M/S. Dharmaratnakara Rai Bahadur … vs M/S. Bhaskar Raju And Brothers on 14 February, 2020


Supreme Court of India

M/S. Dharmaratnakara Rai Bahadur … vs M/S. Bhaskar Raju And Brothers on 14 February, 2020

Author: Hon’Ble The Justice

Bench: Hon’Ble The Justice, B.R. Gavai, Surya Kant

                                                      1


                                                                       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:

2

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
3

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.

4

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
6

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
7

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
8

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
9

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
10

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
11

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
12

(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
13

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.

14

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
15

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
16

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
17

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
18

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
19

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
20

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
21

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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