Authored By: Niket Aman
Citation: MANU/SC/0014/2021 [Civil Appeal Nos. 3802-3803/2020]
Date of Judgement: 11 January 2021
Division Bench: Dr D.Y. Chandrachud, Indu Malhotra, and Indira Banerjee, JJ.
Court: Supreme Court of India
Introduction
The Arbitration and Conciliation Act came into existence in the year 1996, and the purpose of this act is to minimize the load of the courts, as already courts have thousands of pending cases that are very serious. Through this the parties don’t have to go to the courts to settle their disputes, they appoint someone who will look after their disputes when it arises. Parties can make a separate agreement for the arbitrator, or they can include it in their partnership deed (both can be possible). The doctrine of separability of the arbitration agreement connotes that the invalidity, ineffectiveness, or termination of the substantive commercial contract, would not affect the validity of the arbitration agreement, except if the arbitration agreement itself is directly impeached on the ground that the arbitration agreement is void ab initio. The case of N.N. Global Mercantile vs. Indo Unique Flame Ltd. in which the agreement of arbitration is not duly stamped then the contract is not valid. This judgment brings a new light to the field of arbitration, and it also means that there will be a friendly environment for the arbitration. The judgment is very essential for the Doctrine of Severability, it is very important for arbitration.
Facts
In this case, the parties Global Mercantile and Indo Unique came together to form a contract of “Transport Work Order” for the washing and transportation of coal. For the work order of Indo Unique form, a bank guarantee in favour of KPCL by State Bank of India (Respondent 2). For transportation of coal, they entered into a sub-contract with N.N. Global Mercantile. Global Mercantile can issue the securities that have been deposited and contained in clause 9 of the sub-contract. If there are any disputes between the parties then they can refer to the arbitration process that has been mentioned in clause 10 of the sub-contract. In favour of the State Bank of India, Global Mercantile furnished the [I1] bank guarantee. One of the events is that the case went to the commercial court of Nagpur that has been presented before the Bombay High Court, through the written petition under articles 226 and 227 of the Constitution of India. The court in its finding mentioned that the commercial court is not right in its judgment, and it has been overthrown and told that the arbitration of agreement is maintainable between the parties and the application under section 8 of Arbitration and Conciliation Act, 1996. The arbitration agreement is unenforceable if the sub-contract is unstamped and it could increase the filling under section 11 of Arbitration and Conciliation Act, 1996, it has been told by High Court in its finding. Not satisfied by the decision of the High Court of Nagpur, the aggrieved party that is Global Mercantile filed a special leave petition before the Supreme Court of India under its constitutional rights.
Key Contentions/Issues Raised
After hearing the argument from both the parties, there are three issues raised[I2] :
I. Whether an arbitration agreement would be enforceable and acted upon, even if the Work Order dated 28-09-2015 is unstamped and un-enforceable under Stamp Act?
II. Whether allegation of the fraudulent invocation of the bank guarantee is an arbitrable dispute?
III. Whether a Write petition Under Articles 226 and 227 of the Constitution would be maintainable to challenge an Ordre rejecting an application for reference to arbitration Under Section 8 of the Arbitration Act?
Arguments
1. Argument presented by the Appellant:
The appellate counsel, filed a civil suit against three respondents before Commercial Court, in which it has been told that the work has not to be allotted under work order by Indo Unique, and no payment has been made for that, or any receipt has been given. [I3] It has also been told that the bank guarantee is not in the terms of the work order, and it is a conditional guarantee linked to the performance of the work. At the request of the counsel for the Appellant, the High Court suspended the operation of its Order for a period of one month from 30.09.2020.
2. Argument presented by the Respondent:
According to the respondent counsel, they raised the objection [I4] on the ground of the civil revision petition before the Bombay High Court that has been challenging the order of the commercial court. [I5]
Judgment
The apex court into its judgment took the Doctrine of Separability and [I6] the Amendment in section 11 of the act tells that the interference of the court should not be in the arbitration process. It has been told by the court that the unstamped agreement cannot be considered and enforced into the arbitration agreement through the case of SMS Tea Estates Pvt. Ltd. Vs. Chandmari Tea Co. Pvt. Ltd. In this judgment, the court looks at the aspects of the non-registered and unstamped document that are unenforceable in the agreement. In the context of the stamp duty, the court said that if the payment of the stamp is not made then the Stamp Act cannot be read in a balanced way with the provision of the Arbitration and Conciliation Act. The court in this case mentioned minimizing the judicial intervention following the amendment of Section 11 of the Act and corresponding legislative overruling of Patel Engg. This court relied on the judgment given by Raveendran and in the SMS Tea case, the conclusion is the same as in the SMS Tea case. It has been told the arbitration clause only be enforceable only when it could be enforceable by law through the case of Garware. It also should be duly stamped to be enforced. For the unstamped agreement, the court has to look into Stamp Act, Contract Act, and Arbitration and Conciliation Act, to be read to find out.
After reading all the provisions the court found out that the arbitration agreement would not render if the stamp duty is not paid on the substantive commercial contract as the agreement contained in it is unenforceable or invalid. The Court then reasoned by adopting a harmonious view of the relevant Stamp Act's required clauses and its duty to implement arbitration agreements. They told the inadequacy in the judgment in Garware so they rely on the doctrine of separability, it has also been mentioned that the stamped duty should be paid and until then the arbitration agreement is not vails in the eyes of law. SMS Tea’s judgment has been overruled by the current case judgment. At the time of the appointment of an Arbitrator the unstamped document can be dealt with, it has been laid down by the court. The court in its finding distinguished the purpose of sections 11 and 9 of the act and told that the cases that have been filed under section 9 should be dealt with quickly and give more importance to that, the Court would first grant ad-interim relief to safeguard the subject-matter of the arbitration and then impound the instrument for payment of the required stamp duty.
On the second question, whether the allegation of fraudulent use of the bank guarantee was arbitral, the Court relied on several of its judgments and found that the courts' earlier views of non-arbitration fraud were completely out of date and obsolete. The court dismissed these concerns, usually based on assessments of extensive evidence, poor arbitrator expertise, inadequacies in arbitration, and misconceptions about public policy, and therefore ruled that fraud was arbitrable.
Precedent Mentioned (Case Laws):
1. Heyman v. Darwins Ltd., 1942
2. Bremer Vulkan Schiffbauund Maschinefabrik v. South India Shipping Corporation, 1981
3. Harbour Assurance v. Kansa General International Insurance, 1993
4. Lesotho Highlands Development Authority v. Impregilo SpA and Ors., 2005
5. Gossent v. Caparelli Cass, 1963
6. Fiona Trust & Holding Corporation v. Privalov, 2007
7. Fill Shipping Co. Ltd. And Ors. v. Premium Nafta Products Ltd. And Ors., 2007
8. Prima Paint Corporation v. Flood & Conklin MFG. CO., 1967
9. Buckeye Check Cashing Inc. v. Cardegnaet, 2006
10. Rent-A-Center, West, Inc. v. Jackon, 2010
11. Preston v. Ferrer, 2008
12. Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., 2019
13. Duro Felguera S.A. v. Gangavaram Port Ltd., 2017
14. Dresser Rand S.A. v. Bindal Agro Chem Ltd., 2006
15. BSNL v. telephone Cables Ltd., 2010
16. PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru Port Trust, 2018
17. A. Ayyasamy v. Parmasivam and Ors., 2016
18. Garware Wall Ropes Limited v. Coastal marine Constructions and Engineering Ltd., 2019
19. SMS Tea Estates Pvt. Ltd. v. M/S Chandmari Tea Co. Pvt. Ltd., 2011
20. SBP & Co. v. Patel Engineering Ltd., 2005
21. United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., 2018
22. Shriram EPC Ltd. v. Rioglass Solar SA, 2018
23. Hindustan Steel Ltd. v. M/S. Dilip Construction Company, 1969
24. Vidya Drolia & Ors. v. Durga Trading Corporation
Case Analysis
This case is made the true nature of the Doctrine of Severability, and it is based on the International landmark judgment of Gosset v. Caparelli, 1963, in which it has been noted that the arbitration agreement is can survive in the situation in which the contract is invalid, this is because of Kompetenz-Kompetenz. There has no clause for the impeachment of the arbitration clause. In addition, the Supreme Court of India mentioned that the arbitration clause can maintain its position despite the contract being not maintainable, this comes under section 16 of UNCITRAL Model Law. Section 3 of the Maharashtra Stamp Act tells that there should not be required to the arbitration agreement should be stamped. Then we can say that this section does not act as an obstacle to the invoking of the arbitration clause as the contract is not stamped. Not only this the Court also took significance into the minimum judicial intervention in the dispute resolution through section 5 of the Arbitration and Conciliation Act, 1996 and also section 16 of this act. In these sections, it has been mentioned that all the matters related to the industry, civil, and partnership matters can easily be resolved by arbitration by the appointment of an arbitrator.
The Supreme Court of India in its second issue told that the judicial pattern has not been followed very well it did not take into consideration the arbitration issue, the judgment given on this is a biased form of interpretation. It can be said that the judgment was given in this case that the parties have the right to invoke the arbitration clause in the unstamped instrument, meantime seeking any middle path and nominating an arbitrator.
whether an arbitration agreement would be unenforceable if the underlying contract was not stamped- the answer to this question is, that the apex court into his precedent told that if the arbitration agreement is not been duly stamped underlying the contract, then according to sections 33 and 35 of the Stamp Act, such contract shall be unenforceable till the payment of the requisite stamp duty.
Conclusion
It can now be said that the Supreme Court of India has given the judgment by considering the Heyman v. Darwins, case established by Lord MacMillan in the English Common Law. This judgment is the pillar of section 16 of the Arbitration and Conciliation Act, 1996. The purpose of this is to give equal rights to both the parties and they don’t have to go to the courts and incur expenses not only money but also time. This case sets an example for the future and encourages the other to go to the arbitration rather than the courts as it is more resourceful and less expensive than the courts, as the courts follow so many procedures and technical processes that take time to finish. This judgment has significance internationally as well as nationally. This judgment also going to benefit the international business venture and also promote doing business with India. The Court has by this judgment made it clear that the disputes regarding the arbitration and many frauds related to that should be dealt with by the arbitration tribunal.
References/ Bibliography:
1. N.N. Global Mercantile Pvt. Ltd. vs. Indo Unique Flame Ltd. and Ors., 2021 MANU/SC/0014/2021,
2. SSC OnLine SC13.
Commentaires