Court Can Appoint Independent Arbitrator Only After Resorting To The Procedure In Arbitration Agreement

In CIVIL APPEAL NO(s). 3303 OF 2019, UNION OF INDIA vs PARMAR CONSTRUCTION COMPANY, the lease agreement has arbitration clause but the agreement was not stamped. So question was raised as to the effect of an arbitration clause contained in a contract which requires to be stamped. The Supreme Court observed that as per judgment in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., it has been already decided that while arbitration clause in an agreement is to be treated as a independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument, and further an arbitration agreement in an unregistered but compulsorily registerable document can be acted upon and enforced for the purpose of dispute resolution by arbitration, however for a unstamped lease deed, which contains an arbitration clause, the provisions of the Indian Stamp Act require the Judge hearing the Section 11 application to impound the agreement and ensure that stamp duty and penalty (if any) are paid thereon before proceeding with the Section 11 application. However, the question now remained whether Section 11(6A), which has been introduced by way of the Amendment Act, 2015, has removed the basis of this judgment, so that the stage at which the instrument is to be impounded is not by the Judge hearing the Section 11 application, but by an arbitrator who is appointed under Section 11, as has been held by the impugned judgment.

The Supreme Court going through various judgements and the Law Commission reports decided that it is clear, therefore, that the introduction of Section 11(6A) does not, in any manner, deal with or get over the basis of the judgment in SMS Tea Estates (supra), which continues to apply even after the amendment of Section 11(6A). Therefore, the court can act upon the agreement as well as the arbitration clause contained in it only after proper stamp duty and penalty (ir any) is paid, as a result the various powers provided to an arbitrator under the Arbitration Act also does not come into play till such time.