arbitration clause 20 in the agreement / MoU dated 14/09/2009 seizes to exist after cancellation vide cancellation agreement dated 26/09/2011 as alleged by the respondents?
(iii) Whether in absence of endorsement on the instrument (agreement / MoU dated 14/09/2009) by the Collector certifying that total (full) duty with which the instrument has been charged has been paid render the instrument inadmissible in evidence for the purpose of exercising of powers under section 11(6) of the Act by this Court?
(iv) Whether the named arbitrator Shri Jitendra Mehta who is the Architect of the project in clause 20 of the agreement / MoU dated 14/09/2009 disqualified himself under clause (i) of the Fifth Schedule referable Section 12(1)(b) of the Act, 1996?
(v) Whether on facts and in the circumstances of the case it is expedient to appoint sole arbitrator for resolution of disputes existing for the last number of years between the parties?
10. One of the main objects of the Act, 1996 is to minimize the supervisory role of the Courts in the arbitral process and the same has been given statutory recognition as mandated under section 5 of 15 A.C.No.9/2020 the said Act providing extent of judicial intervention; no judicial authority shall intervene except where so provided in this Part.
Conjoint reading of Section 5 and 16 indicate various facets or nature of dispute emerging from a commercial agreement between parties including the issue as to whether the substantive contract was voidable at the instance of either party are required to be resolved through arbitration.
Newly added sub-Section 6A of Section 11 also reinforces legislative policy of the Act, 1996; minimal judicial interference and the same provides as under :-
"6-A.- The Supreme Court or, as the case may be, the High Court, while considering any application under sub-Section (4) or sub-Section (5) or sub- Section (6), shall notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement."
11. Question (i) Sub-rule (a) of rule 2 of the Scheme for appointment of Arbitrator framed by the Hon'ble Chief Justice of M.P., High Court Rules, 1997 provides that the application filed under sub-sections (4) or (5) or (6) of section 11 of the Act shall be accompanied by the original arbitration agreement or certified copy thereof...
The applicant while filing the application under section 11(6) of the Act has attached notarized copy of the agreement / MoU dated 14/09/2009. The applicants have filed an application vide I.A.No.878/2020 seeking leave of the Court to dispense with filing of original agreement / MoU or certified copy of the agreement dated 14/09/2009, on the premise that the original document is available with the non-applicants.
In paragraph 2.1 of the reply to the application under section 16 A.C.No.9/2020 11(6) of the Act, the respondents have submitted as under:
"MoU dated 14/09/2009 is on stamp paper of Rs.100/- only and there is no dispute about it."
That apart, the entire reply is with reference to and in the context of the agreement / MoU dated 14/09/2009 denying either existence of disputes or allegations made in the application or claim raised but, there is no denial of factum of execution of agreement / MoU dated 14/09/2009.
It is the case of the applicant that the original agreement is not available with him and the same is in the possession of non- applicants. The agreement / MoU has also not been disputed by the non-applicants during the proceedings under section 9 of the Act before the commercial Court, Indore. The notarized document undisputedly bears the signature of the applicant and the non- applicants.
The natural corollary is the existence of the agreement / MoU dated 14/09/2009 containing the arbitration clause amongst others.
The purpose underlying the aforesaid Rule is to ensure existence of agreement containing the arbitration clause and to rule out scope of dispute about existence of such agreement between parties and to pave the way for invoking jurisdiction under Section 11(4) or 11(5) or 11(6) of the Act as the case may be by the Hon"ble Chief Justice or his designate.
In the opinion of this Court, substantial requirement of sub- rule (a) of rule 2 of the Scheme For Appointment of Arbitrators by the Chief Justice of High Court of Madhya Pradesh has been fulfilled in the obtaining facts and circumstances. Therefore, the objection in that behalf is held to be devoid of substance and hereby repelled. The view taken by this Court while accepting the notarized agreement / MoU dated 14/09/2009 on record for invoking the jurisdiction under section 11(6) of the Act is fortified by the judgments of the Hon'ble Supreme Court in the cases of Bharat Sewa Sansthan Vs. U.P.Electronic Corporation Limited AIR 2007 SC 2961 and ITC Classic Finance Limited Vs. Grapco Mining and Co. Limited 17 A.C.No.9/2020 AIR 1997 Calcutta 397.
In the case of Bharat Sewa Sansthan (supra), the Hon'ble Supreme Court has observed as under:
".....It was the specific case of the respondent- Corporation before the High Court that the original agreements are in the possession of the appellant-Sansthan, whereas the stand of the appellant-Sansthan was that the original agreements are not in its possession. The respondent-Coporation placed on record of the trial Court photocopies of the agreements along with an application under Section 8(1) of the Arbitration Act. The High Court, in our view, has rightly held that the photocopies of the lease agreements could be taken on record under section 8 of the Arbitration Act for ascertaining the existence of arbitration clause. Thus, the dispute raised by the appellant-Sansthan against the respondent-Corporation in terms of the arbitration clause contained in the lease agreement is arbitral. "
Accordingly, question (i) is answered in the negative and in favour of the applicant.
12. Question (ii) This question need not detain this Court for long. Even assuming the agreement / MoU dated 14/09/2009 has been cancelled vide cancellation agreement dated 26/09/2011 [though this cancellation agreement has been denied by the applicant], the arbitration clause 20 of the agreement / MoU dated 14/09/2009 still exists and can be pressed into service for invoking jurisdiction of this Court under section 11(6) of the Act; in view of judgments of the Hon'ble Supreme Court in the cases of National Agricultural Co-op Marketing Federation Ltd., Vs. Gains Trading Ltd., [(2007) 5 SCC 692 paragraph 6], N. Srinivasa Vs. Kuttukaran Machine Tools Ltd., [(2009) 5 SCC 182 (Paragraph
37)] and Branch Manager, Magma Leasing and Finance Limited and others Vs. Poluri Madhavilata and others, [(2009)10 SCC 103 paragraphs 18 & 19].
The contention of the learned counsel for the respondents that 18 A.C.No.9/2020 as fraud has been alleged against the respondents, therefore, the parties should be relegated to the Court of competent jurisdiction and this Court may refrain from appointing an arbitrator under section 11(6) of the Act, in the opinion of this Court is in despair and more of frustration than of substance for the reason that there is no dispute about the factum of existence of the agreement / MoU between the parties which contains the arbitration clause. Further, the allegation of fraud is in regard to cancellation agreement dated 26/09/2011 in the matter of signature of the applicant, therefore, the same shall have no bearing upon survival of arbitration clause under MoU dated 14/09/2009 which enables this Court to invoke jurisdiction under section 11(6) of the Act.
The judgments cited by learned counsel for the respondents reported in 2013(10) SCC 535[Young Achievers Vs. IMS Learning Resources Pvt. Ltd], 2016(10) SCC 386[A. Ayyasamy Vs. A. Paramasivam & Others], 2018(15)SCC 678[Ameet Lalchand Shah Vs. Rishabh Enterprises] & 2019(8) SCC 710Civil Appeal No. 2402/2019 (para 37)[Vidya Dorliya & Ors. Vs. Durga Trading Corporation] are of no assistance to the respondents as facts in hand are distinguishable.
The Hon'ble Supreme Court in the case of A. Ayyasamy (supra) has held as under:
"25. In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. It is only in those cases where the Court, while dealing with Section 8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of 19 A.C.No.9/2020 fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non- arbitrable subjects are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts, i.e. public for a, are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect, viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected."
(Emphasis supplied) 20 A.C.No.9/2020 The observations of Hon.'ble Justice (Dr.) D.Y.Chandrchud while concurring with Hon'ble Justice (Dr.) A.K.Sikri with the duty of the Court are as under:
"48. The basic principle which must guide judicial decision making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy."
Paragraphs 53 and 56 are apt and relevant; quoted below:
53. The Arbitration and Conciliation Act, 1996, should be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration.
Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle.
56. The legal position has been succinctly summarized in International Commercial Arbitration by Gary B Born[31] thus:
".....under most national arbitration regimes, claims that the parties' underlying contract (as distinguished from the parties' arbitration clause) was fraudulently induced have generally been held not to compromise the substantive validity of an arbitration clause included in the contract. The fact that one party may have fraudulently misrepresented the quality of its goods, services, or balance sheet generally does nothing to impeach 21 A.C.No.9/2020 the parties' agreed dispute resolution mechanism. As a consequence, only fraud or fraudulent inducement directed at the agreement to arbitrate will, as a substantive matter, impeach that agreement. These circumstances seldom arise: as a practical matter, it is relatively unusual that a party will seek to procure an agreement to arbitrate by fraud, even in those cases where it may have committed fraud in connection with the underlying commercial contract".
In fact, the plea of fraud or forgery may be countenanced,if the same was practized as inducement for entering into an agreement to arbitrate which may render the agreement containing arbitration clause vulnerable and may not be acted upon depending upon facts of each case. This is not the case in hand.
Even otherwise, the alleged cancellation agreement dated 26/09/2011 though purportedly records satisfaction of parties as regards rights and obligations of the parties under the original agreement / MoU dated 14/09/2009, in the singular clause; 'that, the MOU referred to above is hereby Revoked and all the three parties have settled their accounts mutually and now none of the parties have to recover anything from any one' does not contain details of apportionment of profits and loss (if any) etc., and did not prescribe terms upon which the parties have recorded the alleged satisfaction, whereas the original agreement / Mou dated 14/09/2009 under clause (10) provides for details of percentage of charges payable to the non- applicant; second partner in a phased manner and in clause 11 provides for apportionment of profit by the first partner (applicant) after deducting the charges enumerated therein. Therefore, the singular skeleton clause contained in the cancellation agreement is mere sham, prima-facie unrealistic. The forgery alleged is in fact in the realm touching upon the internal affairs of the parties inter se and has no implication on public domain In fact, the arbitrator is required to look into the disputes arising out of MoU dated 14/09/2019 in the context of grievances raised by the applicant. Therefore, under such circumstances, the arbitration clause in the main agreement / MoU dated 14/09/2009 22 A.C.No.9/2020 cannot be avoided and parties are required to be relegated for arbitration.
Accordingly, question (ii) is answered in the negative and in favour of the applicant.
13. Question (iii) Upon receipt of notice by this Court, the respondents (1) & (2) raised a preliminary objection that the agreement / MoU dated 14/09/2009 is not sufficiently stamped.
This Court on 13/07/2020 directed the Principal Registrar of this Bench to examine the arbitration agreement and submit his report if the same is properly stamped.
The Principal Registrar vide office note dated 28/07/2020 submitted report to the effect that the agreement / MoU is deficiently stamped on the executed MoU, therefore, it was found to be not properly stamped.
On 29/07/2020, this Court adjourned hearing affording opportunity to both parties to address on the aspect of stamp duty after obtaining copy of the opinion of the Principal Registrar.
On 17/08/2020, the counsel for the applicant questioned the opinion of Principal Registrar in the written objection / rebuttal affidavit and brought to the notice of the Court that the applicant had already filed an application before the Collector (Stamps) under section 31 of the Indian Stamp Act, 1899 (hereinafter referred as "Stamp Act") and the same is pending before the said authority. The operative portion of the order dated 17.08.2020 reads as under:
"Learned counsel for applicant has filed written objection/rebuttal affidavit dated 7 th August, 2020 questioning the opinion of the Principal Registrar as also disclosing that the applicant has already filed an application before the Collector of Stamps under Section of Stamp Act on 29/07/2020 and the matter is pending consideration before the Collector of Stamps.
In view of the fact that the issue relating to sufficiency of stamp duty on the arbitration agreement is being examined by the Collector, it would be an unnecessary exercise at this stage to go into that issue. The respondent will have an opportunity to raise all possible legal objection in 23 A.C.No.9/2020 the pending matter before the Collector of Stamps. The Collector of Stamps is directed to decide the pending application expeditiously."
Thereafter, on the application of the applicant dated 29/07/2020 (Annexure A/5), the Collector (Stamps) had passed an order dated 04/09/2020 under section 31 of the Stamp Act (Annexure A/7) directing the applicant to pay stamp duty on the market value of the land; Rs.2,26,84,000/-, at the rate of 2%, i.e., Rs.5,33,600/-.
It appears that there was arithmetical error. Therefore the Collector (Stamps) had passed an addendum vide order dated 10/09/2020 (Annexure A/2) and directed the applicant to pay stamp duty to the tune of Rs.4,53,680/- at the rate of 2% on the market value of land, Rs.2,26,84,000/-.
The aforesaid amount of stamp duty of Rs.4,53,680/- was deposited through e-payment. The copies of computerized receipts dated 06/09/2020 & 10/09/2020 are on record as Annexure A/3 colly.
The Collector (Stamps) has issued a certificate dated 10/09/2020 under section 32 of the Stamp Act as regards payment of stamp duty. A copy thereof is on record as Anenxure A/5.
On 07/09/2020 this Court recorded statement of counsel for the applicant that the Collector (Stamps) passed an order under section 31 of the Stamp Act on 04/09/2020 and the applicant has deposited the deficit stamp duty.
Time as prayed by learned counsel was granted to bring on record copies of the relevant documents.
On 15/09/2020, the certificate of deposit of the deficit stamp duty dated 10/09/2020 has already been brought on record as recorded in the order sheet.
Through I.A.No.2843/2020 the aforesaid documents have been brought on record on 11/09/2020 supported by an affidavit of the applicant.
It appears that on 22/09/2020 the counsel for the respondents stated that an appeal will be preferred within two weeks against the order of the Collector dated 0409/2020 under section 31 and the certificate issued under section 32 of the Stamp Act.
24 A.C.No.9/2020At this stage, it is relevant to mention that adjudication as to proper stamps was done by the Collector under section 31 and the certificate was issued under section 32 of the Stamp Act (under Chapter III) the instrument was not impounded under section 33 of the Stamp Act (under Chapter IV).
Section 56 of the Stamp Act falls under Chapter VI dealing with reference and revision & inter alia provides by way of three sub-sections as under:
"56. Control of, and statement of case to, Chief Controlling Revenue Authority .- (1) The power exercisable by a Collector under Chapter IV and Chapter V and under clause (a) of the first proviso to section 26 shall in all caes be subject to the control of the Chief Controlling Revenue Authority.
(2) If any Collector, acting under section 31,section 40 or section 41, feels doubts as to the amount of duty with which any instrument is chargeable, he may draw up a statement of the case, and refer it, with his own opinion thereon, for the decision of the Chief Controlling Authority.
(3) Such authority shall consider the case and send a copy of its decision to the Collector who shall proceed to assess and charge the duty (if any) in conformity with such decision."
A careful reading of the aforesaid provisions suggest that under sub-section (1), the power exercisable by the Collector under Chapter IV and Chapter V and under clause (a) of the first proviso to section 26 shall in all cases be subject to the control of the Chief Controlling Revenue Authority.
Further, the power exercisable under section 31 (relevant for the purpose) is not subject to the control of the Chief Controlling Revenue Authority instead if the Collector is doubtful about the amount of duty with which the instrument is chargeable, he may 25 A.C.No.9/2020 draw up a statement of the case, and refer it, with his own opinion thereon, for the decision of the Chief Controlling Revenue Authority.
In the instant case, the order of the Collector (Stamps) under section 31 and the certificate issued under section 32 of the Stamp Act cannot be subject matter of review before the Chief Controlling Revenue Authority, i.e., Board of Revenue.
The Collector in fact becomes functus officio after an order is passed by him under section 31 of the Stamp Act and the order attains finality, unless; he takes recourse to sub-section (2) of section 56 of the Stamp Act.
The view of this Court is fortified by the judgments in the cases of Government of Uttar Pradesh and others Vs. Raja Mohammad Amir Ahmad Khan, AIR 1961 SC 787 and State Bank of Hyderabad Vs. Government of Andhra Pradesh, AIR 2005 AP 317.
Learned counsel for the respondents contends that even if the applicant has deposited the deficit stamp duty to the tune of Rs.4,53,680/- still the document; agreement / MoU dated 14/09/2009 is not admissible in evidence as there is no endorsement to the same effect on the instrument as contemplated under section 32(b) read with sub-section (3) of section 32 of the Stamp Act as the certificate issued on plain paper is not a certificate.
There is no dispute that this Court on 17/08/2020 had directed the Collector of Stamps to decide the application filed by the applicant under section 31 of the Stamp Act as quoted above. There was no objection or resistance on the question of jurisdiction to exercise the substantive power under section 31 of the Stamp Act by the said authority before this Court or even otherwise.
There is also no dispute that upon adjudication of deficit stamp duty vide order dated 04/09/2020 read with addendum order dated 10/09/2020 (Annexure A/5); the applicant has deposited the deficit stamp duty to the tune of Rs.4,53,680/- in the State Treasury by way of e-payment and the computer generated receipts have been brought on record and the certificate of deposit of stamp duty bears signature of Collector of Stamps with reference to the order passed by him.
26 A.C.No.9/2020At this stage, it is relevant to reiterate that the object of the Stamp Act is to secure revenue for the State. Three-folds object in the scheme of the Act are as under:
(a) to raise the revenue by taking instruments;
(b) to penalise by rendering an unduly stamped instrument, to be inadmissible in evidence and
(c) also to provide for penalty against evasions of stamp duty;
(i) by impounding of instruments;
(ii) imposing penalty under section 35; and
(iii) by prosecuting defaulter for evasion.
[Chiranjilal (Dr.) Vs. Hari Das (D) by L.Rs. (2005) 10 SCC 746, 755 relied upon.
Assuming that the instrument, agreement / MoU dated 14/09/2009 itself has not been endorsed by the Collector (Stamps). This by itself shall not render the document inadmissible in evidence as deficit stamp duty has been paid by the applicant on 06/09/2020 and 10/09/2020 (supra) pursuant to the order passed by the Collector of Stamps on 04/09/2020 under section 31 of the Stamp Act & addendum dated 10/09/2020 (supra). As a matter of fact, the requirement of section 32 of the Stamp Act is that of issuance of certificate by the Collector upon payment of proper stamp duty on the instrument to make it admissible in evidence; instead of endorsement on the document, if certificate has been issued separately, the same shall not render the instrument inadmissible in evidence.
The certificate at issue (supra) has been issued by the Collector of Stamps in consonance with the order passed by the Collector of Stamps under section 31 of the Stamp Act after adjudication of the proper stamp duty payable on an instrument. The provisions of Section 31 and 32 of the Stamp Act in fact are to be read conjointly. The certification u/S 32(2) of the Stamp Act is that the stamp duty paid in terms of the order passed u/S 31 of the Act. Therefore, as a matter of fact, it is a machinery provision as upon certification, the 27 A.C.No.9/2020 document becomes admissible in evidence.
Same is the case in hand where the certification issued is in relation to the payment of deficit stamp duty of Rs. 4,53,680/-.
Hence, question (iii) is answered in the negative and in favour of the applicant.
As a matter of fact the Hon'ble Supreme Court in the case of N N Global Mercantile Pvt.Ltd. Vs. Indo Unique Flame Ltd. and others, 2021 SCC Online SC 13; a Bench of three Hon'ble Judges in Para 80, 81, 82 and 83, has taken a view that judgment in SMS Tea Estate Pvt.Ltd. Vs. Chandmari Tea Co.Pvt.Ltd., (2011) 14 SCC 66 does not lay down the correct law on two issues; (i) that an arbitration agreement in a unstamped commercial contract cannot be acted upon; or is rendered unenforceable in law; and (ii) that an arbitration agreement would be invalid where contract or instrument is viodable at the option of a party, such as under Section 19 of the Indian Contract Act, 1872;
"127. We consider it appropriate to refer the following issue, to be authoritatively settled by a constitution Bench of five Judges of this Court :
"Whether the statutory bar contained under Section 35 of the Indian Stamp Act, 1899 applicable to instruments chargeable to Stamp Duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to the payment of stamp duty, as being non-existent, unforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument ?"
AND overruled the judgment in the case of SMS Tea Estate Pvt.Ltd. (supra) on the aforesaid two issues.
It may be stated that the Hon'ble Supreme Court in SMS Tea Estate Pvt.Ltd. (supra) inter alia has ruled if the agreement/MOU contains arbitration clause is not stamped as required under the Stamps Act or insufficient stamped, it is rendered inadmissible in evidence under Section 33 and 35 of the Stamps Act and, therefore, 28 A.C.No.9/2020 such an agreement containing arbitration clause cannot be taken cognizance of by the Court while invoking jurisdiction under Section 11 of the Act, 1996.
14. Question (iv) There is no dispute between the parties that Jitendra Mehta is the architect of the project who has been named as arbitrator under clause 20 of the agreement / MoU dated 14/09/2009. In view of clause (1) r/W clause (5) of V Schedule referable to Section 12(1)(b) as rightly contended by learned counsel for the applicant, Jitendra Mehta disqualifies himself to be an Arbitrator in the instant case.
Hence, question (iv) is answered in affirmative.
15. Question (v) For the foregoing reasons, the instant arbitration case succeeds and hereby allowed.
Consequently, this AC No.9/2020 is allowed. This Court hereby appoints Hon'ble Shri Justice K.K.Lahoti as Arbitrator. Both the parties are directed to appear before Hon'ble Shri Justice K.K.Lahoti on his given address viz. on 8th September, 2021 or any other date convenient to the arbitrator.
The arbitrator's fee, secretarial expenses and other expenses shall be discussed by both parties with arbitrator and both parties shall bear the expenses 50:50.
16. Registry is directed to communicate the order passed by this Court to Hon'ble Shri Justice K.K.Lahoti; the Arbitrator with a request to take up the matter on arbitration.
(Rohit Arya) Judge 23-08-2021 sh/-
Digitally signed by SEHAR HASEEN Date: 2021.08.23 17:47:18 +05'30'