An arbitration clause in document cannot be relied, which is not properly stamped; SC.

Supreme Court of India

Chief Justice S A Bobde, Justice B R Gavai and Justice Surya Kant

The SC {M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY  MUDALIAR CHATTRAM & OTHER  CHARITIES & ORS. v. M/S BHASKAR RAJU & BROTHERS  & ORS. } has in unequivocal terms held, that when a lease deed or any other   instrument   is   relied   upon   as   containing   the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not.   It has been held, that even when an objection in that behalf is not raised, it is the duty of the Court to consider the issue.   It has further been held, that if the Court comes to   the   conclusion, that   the   instrument   is   not   properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899.

It was held by the SC that the Court cannot act upon unstamped document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section   35   or   Section   40   of   the   Stamp   Act,   1899, the document can be acted upon or admitted in evidence.

It was held that in present case, the lease  deed   containing   the   arbitration   clause   which   is required to be duly stamped, was not sufficiently stamped and   though   the   Registrar   (Judicial)   had   directed   the respondent Nos. 1 and 2 to pay deficit stamp duty and penalty of Rs.1,01,56,388/­ (Rupees One crore One lakh fifty ­six thousand Three hundred and Eighty­ eight only), the respondents failed to do so, the High Court has erred in relying on the said lease dated 12.3.1997 and referring the parties for arbitration. Accordingly, the petition/application filed by the respondents under Section 11 of the Arbitration Act was rejected by the SC while setting aside the order of the HC.