M/S N.N. Global Mercantile Pvt. Ltd. v. M/S Indo Unique Flame Limited

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M/S N.N. Global Mercantile Pvt. Ltd. v. M/S Indo Unique Flame Limited

This case deals with the validity and enforceability of an arbitration agreement embedded in an unstamped contract.

Petitioners Arguments

As per Section 34 of the Maharashtra Stamp Act, 1958 , the contract, being an unstamped document, cannot be received in evidence for any purpose, or acted upon. It was held in Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited that an arbitration clause in an unstamped agreement also could not be acted upon. The Respondent had not indicated their willingness to pay the stamp duty, even though the Appellant had raised this objection. There is no justifiable reason to grant any further opportunity to the Respondent to pay the stamp duty. The phrase “duly stamped” implies that the instrument must be stamped with the requisite amount of duty determined in accordance with the Schedule to the Act. The invocation of the bank guarantee was fraudulent, since the agreement had never been acted upon. There was no invoice raised or payment received under the Work Order. In the absence of any legal liability for payment under the Work Order, the bank guarantee cannot be invoked.

Responders Arguments

The non-payment of stamp duty would not render the agreement unenforceable, but is a curable defect. Even though the Work Order is an unstamped agreement, it would be enforceable after it is duly stamped, for which an opportunity must be given to the parties to make up the deficient stamp duty. That Section 41(1) of the Maharashtra Stamp Act, 1958 provides that after the instrument is duly stamped, it would be endorsed by the Collector. Section 41(2) of the said Act provides that upon payment of Stamp Duty and endorsement by the concerned Collector, the defect of admissibility and legality of such instrument would stand cured. The legislative intent behind amending Section 11 by the Arbitration and Conciliation (Amendment) Act, 2015 was clearly to minimize judicial intervention at the pre-reference stage to the issue of existence of the arbitration agreement. This position was affirmed by a three-judge bench in Mayavati Trading Pvt Ltd. v. Pradyuat Deb Burman . The Indian Arbitration and Conciliation Act, 1996 is based on the Model Law , Section 16 of which gives statutory recognition to the doctrine of separability and kompetenz – kompetenz . Therefore, all civil commercial matters, including the issue as to whether the substantive contract was voidable can be resolved through arbitration. Mere allegations of fraud simpliciter are not a sufficient ground to decline reference to arbitration. Parties can be referred to arbitration where allegations of fraud pertain to disputes between parties inter se, and do not affect the third parties. The civil aspect of fraud is, thus, considered to be arbitrable in contemporary arbitration jurisprudence.

Last Listed On

2023-04-25

Start Date

2020-11-02

End Date

2023-04-25

Card Stage Date

2023-04-25

Review Petition No

C.A. No. 3802-3803/2020

Case Status

Archive

Bench Status

Constituted

Subject Matter

Constitution

Disposal Time

2 years, 5 months, 24 days

5 Judge Bench

Judgment delivered

Consider As Stage Of Pendency

false

Date of institution of case

Date of reference to 5 Judge Bench

Judgement pronounced

The present matter raises interesting issues with respect to the doctrine of separability of an arbitration agreement . The parties entered into a contract termed as “Transport Work Order” for coal transportation from the washery. Clause 9 of the contract pertained to security deposit in the form of a Bank Guarantee whereas Clause 10 was the arbitration clause. After a series of disputes, the respondent invoked the Bank Guarantee and, later, the arbitration clause under Section 8 of the Arbitration Act as per Clause 10 of the said agreement. The appellant approached the Commercial Court which held that its jurisdiction was not ousted by the arbitration agreement as the Bank Guarantee was an independent contract between SBI and Union Bank of India for due performance of the contract. Respondent filed W.P. No.1801 of 2020 before the Bombay High Court to quash and set aside the order passed by the Commercial Court. The High Court vide the Impugned Judgment dated 30-09-2020 held that the application under Section 8 of the Arbitration Act was maintainable. The High Court further held that the allegations of fraudulent invocation of the Bank Guarantee can be resolved through arbitration. Aggrieved by the judgment of the High Court, the Appellant filed a Special Leave Petition before the Supreme Court. The Supreme Court after hearing the matter referred the matter to a Constitution Bench.

Does the non-payment of stamp duty on a commercial contract invalidate the arbitration agreement contained in the contract?

Section 16 of the Arbitration and Conciliation Act, 1996

In light of conflicting co-ordinate bench judgments, the matter was referred to a Constitution Bench for authoritative pronouncement.

SMS Tea Estates Pvt. Ltd. v. M/S Chandmari Tea Co. Pvt. Ltd.

Vidya Drolia v. Durga Trading Corporation

Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd.

Does Separability Salvage an Arbitration Agreement Contained in an Unstamped Document under Indian Law?

Source Of Info

Kluwer Arbitration Blog

Date Of Fr

2021-04-07

N.N. Global Mercantile v. Indo Unique Supreme Court meets the international Benchmark

Source Of Info

SCC OnLine

Date Of Fr

2021-05-11