N.N. Global Mercantile Private Limited vs Indo Unique Flame Ltd. Ors
Civil Appeal No(S). 3802-3803 of 2020
K.M. Joseph, J
1. We have perused the draft judgments prepared by our esteemed brothers Ajay Rastogi, J. and Hrishikesh Roy, J. With profound respect to our learned Brothers, we are unable to, however, concur with them in their reasoning and conclusions save as will be made clear. Hence, the following judgment.
2. A Bench of three learned Judges disposed of Civil Appeal Nos. 3802-3803 of 2020 by Judgment dated 11.01.2021. The Judgment is reported in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited and others1. What is of relevance for the purpose of the Reference is the following:
“56. We are of the considered view that the finding in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] and Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it nonexistent in law, and unenforceable, is not the correct position in law.
57. In view of the finding in paras 146 and 147 of the judgment in Vidya Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] by a coordinate Bench, which has affirmed the judgment in Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , the aforesaid issue is required to be authoritatively settled by a Constitution Bench of this Court.
58. We consider it appropriate to refer the following issue, to be authoritatively settled by a Constitution Bench of five Judges of this Court:
“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?”
3. The first respondent, who was awarded the Work Order, entered into a sub-contract with the appellant. Clause 10 of the Work Order, constituting the subcontract, provided for an Arbitration Clause. The appellant had furnished a bank guarantee in terms of Clause 9. The invocation of the said guarantee led to a Suit by the appellant against the encashment of the bank guarantee. The first respondent applied under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as, ‘the Act’, for short) seeking Reference. A Writ Petition was filed by the first respondent challenging the Order of the Commercial Court rejecting the Application under Section 8 of the Act. One of the contentions raised was that the Arbitration Agreement became unenforceable as the Work Order was unstamped. The High Court, however, allowed the Writ Petition filed by the first respondent. The issue relevant to this Bench was, whether the Arbitration Agreement would be enforceable and acted upon, even if the Work Order is unstamped and unenforceable under the Indian Stamp Act, 1899 (hereinafter referred to as, ‘the Stamp Act’, for short).
4. The Court found that an Arbitration Agreement is a distinct and separate agreement, which is independent from the substantive commercial contract in which it is embedded. Under the Doctrine of Kompetenz–Kompetenz, the Arbitral Tribunal had competence to rule on its own jurisdiction, including objections with regard to the existence, validity and scope of the Arbitration Agreement. Section 16(1) of the Act was relied upon. The Court made a copious reference to case law in support of the Doctrine of Kompetenz-Kompetenz. Section 5 of the Act contemplated minimal judicial interference. The Court referred to the Maharashtra Stamp Act, 1958. Section 34 of the said Act, essentially, is pari materia with Section 35 of the Stamp Act, 1899 hereinafter referred to as the Stamp Act. There are other provisions, which essentially follow the same pattern as is contained in the latter Act. The Court, thereafter, went on to refer to Item
63 of Schedule I of the Maharashtra Stamp Act, 1958, which dealt with ‘Works Contract’. It was found that the Stamp Act is a fiscal measure. Thereafter, the Court went on to discuss the Judgment of this Court reported in SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited2. The Court referred to the following part of the Judgment in SMS Tea Estates (supra):
“19. Having regard to Section 35 of the 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 the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction.
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21. 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 the 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.”
5. The Court further went on to find that, at the time SMS Tea Estates (supra) was decided, the law relating to reference to Arbitration under Section 11 of the Act, was expounded in the Constitution Bench decision reported in SBP & Co. v. Patel Engineering Ltd. and another, among other cases. It was further found that the law laid down was that in an Application under Section 11(6) of the Act, the Court may determine certain threshold issues, such as, whether the claim was time-barred, or a stale claim; whether there was accord and satisfaction, which would preclude the need for reference to arbitration. Thereafter, the Court refers to the amendment to Section 11 by the insertion of Sub-Section (6A) in Section 11. The Court referred to the Judgment in Duro Felguera, S.A. v. Gangavaram Port Limited, to conclude that what was to be gone into was only whether an Arbitration Agreement existed or not. The Court noted that the said position was affirmed by a Bench of three learned Judges in Mayavati Trading Private Limited v. Pradyuat Deb Burman. Still further, the Court went on to notice the Judgment rendered by the Bench of two learned Judges in Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited and referred to para 22 of the said decision where this Court relied on Section 2 (h) of the Indian Contract Act, 1872 (hereinafter referred to as, ‘the Contract Act’, for short) and found that an unstamped agreement to be unenforceable.
6. In Garware (supra), the Bench of two learned Judges took the view that the Arbitration Clause contained in the sub-contract would not exist as a matter of law until the sub-contract was duly stamped. It was further found that Section 11(6A) deals with existence as opposed to Section 8, and Section 45 of the Act [See paragraph 29 of Garware (supra)]. The Bench of three learned Judges in its judgment in N.N. Global (supra), containing the Order of Reference to the Constitution Bench, found that an Arbitration Agreement is not included in the Schedule as an instrument chargeable to stamp duty. The Court referred to Item 12 of Schedule I of the Maharashtra Stamp Act, 1958, in this regard. Thereafter, the Court went on to find that the Work Order was chargeable to payment of stamp duty. The Court, however, found that the non-payment or the deficiency on the Work Order did not invalidate the main contract. Section 34 of the Maharashtra Act corresponding to Section 35 of the Stamp Act did not make the unstamped instrument, invalid, non-existent or unenforceable in law. The Court found that the Arbitration Agreement was a distinct and an independent contract. On the Doctrine of Separability, it would not be rendered invalid, unenforceable or non-existing, even if the substantive contract, in which it is contained, was inadmissible in evidence or could not be acted upon, in view of it not being stamped. The Bench in N.N. Global (supra) went on to hold as follows:
“26. In our view, there is no legal impediment to the enforceability of the arbitration agreement, pending payment of stamp duty on the substantive contract. The adjudication of the rights and obligations under the work order or the substantive commercial contract would, however, not proceed before complying with the mandatory provisions of the Stamp Act.
27. The Stamp Act is a fiscal enactment for payment of stamp duty to the State on certain classes of instruments specified in the Stamp Act. Section 40 of the Stamp Act, 1899 provides the procedure for instruments which have been impounded, and sub-section (1) of Section 42 requires the instrument to be endorsed after it is duly stamped by the Collector concerned. Section 42(2) provides that after the document is duly stamped, it shall be admissible in evidence, and may be acted upon.
28. In our view, the decision in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] does not lay down the correct position in law on two issues i.e. : (i) that an arbitration agreement in an unstamped commercial contract cannot be acted upon, or is rendered unenforceable in law; and (ii) that an arbitration agreement would be invalid where the contract or instrument is voidable at the option of a party, such as under Section 19 of the Contract Act, 1872.
29. We hold that since the arbitration agreement is an independent agreement between the parties, and is not chargeable to payment of stamp duty, the non-payment of stamp duty on the commercial contract, would not invalidate the arbitration clause, or render it unenforceable, since it has an independent existence of its own. The view taken by the Court on the issue of separability of the arbitration clause on the registration of the substantive contract, ought to have been followed even with respect to the Stamp Act. The non-payment of stamp duty on the substantive contract would not invalidate even the main contract. It is a deficiency which is curable on the payment of the requisite stamp duty.
30. The second issue in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] that a voidable contract would not be arbitrable as it affects the validity of the arbitration agreement, is in our view not the correct position in law. The allegations made by a party that the substantive contract has been obtained by coercion, fraud, or misrepresentation has to be proved by leading evidence on the issue. These issues can certainly be adjudicated through arbitration.
31. We overrule the judgment in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] with respect to the aforesaid two issues as not laying down the correct position in law.”
7. We may also notice paragraph-32 in N.N. Global (supra):
”32.Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] judgment has followed the judgment in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] . The counsel for the appellant has placed reliance on para 22 of the judgment to contend that the arbitration clause would be non-existent in law, and unenforceable, till stamp duty is adjudicated and paid on the substantive contract. We hold that this finding is erroneous, and does not lay down the correct position in law. We have already held that an arbitration agreement is distinct and independent from the underlying substantive commercial contract. Once the arbitration agreement is held to have an independent existence, it can be acted upon, irrespective of the alleged invalidity of the commercial contract.”
8. Thereafter, the Bench of three learned Judges in N.N. Global (supra) noted that the Judgment in Garware (supra) was cited with approval by a Bench of three learned Judges in Vidya Drolia and others v. Durga Trading Corporation7. The Court set out paragraphs 146 and 147 of Vidya Drolia (supra) and doubted the correctness of the said view and found it appropriate to refer the findings in paragraphs-22 and 29 of Garware (supra) as affirmed in paragraphs 146 & 147 of Vidya Drolia (supra) to the Constitution Bench. We deem it appropriate to now refer to the following paragraphs in N.N. Global (supra):
“35. The next issue which arises is as to which authority would exercise the power of impounding the instrument under Section 33 read with Section 34 of the Maharashtra Stamp Act, in a case where the substantive contract contains an arbitration agreement.
36. In an arbitration agreement, the disputes may be referred to arbitration by three modes.
36.1. The first mode is where the appointment of the arbitrator takes place by the parties consensually in accordance with the terms of the arbitration agreement, or by a designated arbitral institution, without the intervention of the court. In such a case, the arbitrator/tribunal is obligated by Section 33 of the Stamp Act, 1899 (or the applicable State Act) to impound the instrument, and direct the parties to pay the requisite stamp duty (and penalty, if any), and obtain an endorsement from the Collector concerned. This would be evident from the provisions of Section 34 of the Stamp Act which provides that “any person having by law or consent of parties authority to receive evidence” is mandated by law to impound the instrument, and direct the parties to pay the requisite stamp duty.
36.2. The second mode of appointment is where the parties fail to make the appointment in accordance with the arbitration agreement, and an application is filed under Section 11 before the Court to invoke the default power for making the appointment. In such a case, the High Court, or the Supreme Court, as the case may be, while exercising jurisdiction under Section 11, would impound the substantive contract which is either unstamped or inadequately stamped, and direct the parties to cure the defect before the arbitrator/tribunal can adjudicate upon the contract.
36.3. The third mode is when an application is filed under Section 8 before a judicial authority for reference of disputes to arbitration, since the subject-matter of the contract is covered by an arbitration agreement. In such a case, the judicial authority will make the reference to arbitration. However, in the meanwhile, the parties would be directed to have the substantive contract stamped in accordance with the provisions of the relevant Stamp Act, so that the rights and obligations emanating from the substantive contract can be adjudicated upon.”
9. Shri Gagan Sanghi, learned Counsel, appeared on behalf of the appellant (M/s N.N. Global Mercantile Private Limited). Initially, since there was no appearance for the first respondent, we appointed Shri Gourab Banerji, learned Senior Counsel as Amicus Curiae. We also heard Ms. Malavika Trivedi, learned Senior Counsel, appearing by way of intervention. Shri K Ramakanth Reddy, learned Senior Counsel appeared thereafter for the first respondent and made his submissions.
10. Shri Gagan Sanghi would take us through the provisions of the Stamp Act and the Act and contended that Section 35 of the Stamp Act barred admission of a not duly stamped instrument in evidence for any purpose in Court. Furthermore, a Court could not act upon such an instrument. Not even for a collateral purpose, ran the argument. There is an absolute bar. An Arbitration Agreement, even if contained in a Clause, in a Work Order or in other commercial contract, cannot have a separate existence as found in N.N. Global (supra). The Doctrine of the Arbitration Agreement being distinct and having a separate existence, has been erroneously understood in the context of Sections 33 and 35 of the Stamp Act. The Judgment in SMS Tea Estates (supra) ought not to have been overruled. The Principle of Stare Decisis could not have been overlooked. The learned Counsel drew our attention to the fact that several foreign countries have laws, which contain provisions similar to Sections 33 and 35 of the Stamp Act. In fact, he would contend that there was no occasion to make the reference as the main case stood disposed of. He would submit that even in an Application under Section 11 of the Act, the Court was bound to observe the mandate of the law contained in Sections 33 and 35 of the Stamp Act. The law has been correctly laid down in SMS Tea Estates (supra) and Garware (supra) and it was also correctly upheld in Vidya Drolia (supra). The amendment to Section 11 by the insertion of sub-Section (6A), could not authorise a Court to overlook the dictate of Sections 33 and 35 of the Stamp Act.
11. Smt. Malvika Trivedi, learned Senior Counsel, projected the same complaint against the view taken in N.N. Global (supra). She, in fact, drew our attention to the impact of the view taken in N.N. Global (supra) to the proceedings under Section 9 of the Act. It is her case that the requirement to comply with Sections 33 and 35 of the Stamp Act, would not stand displaced, even in an Application under Section 9 of the Act.
12. Shri Gourab Banerji, learned Amicus, contended that actually, there were parts of Garware (supra), Vidya Drolia (supra) and N.N. Global (supra), which did lay down the law correctly. He began by pointing out that the Bench in N.N. Global (supra) was not correct in proceeding on the basis that, an Arbitration Agreement, was not required to be stamped. He drew our attention to Article 5 of Schedule I of the Maharashtra Stamp Act, 1958 in this regard. It is his submission that the existence and/or validity of an Arbitration Agreement is not affected by the provisions of the Stamp Act. Non-payment of the stamp duty will not invalidate the instrument. It is a curable defect. A true reading of Section 11(6A) would establish that the impounding of an unstamped or deficiently stamped instrument, is not to be done by the Judge under Section 11 but by the Arbitrator appointed under Section 11. Section 11(6A) compels the Court to confine its examination to the question of the existence of the Arbitration Agreement. In view of the fact that, neither Garware (supra) nor N.N. Global (supra) laid down the law correctly, he requested that the reference be reformulated as indicated later.
13. Relying upon the Judgment of this Court in Hindustan Steel Ltd. v. Dilip Construction Company8, it is contended that an unstamped document can be acted upon, after payment of duty and penalty. Being a curable defect, it could not be found that an unstamped instrument did not exist in the eye of law. He drew our attention to the Judgment of the Privy Council in Lachmi Narayan Agarwalla and Others v. Braja Mohan Singh (SINCE DECEASED) 9, to contend that an unstamped instrument, with penalty paid, became effective in law. He further drew support from the following Judgments:
14. The aforesaid case law, unerringly points to the conclusion that failure to stamp a document, did not affect the validity of the document. It merely rendered the document inadmissible in evidence. From the Judgment of the Pakistan Supreme Court in United Insurance Company of Pakistan Limited v. Hafiz Muhammad Siddique13, the following words of Dorab Patel, J., are enlisted before us:
“It would be against all cannons of construction to enlarge the meaning of the words in Section 35 so as to render invalid instruments which fall within mischief of the section.”
15. The learned Amicus would point out that stamp duty is levied with reference to the instrument and not the transaction. The Stamp Act is a consolidating Act. It is a fiscal law. Securing revenue was the aim. It cannot be used to clothe a litigant with an arm of technicality. He drew our attention to Section 5 of the Act interdicting judicial intervention. He pointed out Section 8 of the Act, which, after the amendment in the year 2015, permits disallowing of making a reference to arbitration, only if the Court found prima facie that no valid Arbitration Agreement existed. Section 8, he pointed out, did refer to ‘validity’. He took us through the decision in SMS Tea Estates (supra), in the context of the law laid down in SBP (supra), by the Constitution Bench, the Report of the Law Commission of India and emphasised the need for minimal interference and to give full meaning to Section 11(6A), by ensuring minimal interference. He drew our attention to the discussion by the high-level Committee, which preceded the amendment in Section 11. He commended for the Court’s acceptance, the view taken by this Court in Duro Felguera14, wherein, Justice Kurian Joseph, speaking for the Court inter alia, held in the post Section 11(6A) scenario, as follows:
“59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] . This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”
16. The learned Amicus would point out that nonstamping did not render the agreement null and void. In law and in point of fact, an unstamped instrument bears life. He would point out that Duro Felguera (supra) was approved by a Bench of three learned Judges in Mayavati Trading (supra). He would attack the finding in Garware (supra) that an unstamped instrument was void as being incorrect. He would submit that what is required in law, after the insertion of sub-Section (6A) is clear as daylight. The existence of an Arbitration Agreement, is all that should detain the Judge in an application under Section 11. No doubt, he would point out that there may be cases where the actual situation, which occasioned the Judgment in Vidya Drolia (supra), may exist. This means that since Section 5 of the Act makes certain disputes nonarbitrable, it may detain a Judge, who is approached under Section 11, to dissuade him from making a reference. There may arise occasions, which may leave the Judge with little choice but to decline the reference. An instance may be an agreement demonstrated to be made by a minor or a person of unsound mind. Such exceptional cases apart, the learned Amicus would request the Court to draw comfort from the thought that the Arbitrator is fully competent by virtue of the Doctrine of Kompetenz-Kompetenz, which stands enshrined in Section 16 of the Act, to deal with all sorts of objections. Having regard to the clear legislative intent, discernible from the Report of the Law Commission and the amendment to Section 11 of the Act, which finds its echo in the change brought about in Section 8 of the Act, by the same amendment, the effort must be to facilitate an unhindered and smooth passage for an Application seeking reference to arbitration. The learned Amicus with reference to paragraph-18 of SBP (supra), submits that the Court in Garware (supra) erred in holding that only if the Arbitrator was appointed, without intervention of the Court, Section 16 would have full play. It is pointed out that the Judgment in SBP (supra) will not have life, after the amendment in 2015. He would also point out that the Court in Garware (supra) erred in paragraph-19, when it suggested that the Court was only giving effect to a mandatory enactment, which purported to protect the public revenue. While it is correct, it is pointed out that an agreement enforceable by law is a contract and Section 2(g) of the Contract Act, provides that an agreement not enforceable by law, is said to be void, non-stamping or inadequate stamping would not make an instrument void. It is pointed out that the suggestion that, an unstamped document did not become a contract, and that it was, therefore, unenforceable in law was incorrect. He also would find fault with the Court in Garware (supra), when it found that an unstamped document would not ‘exist’ as a matter of law. The solution suggested by the learned Amicus is that an Arbitrator may be appointed and, to allow the Arbitral Tribunal to fulfil its duties under the Stamp Act. In other words, it is pointed out, in keeping with the purpose of Section 11(6A) and the need for minimal interference, as contemplated in Section 5 of the Act, on a prima facie examination as to existence of an Arbitration Agreement, a reference must be made. He further also would point out that the Judgment of Justice Sanjiv Khanna in Vidya Drolia (supra) may require a revisit. With reference to paragraph-31, wherein Sanjiv Khanna, J., felt bound by the Constitution Bench Judgment in SBP (supra), it is pointed out that the learned Judge ignored the amendments to Sections 8 and 11 brought about by the amendment in 2015. He would further point out that in paragraphs-81 to 154, under the caption ‘Who decides non-arbitrability’, he calls for clarity to be brought. In paragraph-98, it is pointed out that an error was occasioned in coming to the conclusion that Sections 8 and 11 were complementary in nature and in exercising power under the two provisions, the jurisdiction was complementary. It is pointed out that the views of Justice Sanjiv Khanna appear to be inconsistent with that of the three-Judge Bench in Mayavati (supra). It is submitted by the learned Amicus that the observations of Justice Sanjiv Khanna, in paragraphs146, 147.1, 147.9 and paragraph-147.10 may require recalibration. Paragraphs-146 to 154, it is the stand of the Amicus Curiae, may have to be fine-tuned. Learned Amicus would point out that the conclusion of N.V. Ramana, J. in Paragraphs-237 and 244 may be endorsed to the extent of inconsistency with that of Justice Sanjiv Khanna. Coming to N.N. Global (supra), the learned Amicus, apart from pointing out that contrary to what was held, viz., that an Arbitration Agreement was not exigible to stamp duty, it was, indeed, liable. It is pointed out that the ratio in paragraphs-22 and 26, would have to be supported. It is the contention of the learned Amicus that Sections 8 and 11 of the Act could not be equated. The standard to be applied may be the same, i.e., a prima facie satisfaction of the existence of the Arbitration Agreement. In Section 11, the Court operates as a substitute of an Appointing Authority. There is only a narrow scope. It is his case, that in an Application under Section 8, the scope may be wider as one has to see whether there was a valid Arbitration Agreement. It is his submission that unless it is patently void, ‘subject matter arbitrability’ should be left to the Arbitrator. In a Section 8 Application, the Court should not undertake the exercise of examining of the issue relating to the stamp duty, which goes to admissibility and not jurisdiction. The word ‘existence’ in Section 11(6A) meant legally enforceable existence and not mere presence in the contract. The scope of the Court must be circumscribed to narrow the prima facie examination of:
i. Formal validity of the Arbitration Agreement at the stage of contract formation, including as to whether it is in writing;
ii. Whether the core contractual ingredients were fulfilled?;
iii. On rare occasions, whether the dispute was arbitrable;
17. The adjudication of stamp duty is a time-consuming affair and it would not align with the goal of the Act, which is to ensure the expeditious appointment of Arbitrators and the conclusion of the proceedings with the least judicial interference. If the Court refrained from interfering on the score of disputes as to stamp duty and allow the Arbitrator to deal with the matter, which, he is, in law, fully competent to deal with, it would promote the very cause of speedy dispute resolution, which is the very goal of the institution of arbitration.
18. At the time of hearing Shri K. Ramakanth Reddy, learned senior counsel appeared for the first respondent. He would contend that the court must adopt a harmonious construction as between the Stamp Act and the Act. He emphasises the importance of conforming to Section 5 of the Act. He drew our attention to the judgment of this Court in Great Offshore Ltd. v. Iranian Offshore Engg. & Construction Co.15 In the said judgment which is authored by a learned Single Judge, while dealing with a petition under Section 11 of the Act, inter alia, held:
55. Second, the plain language of Section 7 once again governs my conclusion. Section 7 does not require that the parties stamp the agreement. It would be incorrect to disturb Parliament's intention when it is so clearly stated and when it in no way conflicts with the Constitution.
60. Technicalities like stamps, seals and even signatures are red tape that have to be removed before the parties can get what they really want—an efficient, effective and potentially cheap resolution of their dispute. The autonomie de la volonté doctrine is enshrined in the policy objectives of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985, on which our Arbitration Act is based. (See Preamble to the Act.) The courts must implement legislative intention. It would be improper and undesirable for the courts to add a number of extra formalities not envisaged by the legislation. The courts' directions should be to achieve the legislative intention.
19. He drew our attention to the judgment of this Court in Commissioner of Income Tax v. Hindustan Bulk Carriers16, inter alia, that a Court should, faced with two interpretations avoid the construction which reduces the legislation to futility but accept a bolder construction which will produce an effective result qua the purpose sought to be achieved.
20. Shri Debesh Panda, learned counsel appearing for the Applicant (Intervention) in I.A.No.199969 of 2022 submitted that the Act constitutes a complete Code. Since Section 5 of the Act contains a non-obstante clause which declares that “notwithstanding anything contained in any other law for the time being in force” despite the Stamp Act on the principle of minimum interference except as provided in Part-I of the Act, the Court should not be detained by Sections 33 and 35 of the Stamp Act. He also reiterates that what is required under Section 11 is a prima facie satisfaction. Parliament did not require the consideration of validity when it enacted Section 11 (6A). There is a conscious distinction between Sections 8 and 11. In other words, there is a distinction between the expressions ‘existence’ and ‘validity’. The width of powers under Section 16 is untrammelled, it is contended.
21. In view of the submission made by the learned Amicus that the Court in N.N. Global (supra) was in error in proceeding on the basis that the Arbitration Agreement would not be exigible to stamp duty, the very premise of the Order of Reference would stand removed. The reformulated question sans the words, ‘which is not chargeable to payment of stamp duty’, and words, ‘unenforceable or invalid’, would, therefore, be as follows:
“Whether the statutory bar contained in Section 35 of the Stamp Act applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, as being non-existent, pending payment of stamp duty on the substantive contract/instrument?”
22. Section 2(b) of the Act defines an Arbitration Agreement to be ‘an agreement referred to in Section 7’.
23. Section 5 of the Act declares as follows: -
“5. Extent of judicial intervention. - Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”
24. Section 7 of the Act reads as follows:
“7 Arbitration agreement. —
(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”
25. Section 11 deals with Appointment of Arbitrators. Since we are concerned with the impact of Section 11(6A), which was inserted by Act 3 of 2016 w.e.f. 23.10.2015, we deem it appropriate to refer to the same
“6A. The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or subsection (5), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”
It must be noticed that the aforesaid provision stands omitted by Act 33 of 2019. But Act 33 of 2019 has not been brought into force.
26. It is important to delve into the past and enquire as to what led to the insertion of sub-Section (6A) in Section 11 of the Act. The Act was passed in the year 1996. The Act is, undoubtedly, based on the UNCITRAL MODEL Law. The Hundred and Seventy-Sixth Report of the Law Commission of India made its recommendations for enacting amendments to the Act. This is followed by the Justice B.P. Saraf Committee Report, which was submitted on 29.01.2005. The nature of the power exercised by the courts under Section 11 of the Act, was the subject matter of considerable case law. Suffice it to notice, a Bench of seven learned Judges, with a lone dissent, in SBP (supra), proceeded to hold that the power exercised under Section 11(6) was a judicial power and not an administrative power. In the Majority Judgment, the Court had occasion to consider the impact of Section 16 of the Act, which incorporates the Principle of Kompetenz-Kompetenz. The Court held, inter alia, as follows:
“12. … When the Tribunal decides these two questions, namely, the question of jurisdiction and the question of exceeding the scope of authority or either of them, the same is open to immediate challenge in an appeal, when the objection is upheld and only in an appeal against the final award, when the objection is overruled. Sub-section (5) enjoins that if the Arbitral Tribunal overrules the objections under sub-section (2) or (3), it should continue with the arbitral proceedings and make an arbitral award. Subsection (6) provides that a party aggrieved by such an arbitral award overruling the plea on lack of jurisdiction and the exceeding of the scope of authority, may make an application on these grounds for setting aside the award in accordance with Section 34 of the Act. The question, in the context of sub-section (7) of Section 11 is, what is the scope of the right conferred on the Arbitral Tribunal to rule upon its own jurisdiction and the existence of the arbitration clause, envisaged by Section 16(1), once the Chief Justice or the person designated by him had appointed an arbitrator after satisfying himself that the conditions for the exercise of power to appoint an arbitrator are present in the case. Prima facie, it would be difficult to say that in spite of the finality conferred by sub-section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the Arbitral Tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an Arbitral Tribunal, the Arbitral Tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the Tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. The argument of the learned Senior Counsel, Mr K.K. Venugopal that Section 16 has full play only when an Arbitral Tribunal is constituted without intervention under Section 11(6) of the Act, is one way of reconciling that provision with Section 11 of the Act, especially in the context of sub-section (7) thereof. We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal and at subsequent stages of the proceeding except in an appeal in the Supreme Court in the case of the decision being by the Chief Justice of the High Court or by a Judge of the High Court designated by him.” (Emphasis supplied)
27. We may next notice the Judgment rendered by a Bench of two learned Judges in SMS Tea Estates (supra). They dealt with three questions. What is of relevance, is the second question, which was, ‘whether an Arbitration Agreement in an unregistered instrument, which is not duly stamped, is valid and enforceable’. The Court, inter alia, held as follows:
“20. The Scheme for Appointment of Arbitrators by the Chief Justice of Gauhati High Court, 1996 requires an application under Section 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.
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22. 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 registerable) and which is not duly stamped:
22.1. 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 registerable.
22.2. If the document is found to be not duly stamped, Section 35 of the 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 under Section 33 of the Stamp Act and follow the procedure under Sections 35 and 38 of the Stamp Act.
22.3. 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 Section of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.” (Emphasis supplied)
This view has been followed subsequently in Garware (supra) and also in Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram v. Bhaskar Raju & Bros.17 We have omitted repetition of paragraphs-19 and 21, which have been referred to earlier.
28. Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. and another18 was a case of international arbitration arising under Section 45 of the Act. With a Bench of three learned Judges deciding the case, the majority with Justice Y.K. Sabharwal dissenting, took the view that in deciding the question as to whether a reference must be made to arbitration under Section 45, the approach must be to find out whether a prima facie case is made out and whether it was ‘plainly arguable’ that an Arbitration Agreement was in existence. The Court, in other words, took the view that there must be a prima facie satisfaction that there was an Arbitration Agreement, which is not null and void, inoperative or incapable of being performed. Section 45, it must be noticed, at the time when the case was decided, read as follows:
“45. Power of judicial authority to refer parties to arbitration.-Notwithstanding anything contained in Part I or in the Code of Civil Procedure , 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” (Emphasis supplied)
29. It was on the aforesaid statutory text that Justice B.N. Srikrishna took the view that the finding as to the existence of the Arbitration Agreement, was to be a prima facie finding. Justice D.M. Dharmadhikari agreed with Justice B.N. Srikrishna with certain additions.
30. In National Insurance Company Limited v. Boghara Polyfab Private Limited19, the question, which fell for consideration before the Bench of two learned Judges, was as to in what circumstances, a Court would refuse to refer a dispute relating to quantum to arbitration even though the contract contemplated a reference of such a dispute to arbitration. It also fell for consideration, as to whether the resistance to the reference on the ground that the applicant under Section 11 of the Act, received the amount and issued a full and final discharge voucher, which he contented was issued under undue influence, coercion and economic compulsion, justified the reference. Justice R.V. Raveendran, speaking for the Court, inter alia, purported to follow the Judgment in SBP (supra) and held as follows:
“22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. [(2005) 8 SCC 618] This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:
(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.
22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live claim.
(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration.
23. It is clear from the scheme of the Act as explained by this Court in SBP & Co. [(2005) 8 SCC 618] , that in regard to issues falling under the second category, if raised in any application under Section 11 of the Act, the Chief Justice/his designate may decide them, if necessary, by taking evidence. Alternatively, he may leave those issues open with a direction to the Arbitral Tribunal to decide the same. If the Chief Justice or his designate chooses to examine the issue and decides it, the Arbitral Tribunal cannot reexamine the same issue. The Chief Justice/his designate will, in choosing whether he will decide such issue or leave it to the Arbitral Tribunal, be guided by the object of the Act (that is expediting the arbitration process with minimum judicial intervention). Where allegations of forgery/fabrication are made in regard to the document recording discharge of contract by full and final settlement, it would be appropriate if the Chief Justice/his designate decides the issue.
24. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or undue influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the Arbitral Tribunal as directed by the order under Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant.”
31. It is to be noticed that, at the time when the Court rendered SBP (supra) and SMS Tea Estates (supra), Section 11(6) contemplated appointment being made of an Arbitrator, essentially on the failure of parties to agree on the appointment or to make the appointment. It is in the context of the views expressed by the Courts, as aforesaid, that the Law Commission of India submitted the Two Hundred and Forty-Sixth Report in August, 2014. In the said Report, after referring to the Judgment in SBP (supra) and the views expressed in National Insurance (supra), the Law Commission, inter alia, submitted the following recommendations:
“31. The Commission is of the view that, in this context, the same test regarding scope and nature of judicial intervention, as applicable in the context of Section 11, should also apply to Sections 8 and 45 of the Act - since the scope and nature of judicial intervention should not change upon whether a party (intending to defeat the arbitration agreement) refuses to appoint an arbitrator in terms of the arbitration agreement, or moves a proceeding before a judicial authority in the face of such an arbitration agreement.
32. In relation to the nature of intervention, the exposition of the law is to be found in the decision of the Supreme Court in Shin Etsu Chemicals Co. Ltd. v. Aksh Optifibre, (2005) 7 SCC 234, (in the context of Section 45 of the Act), where the Supreme Court has ruled in favour of looking at the issues/controversy only prima facie.
33. It is in this context, the Commission has recommended amendments to Sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the Court/Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. In the event that the judicial authority refers the dispute to arbitration and/or appoints an arbitrator, Under Sections 8 and 11 respectively, such a decision will be final and non-appealable. An appeal can be maintained Under Section 37 only in the event of refusal to refer parties to arbitration, or refusal to appoint an arbitrator.” (Emphasis supplied)
32. It is, accordingly, accepting the Report that Section 11(6A) came to be inserted. After having set out the events, which led to the insertion of Section 11(6A), we may take the narrative forward. In Duro Felguera (supra), we have noticed the view taken in paragraph 59 in an earlier part of this judgment, in essence, the duty to find out whether an arbitration agreement exists or not. The learned Judge also made observations in paragraph 48 wherein after quoting Section 11(6A) he held as follows:
“…From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.”
33. In Garware (supra) a Bench of two learned Judges dealt with a case under Section 11(6A) itself and that too in the context of the Maharashtra Stamp Act, 1958. The contention raised by the appellant was that the Judgment in SMS Tea Estates (supra) continues to apply even after the introduction of Section 11(6A). In other words, notwithstanding the insertion of Section 11(6A), the procedure contemplated in SMS Tea Estates (supra) would have to be followed. The Court went on to hold, inter alia, as noticed by us already and which has been referred to in N.N. Global (supra):
22. When an arbitration Clause is contained "in a contract", it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Indian Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration Clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates has, in no manner, been touched by the amendment of Section 11(6A).
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29. This judgment in Hyundai Engg. case is important in that what was specifically under consideration was an arbitration Clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration Clause did "exist", so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration Clause that is contained in the sub-contract would not "exist" as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6A) deals with "existence", as opposed to Section 8, Section 16, and Section 45, which deal with "validity" of an arbitration agreement is answered by this Court's understanding of the expression "existence" in Hyundai Engg. Case as followed by us.”
34. We may notice that in Section 45 of the Act, for the words ‘unless it finds’, by Act 33 of 2019, the words ‘unless it prima facie finds’, were substituted. This amounted to a legislative recognition of the position taken by this Court through the Judgment rendered by Justice B. N. Srikrishna in SMS Tea Estates (supra).
35. In Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman20, a Bench of three learned Judges of this Court inter alia held as follows:
10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., (2019) 5 SCC 362 : (2019) 2 SCC (Civ) 785], as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] — see paras 48 & 59 [Ed. : The said paras 48 & 59 of Duro Felguera, SA v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764, for ready reference, read as follows:“48. Section 11(6-A) added by the 2015 Amendment, reads as follows:“11. (6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under subsection (4) or sub-section (5) or subsection (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement.”(emphasis supplied)From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.***59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117. This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists—nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6- A) ought to be respected.”] .
36. The view taken in Garware (supra) [paragraphs-22 and 29 (supra)], came to be specifically approved by a Bench of three learned Judges in the Judgment reported in Vidya Drolia (supra). Therein, Justice Sanjiv Khanna wrote for the Court and Justice N.V. Ramana supplemented with his own Judgment. The Judgment was rendered on a Reference dated 28.02.2009 and the question was, whether landlord-tenant disputes, governed by provisions of the Transfer of Property Act were arbitrable or not. Apart from the said issue, the other conundrum was as to who would decide, viz., the Court at the reference stage, or the Arbitral Tribunal in the arbitration proceedings. The Court also found it fit to go into the question as to the scope and ambit of the jurisdiction at the reference stage. It is in the course of his Judgement that he made the following observations in pargraphs-146 and 147, 147.1 of Vidya Drolia (supra):
“146. We now proceed to examine the question, whether the word “existence” in Section 11 merely refers to contract formation (whether there is an arbitration agreement) and excludes the question of enforcement (validity) and therefore the latter falls outside the jurisdiction of the court at the referral stage. On jurisprudentially and textualism it is possible to differentiate between existence of an arbitration agreement and validity of an arbitration agreement. Such interpretation can draw support from the plain meaning of the word “existence”. However, it is equally possible, jurisprudentially and on contextualism, to hold that an agreement has no existence if it is not enforceable and not binding. Existence of an arbitration agreement presupposes a valid agreement which would be enforced by the court by relegating the parties to arbitration. Legalistic and plain meaning interpretation would be contrary to the contextual background including the definition clause and would result in unpalatable consequences. A reasonable and just interpretation of “existence” requires understanding the context, the purpose and the relevant legal norms applicable for a binding and enforceable arbitration agreement. An agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law.
147. We would proceed to elaborate and give further reasons:
147.1. In Garware Wall Ropes Ltd. [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to “existence” and “validity” of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing para 29 thereof : (SCC p. 238) “29. This judgment in Hyundai Engg. case [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is important in that what was specifically under consideration was an arbitration clause which would get activated only if an insurer admits or accepts liability. Since on facts it was found that the insurer repudiated the claim, though an arbitration clause did “exist”, so to speak, in the policy, it would not exist in law, as was held in that judgment, when one important fact is introduced, namely, that the insurer has not admitted or accepted liability. Likewise, in the facts of the present case, it is clear that the arbitration clause that is contained in the sub-contract would not “exist” as a matter of law until the sub-contract is duly stamped, as has been held by us above. The argument that Section 11(6-A) deals with “existence”, as opposed to Section 8, Section 16 and Section 45, which deal with “validity” of an arbitration agreement is answered by this Court's understanding of the expression “existence” in Hyundai Engg. case [United India Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] , as followed by us.” Existence and validity are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. Invalid agreement is no agreement.”
37. It is thereafter that in N.N. Global (supra), the Court doubted the correctness of the view taken in the aforesaid paragraphs and referred to the findings in paragraph-22 and 29 in Garware (supra), which stood affirmed in paragraphs-146 and 147 of Vidya Drolia (supra). We may notice that paragraph-147 of Vidya Drolia (supra) purported to give reasons in regard to what was stated in paragraph-146. Paragraph-147 is followed by paragraphs- 147.1 to 147.11. However, what, apparently, the Court in N.N. Global (supra) doubted, appears to be paragraphs-146 and 147, which we understand in the context of this case, is to be confined to paragraph-147.1.
38. We may resume survey of the Act to the extent it is relevant. Section 16 enshrines the Principle of Kompetenz-Kompetenz. It reads as follows:
“16. Competence of arbitral tribunal to rule on its jurisdiction.—
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or subsection (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or subsection (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.”
