In pursuance of a lease deed the Respondent (Chandmari Tea Company) (R) leased tea estates to the Appellant (SMS Tea Estates) (A). The lease deed provided for disputes to be resolved by arbitration. Before execution of the lease deed, R offered to sell the tea estates to A, which A accepted through letter of communication between them. Thereafter, A started improving the tea estates. R, however, illegally evicted A from the tea estates. Disputes arose between the parties and A called upon R to refer the disputes to arbitration. R did not comply with this request. A then filed an application under section 11 of the Arbitration and Conciliation Act 1996 to refer the disputes to arbitration. The Chief Justice of the Guwahati High Court dismissed the application on the ground that the lease deed was not registered and therefore the arbitration clause could not be acted upon. A then applied by way of special leave petition to the Supreme Court of India.
- Whether an arbitration clause in an unregistered instrument (which is required to be mandatorily registered) is valid and enforceable?
- Whether an arbitration clause in an unregistered instrument which is not duly stamped is valid and enforceable?
- Whether there is an arbitration agreement between the appellant and respondent and whether an Arbitrator should be appointed?
Issue 1: The Supreme Court held that an arbitration clause in an unregistered instrument is valid and can be acted upon. The court observed that an arbitration clause does not require registration and that it is a “collateral” transaction for the purposes of the proviso to section 49 of the Registration Act. Therefore, considering the proviso to section 49 of the Registration Act, an arbitration clause is valid and enforceable.
Issue 2: As regards stamping requirements, the court held that section 35 of the Stamp Act did not contain a proviso akin to that of section 49 of the Registration Act. Therefore, section 35 of the Stamp Act would render the arbitration clause inadmissible in evidence.
The court, therefore, rejected the appellant’s claim, as the agreement did not contain an enforceable arbitration clause. Even though the arbitration clause had been concluded, any arbitrator appointed could not rely on the unregistered lease deed as it was not admissible in evidence.
The court, therefore, set aside the High Court’s order and ordered reexamination of the fact whether the lease deed had been duly stamped and, if upon examination it was found to be duly stamped, to appoint an arbitrator.
Issue 3: The SC in this regard held that as arbitration agreement could be delinked in the present case, it was valid and enforceable and Arbitrator could be appointed as per Section 11 of the Arbitration Act for the purpose of resolving disputes. However, the Lease Deed being unregistered, the terms cannot be relied upon to claim or enforce any right in respect of the property therein.
Section 11(6) of the Arbitration and Conciliation Act 1996 (the 1996 Act) provides for appointment of an arbitrator by the Chief Justice or his designate if the parties fail to do so.
Section 49 of the Indian Registration Act 1908 (the Registration Act) states that if a document (which is required to be mandatorily registered) is not registered, it cannot be received as evidence in relation to any transaction affecting an immovable property. The proviso to this section states that a collateral transaction, not required to be registered, can be received as evidence.
Section 35 of the Indian Stamp Act 1899 (the Stamp Act) states that instruments not duly stamped are inadmissible in evidence.