(Prayer: This W.P. is filed under Article 226 & 227 of the Constitution of India praying to set aside the Order dated 27.11.2015 passed in I.A.No.4/2015 vide Annx-C. and etc.,
This petition is filed under Sec.11(5) of the Arbitration and Conciliation Act 1996, praying this Hon’ble court to confirm the appointment of Hon’ble MrJ justice G.Patri Basavana Gaud (Retd.) as the sole arbitrator, or appoint any other retired judge of this Hon’ble court for adjudication of disputes that have arisen between the petitioner and the respondent, pursuant to clause 23 of the agreement dated:27/08/2014, and grant such other and further reliefs as are just.)
1. Points that would arises for consideration and adjudication in these petitions are:
“1. Whether order dated 04.03.2015 passed in A.A.No.465/2014 impounding the agreement/term sheet dated 27.08.2014 (hereinafter referred to as ‘agreement’) by impounding the same and directing the petitioner to pay duty under Section 34 of the Karnataka Stamp Act, 1957 as per Article 5(c) and 10 times penalty therein is to be sustained, set aside or modified?
2. Whether prayer for appointment of sole Arbitrator sought for in CMP No.255/2014 deserves to be granted? And, if so who should be nominated as the sole Arbitrator?”
2. W.P.No.3516/2016 has been filed by Mr.Satyanarayana Murthy Milkkilineni (hereinafter referred to as ‘respondent’) questioning the orders dated 04.03.2015 and 23.11.2015 passed in A.A.No.465/2014, which application came to be filed by Mrs.Terrasol Sustainability Solution LLP., (hereinafter referred to as ‘petitioner’) under Section 9 of the Arbitration and Conciliation Act, 1996 seeking relief of an injunction to restrain the respondents therein, their agents or any person claiming through or under them from dealing with, transferring or in any manner encumbering the Schedule I company shares held by its share holders respondents 1 to 3 therein except in accordance with the term sheet; to restrain the defendants from alienating of encumbering Schedule II immovable property; to restrain first respondent therein from acting in breach of commitment and to provide consultations services to forth respondent therein in furtherance of the term sheet; to restrain respondent No.2 and 3 to continue to act as Directors and respondent No.1 to act as Managing Director of fourth respondent; to restrain respondents from interfering with the exercise of power by nominee partners of the petitioner Mr.Kiron D.Shah in furtherance of resolution passed by Board of Directors of fourth respondents on 26.09.2014 along with an interlocutory application namely, I.A.No.1 for grant of ad-interim temporary injunction namely to grant similar prayer as sought for in the main petition and during the course of adjudication of said interlocutory application – I.A.No.1, respondent contended that there is no arbitration agreement between the parties and the term sheet/agreement dated 27.08.2014 is not properly stamped and as such court has no jurisdiction to entertain said application under appropriate Stamp-duty and penalty is paid on said document. On the plea of proper stamp duty not having been paid on the term sheet/agreement, an issue relating to “stamp duty” came to be formulated by the learned trial Judge and it reads:
“Whether it is just and proper to impound the alleged agreement/term sheet produced at document No.2 by the petitioner?
After considering rival contentions, learned trial Judge by impugned order dated 04.03.2015 held, though nomenclature of the document dated 27.08.2014 is term sheet, it is in the form of agreement and written on a plain paper and as such, it is enforceable in law. It was further held that when such agreement is a contract, petitioner will have to pay stamp duty and penalty as required under Section 34 of the Karnataka Stamp Act, 1957 (for short ‘Stamp Act’) under Article 5(c) of the Stamp Act by relying upon the judgment of Hon’ble Apex Court in the case of SMS TEA ESTATES PRIVATE LIMITED vs CHANDAMARI TEA COMPANY PRIVATE LIMITED reported in (2011)14 SCC 66 and impounded said document.
3. Seeking review of said order dated 04.03.2015, respondent filed I.A.No.4 contending interalia that correct stamp duty and penalty payable on the term sheet/agreement dated 27.08.2014 would be Rs.3,43,31,748/- as against stamp duty of Rs.1,98,000/- collected by the Registry. It was also contended the nature of the document i.e., term sheet/agreement was not an issue at all for adjudication and no finding ought to have been recorded on the same. Said application came to be resisted to by the petitioner by filing detailed statement of objections and after considering rival contentions, learned trial Judge has held as to whether Stamp-duty is payable. Article 5(c) of the Stamp Act or Article 5(g), 5(i)(d)12, 5(j), 6(2), 12, 22, 29, 41(4) as contended by respondent has to be determined after evidence is recorded and after a full fledged enquiry. Hence, application for review came to be dismissed by order dated 27.11.2015. Hence, these two orders namely, order dated 04.03.2015 and 27.11.2015 have been challenged by the respondent in this writ petition.
4. CMP No.255/2014 has been filed under Section 9 of the Arbitration and Conciliation Act, 1996 by the petitioner arraying five respondents including Mr.Satyanarayana Murthy Milkkilineni, for appointment of a sole arbitrator for adjudication of disputes that have arisen between petitioner and respondent pursuant to term sheet dated 27.08.2014 by pressing into service clause (23) of said agreement.
(i) On account of rival contentions raised with regard to admissibility of the agreement dated 27.08.2014 on account of alleged non-payment of Stamp-Duty and Penalty, this Court by order dated 02.11.2016 directed both these petitions namely Writ Petition No.3516/2016, CMP No.255/2014 to be posted together. Said order reads:
“Learned counsel for the petitioner Mr.Udaya Holla, Senior Advocate has submitted that in view of the Judgment of the Hon’ble Supreme Court in the case of SMS Tea Estates Private Limited -vs- Chandmari Tea Company Private Limited (2011) 14 SCC 66 in Civil Appeal No.5850/2011 decided on 20.07.2011 in Paragraph Nos.21 and 22, the question whether the Agreement in question is adequately stamped or not has to be decided by this Court as the learned Court below has decided the said issue wrongly and unless the admissibility of the Agreement upon payment of the proper Stamp Duty is first determined, the appointment of an Arbitrator under the said Agreement cannot be made on the Miscellaneous Petition filed by the Respondent u/s.11 of the Arbitration and Conciliation Act, 1996 vide CMP No.255/2014.
This judgment is rendered prior to amendment of Arbitration and Conciliation Act, 1996 by Act No.3 of 2016 w.e.f. 23.10.2015 inserting subsections (6-A) and (6-B) in Section 11 of the Act, which has been dealt with by this Court in N.K. DEVELOPERS PVT. LTD., -vs- CONCORD INDIA LTD., in CMP 98/2008 decided on 26.10.2017.
On the other hand, the learned counsel for the Respondent No.1-Mr.Karan Joseph relies upon the Judgment of the learned Single Judge of this Court in CMP No.178/2010 decided on 12.02.2014 (C.Jayaraj -vs- M/s. Innovative Property Management & Co.) in para-5 of which, the learned Single Judge has held that the whether the agreement in question is a Property Management and Services Agreement’ or ‘Lease Deeds’ would require a trial and adjudication and whether it is adequately stamped or not is a question cannot be decided while dealing with an application u/s.11 of the Act.
He also argued that the said objection about sufficiency of the stamp duty, it can be raised before the learned Arbitrator himself.
Put up on 02.03.2018, as prayed.”
Accordingly, both petitions have been heard together and disposed of by this common order.
BRIEF BACKGROUND OF THE CASE:
5. Petitioner is a limited liability partnership firm [L.L.A). Fourth respondent in W.P.No.3516/2016 which is engaged interalia in the business of development of solar power parks, solar PV Projects is having issued, subscribed, paid up share capital of Rs.16,66,666/- divided into Rs.16,16,666/- equity shares of Rs.1/- each. Respondents-1 to 3 in W.P.No.3516/2016 are the only shareholders of the fourth respondent and they collectively hold 100% of the issued, subscribed and paid up share capital in fourth respondent.
6. Petitioner filed a petition under Section 9 of the Arbitration Act seeking temporary injunction against all the respondents in W.P.No.3516/2016, contending interalia that fourth respondent had obtained from Government of Karnataka 1000 acres of land on 30 years of lease basis at Challekere Taluk, Chitradurga District, Karnataka to develop a solar park to accommodate upto 200 MW of Solar Photovoltaic Power projects and respondents – 1 to 3 had offered to transfer its full ownership and Management of the fourth respondent – company by selling its entire share holding/stake in fourth respondent by making certain representations and on account of petitioner being on the look out for an investment opportunity in the solar PV Power project space, had acted on said representation and is said to have accepted the offer made by respondents-1 to 3 and had mutually agreed to the terms which is said to have been recorded in writing in the form of term sheet/memorandum of understanding dated 27.08.2014. Petitioner is said to have acted upon the said term sheet/Memorandum of Understanding and payment of Rs.2.5 Crores is said to have been made to the list of creditors of fourth respondent as per the list furnished by first respondent. It is also stated in the petition that Board of Directors of fourth respondent – company had approved the transfer of shares against the First Tranche payment by resolution dated 26.09.2014.
(i) The grievance of the petitioner is that respondents did not come forward to complete the formalities of transfer of corresponding Rs.5,56,667 equity shares of fourth respondent – company to the petitioner partnership firm, though a sum of Rs.2.5 Crores had been received. It was further alleged in the petition filed by the petitioner for appointment of arbitrator that respondents have not complied with the terms and conditions as agreed to under the term sheet/Memorandum of Understanding dated 27.08.2014 and have failed to perform their obligations and as such, invoking clause No.23 of the term sheet reference of dispute was sought to be referred to a sole Arbitrator by adjudication by issuance of notice dated 10.11.2014. It is further contended that respondents in order to defeat the rights of the petitioner were attempting to encumber the schedule shares and schedule property by changing the nature of said property and as such petitioner was preforced to seek for an injunction to restrain the respondents, their agents or any person claiming through or under them, from dealing with, transferring shares or in any manner, encumbering the schedule – I shares of the company held by respondents-1 to 4 except in accordance with the term sheet and for other consequential reliefs. Said petition came to be resisted to by the third respondent by filing detailed statement of objections vide Annexure-G and as already noticed herein above, when application for temporary injunction namely, I.A.No.1 was being heard, an objection came to be raised by respondents with regard to jurisdiction of the court contending interalia that there is no arbitration agreement between the parties and the issue of stamp duty also came to be formulated and adjudicated under the impugned orders.
(ii) Petitioner also filed a petition under Section 11 of the Arbitration Act read with clause (2) of the Appointment of Arbitrators by the Chief Justice of Karnataka High Court Scheme, 1996 seeking appointment of Hon’ble Mr. Justice G Patri Basavana Goud (Retd) as the sole arbitrator or any other retired Judge of this court for adjudication of disputes that have arisen between the parties, by pressing into service clause (23) of the term sheet-agreement dated 27.08.2014. Said petition came to be resisted by the respondents by filing statement of objections and denying the averments made in the petition, except to the extent expressly admitted thereunder.
7. I have heard the arguments of Sriyuths Karan Joseph learned Advocate, Smt.Nidhishree B.V. learned Advocate appearing for petitioner, Uday Holla learned Senior counsel, Sri.Nikhilesh M.Rao, Sri.M.S.Rajendra, Sri.G.Sridhar and Ashwini Patil, Sri.D.O.Kotresh, learned counsel appearing for respondent/s. Perused the records.
ARGUMENTS ON BEHALF OF PETITIONER
8. Mr. Karan Joseph, learned Advocate appearing for petitioner would contend that term sheet is a non binding document between the parties and was subject to further agreements to be executed for bringing into effect the proposals indicated in the term sheet and a definitive agreement was to be executed subsequently, which had not seen the light of the day. Hence, he contends that term sheet is not a concluded contract and it is only upon execution of definitive agreements, the parties would be bound by the contractual terms.
(i) He would further elaborate his submissions by contending that term sheet is only a statement of intent and at best, only an intention of entering into a definitive agreement and it is not a substitute for share purchase agreement and as such, it cannot be construed as an agreement. However, he would hasten to add that Clause (23) of the agreement would indicate all such disputes arising between the parties thereunder, would be resolved by Arbitration and Arbitration clause is to be treated as an independent agreement for the purposes of referring the dispute to the Arbitrator. As such, he prays for dismissal of the WP.No.3516/2016 and for allowing CMP No.255/2014.
(ii) In support of his submission he has relied upon the judgments.
1. Satyam Ciniplexes Limited, New Delhi vs. Patel Realty India Limited., Mumbai and another- ILR 2013 Karnataka 5597;
2. Juniper Networks India Pvt. Limited. Vs. The Inspector General of Registration and Commissioner of Stamps and Chief Revenue Controlling Authority and others – AIR 2015 KAR 179;
3. K.Amaranath vs. Smt.Puttamma – ILR 1999 KAR 4634;
4. Hills Trade Agencies and Others vs. Karbi Anglong Autonomous Council – 2017 (4) GLT 204;
5. N.K.Developers Pvt. Limited vs. Concord India Limited order dated 26.10.2017 passed in CMP No.38/2008 – Unreported;
6. C.Jairaj vs. M/s Innovative Property Management and Company order dated 12.02.2014 passed in CMP No.178/2008 – Unreported;
7. Coastal Marine Construction and Engineering Ltd., vs. Garware – Wall Ropes Ltd., - 2018 (3) Mh. LJ 22.
ARGUMENTS ON BEHALF OF RESPONDENTS:
9. Per contra Sri Udaya Holla, learned Senior counsel appearing on behalf of respondents has contended that trial Court has not heard the respondent with regard to the provision under which the stamp duty is payable and on its own motion has held Article 5(c) is attracted and said finding is wholly erroneous. Hence, petition seeking review of the said order which had been filed came to be dismissed erroneously by trial Court. He would elaborate his submission by contending that under Section 33 of the Stamp Act, the court is duty bound to examine as to whether the agreement is sufficiently stamped or not while examining the prayer for appointment of an Arbitrator under Section 11, having regarding to the nature of agreement as stipulated under Section 7 of 1996 Act and if it is found that the agreement is insufficiently stamped the Court is bound to impound the document, the moment it is found that it is insufficiently stamped and question regarding sufficiency or insufficiency of stamp duty has to be determined at the first instance and cannot be deferred. He would also contend that under Section 34 of the Stamp Act, the instruments which are not duly stamped would be inadmissible in evidence and proviso to Section 34 mandates that such document may be admitted in evidence on payment of stamp duty together with penalty.
(i) He would contend that Stamp-duty and penalty in aggregate would be to the tune of Rs.3.43 Crores payable by petitioner as against the stamp duty of Rs.18 lakhs plus penalty payable in terms of Article 5(c). He would elaborate by contending that any agreement relating to purchase or sale of shares or scrips or any other marketable security of a like nature, stamp duty payable would be re.1/- for every Rs.10,000/-. He would submit that expression “shares” is not defined under the Stamp Act whereas, “marketable security” is defined under Section 2(m) to mean ‘security of description capable of being sold in any stock market in India’ and as such, ‘shares’ referred to Article 5(c) will have to be read ejusdem generis with the words ‘marketable security’.
(ii) He would submit that under definition clause of Section 2(1)(h) of the Securities Contract Regulation Act, securities have been defined to include shares, scrips, stocks, bonds, debentures and other marketable securities of the like nature and while interpreting this section, Bombay High Court has held the principles of noscisitor a socis will apply and the expression ‘shares’ will have to be construed to mean as marketable security and the word ‘shares’ can only be shares dealt in stock exchange and not shares of a private limited company which are not listed as held in the case reported in (1979)49 Company Cases 1 followed in (1985)57 Company Cases 700 and as such, stamp duty payable on the instrument in question would be under Article 5(g) of the Stamp Act and not Article 5(c).
(iii) He would submit that when a document comprises of several distinct matters, Article 5 will apply and not Article 6 of the Stamp Act and therefore, Stamp Duty payable would be the aggregate of the amount of duty is to be charged.
(iv) By relying upon the following authorities, he prays for allowing the writ petition and also dismissing CMP 255/2014 as proper Stamp-duty and penalty has not been paid on the agreement.
2. Krishna vs Sanjeev - ILR 2003 KAR 3716;
3. Norman J.Hamilton and another vs. Umedbhai S.Patil and others - 1978 (49) Comp.Cases 1;
4. Dahiben Umedbhai Patil and others vs. Norman James Hamilton and others – 1985 (57) Comp.Cases 700;
5. The Member, Board of Revenue, vs. Arthur Paul Benthall - AIR 1956 SC 35;
6. Chief Controlling Revenue Authority vs. Coastal Gujarat Power Limited and others – (2015) 10 SCC 700;
7. Avinash Kumar Chauhan vs. Vijay Krishna Mishra – (2009) 2 SCC 532;
8. Sms Tea Estates Private Limited vs. Chandmari Tea Compnay Private Limited - (2011) 14 SCC 66; and
9. Black Pearl Hotels Private Limited vs Planet M.Retail Limited - (2017) 4 SCC 498.
DISCUSSION AND FINDINGS ON THE POINTS FORMULATED HEREINABOVE:
10. In the light of the judgment of Hon’ble Apex Court in the case of SMS TEA ESTATES PRIVATE LIMITED vs. CHANDMARI TEA COMPANY PRIVATE LIMITED reported in (2011)14 SCC 66 very hearing relied upon by Sri Udaya Holla, learned Senior counsel appearing for respondents, to buttress his argument that where an arbitration agreement is pressed into service and the adequacy of stamp duty paid on the said agreement is to be decided at the first instance and said agreement cannot be acted upon, this court is of the considered view that it would apt and appropriate to extract the law laid down by Hon’ble Apex Court in the said judgment. It has been held by Apex Court:
“19. Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction.
20. The Scheme for Appointment of Arbitrators by the Chief Justice of Gauhati High Court, 1996 requires an application under Section 11 of the Act to be accompanied by the original arbitration agreement or a duly certified copy thereof. In fact, such a requirement is found in the scheme/rules of almost all the High Courts. If what is produced is a certified copy of the agreement/contract/instrument containing the arbitration clause, it should disclose the stamp duty that has been paid on the original. Section 33 casts a duty upon every Court, that is, a person having by law authority to receive evidence (as also every arbitrator who is a person having by consent of parties, authority to receive evidence) before whom an unregistered instrument chargeable with duty is produced, to examine the instrument in order to ascertain whether it is duly stamped. If the Court comes to the conclusion that the instrument is not duly stamped, it has to impound the document and deal with it as per Section 38 of the Stamp Act.
21. Therefore, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the Court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of the Stamp Act. The Court cannot act upon such a document or the arbitration clause therein. But if the deficit duty and penalty is paid in the manner set out in Section 35 of Section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.”
11. In the above referred judgment of Hon’ble Apex Court, appellant therein had requested the respondent to grant a long term lease of two Tea Estates and a lease deed dated 21.12.2006 came to be executed between appellant and respondent therein for a term of 30 years. Clause (35) of the said lease deed provided for settlement of disputes between the parties by arbitration. On account of these two (2) Estates having been hypothecated to United Bank of India, respondent requested the Bank on 27.12.2006 to issue of ‘No Objection Certificate’ for entering into long term lease. However, Bank agreed to issue NOC subject to entire balance amount due to it being deposited by 14.08.2007. Even, prior to the execution of the lease deed, on 29.11.2006 respondent offered the appellant to sell both the Estates for a consideration of Rs.4 Crores and appellant informed the respondent on 27.06.2007 to purchase the same. Appellant is said to have invested huge sums of money for improving Estates in anticipation that it would be purchasing the said Estates or would have a lease for a period of 30 years. However, respondent abruptly and illegally evicted the appellant from the two Estates and took over the Management in January, 2008. It is thereafter appellant by letter dated 28.03.2008 informed the respondent its willingness to purchase the Estates and also consented to discharge the liability of the Bank. Appellant also issued a notice on 05.05.2008 calling upon the respondent to refer the matter to arbitration under clause (35) of the lease deed.
12. An application came to be filed by appellant for appointment of arbitrator which was opposed by the respondent contending that unregistered lease deed dated 21.12.2006 which was entered into between parties for 30 years was invalid, unenforceable and not binding on the parties, having regard to Section 107 of Transfer of Property Act, 1882 and Section 17 and 49 of the Registration Act, 1908. It was also contended that lease deed was not duly stamped and therefore, invalid, unenforceable and not binding, having regard to Section 35 of the Stamp Act, 1899 and therefore, clause (35) which provided for arbitration, being part of the said lease deed was also invalid and as such unenforceable. Application for appointment of arbitrator came to be dismissed by the Gauhati High Court by order dated 25.08.2010 on the ground that lease deed was compulsorily registrable and no term in the said lease could be relied upon for any purpose and therefore, clause (35) also could not be relied upon for seeking reference to arbitration.
13. It is in this background, Hon’ble Apex Court formulated three questions for its consideration and adjudication. Three points so formulated are:
(i) Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable?
(ii) Whether an arbitration agreement in an unregistered instrument which is not duly stamped is valid and enforceable?
(iii) Whether there is an arbitration agreement between the appellant and the respondent and whether an arbitrator should be appointed?
On question No.(i) Hon’ble Apex Court has held an arbitration agreement does not require registration under Registration Act and even if it is found that one of the clauses in a contract or instrument provides for Arbitration, it is an independent instrument to refer the disputes to arbitration which is independent of the main contract or instrument. Hence it was held that having regard to the proviso to Section 49 of the Registration Act read with Section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration. While answering question No.(ii), Hon’ble Apex Court has held, if said document is not properly stamped, court can act upon said document or enforce arbitration clause contained therein only after deficit duty and penalty is paid and said defect is cured. It has been held:
“22. We may therefore sum up the procedure to be adopted where the arbitration clause is contained in a document which is not registered (but compulsorily registerable) and which is not duly stamped :
22.1. The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registerable.
22.2. If the document is found to be not duly stamped, Section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under section 35 and 38 of the Stamp Act.
22.3. If the document is found to be duly stamped, or if the deficit stamp duty and penalty is paid, either before the Court or before the Collector (as contemplated in section 35 or 40 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.
22.4. Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registerable. If the document is found to be not compulsorily registerable, the court can act upon the arbitration agreement, without any impediment.
22.5. If the document is not registered, but is compulsorily registerable, having regard to Section 16(1)(a)of the Act, the court can de-link the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the respondent in the application demonstrates that the arbitration agreement is also void and unenforceable, as pointed out in para 15 above. If the respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator.
22.6. Where the document is compulsorily registerable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration”.
14. Above referred judgment came to be rendered by the Hon’ble Apex Court on 20.07.2011. Arbitration Act, 1996 came to be amended by Act 3 of 2016 whereunder Section 11 came to be amended. Section 11 provides for appointment of Arbitrators and a plain reading of sub-section (6) of Section 11 would indicate that when parties have agreed upon the procedure for appointment of arbitrator, under the contingencies prescribed under clause (a) to clause (c) a party may request the Supreme Court or as the case may be, the High Court or any other person or Institution designated by such court to take necessary measures for securing the appointment. Sub-section (6A) which came to be inserted by Act 3 of 2016 with effect from 23.10.2015 reads as under:
“(6A) The Supreme court or, as the case may be, the High Court, while considering any application under subsection (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.”
Sub-section (6A) was not found in the Arbitration Act, 1996 when SMS TEA judgment came to be rendered by the Hon’ble Apex Court on 20.07.2015 15. Hon’ble Apex Court in the case of DURO FELGUERA, S.A. vs GANGAVARAM PORT LIMITED reported in (2017) 9 SCC 729 has held as per the amended provision of Section 11 (6A), the power of the court is confined only to examine the existence of an arbitration agreement and all preliminary issues will have to be left for the arbitral tribunal to decide in terms of Section 16 of the Act. It came to be held:
“18. The language in Section 11(6) of the Act “the Chief Justice or any person or institution designated by him” has been substituted by “Supreme Court or as the case may be the High Court or any person or Institution designated by such court”.
Now as per sub-section (6-A) of Section 11, the power of the court has now been restricted only to see whether there exists an arbitration agreement. The amended provision xxx reads as under.”
(emphasis supplied by me)
In the concurring judgment rendered by his Lordship Justice Kurian Joseph, it has been further held:
“47. What is the effect of the change introduced by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “the 2015 Amendment”) with particular reference to Section 11(6)and the newly added Section 11(6-A) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”) is the crucial question arising for consideration in this case.
48. Section 11(6-A) added by the 2015 Amendment, reads as follows:
“11(6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under subsection (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.”
From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the Court should and need only look into one aspect- the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple - it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.”
It is also further held that intention of the legislature to incorporate Section 11(6A) is essentially to minimize court’s intervention at the stage of appointment of an arbitrator. It has been held:
“59. The scope of the power under Section 11 (6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. (2005) 8 SCC 618 and Boghara Polyfab (2009) 1 SCC 267. This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists – nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6-A) ought to be respected”.
16. In the light of authoritative pronouncement of Hon’ble Apex Court in DURO FELGUERA, S.A referred to supra, when facts on hand are examined it would disclose that agreement or the term sheet dated 23.08.2014 relied upon by petitioner was for appointment of an arbitrator and for grant of interim measures during said period, by invoking Clause (23) found therein, which reads as under:
“23. All disputes between the parties/their nominee/s arising out of and relating to understanding contained in this term sheet shall be subject to arbitration in accordance with Arbitration and Conciliation Act, 1996. The place of arbitration and language shall be English. Courts at Bangalore alone shall have jurisdiction. Laws of India govern this understanding contained herein.”
In the light of above said clause found in the term sheet or agreement dated 27.08.2014, the power of the court has been restricted only to examination of the existence of an arbitration agreement and not from any other angle. The existence of such arbitration clause in an agreement can be inferred from a document signed by the parties or exchange of letter, telex, fax, email or other means of communication which provide for record of agreement. If the intention of the parties was to arbitrate any dispute which arose in relation to the offer and acceptance, the dispute is to be settled through arbitration.
17. Thus, the endeavour of the court while dealing with the application filed under Section 11 of the Arbitration Act would be to confine itself the examination of the existence of a valid arbitration agreement and clause (23) referred to herein supra undisputedly provides for resolution of the dispute between the parties through arbitration. As such, the jurisdiction of this court is not ousted to appoint the arbitrator in view of the ‘arbitration agreement’ existing between the parties.
18. In the light of notice dated 10.11.2014 having been issued by the petitioner appointing Hon’ble Mr.Justice Patri Basavana Goud (Retd), Former Judge, High Court of Karnataka to act as sole arbitrator for adjudicating the dispute between the parties and denial of existence of arbitration agreement by reply notice dated 09.12.2014 by the respondents and refusing to nominate the arbitrator of their choice, this court is required to nominate the arbitrator on behalf of respondents who shall be the Arbitrator for the respondents.
19. Learned Senior Counsel appearing for the respondent has contended that issue regarding determination of the nature of the document was never an issue before the trial Court in AA No.465/2014 and as such the trial Court ought not to have gone into, is an argument required to be considered for the purposes of rejection for reasons more than one. Firstly, the agreement which was pressed into service by the petitioner for grant of relief of injunction was opposed to by the respondent/s on the ground the said agreement was not to be required to be looked into as it is inadmissible document on the ground of deficit stamp duty and it requires to be impounded. It is in this background, learned trial judge has examined the said document and held it is a document in the form of ‘agreement’ and has carried upon the petitioner to pay Stamp-duty and penalty under Article 5(c) of Stamp Act.
20. In fact perusal of the said agreement would indicate it was a document simplicitor executed between the parties, agreeing thereunder that further agreements would be executed to bring into effect the proposals laid down under the said agreement. In fact the respondent/s has agreed at Paragraphs 10 and 11 of the reply notice dated 09.12.2014 to the effect that term sheet was not a concluded contract and was subject to the execution of appropriate definitive agreements and only upon such execution the parties would be bound by the contract. As rightly pointed by Mr.Karan Joesph, learned counsel appearing for petitioner, respondents in their reply notice dated 09.12.2014 as well as in the objection statement filed in CMP No.255/2014 as also in several paragraphs of Writ Petition No.3516/2016 has in unequivocal terms admitted to the following effect -
“term sheet was simply a non binding document between the parties and was subject to further agreement to be executed for brining into effect the proposal laid down under the term sheet; term sheet being only a statement of intent is not binding document ….; nothing more than letter of intent between the parties and will be subject to the execution of definitive agreements; and it is not a concluded contract.”
It is in this background learned trial judge while considering the prayer of the respondent/s to review the order dated 04.03.2015 has arrived at a conclusion that applicability of the relevant Article in the Stamp Act is an aspect which will have to be determined only after recording of the evidence after a full fledged trial takes place and as such by ordering to impound the agreement, stamp duty and penalty is ordered to be collected by the Registry under Article 5(c) of the Stamp Act which cannot be found fault with or said order was not required to be reviewed, as it is based on sound appreciation of facts and there is no error committed by the learned trial judge either in law or on facts in that regard.
21. Even otherwise, when the document in question namely agreement dated 27.08.2014 is examined or perused it would clearly indicate petitioner and respondents are parties to the agreement/MOu/ Term Sheet dated 27.08.2014, whereunder parties have agreed to enter into further definition agreements. Infact, respondent has admitted that term sheet is a non-binding document between the parties and was subject to further agreements to be executed for brining into effect the proposal laid down under the term sheet. In the words of respondents admission reads as under:-
“14.In the meanwhile, the petitioner also replied to the notice of the Respondent No.1 vide its letter dated 9 December 2014 stating, inter alia, that the Term Sheet was simply a non-binding document between the parties and was subject to further agreements to be executed for brining int
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o effect the proposal laid down under the Term Sheet. In fact, it was pointed out that on 26 September 2014, Respondent No.1 only had circulated an agreement in pursuance to the Term Sheet, duly signed by Respondent No.1 seeking the signatures of the other parties. This itself showed that the Term Sheet was simply a pre cursor to the Definitive Agreements that were meant to be executed subsequently. Nevertheless, it was further stated xxxx produced as Annexure-H.” “15. Despite the reply dated 9 December 2014 of the Petitioner that the Term Sheet was merely a non-enforceable document listing down the several proposals intended to be carried out for the execution of the Share Purchase Agreement, and in any event, the same having lapsed on account of non fulfillment of obligations by the respondent No.1 there existed no agreement between the parties, the Respondent No.1 proceeded to drag the Petitioner through frivolous and unnecessary litigation by filing a Section 11 application before the Hon’ble Karnataka High Court being CMP No.225 of 2014 on or about 17 December 2014.The respondent No.1 xxxx is produced as Annexure-J.” In the light of above admission, respondent cannot be heard to contend that Stamp duty determined by the trial Court is erroneous or incorrect. Even otherwise, trial Court having entered into examination of said plea, has ordered for impounding the document and has directed the Registry to collect Stamp-duty. It is because of this precise reasons, trial Court has opined as under:- “14. Point No.2: The contention xxxxx is not proper. It is pertinent to note that whether Article 5(c) of the stamp act is applicable or other provision is applicable is to be determined at a full-fledged trial. The contents of the term sheet are to be adjudicated only on trial. At this stage, it is not just and proper to interpret the recitals of term sheet and hold that the stamp duty paid by the petitioner under Article 5(c) is not applicable. The contention of the 3rd respondent is that Article 5(g), 5(i)(d) 12, 5(j), 6(2), 12, 22, 29, 41(4) are applicable. The said aspect is to be determined only after the evidence as to which of the provisions of stamp act are applicable to the present case on hand and that too on a full-fledged enquiry.” 22. In the light of above finding recorded by the trial Court, this Court is of the considered view that the plea of the agreement is properly stamped or not has been adjudicated and accordingly stamp duty and penalty has been ordered to be recovered. In fact the learned trial judge has also noticed that after full- fledged trial, if it is found that the agreement is to be brought under any other Article of Stamp Act, it can be done so. Thus, prima facie stamp duty payable on the agreement has been determined as per the dicta laid down by the Apex Court in the matter of Black Pearl Hotels (P) Limited vs. Planet M.Retail Limited reported in (2017) 4 SCC Page 498. 23. For the reasons aforestated, point No.1 is answered against the writ petitioner–respondent and in favour of the petitioner in CMP No.255/2014. Consequently, point No.2 deserves to be answered in the affirmative i.e., in favour of petitioner and against respondents. Hence, I proceed to pass the following ORDER (i) Writ Petition No.3516/2016 is hereby dismissed by confirming the order dated 04.03.2015-Annexure-A and order dated 27.11.2015-Annexure-C passed in AA No.465/2014 by the I Additional City Civil and Sessions Judge, Bengaluru; (ii) CMP No.255/2014 is hereby allowed and Hon’ble Sri.Justice Subash B.Adi. (Retd.) is hereby appointed as the Arbitrator on behalf of respondents; (iii) The Arbitrators, Justice Patri Basavanagoud (Retd.) and Justice J.S.B.A (Retd.) are requested to choose an umpire or the Presiding Arbitrator and to proceed with the matter in accordance with Clause (23) of the Term Sheet/agreement dated 27.08.2014 and adjudicate the dispute on merits between the parties; (iv) The learned Arbitrators are requested to conduct the arbitral proceedings at Arbitration Centre, Bengaluru and as per the Extant Rules framed by it; (v) Registry is directed to forward a copy of this order to the learned Arbitrators and also to the Director, Arbitration Centre, Khanija Bhavan, Race Course Road, Bengaluru.