Understanding how 7 Judges of Indian Supreme Court brought to fore Arbitral Autonomy and Minimum Judicial Interference on Indian Arbitration landscape

Can a court entertain a petition under Section 11 of Arbitration and Conciliation Act 1996 on the basis of an arbitration clause contained in a Contract which is chargeable with stamp duty but as such is not paid or partially paid? – was the prime question 7 Judges of the Indian Supreme Court answered 6 months ago. The Court decided many other important legal issues as well which cropped up in pursuit of answering the principal question. It being an unskippable judgment[1] on Indian Arbitration law, I write this article decoding and summarising the detailed analysis done by the Court in its concurring two opinions of 155 Pages.

The above mentioned question over Section 11 came to be raised because of Section 35 of Indian Stamp Act 1899. Below are the reasons for which the Court unanimously ruled that a court at the stage of Section 11 can't bother about payment or otherwise of stamp duty on a Contract which contains the arbitration clause on the basis of which the court has been moved under Section 11. Let's understand these reasons, one by one.

First line of reasoning – A synthesis of Section 16(1), negative aspect of the doctrine of Kompetenz–Kompetenz and Contract's stamping being a jurisdictional issue

The Court looked at the language of Section 16(1) of the Arbitration Act and agreed with the ruling given in Uttrakhand Purv Sainik Kalyan Nigam Ltd Vs Northern Coal Field[2] that an Arbitral Tribunal can very well decide all jurisdictional issues including the challenge to validity and existence of arbitration agreement. Then the Court reached to the next milestone issue – whether the question as to payment of stamp duty on the Contract, which contains arbitration clause and from which disputes arise for adjudication, is a question of jurisdiction? Before answering it, the Court briefly checked what issues can be considered jurisdictional issues. On this aspect, the Court went by the ruling given in NTPC Vs Siemens Atkeingesllchaft[3] that pleas which if accepted by court stop the court from going into the merit-demerit of the claim. Applying this test, the Court observed that if the plea of a Contract being unstamped or insufficiently stamped is accepted, the concerned court won't be able to admit such a Contract in evidence and not be able to adjudicate the disputes arising from the said Contract. Resultantly, the Court held that the issue of non-payment or part payment of stamp duty on a Contract, containing arbitration clause and from which disputes arise, is a question of jurisdiction.

Up to here, the Court reached to this conclusion that the issue concerning payment of stamp duty being a jurisdictional question, an Arbitral Tribunal can decide it.

Inching towards the prime question, the Court explained the doctrine of Kompetenz – Kompetenz (competence – competence) and its negative meaning. It also traced that the said doctrine and its negative connotation have long been recognized as part of Indian jurisprudence. As per the doctrine, an Arbitral Tribunal is – i) competent to rule on its own jurisdiction and ii) competent to decide substantive disputes. Its well recognized negative import is – Courts won't interfere in matters Arbitral Tribunal is competent to deal with until the Tribunal has not decided such matters. Adding this negative purport of the doctrine of Kompetenz – Kompetenz to its intermediate conclusion (which I highlighted in the last paragraph), the Court could figure out the obvious result – an Arbitral Tribunal is supposed to decide the issue concerning payment of stamp duty as it is a jurisdictional question and Courts can't entertain this issue till the Tribunal adjudicate upon the said issue. It essentially means no Court can take up the issue of payment of stamp duty certainly before the constitution of the Arbitral Tribunal. In other words, no Court at pre-referral stage can entertain the question – whether the Contract, containing the arbitration clause and from which the disputes to be resolved arise, has been paid with stamp duty or sufficient stamp duty.

The sweeping Section 5 and its non obstante clause

Section 5 of the Arbitration Act, the Court found to be embodiment of minimum Judicial Interference – the fundamental principle of Arbitration law. The Court went by its literal meaning and held that if Part I of the Arbitration Act deals with any matter, no judicial authority can deal with such a matter at all unless Part I itself allows judicial authority to entertain such a matter. The Court observed here that Section 11 does give courts a role to play in matters of appointment of arbitrators; the role of courts is as given in Section 11 itself which does not contemplate dealing with questions of stamping of the Contract containing arbitration clause. Also, because of the non obstante clause in Section 5 which applies to the entire Part I, so also to Section 11, the provisions of the Stamp Act can't make inroads at the stage of Section 11. Meaning thereby, Section 33 or other provisions of the Stamp Act can't authorize or obligate a court sitting under Section 11 to entertain and answer the issue of sufficient or no stamping of the Contract containing arbitration clause and to impound such a Contract.

Arbitration Act being a self contained code and special law on Arbitration whereas Stamp Act & Contract Act being general law

At this juncture, on the basis of rulings given in Fuerst Day Lawson Ltd Vs Jindal Exports Ltd[4], Pasl Wind Solution (P) Ltd Vs GE Power Conversion (India) (P) Ltd[5], the Court observed that the Arbitration Act is a self contained Code on arbitration. Going by a few other precedents, it also noted some inherent qualities of a self contained code. An Act, being a self contained code on a particular subject, deals with an aspect of the said subject, then the said aspect must be dealt with as per the Act only and not in any manner not provided by the said Act. The Arbitration Act doesn't mention anything about stamp duty payment on Contracts containing arbitration clauses, consequences of non or part payment of stamp duty and interference by courts in such situations. So, in the course of appointment of arbitrators according to the Arbitration Act, these aspects can't be dealt with, more so according to other statutes like Stamp Act. Moreover, in the context of the prime question before the 7 Judges, the Arbitration Act is a special statute whereas the Stamp Act and the Contract Act are general laws.

Working propounded by the Court of the Arbitration Act and Stamp Act

Based on the Court's answers to the prime question and incidental issues, the Arbitration Act and Stamp Act would operate in the following fashion –

• A court sitting under Section 11 of the Arbitration Act is not to entertain in any manner the issue of non-payment or partial non-payment of stamp duty on Contract containing arbitration clause.
• The original Contract or its certified copy, which contains the arbitration clause and accompanies Section 11 application, does not need to have an endorsement about payment of stamp duty on the Contract.
• As regards the issue of non or part non payment of stamp duty on Contract containing arbitration clause, Section 9 of the Arbitration Act, which is filed for interim reliefs from competent courts, plays out in the same way as Section 11 does in the above way.
• At the stage of Section 11 of the Arbitration Act, what the concerned court is to ascertain is ‘existence of an arbitration agreement’ (as required by Section 11) from viewpoint of Section 7 of the Arbitration Act. Moreover, such satisfaction by the court can't be and must not be conclusive in nature but prima facie only. Courts not to test if Criterias given in other Statutes such as the one given in Section 10 of the Contract Act for being a Contract are satisfied.
• Similarly, under Section 8 of the Arbitration Act, the competent court is to see the existence of a valid arbitration agreement, by applying the yardstick of Section 7 only. And this finding has to be prima facie only.
• The issue of non or part non payment of stamp duty on Contract containing arbitration clause is a question of jurisdiction. So it is to be first raised before the Arbitral Tribunal after it is constituted. As per Section 16(1) of the Arbitration Act, Arbitral Tribunal to decide it.
• The Arbitral Tribunal is supposed to deal with the above issue of stamping as per the Stamp Act. It, being authorised by consent of parties to take evidence, can impound the Contract containing arbitration clause under Section 33 and refuse to admit it under Section 35 unless proper stamp duty is paid. It ensures the provisions of the Stamp Act don't turnout to be otiose and its objective (State gets revenue in terms of stamp duty) is achieved.
• After its constitution, Arbitral tribunal can determine the issue of existence of arbitration agreement because the finding under Section 11 on existence of arbitration agreement was prima facie and not conclusive. The Arbitral Tribunal taking up this issue is in accordance with Section 16 (1) of the Arbitration Act and the doctrine of Kompetenz – Kompetenz.
• Likewise, Arbitral Tribunal after coming into being can go into the question of existence of valid arbitration agreement since the finding on it under Section 8 was prima facie only. Moreover, the Tribunal can examine the validity of an arbitration agreement from the viewpoint of all relevant legal provisions such as the Contract Act. The Arbitral Tribunal taking up this issue is in accordance with Section 16 (1) of the Arbitration Act and the doctrine of Kompetenz – Kompetenz.

The verdict gives much needed impetus to arbitral autonomy and minimum judicial interference in the Indian arbitration landscape.

#Arbitrator #unstampedcontract #Indianarbitration #Indiansupremecourt #arbitrationclause #Commerciallaw #Appointment

[1] (2024) 6 SCC 1 Interplay Between Arbitration Agreements under the Arbitration & Conciliation Act 1996 and Indian Stamp Act 1899, In Re

[2] (2020) 2 SCC 455

[3] (2007) 4 SCC 451

[4] (2011) 8 SCC 333

[5] (2021) 7 SCC 1