Invoking Arbitration Agreement on Unstamped Documents: Case Comment on " Garware Wall Ropes v. Costal Marine Construction & Engineering".
There has been steady dilemma as for tolerability of unstamped documents. Section 35 of the Indian Stamp Act, 1899 ("Stamp Act"), gives that an unstamped or deficiently stepped record is prohibited in proof. Applying Section 35 of the Stamp Act, the Supreme Court in Garware Wall Ropes Ltd v. Seaside Marine Construction and Engineering Ltd ("Garware Judgment") held that an arbitration agreement contained in an unstamped contract can't be taken in evidence and invoked. It was additionally held that, in case the Court is confronted with an unstamped document, it must continue the same, as per the arrangements of the Stamp Act; just once such a seizing is done — the deficiency stamp obligation and punishment paid, can the Court continue based on the arbitration agreement.
The Stamp Act requires stamp duty to be collected on the execution of specific documents. The essential intention behind this is to create income for the state. While the Apex Court may have maintained this income generating goal of the state, it is contended that the judgment detracts from the practicality of leading arbitrations in India and is being seen as an obstacle to invoking arbitrations.
The Court in Garware Judgment had the chance to expand the utilization of the principle of severability to maintain the parties' intent to arbitrate. The raison d'être for the principle of severability is to guarantee that the defects that threaten the presence of the substantive contract (like: absence of assent, inappropriate mark, and so forth.) don't block upon the invocation of arbitration agreement. The very purpose behind severability is in this manner to deal with circumstances much the same as the one that emerged in the Garware Judgment.
Second, the impact of non-registration (Section 49, Registration Act), versus the impact of non-stamping (Section 35, Stamp Act) of instruments is generally constructed to be the equivalent, i.e., the exchange doesn't get finished and the record can't be filled in as proof in courts. The conclusion of the Court in the Garware Judgment caused the principle of severability to apply diversely to Registration and Stamp Act, when the impact of non-registration and non-stamping basically is the same.
Finally, the stamp duty is imposed on and changes as indicated by the sort of report –, for example, an shareholder's agreement, a rent, and so forth., and doesn't matter to the substance or rights and commitments, including the option to resolve disputes, cherished in the agreement. Thus, the Court could have applied the precept of severability to isolate and uphold the option to determine questions, along these lines permitting the arbitration clause to be invoked.
Explicitly concerning to interim relief applications, it ought to be noticed that, civil courts have granted interim relief regardless of there being a deficiency in payment of stamp duty, thinking that it might be paid later at the phase of last hearing. This guideline could have been unequivocally applied for applications of interim relief in arbitration also. The Garware Judgment seems to make more prevention in the arbitration procedure than parties would somehow or another have, if a suit was recorded.
The Supreme Court permitted the appeal and put aside the judgment and transmitted the issue back to the Bombay High Court for removal of the equivalent considering the Supreme Court choice. While the Supreme Court didn't go into the question of whether an application under Section 9 of the Act for interim relief is viable in a arbitration that radiates out of an unstamped agreement, considering the proportion in the Garware Wall Ropes it appears that such applications may not be viable. In any case, since there is no express decision on this perspective, it is probably going to be open for banter until a particular choice is given on this issue by the Supreme Court.