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Supreme Court of India
M/S. Dharmaratnakara Rai Bahadur … vs M/S. Bhaskar Raju And Brothers on 14 February, 2020Author: Hon’Ble The Justice
Bench: Hon’Ble The Justice, B.R. Gavai, Surya Kant
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 1599 OF 2020
(Arising out of SLP(C) No. 7088 of 2015)
M/S DHARMARATNAKARA RAI
BAHADUR ARCOT NARAINSWAMY
MUDALIAR CHATTRAM & OTHER
CHARITIES & ORS. …APPELLANT(S)
VERSUS
M/S BHASKAR RAJU & BROTHERS
& ORS. …. RESPONDENT(S)
JUDGMENT
Leave granted.
2. Heard the learned counsel for the parties.
3. By way of present appeal, the appellants challenge
the judgment and order dated 1.12.2014, passed by the
Signature Not Verified single judge of the High Court of Karnataka at Bangalore in
Digitally signed by
CHARANJEET KAUR
Date: 2020.02.14
Civil Miscellaneous Petition No. 167 of 2013 whereby,
18:15:23 IST
Reason:
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Justice L. Sreenivasa Reddy, former judge of the High
Court of Karnataka, was appointed as Arbitrator to conduct
arbitration proceedings at the Arbitration Centre,
Bangalore, as per the Arbitration and Conciliation Act,
1996 (hereinafter referred to as “the Arbitration Act”) read
with the Arbitration Central Rules.
4. The facts, in brief, giving rise to the present appeal
are as under:
5. 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 multipurpose community
hall with office complex.
6. 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.
Negotiations were held between the appellant No.1 – Trust
and the respondent No.1.
7. As an outcome of the negotiations, a lease deed was
executed between the appellant No.1 Trust and the
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respondent No.1 – lessee for a period of 38 years. As per
the said lease deed, the respondent No.1 – lessee was
required to pay an amount of Rs.55,00,000/ (Rupees Fifty
five lakh only) as an interest free deposit, which was to be
refunded to it at the end of the period of 38 years, if the
lease was not extended between the parties. As per the
terms of the said lease deed, a certain monthly ground rent
was also required to be paid by the respondent No.1 –
lessee to the appellant No.1 Trust. As per the said lease
deed, the respondent No.1 – lessee was to construct a
multipurpose auditorium with minimum seating capacity
of one thousand persons. The said auditorium was to be
used for marriages, etc. together with dining hall, kitchen,
guest rooms, etc. The respondent No.1 – lessee had also
undertaken to obtain vacant possession of property
mentioned in Schedule ‘B’ subject to all cooperations being
extended to it, by the lessor for ejectment of the existing
tenants of the lessor. The said lease deed was executed on
31.5.1996 on the basis of the resolution of the appellant
No.1 – Trust dated 30.4.1996.
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8. A subsequent lease deed dated 12.3.1997 came to be
executed between the appellant No.1 and the respondent
No.1. Most of the terms and conditions in the
subsequent/fresh lease deed dated 12.3.1997 are identical
with the terms and conditions as are found in the first lease
deed dated 31.5.1996.
9. It appears, that during the period between 1997 till
2000, there was not much progress in the development of
the said project. It further appears that in the year 2008
certain renegotiations took place between the appellants
and the respondents. However, the same failed to
materialize. It is the case of the appellants, that except
paying initial amount of Rs.25 lakhs towards the security
deposit, the balance amount towards the security deposit
was not paid by the respondents. 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
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the City Civil Court at Bangalore. In the said suit, it was
also contended on behalf of the appellants that the
respondent No.1 – lessee had also desecrated the Samadhi
of the founder of the Trust and had damaged part of it. It
was further contended that, the respondent No.1 – lessee,
in collusion with the respondent No.4, was trying to get a
fresh lease deed executed illegally. The following prayers
were made in the said suit:
“a. Decree of permanent injunction
restraining the Defendants 1 to 3, their
agents, servants from interfering with
the peaceful possession and enjoyment
of the 1st Plaintiff Trust over the A
schedule property.
b. Permanent injunction restraining the
Defendants 1 to 4 from entering into,
executing or registering any lease deed
or other document transaction
concerning the A schedule property or
any portion of it. c. Decree granting of costs of the case
and such other relief/reliefs as the
Court may deem fit in the
circumstances.”
10. The City Civil Court at Bangalore, granted an interim
order by directing maintaining of status quo over the
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Schedule property in the said suit. The suit was contested
by the respondent Nos. 1 and 2 by filing written statement.
11. Respondent Nos. 1 and 2, after participating in the
suit proceedings for almost a period of about two years and
three months, issued a notice to the appellants on 6.9.2013
thereby, invoking arbitration clause in the lease deed dated
31.5.1996 and 12.3.1997. On 11.10.2013, the respondent
Nos. 1 and 2 filed a petition under Section 11(6) of the
Arbitration Act before the High Court of Karnataka. On
being served with the notice, the appellants entered their
appearance and filed their statement of objections on
2.6.2014 thereby, praying for dismissal of the petition on
various grounds.
12. Since it was the basic contention of the appellants,
that the lease deed dated 12.3.1997 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
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matter to the Registrar (Judicial) for determination of the
said issue. The Registrar (Judicial) of the High Court of
Karnataka by a detailed report dated 25.9.2014 held, that
the document in question was lease deed and not an
agreement to lease and therefore, 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 FiftySix
thousand Three hundred and EightyEight only).
13. The respondent Nos. 1 and 2 filed their objections to
the report of the Registrar (Judicial). 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.
14. We have heard Shri Nikhil Nayyar, learned Senior
Counsel appearing on behalf of the appellants and Shri
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Balaji Srinivasan, learned counsel appearing for the
respondents.
15. Shri Nikhil Nayyar, learned Senior Counsel, submits,
that though clause 36 of the lease deed dated 12.3.1997
provides for arbitration between the parties, since the said
lease deed was insufficiently stamped, the same could not
have been relied upon by the High Court for appointing
Arbitrator. It is further submitted, that the respondent
Nos. 1 and 2 had failed to take any steps in furtherance of
the lease deed dated 12.3.1997 and belatedly, after a period
of almost 16 years and only when the suit filed by the
appellants was in the final stages, had invoked the
arbitration clause. Learned Senior Counsel submits, that
as a matter of fact, the suit filed by the appellants already
stands decreed by a judgment and decree dated 2.3.2015.
16. Shri Balaji Srinivasan, learned counsel appearing for
the respondents, on the contrary submits, that the
agreement was in effect, an agreement to lease the property
which was required to be stamped only after all the tenants
were evicted and the permission to start the construction
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was granted by the Corporation. It is submitted, that the
respondents were, all the while, trying to negotiate with the
various tenants and as such, the High Court was right in
holding, that the agreement was for developing the property
immediately after the property was made vacant by evicting
the tenants.
17. It will be apposite to reproduce Sections 33 and 34 of
the Karnataka Stamp Act, 1957, which are as under:
“33. Examination and impounding of
instruments. (1) Every person having by law or
consent of parties authority to receive evidence,
and every person in charge of a public office,
except an officer of police, before whom any
instrument, chargeable in his opinion, with
duty, is produced or comes in the performance
of his functions, shall, if it appears to him that
such instrument is not duly stamped, impound
the same.
(2) For that purpose every such person shall
examine every instrument so chargeable and so
produced or coming before him, in order to
ascertain whether it is stamped with a stamp of
the value and description required by the law in
force in the State of Karnataka when such
instrument was executed or first executed:
Provided that,—
(a) nothing herein contained shall be deemed to
require any Magistrate or Judge of a Criminal
Court to examine or impound, if he does not
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think fit so to do, any instrument coming before
him in the course of any proceeding other than
a proceeding under Chapter XII or Chapter
XXXVI of the Code of Criminal Procedure, 1898;
(b) in the case of a Judge of the High Court, the
duty of examining and impounding any
instrument under this section may be delegated
to such officer as the Court appoints in this
behalf.
(3) For the purposes of this section, in cases of
doubt, the Government may determine,—
(a) what offices shall be deemed to be public
offices; and
(b) who shall be deemed to be persons in charge
of public offices.
34. Instruments not duly stamped
inadmissible in evidence, etc. No instrument
chargeable with duty shall be admitted in
evidence for any purpose by any person having
by law or consent of parties authority to receive
evidence, or shall be acted upon, registered or
authenticated by any such person or by any
public officer, unless such instrument is duly
stamped:
Provided that,—
(a) any such instrument not being an
instrument chargeable with a duty not
exceeding fifteen naye paise only, or a mortgage
of crop Article 35 (a) of the Schedule chargeable
under clauses (a) and (b) of section 3 with a
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duty of twentyfive naye paise shall, subject to
all just exceptions, be admitted in evidence on
payment of the duty with which the same is
chargeable, or, in the case of an instrument
insufficiently stamped, or the amount required
to make up such duty, together with a penalty
of five rupees, or, when ten times the amount of
the proper duty or deficient portion thereof
exceeds five rupees, of a sum equal to ten times
such duty or portion;
(b) where a contract or agreement of any kind is
effected by correspondence consisting of two or
more letters and any one of the letters bears the
proper stamp, the contract or agreement shall
be deemed to be duly stamped;
(c) nothing herein contained shall prevent the
admission of any instrument in evidence in any
proceeding in a Criminal Court, other than a
proceeding under Chapter XII or Chapter XXXVI
of the Code of Criminal Procedure, 1898;
(d) nothing herein contained shall prevent the
admission of any instrument in any Court when
such instrument has been executed by or on
behalf of the Government, or where it bears the
certificate of the Deputy Commissioner as
provided by section 32 or any other provision of
this Act and such certificate has not been
revised in exercise of the powers conferred by
the provisions of Chapter VI.”
18. Admittedly, both the lease deeds are neither
registered nor sufficiently stamped as required under the
Karnataka Stamp Act, 1957. Admittedly, the Registrar
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(Judicial) of the High Court of Karnataka had submitted a
report to the High Court pointing out, that the document of
1997 executed/entered into between the parties was a lease
deed and not an agreement to lease and passed an order
directing the respondent Nos. 1 and 2 to pay deficit stamp
duty and penalty of Rs. 1,01,56,388 / (Rupees One crore
One lakh FiftySix thousand Three hundred and Eighty
Eight only). It is also an admitted fact, that the respondent
Nos. 1 and 2 have not complied with the said directions
and have not paid the deficit stamp duty and penalty. In
this background, a question that would arise for
consideration is, as to whether clause 36 in the lease deed
dated 12.3.1997 could be acted upon to enforce the
arbitration clause contained therein.
19. The issue is no longer res integra. This Court in the
case of SMS Tea Estates Private Limited vs. Chandmari
Tea Company Private Limited1 had occasion to consider
the provisions which are in pari materia with the provisions
1 (2011) 14 SCC 66
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of the Karnataka Stamp Act, 1957. The relevant
paragraphs are as under:
“17. What if an arbitration agreement is con
tained in an unregistered (but compulsorily
registerable) instrument which is not duly
stamped? To find an answer, it may be neces
sary to refer to the provisions of the Stamp
Act, 1899 (“the Stamp Act”, for short). Section
33 of the Stamp Act relates to examination
and impounding of instruments. The relevant
portion thereof is extracted below:
‘33.Examination and impounding of in
struments.—(1) Every person having by law
or consent of parties authority to receive evi
dence, and every person in charge of a public
office, except an officer of police, before whom
any instrument, chargeable, in his opinion,
with duty, is produced or comes in the per
formance of his functions, shall, if it appears
to him that such instrument is not duly
stamped, impound the same.
(2) For that purpose every such person shall
examine every instrument so chargeable and
so produced or coming before him, in order to
ascertain whether it is stamped with a stamp
of the value and description required by the
law in force in India when such instrument
was executed or first executed:’
18. Section 35 of the Stamp Act provides that
instruments not duly stamped are inadmissi
ble in evidence and cannot be acted upon.
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The relevant portion of the said section is ex
tracted below:
‘35.Instruments not duly stamped inad
missible in evidence, etc.—No instrument
chargeable with duty shall be admitted in evi
dence for any purpose by any person having
by law or consent of parties authority to re
ceive evidence, or shall be acted upon, regis
tered or authenticated by any such person or
by any public officer, unless such instrument
is duly stamped:
Provided that—
(a) any such instrument shall be admitted in
evidence on payment of the duty with which
the same is chargeable or, in the case of an
instrument insufficiently stamped, of the
amount required to make up such duty, to
gether with a penalty of five rupees, or, when
ten times the amount of the proper duty or
deficient portion thereof exceeds five rupees,
of a sum equal to ten times such duty or por
tion;’
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 instru
ment. Section 35 of the Stamp Act is distinct
and different from Section 49 of the Registra
tion Act in regard to an unregistered docu
ment. Section 35 of the Stamp Act, does not
contain a proviso like Section 49 of the Regis
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tration Act enabling the instrument to be
used to establish a collateral transaction.
20. The Scheme for Appointment of Arbitra
tors 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 require
ment is found in the scheme/rules of almost
all the High Courts. If what is produced is a
certified copy of the agreement/contract/in
strument 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 ev
ery arbitrator who is a person having by con
sent 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.
21. Therefore, when a lease deed or any other
instrument is relied upon as contending the
arbitration agreement, the court should con
sider at the outset, whether an objection in
that behalf is raised or not, whether the doc
ument is properly stamped. If it comes to the
conclusion that it is not properly stamped, it
should be impounded and dealt with in the
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manner specified in Section 38 of the Stamp
Act. The court cannot act upon such a docu
ment 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.”
20. It can thus clearly be seen, that this 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
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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. In this view of the matter, we are of the
considered view, that in view of the law laid down in the
case of SMS Tea Estates Private Limited (supra), that 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
fiftysix thousand Three hundred and Eightyeight only),
the respondents failed to do so, the High Court has erred in
relying on the said lease dated 12.3.1997.
21. Though the appellants deserve to succeed only on the
aforesaid question of law, we find, that even on equity the
respondents are not entitled to any relief.
22. After lease deed was executed in the year 19961997,
though the respondent Nos. 1 and 2 have placed on record
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some settlement deeds with tenants executed in 1998,
except one bald statement, that last of the tenants was
evicted in the year 2010, nothing has been placed on
record. It appears, that only after the appellants had filed a
suit for injunction against the respondents which was duly
contested by the respondents by filing written statement on
18.6.2011, the respondents after participating in the suit
proceedings for a period of about 2 years and 3 months,
filed the present application before the High Court under
Section 11(6) of the Arbitration Act. It is further to be
noted, that if in the pursuit of the respondents, the lease
deed dated 12.3.1997 was legal and valid document and it
could be relied on for referring the dispute to arbitration in
view of clause 36 thereof, nothing precluded them from
filing an application under Section 8 of the Arbitration Act
before the City Civil Court at Bangalore in O.S. No.8952 of
2010 at the earliest opportunity available. It appears, that
the respondent Nos. 1 and 2 are taking selfcontradictory
stands. In the written statement before the City Civil Court
at Bangalore, they have admitted, that the document was a
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lease deed, whereas before the High Court they have taken
a stand, that the document was an agreement for
developing the property after the property is made vacant
by evicting the tenants. The stand is also totally contrary
to the terms expressed in the lease deed. It will be relevant
to refer to clause 5 of the lease deed dated 12.3.1997,
which reads thus:
“5. The tenure of the lease shall be 38
years commencing from the date of
signing of this lease deed.”
23. It can thus clearly be seen, that the tenure of the
lease deed was to be 38 years from the date of signing of
the lease deed.
24. A perusal of the clauses of the lease deed dated
12.3.1997 would also reveal, that the lessee had
undertaken all the responsibility of obtaining vacant
possession of Schedule ‘B’ property and to secure vacant
possession by ejecting the unauthorised occupants.
Responsibility of sanctioning the building plans was also
undertaken by the respondents. It would further reveal,
that it was also agreed between the parties, that in the
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event of any of the tenants approaching a court of law,
such period of litigation shall not in any manner affect the
agreed tenure of the lease deed of 38 years.
25. In that view of the matter, the submission made by
Shri Balaji Srinivasan, learned counsel for the respondents,
that the agreement was to be registered only after all the
tenants were evicted and the building plans were
sanctioned is not supported by any of the terms in the
lease deed dated 12.3.1997.
26. In that view of the matter, we find, that the High
Court has totally erred in relying on the lease deed dated
12.3.1997, 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.
27. In the result, the appeal is allowed. The impugned
judgment and order dated 1.12.2014 passed by the High
Court of Karnataka in CMP No.167 of 2013 is quashed and
set aside. The petition/application filed by the respondents
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under Section 11 of the Arbitration Act is rejected. There
shall be no order as to costs.
…………………..CJI.
[S.A. BOBDE]
………………….J.
[B.R. GAVAI]
………………….J.
[SURYA KANT]
NEW DELHI;
FEBRUARY 14, 2020
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