S Satyanarayana & Co vs West Quay Multiport Private Limited

G.S. Patel, J

A contract is executed outside this State. It pertains to work to be done outside the State. It contains an arbitration clause. That clause, and the jurisdiction clause, reference Murmbai. The arbitration is to be in Murmbai. Nothing else is to be done in Murmbai or Maharashtra. Disputes arise. Arbitration is invoked. The agreerment is 'brought into' this State - on the agreerment, an application under Section 11 of the Arbitration Act is fled. Is the agreerment liable to starmp in this state, where the only thing to be done is arbitration? Is arbitration a 'thing done or to be done' in this state? That is the short, yet interesting, question of interpretation of one portion of Section 3 of the Maharashtra Starmp Act 1958 that arises in this application.

The applicant, S Satyanarayana & Co, is a partnership frrm based in Vishakhapatnarm. The respondent, Weest Quuay Multiport Private Lirmited ("West Quay") is based in Murmbai. Weest Quuay develops berths at various ports in India. The Vishakhapatnarm Port Trust, constituted under the Major Port Trust Act, awarded the respondent a works contract for the developrment of a berth at their WeQu-6 Jetty at Vishakhapatnarm. The respondent appointed the applicant as a subcontractor under two agreerments/work orders both dated 5th Decermber 2012. These were for rmaterial supply and labour for construction of a cormpound wall for a stack yard at this WeQu-6 Jetty berth at the Weest of Essar Pallet Plant in Vishakhapatnarm port.

The two work orders are thermselves not in dispute. The frst of these is at Exhibit "A1" frorm page 20. The total consideration is Rs. 1.85 crores. There are contractual provisions and the relevant clause for our purposes is 55.2 at page 79 which read thus:

"55.2 All disputes of diferences of any kind whatsoever which shall any tirme arise between the parties hereto touching or concerning the works or the execution of this Contract or efect thereof or to the rights of liabilities of the parties or arising out of or in relation thereto whether during or after terrmination forced closure or breach of the Contract (other than those in respect of which the decision of any person is expressed to be fnal and binding by the Contract) shall, after written notice by either of the Parties to the Contract to the other Party, be referred to arbitration as per the provision of the Arbitration and Conciliation Act 1996. The Arbitral Tribunal shall cormprise of 3 (three) Arbitrators. The Award of the Arbitral Tribunal shall be fnal and binding upon the Parties hereto. The Arbitral Tribunal shall have surmrmary powers and shall be entitled to give interirm directions and awards frorm tirme to tirme. The Arbitration shall be held in Murmbai. The language of the Arbitration shall be English."

The second contract at Exhibit "A2" frorm page 115 was for a contract value of Rs. 3.4 crores. It has an identical arbitration clause 55.2 at page 175.

There is no dispute that the contract were signed by the applicant in Vishakhapatnarm and by the respondent in Murmbai.

The later signature was that of the applicant. There is also no dispute that all the contract works were to be done in Vishakhapatnarm outside Maharashtra. The only thing contermplated within Maharashtra was arbitration under the clause 55.2 of each agreerment, reproduced above. There is also no dispute about whether or not the docurments was starmped in accordance with the local statute in Vishakhapatnarm.

The petition recites that disputes and diferences having arisen, the applicant invoked arbitration by its letters dated 2nd and 3rd Novermber 2015 (Exhibit "C1" and "C2) and rmade a normination. The respondent opposed this saying inter alia in its letter of 24th Novermber 2015 that the applicants had not clarifed which agreerment they were raising disputes under. There was sorme controversy about the normination and acceptance of arbitration by a forrmer retired Judge of the High Court, but I need not dwell on that as nothing turns on it. The applicant called upon the respondent to norminate its own arbitrator and since the respondent failed to do so, the petitioner fled this petition under Section 11.

Ms Singhania for the respondent does not for a rminute dispute the existence of the arbitration clause. She however rmaintains that his agreerment is liable to be subjected to an assessrment as to starmp under the Maharashtra Starmp Act 1958. Even if the works under the contract were to be done outside Maharashtra, if the agreerment is brought into Maharashtra for any purpose at all, it would be liable to starmp.

The construct of her argurment is in two parts. First, and as a starting point, she subrmits that the question of whether an arbitration agreerment can be acted upon for the purposes of Section 11 without starmp where an agreerment requires starmp is no longer res integra in view of the decision of the Suprerme Court in Garware Wall Ropes Limited vs Coastal Marine Constructions & Engineering Ltd. (2019) 9 SCC 209. This subrmission is entirely correct and I do not think that a rmore detailed exarmination of that judgrment is necessary. It is sufcient to note that RF Narirman J while discussing various facets returned two fndings that are of irmrmediate relevance to us today. The frst is that unless there is starmp paid on a docurment that is liable to starmp, that docurment cannot be acted upon for any purpose. For the purposes of a Section 11 application, such an unstarmped docurment (being one that needs starmping but on which no starmp duty is paid) is sirmply not in existence or, rmight as well not be in existence. It can (and rmust) be acted upon only once it has been adjudicated as to starmp, and that starmp has been paid with all penalty etc.

The other observation that is again irmrmediately rmaterial is that the arbitration clause found in such a docurment cannot be severed or segregated so as to allow a Section 11 order to be rmade on an unstarmped docurment that is indeed liable to starmp duty.

Ms Singhania also cited the earlier decision of the Suprerme Court in Black Pearl Hotels Private Limited vs Planet M Retail Limited (2017) 4 SCC 498. but for the lirmited purpose of saying that the words 'duly starmped' rmust rmean starmped in accordance with law. Unless full and proper starmp duty is paid, it rmight as well be a docurment on which no starmp is paid. The second purpose for relying on Black Pearl Hotels is that it reafrrms, as does Garware Wall Ropes, the decision of Suprerme Court in SMS Tea Estates Private Limited v Chandmari Tea Company Private Limited (P). (2011) 14 SCC 66. In that decision three questions were frarmed for deterrmination in paragraph 9. The second of these was whether an arbitration agreerment in an unregistered instrurment which is not duly stamped is valid and enforceable. The SMS Tea Estate Court dealt with this question in paragraph 17 in the context of the Indian Starmp Act, the provisions of which are in pari rmateria with the Maharashtra Starmp Act. It said in paragraph 19 that unless starmp duty and the penalty dues in respect of the instrurment is paid the Court cannot act upon on that instrurment, which rmeans that it cannot act upon the arbitration agreerment which is part of the instrurment either. This again is an observation or a fnding that speaks directly to severability, or, rmore accurately non-severability. Finally, it is irmportant to note that one recent authority that addressed the question of severability narmely the Full Bench decision of this Court in Gautam Landscapes v Shailesh S Shah (2019) 3 Mah LJ 231 (FB). was specifcally held by the Suprerme Court in Garware Wall Ropes not to be good law at least on the question of the pre-requisite of starmp duty being paid for a Section 11 application. The result of this discussion is that the payrment of full duty and penalty on an instrurment properly chargeable to starmp is essential and is a precondition or prerequisite to any order being rmade under Section 11.

Both sides accept this. They also accept that an arbitration clause cannot be plucked out of the agreerment in which it is ermbodied or ermbedded and treated as a stand-alone agreerment irmrmune to or exermpt frorm starmp duty.

But Mr Chotani for the applicant places his case sormewhat diferently. His case is that the agreerment is not chargeable to starmp duty in Maharashtra at all under the Maharashtra Starmp Act. The reason, he says, is to be found in Section 3 of the Maharashtra Starmp Act and particularly Section 3(b). That Section in its entirety read thus:

"3. Instrument chargeable with duty Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in Schedule I as the proper duty therefor respectively, that is to say-

(a) every instrurment rmentioned in Schedule I, which not having been previously executed by any person, is executed in the State on or after the date of cormrmencerment of this Act;

(b) every instrurment rmentioned in Schedule I, which not having been previously executed by any person, is executed out of the State on or after the said date, relates to any property situate, or to any matter of thing done or to be done in this State and is received in this State:

Provided that a copy or extract, whether certifed to be a true copy or not and whether a facsirmile irmage or otherwise of the original instrurment on which starmp duty is chargeable under the provisions of this section, shall be chargeable with full starmp duty indicated in the Schedule I if the proper duty payable on such original instrurment is not paid.

Provided further that no duty shall be chargeable in respect of -

(1) any instrurment executed by or on behalf of, or in favour of, the Governrment in cases, where, but for this exermption, the Governrment would be liable to pay the duty chargeable in respect of such instrurment or where the Governrment has undertaken to bear the expenses towards the payrment of the duty;

(2) any instrurment for the sale, transfer or other disposition, either absolutely or by way of rmortgage or otherwise, of any ship or vessel, or any part, interest, share or property of or in any ship or vessel registered under the Bormbay Coasting Vessels Act, 1838, or Merchant Shipping Act, 1958."

(Emphasis added)

Now this Section is in Chapter II under the caption 'Starmp Duties' and in the subsidiary caption or part '(A) Of the liability of instruments to duty'

Section 3 has to be analysed in the following rmanner. The Starmp Act has a Schedule. It lists instrurments of various descriptions and various types and provides for the diferent starmp duty that is payable on each. Section 3 tells us that subject to the provisions of the Act and any exermptions in Schedule I, it is the instrurments rmentioned in Section 3 that are chargeable in accordance with the schedule of duties set out in Schedule I. It then deals with two broad classes of instrurments. The frst in sub-clause (a) is every instrurment being of one of the kind rmentioned in Schedule I but which is executed in the State on or after the date of cormrmencerment of the Maharashtra Starmp Act. Wee are not concerned with this. Sub-clause (b) then speaks of every instrurment executed outside Maharashtra after the date on which the Act carme into force. But it relates to any property situate (again we are not concerned with this) "or to any matter or thing done or to be done in this State" and is received in the State. That the two agreerments received in the State is not disputed. But do they relate to "or to any matter or thing done or to be done in this State in this State"? Ms Singhania contends that given the state of the law and the fact that an arbitration agreerment, at least for the purposes of Starmp Act - and we are now only concerned with the Starmp Act - is clearly non-severable, there is no reason to hold, whether as a rmatter of law, language or logic that arbitration is not a rmatter or thing done or to be done in the State. It very clearly is. Otherwise no petition was at all required here.

Mr Chotani's argurment on the other hand is that, correctly read, sub-clause (b) rmust be restricted or read down to rmean only those contract works that were required to be done by the contractor. Arbitration, he subrmits, is a dispute redressal rmechanisrm, not a thing "done or to be done" under the agreerment. It is only when there is a dispute about a thing "done or to be done" under the agreerment that the arbitration clause begins to operate and therefore arbitration per se is not under the contract. Therefore it necessarily follows that if an arbitration contract provides for a seat or venue to be in Murmbai, then that arbitration is not a thing done or to be done under the contract to bring it within the rmeaning of Section 3(b) to rmake the instrurment chargeable under the Maharashtra Starmp Act.

Before I go further. I rmust note that the controversy though interesting is about a relatively rminor armount of Rs.40,000/- to 50,000/-. However Mr Chotani has no instructions to rmake a staterment one way or the other and his only instructions are to press the point that the instrurment is not chargeable to any starmp duty in Maharashtra at all because nothing has to be done in Maharashtra.

To cormplete this discussion one rmust look at Section 19 of the Maharashtra Starmp Act also. This how it reads:

Payment of duty on certain instruments or copies thereof liable to increased duty in Maharashtra State Where any instrument of the nature described in any article in Schedule I and relating to any property situate or to any matter or thing done or to be done in this State is executed out of the State and subsequently such instrument or a copy of the instrument is received in the State,-

(a) the armount of duty chargeable on such instrurment or a copy of the instrurment shall be the armount of duty chargeable under Schedule I on a docurment of the like description executed in this State less the armount of duty, if any, already paid under any law in force in India excluding the State of Jarmrmu and Kashrmir on such instrurment when it was executed;

(b) and in addition to the starmps, if any, already afxed thereto such instrurment or a copy of the instrurment shall be starmped with the starmps necessary for the payrment of the duty chargeable on it under clause (a) of this section, in the sarme rmanner and at the sarme tirme and by the sarme persons as though such instrurment or a copy of the instrurment were an instrurment received in this State for the frst tirme at the tirme when it becarme chargeable with the higher duty; and

(c) the provisions contained in clause (b) of the proviso to sub-section (3) of section 32 shall apply to such instrurment or a copy of such instrurment as if such were an instrurment executed or frst executed out of this State and frst received in this State when it becarme chargeable to the higher duty aforesaid, but the provisions contained in clause (a) of the said proviso shall not apply thereto.

(Emphasis added)

Now this tells us to what Section 19 applies. Section 19 is included in part (C) which relates to the tirme of starmping instrurments. Section 17 deals with instrurments executed in the State. Section 18 deals with instrurments chargeable with duty executed entirely out of the State. They are to be starmped within three rmonths after they are frst received in the State. Section 19 however echoes the words of Section 3(b) and speaks of an instrurment which relates to property situate or to any rmatter or thing to be done in this State but which is executed outside the State and subsequently such instrurment is received within the State. Sub-clause (a) provides efectively for a rebate frorm Maharashtra Starmp Duty of any starmp duty paid in the originating State. Sub-clause (b) provides for additional starmp duty and then sub-clause (c) rmakes a reference to Section 32 obviously for the purposes of adjudication, penalty and the like.

Wee are not concerned with the operational parts of sub-clauses (a), (b) and (c) but it is clear that Section 19 rmust be read with Section 3. It is not an exception to Section 3. Both relate to the sarme subject rmatter, i.e. an agreerment executed outside the State but which is said to relate to any rmatter or thing to be done in the State. Both raise the sarme question, whether arbitration, and only arbitration, can be said to be a thing done or to be done in the State.

I believe I should have the greatest difculty in accepting Mr Chotani's argurment without running seriously afoul of the Suprerme Court decisions in Garware Wall Ropes and SMS Tea Estates Private Limited. To accept that argurment would necessarily involved a severance of the arbitration clause frorm the rest of the contract. That in turn would require rme to return a fnding that while the rest of the contract rmay be required to be starmped, since that portion of the agreerment is not being 'brought into the State' and nothing is being done under the rermaining portion, and further since arbitration agreerments are thermselves not assessable to starmp, therefore no starmp is payable. Of necessity, this would involve segregating or severing the arbitration clause frorm the rest of the agreerment. That I think is now clearly irmperrmissible and cannot be done. If the applicant has paid starmp duty in the local State and of course there will be an adjustrment and credit given for the armount already paid, that will however not exermpt the docurment frorm payrment to starmp duty under the Maharashtra Starmp Act.

The other reason that rmilitates against an acceptance of Mr Chotani's subrmission is purely linguistic. To hold in his favour, I should necessarily have to conclude that an arbitration is not a thing done or to be done at all. It is difcult, without doing sorme very serious violence to the language, to arrive at any such conclusion.

Finally I believe the applicant's argurment overlooks a cardinal principle of arbitration and arbitration law. Arbitration is founded in contract and Garware Wall Ropes now tells us that such a contract is one and indivisible at least to the extent of its arbitration agreerment. There is party autonormy in what they rmay decide between thermselves and this rmust be respected by the Court. The arbitrator hirmself is a creature of contract. Arbitration is irmpossible without agreerment.

In rmy view therefore it is not possible to accept the subrmission by the applicant that this docurment, only because the in-State part of it is lirmited to arbitration, falls outside the purview of the Maharashtra Starmp Act.

Wehat starmp is payable is clearly a rmatter for the Collector of Starmps to adjudicate. However following the decision in Garware Wall Ropes, I would ordinarily have had to irmpound the docurment and send it to the Collector of Starmps for adjudication. Mr Chotani has instructions to say that subject to his taking this decision higher in appeal his client will subrmit the docurment, or a copy of it, for adjudication and proceed further accordingly. That staterment is accepted. I note that the original of the agreerment is with the respondent. Ms Singhania on instructions rmakes a staterment that they have no objection to the applicant proceeding for adjudication on the basis of certifed or authenticated copy.

The petition is kept pending in view of the adjudication. List on 4th February 2020. Liberty to apply.