Reflections on Existence-Unstamped Agreements After Garware Wall Ropes

There has been a flurry of interpretative opinion in respect of the Supreme Court’s judgment in Garware Wall Ropes¹. As we shall see, one interpretation has raised the well-founded concern that a failure to pay stamp duty on a document invalidates the entire underlying contract, including the arbitration clause.²

 

From a reading of the statute as well as case law, it is clear that such a view would be incorrect, as the bar under the Stamp Act can extend only to the admissibility of the document, and does not affect the enforceability of the contract—what I will refer to for convenience as an “evidentiary bar”. What then of comments in Garware Wall Ropes¹ that an unstamped arbitration clause does not “exist”? I will argue that these findings when read in context, are clearly restricted to a Section 11 application, in which the term “existence” has a peculiar and specific meaning that does not include whether the agreement is “null and void”.

 

This theoretical framework that the Stamp Act imposes an “evidentiary bar” allows a court/tribunal to grant interim relief on an unstamped document, while not detracting from the recent decisions of the Supreme Court. The reasoning is straightforward a Section 11 application requires a “final” determination for which a document has to be “admitted into evidence”, while an application for interim relief is decided before the stage of evidence. In the former case, the evidentiary bar would apply; but in the latter, the stage of evidence would not yet have arrived, leaving a court/tribunal free to grant interim relief on an unstamped document.

 

THE STAMP ACT IMPOSES AN “EVIDENTIARY BAR”

There are a number of State legislations as well as an Act of the Indian Legislature i.e. the Indian Stamp Act, 1899, regulating the imposition of stamp duty. In these statutes, authorities (judicial or otherwise) are proscribed from considering unstamped documents. These proscriptions are all similar to Section 35 of the Stamp Act, which provides that:

 

1. 35. Instruments not duly stamped inadmissible in evidence, etc.—No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped : Provided that—

(a) any such instrument shall, be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;

(b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it;

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(d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a criminal court, other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1898);

(e) nothing herein contained shall prevent the admission of any instrument in any court when such instrument has been executed by or on behalf of the Government or where it bears the certificate of the Collector as provided by section 32 or any other provision of this Act.

 

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*The article has been published with kind permission of Eastern Book Company. Cite as (2021) 1 SCC J-81

^† Advocate, practises at the Bombay High Court in the Chambers of Mr Navroz Seervai. He would like to thank Ms Gulnar Mistry for her comments on earlier drafts of this paper.

¹Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209.

² See the arguments of the Respondents in IL & FS Financial Services Ltd. v. SKIL Infrastructure Ltd., 2020 SCC OnLine Bom 4862 at paras 53 and 54; G.T. Dunna and J.Gupta, “Existential crisis of Section 11(6A) of the Indian Arbitration Act?-Part-1” Kluwer Arbitration Blog, <http : //arbitrationblog.kluwerarbitration.com/2019/06/11/existential-crisis-of-section-116a-of-the-indian-arbitration-act-parti/?doing_wp_cron=1593111752.2680730819702148437500>.#

³Hindustan Steel Ltd. v. Dilip Contruction Company, (1969) 1 SCC 597.

⁴Shyamal Kumar Roy v. Sushil Kumar Agarwal, (2006) 11 SCC 331.

⁵Lachmi Narayan Agarwalla v. Braja Mohan Singh, 1924 SCC OnLine PC 34 : ILR 1925 Pat 34 and Braj Mohan Singh v. Lachmi Narain Agarwala, 1920 SCC OnLine Pat 147 : 58 IC 99; Jagannath Rahatgir v. Deokinandan, 1915 SCC OnLine Cal 260 : 29 IC 671.

⁶1952 SCC OnLine All 201 : ILR (1952) 2 All 984.

⁷SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66.

⁸ Recently in Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram v. Bhaskar Raju & Bros., (2020) 4 SCC 612, the Supreme Court reiterated SMS Tea Estates, (2011) 14 SCC 66. It did not however deal with Section 11(6-A) and Garware, (2019) 9 SCC 209, possibly because it considered an order passed prior to the introduction of Section 11(6-A).

⁹Coastal Marine Construction and Engg. Ltd. v. Garware Wall Ropes Ltd., 2018 SCC OnLine Bom 541.

¹⁰Garware case, 233, para 22.

¹¹A. Bapiraju v. District Registrar, Registration and Stamps, 1966 SCC OnLine AP 122 : AIR 1968 AP 142; Board of Revenue v. N. Narasimhan, 1961 SCC OnLine Mad 58 : AIR 1961 Mad 504; Superintendent of Stamps v. Breul & Company, 1944 SCC OnLine Bom 2 : AIR 1944 Bom 325, IRC v. G. Angus and Co., [1889] 23 Q.B.D. 579 (CA).

¹²1936 SCC OnLine Cal 275 : AIR 1937 Cal 765.

¹³Id, SCC OnLine Cal.

¹⁴Shriram EPC Ltd. v. Rioglass Solar SA, (2018) 18 SCC 313, 329.

¹⁵ Section 33, Indian Stamp Act.

¹⁶United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607.

¹⁷SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618.

¹⁸Morpheus Media Ventures (P) Ltd. v. Anthony Maharaj, 2016 SCC OnLine Bom 10040 : (2017) 2 Bom CR 459; IL&FS Financial Services Ltd. v. SKIL Infrastructure Ltd., 2020 SCC OnLine Bom 4862

¹⁹Gautam Landscapes (P) Ltd. v. Shailesh S. Shah, 2019 SCC OnLine Bom 563.

²⁰Id., para 68.

²¹Id., para 47.