Arbitration Agreement - Enforceability of Unregistered and Unstamped Document

Justice Raveendran
Supreme Court of India

The Supreme Court in a recent decision, in M/s SMS Tea Estates Pvt. Ltd. v. M/s Chandamari Tea Co. Pvt. Ltd. has examined the question of enforceability and validity of an arbitration clause / agreement contained in an unregistered but compulsorily registrable document. While examining the relevant provisions of the Registration Act and the Indian Stamp Act, the Court held as under;

5. On the contentions urged the following questions arise for consideration :

(i) Whether an arbitration agreement contained in an unregistered (but compulsorily registrable) instrument is valid and enforceable? 

(ii) Whether an arbitration agreement in an unregistered instrument which is not duly stamped, is valid and enforceable?

(iii) Whether there is an arbitration agreement between the appellant and respondent and whether an Arbitrator should be appointed? 

Re : Question (i)

6. Section 17(1)(d) of Registration Act and section 107 of TP Act provides that leases of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument. Section 49 of the Registration Act, 1908, sets out the effect of non-registration of documents required to be registered. The said section is extracted below :

49. Effect of non-registration of documents required to be Registered.- No document required by section 17 or by any provision of the Transfer of Property Act, 1882 (4 of 1882)], to be registered shall--

(a) affect any immovable property comprised therein, or (b) confer any power to adopt, or (c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered:

provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882 (4 of 1882), to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (3 of 1877) as evidence of any collateral transaction not required to be effected by registered instrument.

Section 49 makes it clear that a document which is compulsorily registrable, if not registered, will not affect the immovable property comprised therein in any manner. It will also not be received as evidence of any transaction affecting such property, except for two limited purposes. First is as evidence of a contract in a suit for specific performance. Second is as evidence of any collateral transaction which by itself is not required to be effected by registered instrument. A collateral transaction is not the transaction affecting the immovable property, but a transaction which is incidentally connected with that transaction. The question is whether a provision for arbitration in an unregistered document (which is compulsorily registrable) is a collateral transaction, in respect of which such unregistered document can be received as evidence under the proviso to section 49 of the Registration Act.

7. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts -- one in regard to the substantive terms of the main contract and the other relating to resolution of disputes -- had been rolled into one, for purposes of convenience. An arbitration clause is therefore an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance is terminated or comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract. Similarly, when an instrument or deed of transfer (or a document affecting immovable property) contains an arbitration agreement, it is a collateral term relating to resolution of disputes, unrelated to the transfer or transaction affecting the immovable property. It is as if two documents - one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registrable - are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer. These principles have now found statutory recognition in sub-section (1) of section 16 of the Arbitration and Conciliation Act 1996 (`Act' for short) which is extracted below;

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.

8. But where the contract or instrument is voidable at the option of a party (as for example under section 19 of the Indian Contract Act, 1872), the invalidity that attaches itself to the main agreement may also attach itself to the arbitration agreement, if the reasons which make the main agreement voidable, exist in relation to the making of the arbitration agreement also. For example, if a person is made to sign an agreement to sell his property under threat of physical harm or threat to life, and the said person repudiates the agreement on that ground, not only the agreement for sale, but any arbitration agreement therein will not be binding.

9. An arbitration agreement does not require registration under the Registration Act. Even if it is found as one of the clauses in a contract or instrument, it is an independent agreement to refer the disputes to arbitration, which is independent of the main contract or instrument. Therefore having regard to the proviso to section 49 of Registration Act read with section 16(1)(a) of the Act, an arbitration agreement in an unregistered but compulsorily registrable document can be acted upon and enforced for the purpose of dispute resolution by arbitration.

Re : Question (ii)

10. What if an arbitration agreement is contained in an unregistered (but compulsorily registrable) instrument which is not duly stamped? To find an answer, it may be necessary to refer to the provisions of the Indian Stamp Act, 1899 (`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 instruments.-(1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a pubic 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 dull 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 :

x x x x &

Section 35 of Stamp Act provides that instruments not duly stamped is inadmissible in evidence and cannot be acted upon. The relevant portion of the said section is extracted below :

35. 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 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, 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. x x x x x

Having regard to section 35 of 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 Stamp Act is distinct and different from section 49 of Registration Act in regard to an unregistered document. Section 35 of Stamp Act, does not contain a proviso like to section 49 of Registration Act enabling the instrument to be used to establish a collateral transaction.

11. The scheme for appointment of arbitrators by the Chief Justice of Guwahati 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. 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 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.

12. 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 registrable) and which is not duly stamped : 

(i) 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 registrable.

(ii) If the document is found to be not duly stamped, Section 35 of 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 section 35 and 38 of the Stamp Act. 

(iii) 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 of the Stamp Act), and the defect with reference to deficit stamp is cured, the court may treat the document as duly stamped.

(iv) Once the document is found to be duly stamped, the court shall proceed to consider whether the document is compulsorily registrable. If the document is found to be not compulsorily registrable, the court can act upon the arbitration agreement, without any impediment.

(v) If the document is not registered, but is compulsorily registrable, having regard to section 16(1)(a) of the Act, the court can de-link the arbitration agreement from the main document, as an agreement independent of the other terms of the document, even if the document itself cannot in any way affect the property or cannot be received as evidence of any transaction affecting such property. The only exception is where the respondent in the application demonstrates that the arbitration agreement is also void and unenforceable, as pointed out in para 8 above. If the respondent raises any objection that the arbitration agreement was invalid, the court will consider the said objection before proceeding to appoint an arbitrator. 

(vi) Where the document is compulsorily registrable, but is not registered, but the arbitration agreement is valid and separable, what is required to be borne in mind is that the Arbitrator appointed in such a matter cannot rely upon the unregistered instrument except for two purposes, that is (a) as evidence of contract in a claim for specific performance and (b) as evidence of any collateral transaction which does not require registration.

Guest Post : Deposing Evidence as a "DNA" Expert Witness

Guest Post : Deposing Evidence as a "DNA" Expert Witness by Dr. G.V. Rao

How can the life of such a man

Be in the palm of some fool's hand?

To see him obviously framed

Couldn’t help but make me feel ashamed

To live in a land where justice is a game. 

Sang Bob Dylan in his song “Hurricane” not knowing that the same will hold good for the new generation DNA experts deposing evidence in Indian Courts giving false positive results without as much as batting an eyelid. I am not saying this without basis. In one particular case on the file of the District and Sessions Judge Ranga Reddy Court, Andhra Pradesh the DNA expert from the local Forensic Laboratory furnished a report wherein she, in the first page reported that their was no DNA isolated from the Crime scene sample but in the same breath continued on the second page of her report that the DNA profile of the Crime scene sample matched with that of the accused person. Thanks to the Vigilant trial Court Judge that he summoned me as witness and got me examined to bring out the flaw in such crucial evidence. Yet in another case, in Maharashtra, the DNA expert again from the FSL furnished a report wherein he stated in his chief examination that “I draw the conclusion that the blood stains on the shirt of MLC Case no YYYY of X Police Station are of the biological offspring of Mr and Mrs YZA and accordingly I issued the DNA analysis result….”.

The irony of the whole DNA evidence was that this expert did not consider that within his own findings there was a mismatch of the DNA at one locus of the biological offspring with that of his alleged parents and the same went against his conclusion. Neither the defense nor the prosecution found this blunder. Further another DNA expert from a prestigious Central Government DNA Laboratory from Hyderabad appeared on behalf of his superior officer in whose name the summons was issued and stated that he does not have knowledge of the details of the case since he did not issue the DNA report in that case and hence the evidence was closed. Here too neither the prosecution nor the Court rose to the occasion to find out why the Senior expert who issued the report did not appear and subsequently the Senior was left scot free at the cost of the prosecution of the guilty and benefit of the defense. I can cite several examples here but lets come to the core issue of mismanagement of DNA science in Criminal Justice System which is nothing but lack of expertise, obligation and proper training to the experts from Government funded laboratories. The Apex Court held in M.C. Mehta V. Kamal Nath & Ors [1996] in SC 1608 that “We cannot cheat on DNA”.

Further in Shri Banarsi Dass V. Mrs. Teeku Dutta and Anr [2005] IN SC 285 the Apex Court held that “the High Court should have held that the conclusive DNA test would have provided necessary material for an effective adjudication”. Therefore with the Judiciary relying to such a great extent on DNA evidence it is the bounden duty of all DNA experts deposing evidence in India to perform their duty to the best possible manner and depose the truth in a scientific manner instead of just saying that “X is the accused because of the match with that of the Y which is the crime scene sample”. I therefore place few suggestions below which are the outcome of my 16 years of Court experience deposing DNA evidence which may be of help, to this generation of DNA experts to better their performance during their deposition.

We as DNA experts are Witnesses, who form an essential part of the Criminal justice system and are paid to tell the truth. The testimony of a DNA expert will be given under oath, in open court and is expected to tell the truth, the whole truth, and nothing but the truth.

DNA experts need to do few things before testifying. Check their records pertaining to the case viz., original stock book containing entries of the material objects received by their office pertaining to the case. They need to carry only originals and not photocopies so that they could be got marked as exhibits, if required. Peruse the original file containing all correspondences, acknowledgements, office copy of the report submitted, details of the DNA examinations carried out. Maintain a photocopy of the official correspondence with them and provide the original to be marked as an exhibit in case they are relying on the same and also if allowed by the Court. Original copy of the work record book containing entries of the DNA methods employed at the bench to arrive at the conclusion, which is going to be defended by the expert. The expert needs to establish his credentials especially his qualifications and experience and training as a DNA expert in the first few paragraphs of the Chief Examination. The position of a scientist in a Forensic Laboratory does not mean that he gets automatically qualified as a DNA expert without having the required qualifications, training and experience in the subject of DNA Fingerprinting or testing. There are forensic experts from Forensic Laboratories who have provided DNA reports with results which have contradicted their own findings. DNA Experts should speak of their findings and avoid commenting on findings of other experts.

It has always been my practice to keep a collection of scientific books and latest scientific papers on DNA testing from reputed Forensic Journals with me during deposition to substantiate my evidence. This practice has can convince the Court of scientific principles and methods used to achieve the results. On few occasions I have passed over a collection of popular articles on DNA Testing to the Judge for his knowledge. Further, if possible, loading a media presentation on DNA testing, in general, in a lap top computer would help to detail the technology and a multi media presentation could make things easier. There is a need to contact the Public Prosecutor who has got issued the summons and ask what the Public Prosecutor will inquire about in the course of your testimony. Experts are entitled to know the subject matter, which will be covered in your testimony and prepare accordingly.

Competent evidence is what has been observed on the bench and the note book. In case of making an estimate, such as about allele frequency, paternity index or population statistics, it is essential to clarify what has been estimated. Just saying 99.99998% conclusive and close the statement is not proving the case. It is imperative to say or depose and prove on the floor of the Court as to how that figure of 99.99998% has been arrived. The biggest fallacy many experts today are making is by stating in their deposition that “The statistics in the report establish that Mr X is the biological father to an extremely high degree of certainty”. Establish that degree of certainty with explanation of the statistical value being arrived at is most important and crucial evidence. Marking a copy of the calculations made by to arrive at the statistical conclusions as part of the deposition is very fundamental. The expert needs to inform the Court the details of the observed heterozygosity (Ho), expected heterozygosity (He), power of discrimination (PD), probability of exclusion (PE) and polymorphism information content (PIC) for the loci since that forms the basis of the conclusion of DNA testing.

In conclusion, I can say that our legal system is one of the finest legal system in the world, and depends largely on the testimony of human beings just like yourself. The ideals of our system of justice can be maintained by the continued courage and sacrifice of people who are willing to become witnesses so the system can obtain equal justice for all. Always remember that that we are assisting the Court to arrive at a just conclusion and we are a part of it and not the root of it. Never forget we are under oath.

--

Dr. G. V. Rao is a DNA Analyst with almost 14 years of experience in field of DNA testing. He provides expert advice on DNA testing, case consultation services to legal practitioners, advocates, private investigators, public individuals, and law enforcement officials. He also provides trial consultation services which includes case review and evaluation, cross examination strategies for confronting expert witnesses, expert testimony, etc. He can be contacted on drgvrao@gmail.com & drgvrao@hotmail.com

Law Ministry Accepts Solicitor General’s Resignation

Gopal Subramanium

Source : DNA

A day before the hearing of the politically-sensitive cash- for-vote case in which Union government is to submit the status report to the Supreme Court, the law ministry has accepted the resignation of solicitor general Gopal Subramanium.

Subramanium had assured the court that he would submit the report on Friday.

Serving the UPA government since it came to power in 2004, 57-year-old Subramanium’sfate was visibly sealed on Wednesday when newly appointed Law Minister Salmam Khursheed weakly remarked that he would examine the matter but “a lot of water has already flown under the bridge”.

It is learnt that Khursheed and Subramanium, two old friends, had a lengthy meeting last night and various solutions that could save SG from the ‘self-created’ crisis.

Later in the afternoon, Khursheed briefed the PMO about the unsuccessful ‘meting’.

It had been suggested to Subramanium to accept the appointment of Telecom minister Kapil Sibal’s belated choice Rohinton Narimanto defend the ministry in the2Gspectrumallocation scam that, according to CAG, cost the exchequer, Rs 1.76 lakh crore, while for Sibal there was ‘zero’ loss.

However, Subramanium, whose decision hasbeen lauded by a section of bar and jurists, including former CJI J S Verma and former SC judge Santosh N Hegde, said ‘’the dignity of the high office of the law officer must be protected’’.

He had earlier met President Pail and Prime Minister Manmohan Singh, who told him to stay on but SG continued to absent from the court.

Perhaps, his interaction with the media boomeranged.

Subramanium stirred a controversy by suddenly resigning on Saturday last after a private advocate was appointed by the government to represent Telecom Minister Kapil Sibal in a PIL filed against him, alleging that he had favoured Reliance Telecom. Prime minister Manmohan Singh and the then law minister

Veerappa Moily had talked to him to persuade him not to quit but he insisted on doing so. Subsequently, the government took a tough stand and made it clear that it would no longer persuade him.

“I leave the office of the Solicitor General of India with pride. I am grateful to God that I had this opportunity (to serve as SG),” Subramanium told PTI when contacted.

Part Performance under the Transfer of Property Act : The Law

Justice V.K. Jain
Delhi High Court

The Delhi High Court in a recent decision in Panchi Devi v. Omwati has discussed the broad principles of 'Part Performance' under S. 53 A of the Transfer of Property Act. While discussing the law and authorities on the subject, Justice V.K. Jain has held that an oral Agreement to Sell cannot be enforced under S. 53 A of the Transfer of Property Act. The relevant text of the judgment is reproduced hereunder; 

7. As regards the oral Agreement to Sell, pleaded by the defendant, the law does not protect the possession of a person who claims to have obtained it under an oral Agreement to Sell in his favour. Section 53A of Transfer of Property Act reads as under:-

"53A. Part performance - Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof]." It would be seen that the possession of a person is protected under Section 53A of the Act only if he claims it under a written contract to transfer the property to him for consideration. Unless a written agreement is set up, the provisions of Section 53A of the Act do not come into play and consequently, the person claiming possession under the oral agreement is not entitled to defend his possession.

8. In Nathulal v. Phool Chand 1970 2SCR 854, Supreme Court while interpreting Section 53-A culled out the following conditions to be fulfilled for making out the defence of part performance to an action in ejectment by the owner, as under:-

(i) that the transferor has contracted to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty;

(ii) that the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession continues in possession in part performance of the contract;

(iii) that the transferee has done some act in furtherance of the contract; and

(iv) that the transferee has performed or is willing to perform his part of the contract.

In Sardar Govindrao Mahadik v. Devi Sahai 1982 2SCR 186, it was reiterated that to qualify for the protection of the doctrine of part performance it must be shown that there is an agreement to transfer of immovable property for consideration and the contract is evidenced by a writing signed by the person sought to be bound by it and from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty.

Supreme Court in Rambahu Namdeo Gajre v. Narayan Bapuji (2004) 8 SCC 614, held that the doctrine of part performance aims at protecting the possession of such transferee provided certain conditions contemplated by Section 53-A are fulfilled. These conditions are: 

(i) there must be a contract for transfer for consideration of any immovable property,

(ii) the contract must be in writing, signed by the transferor or someone on his behalf,

(iii) the writing must be in such words from which the terms necessary to construe the transfer may be ascertained,

(iv) the transferee must in part performance of the contract take possession of the property, or of any part thereof,

(v) the transferee must have done some act in furtherance of the contract, and

(vi) the transferee must have performed or be willing to perform his part of the contract.

9. Thus, if the plea taken by the plaintiff is accepted, the possession of the defendant is unauthorized, her tenancy have been terminated. If the plea set up by the defendant is accepted, her possession is still unauthorized since she is not claiming a written agreement in her favour and the possession under an oral agreement is not protected by Section 53A of the Act.