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If an agreement is insufficiently stamped the Court cannot act to invoke the Arbitration Clause: SC

M/S DHARMARATNAKARA RAI BAHADUR ARCOT NARAINSWAMY  MUDALIAR CHATTRAM & OTHER  CHARITIES & ORS. Vs. M/S BHASKAR RAJU & BROTHERS  & ORS., CIVIL APPEAL No. 1599 OF 2020 (Arising out of SLP(C) No. 7088 of 2015) – FEBRUARY 14, 2020

The Bench comprising of Hon’ble CJI S.A. BOBDE, Hon’ble Justice B.R. GAVAI, Hon’ble Justice SURYA KANT pronounced the judgment on the appeal against the judgment passed by the single judge of the High Court of Karnataka at Bangalore.

Facts

The appellant No.1 is a registered Charitable Trust. Rest of the appellants are Trustees of the appellant No.1 – Trust.  The appellant No.1 Trust desired to develop the land owned by it and construct a multi ­purpose community hall with office complex. As such, the respondent No.1 offered to develop the said property and also to renovate the Samadhi of the founder of the Trust existing on the said piece of land. As an outcome of the negotiations, a lease deed was executed   between   the   appellant   No.1   ­Trust   and   the respondent No.1 – lessee for a period of 38 years.  It was also the case of the appellants that the respondents were trying to interfere with the possession of the trust property in collusion with one of the trustees. In this background, the appellant –Trust filed Original Suit being O.S. No.8952 of 2010 before the City Civil Court at Bangalore. The City Civil Court at Bangalore, granted an interim order by directing maintaining of status quo over the Schedule property in the said suit.

Respondent Nos. 1 and 2, issued a notice to the appellants thereby, invoking arbitration clause in the lease deed.  The respondent Nos. 1 and 2 filed a petition under Section 11(6) of the Arbitration Act before the High Court of Karnataka.

The appellant contended that being insufficiently stamped had to be mandatorily impounded under Section 33 of the Karnataka Stamp Act, 1957 and it could not be relied upon unless proper duty and penalty was paid, the single judge of the Karnataka High Court referred the matter to the Registrar (Judicial) for determination of the said issue. The High Court of Karnataka   without   consideration   of   the   report  of  the Registrar (Judicial) passed the impugned order thereby, allowing the petition filed by the respondent Nos. 1 and 2 and invoking power under Section 11(6) of the Arbitration Act, appointed an Arbitrator to decide the dispute between the appellants  and  the   respondents.    Being aggrieved thereby, the appellants are before this Court.

The Court 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 has also been held, that the Court cannot act upon such a 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 is needless   to   state,   that   the   provisions   that   fell   for consideration before this Court are analogous with the provisions of Sections 33 and 34 of the Karnataka Stamp Act, 1957.

The Court held that the High Court has totally erred in relying on the lease deed , which was found to be insufficiently stamped and brushing aside the report of the Registrar (Judicial), when the respondents had failed to pay the insufficient stamp duty and penalty as determined by the Registrar(Judicial) of the High Court of Karnataka.

Thus, the appeal is allowed.

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