Lifetime Realty (P) Ltd. Vs Poddar Udyog Ltd. and Another

@JUDGMENTTAG-ORDER

Antony Dominic, J.@mdashThis Arbitration Request has been fi led u/s 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ''Act'' for short), seeking the appointment of an Arbitrator to resolve the disputes between the applicant and the respondents, arising out of Annexure A agreement. When the matter was heard, counsel for the first respondent contended that the agreement was not duly stamped as required under the Kerala Stamp Act. This contention is therefore considered as a preliminary issue. Annexure A is the notarised copy of the agreement for sale dated 18th March 2008 between the applicant and the 1st respondent and its original is engrossed on stamp paper of 100, only. Clauses 1 and 2 of the agreement, being relevant, are extracted below for reference;

1) The Vendor shall sell to the Purchaser and/or its nominee/nominees appointed in writing and the Purchaser agrees to purchase from the Vendor the entire shareholding of Goldview Vyaapar Pvt. Ltd., on completion of the demerger as aforesaid and if for any reason the process of demerger is not completed by 30th September, 2008 the Vendor shall sell to the purchaser and/or its nominee/nominees and the Purchaser has agreed to purchase from the Vendor the aforesaid business of Hope Plantations consisting of Glenmary, Kuduakarnam and Ladrum estates and comprising the scheduled property together with all plantations, buildings, factories and other erections and fixtures and such other immovable properties thereon, with all kinds of rights, privileges, easements and all appurtenances thereto as a going concern, together with the business, goodwill, rights, benefits, privileges and all powers, licenses, liberties and export and import quotas of the Vendor and the benefits of all leases and tenancy and all other contracts entered into by the Vendor, arising or incidental thereto, together with all furniture, fixtures, vehicles and other movables properties therein.

2) The total consideration payable by the Purchaser to the Vendor for purchase of the entire shareholding in the Goldview Vyaapar Pvt. Ltd. shall be Rs. 58,50,00,000/- (Rupees Fifty Eight Crores and Fifty Lakhs only). If for any reason the demerger is not completed within the agreed time frame, the aforesaid consideration shall be considered as the price for the purchase of the business of Hope Plantations as aforesaid and in which event Rs. 57,00,89,000 (Rupees Fifty Seven Crores and Eighty Nine Thousand) is for the land and tea and other plantations thereon Rs. 75,00,000 (Rupees Seventy Five Lakhs) is for the building and other fixtures and Rs. 74,11,000/- (Rupees Seventy Four Lakhs and Eleven Thousand) is for the machinery, vehicles and other movables

2. Both sides are in agreement that by Annexure I order, the scheme of demerger has been confirmed by the High Court of Calcutta. Therefore, the performance of the agreement requires transfer of shares of the demerged company, the second respondent herein, to the Applicant and the question is whether such an agreement is a duly stamped one?

3. This question has to be answered with reference to the provisions of the Kerala Stamp Act. Section 3 of the Act provides that every instrument mentioned in the schedule to the Act executed after the commencement of the Act, shall be chargeable with duty of the extent indicated in the schedule. Serial No. 5 to the Schedule provides as follows:

4. The agreement is for sale of shares of the demerged Company, the 2nd respondent, and therefore, stamp duty payable is as per the above provision of the Act. From the extracted clauses of the agreement, it is evident that the consideration payable for the shares is.58.50 crores. The agreement is engrossed on stamp paper of.100 only. Therefore this is an agreement which is not duly stamped.

5. The manner in which an agreement produced in an arbitration request, which is not duly stamped as per the applicable stamp act is to be dealt with, was considered by the Apex Court in its judgment in SMS Tea Estates Pvt. Ltd. Vs. Chandmari Tea Company Pvt. Ltd., gment, the question posed by the Apex Court was;

Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable?

6. This question has been considered in the light of sections 33 and 35 of the Indian Stamp Act, 1899, which are in pari materia to sections 33 and 34 of the Kerala Stamp Act 1959, and was answered as follows;

10. What if an arbitration agreement is contained in an unregistered (but compulsorily registrable) instrument which is not duly stamped? To find an answer, it may be necessary to refer to the provisions of the Indian Stamp Act, 1899 (''Stamp Act'' for short). Section 33 of the Stamp Act relates to examination and impounding of instruments. The relevant portion thereof is extracted below:

33. Examination and impounding of instruments.-(1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a pubic office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.

(2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed:

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Section 35 of Stamp Act provides that instruments not duly stamped is inadmissible in evidence and cannot be acted upon. The relevant portion of the said section is extracted below:

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.

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Having regard to Section 35 of 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 Stamp Act is distinct and different from Section 49 of Registration Act in regard to an unregistered document. Section 35 of Stamp Act, does not contain a proviso like to Section 49 of Registration Act enabling the instrument to be used to establish a collateral transaction.

11. The scheme for appointment of arbitrators by the Chief Justice of Guwahati High Court 1996 requires an application u/s 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. 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 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 or Section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.

12. 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 registrable) and which is not duly stamped:

(i) 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 registrable.

(ii) 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 u/s 33 of the Stamp Act and follow the procedure u/s 35 and 38 of the Stamp Act.

(iii) 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.

(iv) Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.

(v) If the document is not registered, but is compulsorily registrable, 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 8 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.

(vi)Where the document is compulsorily registrable, 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.

7. The above principles laid down by the Apex Court are a complete answer to the issue before this Court also. However, counsel for the applicant made an attempt to tide over this hurdle contending that the applicant had filed O.P. (Arbitration) 24/2011 before the Court of the District Judge, Thodupuzha, u/s 9 of the Arbitration and Conciliation Act 1996 and that the case was allowed as per Annexure H order. It was pointed out that, in the said proceedings, on consent of the parties, the agreement was admitted in evidence and was marked as Ext.P2. According to him, in view of section 35 of the Kerala Stamp Act, when an instrument has been admitted in evidence, such admission shall not, except as provided in section 59 thereof, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped. Counsel also relied on the following judgments of the Apex Court and this Court,

1) Ettuthara Warrier v. Kochunarayana Menon, 1962 KLT 228

2) P.C. Purushotahama Reddiar v. S. Perumal, AIR 1972 SC 608

3) Chiranji Lal v. Haridas, 2005 (2) KLT 1018

4) Abdu Vs. Gopalakrishnan,

5) Shyamal Kumar Roy Vs. Sushil Kumar Agarwal,

8. To answer this contention, reference has to be made to section 35 of the Kerala Stamp Act, 1959 and this section reads as under;

35. Admission of instrument where not to be questioned:- Where an instrument has been admitted in evidence such admission shall not, except as provided in section 59, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped.

9. As held by the Apex Court in Chiranji Lal v. Haridas, 2005 (2) KLT 1018, Stamp Act is a fiscal measure enacted with an object to secure revenue for the State on certain classes of instruments. Therefore, the provisions of the Stamp Act should receive strict construction. If section 35 of the Act is analysed, it can be seen that this provision applies only in a case where a document has been admitted in evidence. This section further provides that "such admission" shall not be called in question "at any stage of the same suit or proceeding" except as provided u/s 59. Therefore, what cannot be called in question is "such admission", which means the admission of the document in question in evidence in the suit or proceedings and the prohibition is only "at any stage of the same suit or proceeding". In other words, if an instrument has been admitted in evidence in a suit or proceeding, such admission of the instrument cannot be challenged at a later stage of the same suit or proceeding. Therefore, the inadmissibility of the instrument can be raised in a subsequent suit or proceeding and in such a case, this section will have no application.

10. Faced with this situation, counsel for the applicant contended that proceedings u/s 9 of the Arbitration and Conciliation Act are a part of the proceedings u/s 11 of the Act. Having considered the arguments of both sides, I am unable to uphold the contention of the applicant. Though section 9 of the Act provides for interim measures etc., by Court, proceedings under that section, are independent and separate from the proceedings u/s 11 of the Act. Therefore, the fact that Annexure A1 agreement has been admitted in evidence in the proceedings u/s 9 does not prevent the 1st respondent from raising the plea of insufficiency of stamp in a proceedings u/s 11.

11. Once Annexure A1 agreement is held insufficiently stamped, the course to be adopted is that indicated by the Apex Court in its judgment in M/s. SMS Tea Estates Pvt. Ltd. (supra), which is to impound the instrument in question u/s 33 and sent it to the Collector for adjudication as provided in section 37 of the Kerala Stamp Act 1959, However, such a course can be pursued only if the document produced before this court is an "instrument" as defined in the Stamp Act, which alone can be impounded under the Act.

12. Along with the arbitration request, the applicant has produced only an authenticated copy of the agreement between the parties and the question that arises is whether copy of a document, even if it is an authenticated one, can be considered an ''instrument'' as defined in the Stamp Act. The expression ''instrument'' has been defined in section 2(j) of the Kerala Stamp Act as follows;

2(j) "instrument" includes every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded but does not include a bill of exchange, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt.

13. Interpreting section 2(14), which defines the expression "instrument" in the Indian Stamp Act, in its judgment in AIR 1971 1070 (SC) the Apex Court held that in the light of the definition, there is no scope for inclusion of a copy of a document as an instrument for the purposes of the Stamp Act. This judgment has been followed in Hariom Agrawal v. Prakash Chand Malviya, AIR 2008 SC 166. Though these judgments are rendered in the context of the provisions contained in the Indian Stamp Act, the expression "instrument" has been defined in exactly similar terms in the Kerala Stamp Act also. Therefore, the principles laid down by the Apex Court in these judgments are applicable to this case also. Thus, it is trite that the definition of instrument contained in the Kerala Stamp Act does not include copy of a document.

14. The further question is whether copy of a document can be impounded. This issue has been considered by the Apex Court in its judgment in Hariom Agrawal v. Prakash Chand Malviya, AIR 2008 SC 166, where it has been held thus;

7. The instrument as per definition u/s 2(14) has a reference to the original instrument. In The State of Bihar Vs. Karam Chand Thapar and Brothers Ltd., , this Court in paragraph 6 of the judgment held as under :-

6. It is next contended that as the copy of the award in court was unstamped, no decree could have been passed thereon. The facts are that the arbitrator sent to each of the parties a copy of the award signed by him and a third copy also signed by him was sent to the court. The copy of the award which was sent to the Government would appear to have been insufficiently stamped. If that had been produced in court, it could have been validated on payment of the deficiency and penalty under S.35 of the Indian Stamp Act, 1899. But the Government has failed to produce the same. The copy of the award which was sent to the respondents is said to have been seized by the police along with other papers and is not now available. When the third copy was received in court, the respondents paid the requisite stamp duty under 5.35 of the Stamp Act and had it validated. Now the contention of the appellant is that the instrument actually before the court is, what it purports to be, a certified copy, and that under S.35 of the Stamp Act there can be validation only of the original, when it is unstamped or insufficiently stamped, that the document in court which is a copy cannot be validated and acted upon and that in consequence no decree could be passed thereon. The law is no doubt well-settled that the copy of an instrument cannot be validated. That was held in Rajah of Bobbili v. Inuganti China Sitaramasami Garu, 26 Ind App 262, where it was observed:

The provisions of this section (section 35) which allow a document to be admitted in evidence on payment of penalty, have no application when the original document, which was unstamped or was insufficiently stamped, has not been produced; and, accordingly, secondary evidence of its contents cannot be given. To hold otherwise would be to add to the Act a provision which it does not contain. Payment of penalty will not render secondary evidence admissible, for under the stamp law penalty is leviable only on an unstamped or insufficiently stamped document actually produced in Court and that law does not provide for the levy of any penalty on lost documents

This Court had an occasion again to consider the scope and ambit of Sections 33(1), 35 and 36 of the Act and Section 63 of the Indian Evidence Act in AIR 1971 1070 (SC) and held that :-

13. The first, limb of Section 35 clearly shuts out from evidence any instrument chargeable with duty unless it is duly stamped. The second limb of it which relates to acting upon the instrument will obviously shut out any secondary evidence of such instrument, for allowing such evidence to be let in when the original admittedly chargeable with duty was not stamped or insufficiently stamped, would be tantamount to the document being acted upon by the person having by law or authority to receive evidence. Proviso (a) is only applicable when the original instrument is actually before the Court of law and the deficiency in stamp with penalty is paid by the party seeking to rely upon the document. Clearly secondary evidence either by way of oral evidence of the contents of the unstamped document or the copy of it covered by Section 63 of the Indian Evidence Act would not fulfil the requirements of the proviso which enjoins upon the authority to receive nothing in evidence except the instrument itself. Section 35 is not concerned with any copy of an instrument and a party can only be allowed to rely on a document which is an instrument for the purpose of Section 35. ''Instrument is defined in Section 2(14) as including every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded. There is no scope for inclusion of a copy of a document as an instrument for the purpose of the Stamp Act.

14. If Section 35 only deals with original instruments and not copies Section 36 cannot be so interpreted as to allow secondary evidence of an instrument to have its benefit. The words an instrument in Section 36 must have the same meaning as that in Section 35. The legislature only relented from the strict provisions of Section 35 in cases where the original instrument was admitted in evidence without objection at the initial stage of a suit or proceeding. In other words, although the objection is based on the insufficiency of the stamp affixed to the document, a party who has a right to object to the reception of it must do so when the document is first tendered. Once the time for raising objection to the admission of the documentary evidence is passed, no objection based on the same ground can be raised at a later stage. But this in no way extends the applicability of Sec. 36 to secondary evidence adduced or sought to be adduced in proof of the contents of a document which is unstamped or insufficiently stamped.

8. It is clear from the decisions of this Court and a plain reading of Sections 33, 35 and 2(14) of the Act that an instrument which is not duly stamped can be impounded and when the required fee and penalty has been paid for such instrument it can be taken in evidence u/s 35 of the Stamp Act. Sections 33 or 35 are not concerned with any copy of the instrument and party can only be allowed to rely on the document which is an instrument within the meaning of Section 2(14). There is no scope for the inclusion of the copy of the document for the purposes of the Indian Stamp Act. Law is now no doubt well settled that copy of the instrument cannot be validated by impounding and this cannot be admitted as secondary evidence under the Indian Stamp Act, 1899.

From the above discussion, it is clear that Annexure A1, the authenticated copy of the agreement cannot be impounded and forwarded to the Collector, in terms of section 33 and 37 of the Kerala Stamp Act. Consequently, in view of section 34 of the Act, this document is inadmissible in evidence and cannot be acted upon.

In such circumstances, this Court can only reject this Arbitration Request and it is ordered accordingly.