India: Arbitration Update | Power Of The Court Under Section 9 In Cases Of Inadequate Stamp Duty Onan Agreement

The Bombay High Court, in the L&T Finance Limited v Diamond Projects Limited case, emphasized that the Court retains the power to provide interim relief under Section 9 of the Arbitration & Conciliation Act, 1996 (Act), even if the agreement is unstamped. The Court furtherexpressed that the NN Global Case's ruling doesn't impede the Court from granting interim measures and the implications of non-payment of adequate stamp duty only comes into play when the document is admitted as evidence.

Background:

In wake of the NN Global Case, the Court addressed various commercial arbitration petitions before it. The petitions prayed for interim reliefsunder Section 9 of the Act. The Respondents, however opposed these reliefs arguing that the agreement lacked adequate stamping.

Contention of the Parties:

The Petitioners contended that NN Global Case pertained to the applications under Section 11 of the Act, while Section 9 of the Act stood on adifferent footing. While Section 11 deals with evidentiary proceedings leading to an award, Section 9 provides interim measures and is not concerned with stamping at this stage.

The Petitioners further contented that Section 9 of the Act had a distinct scope and object i.e. to ensure protection of the subject matter of thearbitration at the distinct stages of the process and this can be obtained through a petition filed under Section 9 of the Act.

The Petitioner additionally contented that application under Section 9 of the Act is akin to reliefs sought under Order 39 of Code of Civil Procedure, 1908 (CPC) i.e. Temporary Injunction.

The Respondents on the other hand contented that the Constitutional Bench has declared that the bar contained in Section 35 of the Stamp Act is applicable to arbitration agreements and the arbitration agreement remains unenforceable as long as it remains an unstamped document. The Respondents further contented that an agreement which is insufficiently stamped is 'still born' owing to non-payment of requisite stamp duty, it do not come to life, merely for the purpose of a Section 9 Petition.

The Respondents additionally contended that in order to make out a prima facie case under Section 9 of the Act, a Petitioner ought todemonstrate the existence of a valid and legally enforceable arbitration agreement and sufficient cause of action for filing a Section 9 petition arises in relation to a valid agreement.

Judgment:

The Court held that the scope of the Section 9 and Section 11 of the Act is different. Section 9 of the Act safeguards party's interests to preventfrustration of arbitral proceedings while Section 11 of the Act deals with appointing an arbitrator. The Court observed that an inadequatelystamped instrument does not bar the parties from seeking interim measures as contemplated under Section 9 of the Act.

MHCO Comment:

On the one hand, the Constitutional Bench in the NN Global Case dealt with an improperly stamped agreement, ruled that the Court is dutybound to act under Section 33 of the Stamp Act. On the flip side, the Bombay High Court, in this case, has ruled that interim measures underSection 9 of the Act can be granted even if stamp duty hasn't been duly paid. The court attempted to rationalise its decision by stating that theobligations under Sections 33 and 35 of the Stamp Act does not kick in until the agreement is admitted as evidence under the Arbitration proceedings.

Further, the Bombay High Court seems to have also forgone the cardinal principles of Contract Act, 1872, that an agreement only becomes acontract, if it is enforceable by law. Therefore, an agreement does not become enforceable unless it is duly stamped. Dismissing aninadequately stamped arbitration agreement as a mere technicality overlooks the statutory obligations outlined in Sections 33 and 35 of the Stamp Act.

It is pertinent to note herein that the Constitutional bench of NN Global Case have refrained from examining the question regarding the scopeand ambit of inadequately stamped arbitration agreement with regards to Section 9 of the Act.

This article was released on 12 December 2023.

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