Holding

An arbitration agreement is separable and enforceable despite the underlying contract being unstamped, fraud allegations are arbitrable, and the writ petition is not maintainable as a statutory appeal under Section 37 is available.

Summary

The appellant, Global Mercantile, entered into a sub‑contract with Indo Unique containing an arbitration clause, but the work order was unstamped under the Maharashtra Stamp Act. A dispute arose when Indo Unique invoked a bank guarantee, which Global Mercantile alleged was fraudulent, leading to a civil suit and an application under Section 8 of the Arbitration Act for reference to arbitration. The Commercial Court rejected the Section 8 application, holding the arbitration clause inapplicable to the bank guarantee, and the High Court later allowed the application, prompting the Supreme Court’s review. The Court held that an arbitration agreement is a separate contract that remains enforceable despite the underlying contract’s stamp‑duty deficiency, that civil fraud allegations are arbitrable, and that the writ petition challenging the Commercial Court’s order was not maintainable because a statutory appeal under Section 37 is available. Accordingly, the Supreme Court set aside the High Court order, directed the work order to be impounded for stamp‑duty assessment, and affirmed the right to refer the dispute to arbitration.

Issues considered

Whether an arbitration agreement embedded in an unstamped work order is enforceable and can be acted upon.
Whether the allegation of fraudulent invocation of a bank guarantee is arbitrable.
Whether a writ petition under Articles 226/227 challenging a Section 8 refusal is maintainable given the statutory appeal under Section 37 of the Arbitration Act.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11, s. 16, s. 37, s. 45, s. 8
Commercial Courts Act, 2015s. 13(1A)
Indian Contract Act, 1872s. 10, s. 11, s. 19
Maharashtra Stamp Act, 1958s. 30, s. 32A, s. 33, s. 34, s. 35, s. 36, s. 37, s. 41, s. 58

Subjects

arbitration agreementdoctrine of separabilitystamp dutyunstamped contractfraud arbitrabilitySection 8 applicationwrit petition maintainabilitycommercial courts

Judgment

[2021] 4 S.C.R. 933 933

M/s. N.N. GLOBAL MERCANTILE PVT. LTD. A
v.
M/s. INDO UNIQUE FLAME LTD. & OTHERS
(Civil Appeal Nos. 3802-3803/2020)
JANUARY 11, 2021 B
[DR DHANANJAYA Y CHANDRACHUD,
INDU MALHOTRA AND INDIRA BANERJEE, JJ.]
Arbitration and Conciliation Act, 1996 – ss. 8, 11 and 37 –
Maharashtra Stamp Act, 1958 – ss. 30, 32A, 33, 34, 35, 36, 37, 41
C
and 58 – Commercial Courts Act, 2015 – s.13(1A) – Respondent
no.1 furnished bank guarantee for Rs.29.29 crores in favour of
KPCL, in pursuance of the work order awarded to it by KPCL for
work of washing of coal – Subsequently, respondent no.1 entered
into a sub-contract/work order dated 28.09.2015 (with arbitration
clause) with the appellant company for transportation of coal from D
its washery – Appellant company also furnished bank guarantee of
Rs.3,36,00,000/- in favour of the banker of the respondent no.1 –
Dispute arose between KPCL and respondent no.1, which led to
invocation of the bank guarantee by KPCL – In turn, respondent
no.1 invoked the bank guarantee furnished by the appellant
E
company – Appellant filed a civil commercial suit against the
respondent no.1 for a declaration that respondent no.1 was not
entitled to encash the bank guarantee as the work order was not
acted upon – It was also alleged that invocation of bank guarantee
was fraudulent – The Commercial Court directed to maintain status-
quo – Respondent no.1 filed an application u/s.8 of the 1996 Act F
seeking reference to arbitration – Application rejected by the
Commercial Court – It held that the arbitration clause in the work
order dated 28.09.2015 was not a general arbitration clause, which
would cover bank guarantee – Bank guarantee was an independent
contract – Writ petition by respondent no.1 – The High Court held
G
that application u/s. 8 of the 1996 Act was maintainable and disputes
could be resolved through arbitration – It also held that the filing
of suit before the Commercial Court was not justified – Issues arised
for consideration before the Supreme Court were: (i) Whether an
arbitration agreement would be enforceable and acted upon, even
if the work order dated 28.09.2015 is unstamped and un- H
933
934 SUPREME COURT REPORTS [2021] 4 S.C.R.

A enforceable under the Stamp Act; (ii) Whether allegation of the
fraudulent invocation of bank guarantee is an arbitrable dispute;
(iii) Whether writ petition was maintainable to challenge an order
rejecting an application for reference to arbitration u/s.8 of the
1996 Act – Held: Non-payment or deficiency of Stamp duty on the
work order does not invalidate the main contract – The arbitration
B
agreement contained in the work order is independent and distinct
from the underlying commercial contract – s.3 of the Maharashtra
Stamp Act does not subject an arbitration agreement to payment of
Stamp Duty – On the basis of the doctrine of separability, the
arbitration agreement being a separate and distinct agreement from
C the underlying commercial contract, would survive independent of
the substantive contract – The arbitration agreement would not be
rendered invalid, un-enforceable or non-existent, even if the
substantive contract is not admissible in evidence, or cannot be
acted upon on account of non-payment of Stamp Duty – The civil
aspect of fraud is considered arbitrable – The criminal aspect of
D
fraud, forgery, or fabrication, which would be visited with penal
consequences and criminal sanctions can be adjusted by a Court
of law, since it may result in conviction, which is in the realm of
public law – In the instant case, the allegation of fraud with respect
to the invocation of the bank guarantee are arbitrable, since it arises
E out of the disputes between the parties inter se and is not in realm of
public law – The writ petition filed by the respondent no.1 was not
maintanable, since a statutory remedy under the amended s.37 of
the 1996 Act is available.
Arbitration – Arbitration agreement – Held: An arbitration
F agreement is a distinct and separate agreement, which is independent
from the substantive commercial contract in which it is embedded –
This is based on the premise that when parties enter into a commercial
contract containing an arbitration clause, they are entering into
two separate agreements viz. (i) the substantive contract which
contains the rights and obligations of the parties arising from the
G commercial transaction; and, (ii) the arbitration agreement which
contains the binding obligation of the parties to resolve their disputes
through the mode of arbitration.
Doctrines/Principles – Doctrine of separability of the
arbitration agreement – Held: The doctrine of separability of the
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M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 935
UNIQUE FLAME LTD. & OTHERS

arbitration agreement connotes that the invalidity, ineffectiveness, A
or termination of the substantive commercial contract, would not
affect the validity of the arbitration agreement, except if the
arbitration agreement itself is directly impeached on the ground
that the arbitration agreement is void ab initio.
Doctrines/Principles – Doctrine of kompetenz – Held: B
kompetenz implies that the arbitral tribunal has the competence to
determine and rule on its own jurisdiction, including objections
with respect to the existence, validity, and scope of the arbitration
agreement, in the first instance, which is subject to judicial scrutiny
by the courts at a later stage of the proceedings – Under the
Arbitration Act, the challenge before the Court is maintainable only C
after the final award is passed as provided by sub-section (6) of
s.16.
Referring the issue to the Constitution Bench, the Court
HELD: Validity of an arbitration agreement in an unstamped D
agreement.
1. The Stamp Act is a fiscal measure enacted to secure the
revenue of the State on certain classes of instruments specified
in Schedule I of the Act. The stringent provisions of the Stamp
Act have been framed to protect the interest of the revenue of E
the State. Section 34 of the Maharashtra Stamp Act, 1958 operates
as a statutory bar to an unstamped instrument being admitted in
evidence, or being acted upon, for any purpose, by any authority
having by law or consent of parties, the power to receive evidence,
unless such instrument is duly stamped. The proviso to Section
34 states that upon payment of the requisite stamp duty, the F
instrument may be admitted in evidence. The words “for any
purpose” occurring in the Indian Stamp Act was interpreted by
the Privy Council in Ram Rattan v. Parma Nand. [Para 5.4][969-
F-H]
2. The arbitration agreement contained in the Work Order G
is independent and distinct from the underlying commercial
contract. The arbitration agreement is an agreement which
provides the mode of dispute resolution. Section 3 of the
Maharashtra Stamp Act does not subject an arbitration agreement
to payment of Stamp Duty, unlike various other agreements
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936 SUPREME COURT REPORTS [2021] 4 S.C.R.

A enlisted in the Schedule to the Act. This is for the obvious reason
that an arbitration agreement is an agreement to resolve disputes
arising out of a commercial agreement, through the mode of
arbitration. On the basis of the doctrine of separability, the
arbitration agreement being a separate and distinct agreement
from the underlying commercial contract, would survive
B
independent of the substantive contract. The arbitration
agreement would not be rendered invalid, un-enforceable or non-
existent, even if the substantive contract is not admissible in
evidence, or cannot be acted upon on account of non-payment of
Stamp Duty. [Para 6.4][977-G-H; 978-A-B]
C 3. In view of this Court, there is no legal impediment to the
enforceability of the arbitration agreement, pending payment of
Stamp Duty on the substantive contract. The adjudication of the
rights and obligations under the Work Order or the substantive
commercial contract would however not proceed before
D complying with the mandatory provisions of the Stamp Act. [Para
6.6][979-G-H; 980-A]
4. The Stamp Act is a fiscal enactment for payment of stamp
duty to the State on certain classes of instruments specified in
the Stamp Act. Section 40 of the Indian Stamp Act,1899 provides
E the procedure for instruments which have been impounded, and
sub-section (1) of Section 42 requires the instrument to be
endorsed after it is duly stamped by the concerned Collector.
Section 42(2) provides that after the document is duly stamped,
it shall be admissible in evidence, and may be acted upon. [Para
6.7][980-B-C]
F
5. In view of this Court, the decision in SMS Tea Estates
does not lay down the correct position in law on two issues i.e. (i)
that an arbitration agreement in an unstamped commercial
contract cannot be acted upon, or is rendered un-enforceable in
law; and (ii) that an arbitration agreement would be invalid where
G the contract or instrument is voidable at the option of a party,
such as u/S. 19 of the Indian Contract Act, 1872. This Court holds
that since the arbitration agreement is an independent agreement
between the parties, and is not chargeable to payment of stamp
duty, the non-payment of stamp duty on the commercial contract,
H would not invalidate the arbitration clause, or render it un-
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 937
UNIQUE FLAME LTD. & OTHERS

enforceable, since it has an independent existence of its own. A
The view taken by the Court on the issue of separability of the
arbitration clause on the registration of the substantive contract,
ought to have been followed even with respect to the Stamp Act.
The non-payment of stamp duty on the substantive contract would
not invalidate even the main contract. It is a deficiency which is
B
curable on the payment of the requisite Stamp Duty. [Para
6.8][980-C-F]
6. The Garware judgment has followed the judgment in SMS
Tea Estates. The Counsel for the Appellant has placed reliance
on paragraph 22 of the judgment to contend that the arbitration
clause would be non- existent in law, and unenforceable, till Stamp C
Duty is adjudicated and paid on the substantive contract. This
Court holds that this finding is erroneous, and does not lay down
the correct position in law. This Court has already held that an
arbitration agreement is distinct and independent from the
underlying substantive commercial contract. Once the arbitration D
agreement is held to have an independent existence, it can be
acted upon, irrespective of the alleged invalidity of the commercial
contract. [Para 6.10][980-B-D]
7. This Court doubt the correctness of the view taken in
paragraph 92 of the three-judge bench in Vidya Drolia. This Court E
considers it appropriate to refer the findings in paras 22 and 29
of Garware Wall Ropes Limited, which has been affirmed in
paragraph 92 of Vidya Drolia, to a Constitution Bench of five
judges. [Para 6.12][983-B]
8. The next issue which arises is as to which authority would F
exercise the power of impounding the instrument under Section
33 read with Section 34 of the Maharashtra Stamp Act, in a case
where the substantive contract contains an arbitration agreement.
[Para 7][983-C]
9. In an arbitration agreement, the disputes may be referred G
to arbitration by three modes.
a) The first mode is where the appointment of the arbitrator
takes place by the parties consensually in accordance with the
terms of the arbitration agreement, or by a designated arbitral
institution, without the intervention of the court. In such a case,
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938 SUPREME COURT REPORTS [2021] 4 S.C.R.

A the arbitrator / tribunal is obligated by Section 33 of the Indian
Stamp Act, 1899 (or the applicable State Act) to impound the
instrument, and direct the parties to pay the requisite Stamp Duty
(and penalty, if any), and obtain an endorsement from the
concerned Collector. This would be evident from the provisions
of Section 34 of the Stamp Act which provides that “any person
B
having by law or consent of parties authority to receive evidence”
is mandated by law to impound the instrument, and direct the
parties to pay the requisite stamp duty.
b) The second mode of appointment is where the parties
fail to make the appointment in accordance with the arbitration
C agreement, and an application is filed under Section 11 before
the Court to invoke the default power for making the appointment.
In such a case, the High Court, or the Supreme Court, as the
case may be, while exercising jurisdiction under Section 11, would
impound the substantive contract which is either unstamped or
D inadequately stamped, and direct the parties to cure the defect
before the arbitrator / tribunal can adjudicate upon the contract.
c) The third mode is when an application is filed under
Section 8 before a judicial authority for reference of disputes to
arbitration, since the subject matter of the contract is covered by
E an arbitration agreement. In such a case, the judicial authority
will make the reference to arbitration. However, in the meanwhile,
the parties would be directed to have the substantive contract
stamped in accordance with the provisions of the relevant Stamp
Act, so that the rights and obligations emanating from the
substantive contract can be adjudicated upon. [Para 7.1][983-D-
F H]
Whether the fraudulent invocation of the Bank Guarantee
is arbitrable?
10. In view of this Court, all civil or commercial disputes,
G either contractual or non- contractual, which can be adjudicated
upon by a civil court, in principle, can be adjudicated and resolved
through arbitration, unless it is excluded either expressly by
statute, or by necessary implication. The Arbitration and
Conciliation Act, 1996 does not exclude any category of disputes
as being non arbitrable. Section 2(3) of the Arbitration Act
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M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 939
UNIQUE FLAME LTD. & OTHERS

however recognizes that certain categories of disputes by law A
may not be submitted to arbitration. In all jurisdictions, certain
categories of disputes are reserved by the legislature, as a matter
of public policy, to be adjudicated by a court of law, since they lie
in the realm of public law. [Para 8.10][988-F-G; 989-A]
11. Traditionally, disputes relating to rights in rem are B
required to be adjudicated by courts and / or statutory tribunals.
A right in rem is a right exercisable against the world at large.
Actions in rem refer to actions which create a legal status such
as citizenship, divorce, testamentary and probate issues, etc. A
lis in rem is not arbitrable by a private tribunal constituted by the
consent of parties. Actions in personam determine the rights and C
interests of parties to the subject matter of the dispute, which
are arbitrable. The broad categories of disputes which are
considered to be non arbitrable are penal offences which are
visited with criminal sanction; offences pertaining to bribery /
corruption; matrimonial disputes relating to divorce, judicial D
separation, restitution of conjugal rights, child custody and
guardianship matters, which pertain to the status of a person;
testamentary matters which pertain to disputes relating to the
validity of a Will, grant of probate, letters of administration,
succession, which pertain to the status of a person, and are
adjudicated by civil courts. [Para 8.11][989-B-D] E

12. The civil aspect of fraud is considered to be arbitrable
in contemporary arbitration jurisprudence, with the only
exception being where the allegation is that the arbitration
agreement itself is vitiated by fraud or fraudulent inducement, or
the fraud goes to the validity of the underlying contract, and F
impeaches the arbitration clause itself. Another category of cases
is where the substantive contract is “expressly declared to be
void” under Section 10 of the Indian Contract Act, 1872 where
the agreement is entered into by a minor (without following the
procedure prescribed under the Guardian and Wards Act, 1890) G
or a lunatic, which would be with a party incompetent to enter
into a contract. [Para 8.12][990-B-D]

H
940 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 13. The ground on which fraud was held to be non arbitrable
earlier was that it would entail voluminous and extensive
evidence, and would be too complicated to be decided in
arbitration. In contemporary arbitration practice, arbitral tribunals
are required to traverse through volumes of material in various
kinds of disputes such as oil, natural gas, construction industry,
B
etc. The ground that allegations of fraud are not arbitrable is a
wholly archaic view, which has become obsolete, and deserves
to be discarded. However, the criminal aspect of fraud, forgery,
or fabrication, which would be visited with penal consequences
and criminal sanctions can be adjudicated only by a court of law,
C since it may result in a conviction, which is in the realm of public
law. [Para 8.16][992-E-G]
14. In the present case, the allegations of fraud with respect
to the invocation of the Bank Guarantee are arbitrable, since it
arises out of disputes between parties inter se, and is not in the
D realm of public law. [Para 8.17][993-A]
Maintainability of the Writ Petition
15. This Court is of the view that the Writ Petition filed by
the Respondent No. 1 to challenge the Order dated 18.01.2018
passed by the Special Commercial Court / District Judge-I in
E Commercial Dispute No. 62/2017 was not maintainable, since a
statutory remedy under the amended Section 37 of the Arbitration
Act is available. [Para 9.1][993-B-C]
16. Since the judgment and order of the Commercial Court
dated 18.01.2018 refusing to refer the parties to arbitration was
F an appealable order under Section 37(1)(a) of the Arbitration Act,
the Writ Petition was not maintainable. The appeal would lie before
the Commercial Appellate Division of the High Court under
Section 13(1A) of the Commercial Courts Act, 2015. [Para
9.2][993-E-F]
G 17. This Court considers it appropriate to refer the following
issue, to be authoritatively settled by a Constitution bench of
five judges of this Court :
“Whether the statutory bar contained in Section 35 of the
Indian Stamp Act, 1899 applicable to instruments
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M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 941
UNIQUE FLAME LTD. & OTHERS

chargeable to Stamp Duty under Section 3 read with the A
Schedule to the Act, would also render the arbitration
agreement contained in such an instrument, which is not
chargeable to payment of stamp duty, as being non-existent,
un-enforceable, or invalid, pending payment of stamp duty
on the substantive contract/instrument?’’ [Para 12][995-C-
B
E]
Vidya Drolia & Ors. v. Durga Trading Corporation
[2019] SCR 465; Garware Wall Ropes Limited v.
Coastal Marine Constructions and Engineering Limited
(2019) 9 SCC 209 : [2019] 5 SCR 579 – referred to
Constitution Bench. C

SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co.
Pvt. Ltd. (2011) 14 SCC 66 : [2011] 9 SCR 382 – partly
overruled.
Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern D
Coal Field Ltd. (2020) 2 SCC 455; A. Ayyasamy v.
Parmasivam & Ors. (2016) 10 SCC 386 : [2016] 11
SCR 521; Hindustan Steel Limited v. M/s. Dilip
Construction Company (1969) 1 SCC 597 : [1969] 3
SCR 736 – relied on.
E
SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618
: [2005] 4 Suppl. SCR 688; National Insurance Co. v.
Boghara Polyfab (2009) 1 SCC 267 : [2008] 13 SCR
638; Mayavati Trading Private Limited v. Pradyuat Deb
Burman. (2019) 8 SCC 714 : [2019] 12 SCR 123;
Shriram EPC Limited v. Rioglass Solar SA (2018) 18 F
SCC 313 : [2018] SCR 749; Duro Felguera v.
Gangavaram Port Ltd. (2017) 9 SCC 729 : [2017] 10
SCR 285; N. Radhakrishnan v. Maestro Engineers.
(2010) 1 SCC 72 : [2009] 15 SCR 371; Abdul Kadir v.
Madhav Prabhakar AIR 1962 SC 406 : [1962] 3 SCR G
702; Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra
(2012) 2 SCC 144 : [2011] 10 SCR 685; Ameet Lalchand
Shah & Ors. v. Rishabh Enterprises & Anr. (2018) 15
SCC 678 : [2018] 6 SCR 1001; Rashid Raza v. Sadaf
Akhtar (2019) 8 SCC 710 : [2019] 12 SCR 460; Avitel
H
942 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Post Studioz Ltd. & Ors. v. HSBC PI Holdings
(Mauritius Limited) (2020) SCC OnLine SC 656; Naina
Thakkar v. Annapurna Builders. (2013) 14 SCC 354;
Deccan Paper Mills v. Regency Mahavir (2020) SCC
OnLine SC 655; Booz Allen & Hamilton Inc. v. SBI
Home Finance Ltd. (2011) 5 SCC 532 : [2011]
B
7 SCR 310; Swiss Timing Ltd. v. Commonwealth Games
2010 Organising Committee (2014) 6 SCC 677 : [2014]
6 SCR 514; State of West Bengal v. Associated
Contractors (2015) 1 SCC 32 : [2014] 10 SCR 426;
Swiss Timing Ltd. Avitel Post Studioz Ltd. & Ors. v.
C HSBC PI Holdings (Mauritius Limited) (2020) SCC
OnLine SC 656; Avinash Kumar Chauhan v. Vijay
Krishna Mishra (2009) 2 SCC 532; Black Pearl Hotels
(P) Ltd. v. Planet M. Retail Ltd. (2017) 4 SCC 498;
Master Construction Company v. Union of India (2011)
12 SCC 357; A. Ayyasamy v. A. Paramasivam & Ors.
D
(2016) 10 SCC 386 : [2016] 11 SCR 521; Emaar MGF
Land Limited v. Aftab Singh (2019) 12 SCC 751; Vimal
Kishor Shah & Others v. Jayesh Dinesh Shah & Others.
(2016) 8 SCC 788 – referred to.
Ram Rattan v. Parma Nand (1945-46) 73 IA 28 : AIR
E 1946 PC 51 – referred to.
Heyman v. Darwins Ltd. [1942] AC 356; Bremer Vulkan
Schiffbau und Maschinefabrik v. South India Shipping
Corporation [1981] AC 909; Harbour Assurance v.
Kansa General International Insurance [1993] 1
F Lloyd’s Rep. 455 (CA); Lesotho Highlands
Development Authority v. Impregilo SpA and Others :
[2005] UKHL 43 : [2006] 1 A.C. 221; Gosset v.
Caparelli, Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963),
545; Fiona Trust & Holding Corporation v. Privalov
G [2007] EWCA Civ 20; Fili Shipping Co. Ltd. and Others
v. Premium Nafta Products Ltd. and Others [2007]
UKHL 40; Prima Paint Corporation v. Flood & Conklin
MFG. CO. 388 US 395 (1967); Buckeye Check
Cashing, Inc v. Cardegna et. al US SC 440 (2006); Prima
Paint and Southland Corp. v. Keating. 79 L Ed 2d: 465
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M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 943
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US 1 (1984); Rent-A- Center, West, Inc. v. Jackon 561 A
US 63 (2010); Russel v. Russel [1880] 14 Ch. D 471 –
referred to.
Ivory Properties & Hotels Pvt. Ltd. v. Nusli Neville Wadia
2011 (2) Arb LR 479 (Bom); RRB Energy Ltd. v. Vestas
Wind System & Ors. (2015) 219 DLT 516 – referred B
to.
Malhotra’s Commentary on the Law of Arbitration,
[4th ed., Wolters Kluwer (2020)], p.339, Volume I.
Case Law Reference
C
(2020) 2 SCC 455 relied on Para 4.2
[2016] 11 SCR 521 relied on Para 4.3
[2019] 5 SCR 579 referred to a
Constitution Bench Para 5.1
D
(2013) 14 SCC 354 referred to Para 5.1
(2009) 2 SCC 532 referred to Para 5.3
(2017) 4 SCC 498 referred to Para 5.3
[2011] 9 SCR 382 partly overruled Para 5.6 E
[2005] 4 Suppl. SCR 688 referred to Para 5.7
[2008] 13 SCR 638 referred to Para 5.7
(2011) 12 SCC 357 referred to Para 5.7
[2017] 10 SCR 285 referred to Para 5.8 F
[2019] 12 SCR 123 referred to Para 5.8
[2018] SCR 749 referred to Para 6
[1969] 3 SCR 736 relied on Para 6.5
[2019] SCR 465 referred to a G
Constitution Bench Para 6.11
[2009] 15 SCR 371 referred to Para 8.3
[1962] 3 SCR 702 referred to Para 8.3
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944 SUPREME COURT REPORTS [2021] 4 S.C.R.

A [2011] 10 SCR 685 referred to Para 8.5
[2016] 11 SCR 521 referred to Para 8.6
[2019] 12 SCR 460 referred to Para 8.7
[2018] 6 SCR 1001 referred to Para 8.8
B (2019) 12 SCC 751 referred to Para 8.11
(2016) 8 SCC 788 referred to Para 8.11
[2011] 7 SCR 310 referred to Para 8.11
[2014] 6 SCR 514 referred to Para 8.15
C
[2014] 10 SCR 426 referred to Para 8.15
CIVIL APPELATE JURISDICTION: Civil Appeal Nos. 3802-
3803 of 2020.
From the Judgment and Order dated 30.09.2020 in WP No. 1801/
D 2020 and dated 28.10.2020 in RAST No. 9819/2020 passed by the High
Court of Judicature at Bombay Bench at Nagpur.
Dhruv Mehta, Sr. Adv., Shyam Dewani, Gagan Sanghi and
Rameshwar Prasad Goyal, Advs. for the Appellant.
Siddharth Dave, Sr. Adv., Rajul Shrivastava, Ms. Charu Ambwani,
E Amit Khare, Sanjay Kapur, Sambit Panja and Ms. Megha Karnwal,
Advs. for the Respondents.
The Judgment of the Court was delivered by
INDU MALHOTRA, J.
F 1. This case raises interesting issues with respect to the application
of the doctrine of separability of an arbitration agreement from the
underlying substantive contract in which it is embedded; whether an
arbitration agreement would be non-existent in law, invalid or un-
enforceable, if the underlying contract was not stamped as per the
relevant Stamp Act; and, whether allegations of fraudulent invocation of
G the bank guarantee furnished under the substantive contract, would be
an arbitrable dispute.
1.1 The Respondent No.1-Indo Unique Flame Ltd. (“Indo Unique”)
applied for grant of work of beneficiation/washing of coal to the Karnataka
Power Corporation Ltd. (“KPCL”) in an open tender. KPCL awarded
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the Work Order vide letter of Award No.A1M1B3/Washed Coal/1052 A
dated 18.09.2015 to Indo Unique.
In pursuance of the Work Order dated 18.09.2015, the Respondent
No.1 Company furnished Bank Guarantees for Rs.29.29 crores in favour
of KPCL through its bankers, State Bank of India (“SBI”), the
Respondent No.2 herein. B
1.2 Indo Unique, the Respondent No.1 herein, subsequently entered
into a sub-contract termed as a Work Order dated 28.09.2015 with the
Appellant Company – M/s. N.N. Global Mercantile Pvt. Ltd. (“Global
Mercantile”), for the transportation of coal from its washery at Village
Punwat, District Yavatmal to the stockyard, siding, coal handling and C
loading into the wagons at Pandharpaoni siding, District Chanderpur,
Maharashtra.
Clause 9 of the Work Order provided for furnishing a security
deposit which reads as :
“9. Security Deposit : You will submit the Bank Guarantee for D
Rs.5.00 crores for the average stock of washed coal lying at your
stockyard. This Bank Guarantee can be issued from any
nationalised Bank/first class bank, initially valid for a period of 18
(eighteen) months.”
Clause 10 of the Work Order incorporates an arbitration clause, E
which reads as:
“10. Arbitration : In case of any dispute due to difference of opinion
in interpretation of any clause or terms and conditions or meaning
of the work or language the decision of the arbitrator appointed
with mutual consent shall be treated as final and binding on both F
the parties.”
1.3 As per Clause 9 of the Work Order, Global Mercantile furnished
a Bank Guarantee for Rs.3,36,00,000/- on 30.09.2015, in favour of SBI-
the banker of Indo Unique.
The Bank Guarantee was extended from time to time, and was G
last extended on 10.11.2017.
1.4 Under the principal contract with KPCL dated 18.09.2015,
certain disputes and differences arose with Indo Unique, which led to
the invocation of the Bank Guarantee by KPCL on 06.12.2017.
H
946 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 1.5 Indo Unique, on 07.12.2017, invoked the Bank Guarantee
furnished by Global Mercantile under the Work Order.
It is the invocation of this Guarantee which has led to the present
proceedings.
1.6 Global Mercantile filed a Civil (Commercial) Suit No.62 of
B 2017 against Indo Unique, and its banker SBI, as also the banker of the
Appellant i.e. the Union Bank of India (Respondent No.3 herein), before
the Commercial Court, Nagpur praying inter alia for a declaration that
Indo Unique was not entitled to encash the bank guarantee as the Work
Order had not been acted upon. It was expressly stated that Indo Unique
C had not allotted any work under the Work Order, nor were any invoices
raised, or payments made by it. Consequently, there was no loss suffered
which would justify the invocation of the Bank Guarantee. It was alleged
that the invocation of the Bank Guarantee was fraudulent, since it was
not in terms of the Work Order, being a conditional guarantee linked to
the performance of work.
D
The Commercial Court vide an ex parte ad interim Order dated
15.12.2017 directed status-quo to be maintained with respect to the
enforcement of the Bank Guarantee.
1.7 Indo Unique filed an application under Section 8 of the
Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in Civil
E (Commercial) Suit No.62 of 2017, seeking reference of disputes to
arbitration.
Global Mercantile opposed the application under Section 8 as being
not maintainable since the Bank Guarantee was a separate and
independent contract, and did not contain any arbitration clause.
F 1.8 The Commercial Court vide Order dated 18.01.2018 rejected
the application under Section 8, and held that the arbitration clause in the
Work Order dated 28.09.2015 was not a general arbitration clause, which
would cover the Bank Guarantee. The Bank Guarantee was an
independent contract between SBI and Union Bank of India for due
performance of the contract. The Court noted the contention of Global
G
Mercantile that neither of the parties had performed any part of the
Work Order dated 28.09.2015, and consequently held that the jurisdiction
of the Commercial Court was not ousted by the arbitration agreement.
1.9 Indo Unique then filed Civil Revision Petition No.9 of 2018
before the Bombay High Court challenging the Order passed by the
H Commercial Court.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 947
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

On an objection being raised on the maintainability of the Civil A
Revision Petition, the High Court vide Order dated 09.07.2020 permitted
the withdrawal of the Civil Revision Petition, with liberty to file a petition
under Articles 226 and 227 of the Constitution of India.
1.10 Indo Unique filed W.P. No.1801 of 2020 before the Bombay
High Court to quash and set aside the Order dated 18.01.2018 passed B
by the Commercial Court/District Judge-I, Nagpur in Civil (Commercial)
Suit No.62/2017.
The High Court vide the Impugned Judgment dated 30.09.2020
held that it was the admitted position that there was an arbitration
agreement between the parties, and therefore the application under C
Section 8 was maintainable. With respect to the contention that the
invocation of the Bank Guarantee was fraudulent, it was held that the
allegations of fraud did not constitute a criminal offence which would
entail recording of voluminous evidence. The disputes could be resolved
through arbitration, and the filing of the Suit before the Commercial Court
was not justified. The Commercial Court was not justified in restraining D
the invocation of the bank guarantee in the absence of any finding on
fraud or special equities.
On the issue of the arbitration agreement being unenforceable
since the Work Order was unstamped, it was held that the plaintiff/
Appellant herein, could raise the issue either under Section 11 of the E
Arbitration Act, or before the arbitral tribunal at the appropriate stage.
The Writ Petition was held to be maintainable, since there is no absolute
bar to entertain a Writ Petition even if an alternate remedy is available.
The Writ Petition was allowed vide Judgment and Order dated 30.09.2020,
and the Order dated 18.01.2018 passed by the Commercial Court was F
set aside.
On the request of the counsel for the Appellant, the High Court
suspended the operation of its Order for a period of one month from
30.09.2020.
1.11 The Review Petition filed by the Appellant was withdrawn G
vide Order dated 28.10.2020 passed in Review Application (ST) No.
9819 of 2020.
On the request by the counsel for the Appellant, the Order of stay
was continued till 20.11.2020.
H
948 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 1.12 Aggrieved by the judgment of the High Court, Global
Mercantile has filed the present Special Leave Petition before this Court.
2. The issues which have arisen for our consideration are :
i. Whether an arbitration agreement would be enforceable and
acted upon, even if the Work Order dated 28.09.2015 is
B unstamped and un-enforceable under the Stamp Act?
ii. Whether allegation of the fraudulent invocation of the bank
guarantee is an arbitrable dispute?
iii. Whether a Writ Petition under Articles 226 and 227 of the
C Constitution would be maintainable to challenge an Order
rejecting an application for reference to arbitration under
Section 8 of the Arbitration Act?
We will now deal with each of these issues.
3. Validity of an arbitration agreement in an unstamped
D agreement
3.1 It is well settled in arbitration jurisprudence that an
arbitration agreement is a distinct and separate agreement,
which is independent from the substantive commercial
contract in which it is embedded. This is based on the
E premise that when parties enter into a commercial contract
containing an arbitration clause, they are entering into two
separate agreements viz. (i) the substantive contract which
contains the rights and obligations of the parties arising from
the commercial transaction; and, (ii) the arbitration
agreement which contains the binding obligation of the
F
parties to resolve their disputes through the mode of
arbitration.
3.2 The autonomy of the arbitration agreement is based on
the twin concepts of separability and kompetenz –
kompetenz. The doctrines of separability and kompetenz
G – kompetenz though inter-related, are distinct, and play an
important role in promoting the autonomy of the arbitral
process.
3.3 The doctrine of separability of the arbitration agreement
connotes that the invalidity, ineffectiveness, or termination
H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 949
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

of the substantive commercial contract, would not affect A
the validity of the arbitration agreement, except if the
arbitration agreement itself is directly impeached on the
ground that the arbitration agreement is void ab initio.
3.4 The doctrine of kompetenz – kompetenz implies that
the arbitral tribunal has the competence to determine and B
rule on its own jurisdiction, including objections with respect
to the existence, validity, and scope of the arbitration
agreement, in the first instance, which is subject to judicial
scrutiny by the courts at a later stage of the proceedings.
Under the Arbitration Act, the challenge before the Court
is maintainable only after the final award is passed as C
provided by sub-section (6) of Section 16.
The stage at which the order of the tribunal regarding
its jurisdiction is amenable to judicial review, varies from
jurisdiction to jurisdiction. The doctrine of kompetenz –
kompetenz has evolved to minimize judicial intervention at D
the pre-reference stage, and reduce unmeritorious
challenges raised on the issue of jurisdiction of the arbitral
tribunal.
3.5 The doctrine of separability was expounded in the
judgment of Heyman v. Darwins Ltd1 by the House of E
Lords wherein it was held that English common law had
been evolving towards the recognition of an arbitration
clause as a separate contract which survives the termination
of the main contract.
Lord Wright in his opinion stated that : F
“An arbitration agreement is collateral to the substantial
stipulations of the contract. It is merely procedural and
ancillary, it is a mode of settling disputes, though the
agreement to do so is itself subject to the discretion of
the court.” G
Lord MacMillan in his opinion stated that :
“It survives for the purpose of measuring the claims
arising out of the breach, and the arbitration clause
1
[1942] AC 356. H
950 SUPREME COURT REPORTS [2021] 4 S.C.R.

A survives for determining the mode of their settlement.
The purposes of the contract have failed, but the
arbitration clause is not one of the purposes of the
contract.”
3.6 This rule has been affirmed in several cases, including
B Bremer Vulkan Schiffbau und Maschinefabrik v. South
India Shipping Corporation2 in which Lord Diplock cited
Heyman as an authority for the assertion that :
“The arbitration clause constitutes a self-contained contract
collateral or ancillary to the shipbuilding agreement itself.”
C 3.7 In Harbour Assurance v. Kansa General
International Insurance,3 the Court of Appeal held that if
the arbitration clause is not directly impeached, an arbitration
agreement is capable of surviving the invalidity of the
contract, so that the arbitrator has the jurisdiction to
D determine the initial validity of the contract. It was opined
that:
“Once it became accepted that the arbitration clause is a
separate agreement, ancillary to the contract, the logical
impediment to referring an issue of the invalidity of the
E contract to arbitration disappears. Provided that the
arbitration clause itself is not directly impeached (eg by a
non-est factum plea), the arbitration agreement is as a
matter of principled legal theory capable of surviving the
invalidity of the contract.”

F 3.8 In Lesotho Highlands Development Authority v.
Impregilo SpA and others,4 the House of Lords affirmed
the view taken in Harbour Assurance (supra), wherein it
was held that an arbitration agreement is a distinct and
separable agreement from the underlying or principal
contract.
G
“21. It is part of the very alphabet of arbitration law as
explained in Harbour Assurance Co v. Kansa General

2
[1981] AC 909.
3
[1993] 1 Lloyd’s Rep. 455 (CA).
4
H [2005] UKHL 43 : [2006] 1 A.C. 221 at [21].
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 951
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

International Insurance, … spelled out in s. 7 of the Act, A
that the arbitration agreement is a distinct and separable
agreement from the underlying or principal contract.”
3.9 Article 16(1) of the Model Law incorporates the doctrine
of separability :
“Article 16. The arbitral tribunal may rule on its own B
jurisdiction, including any objections with respect to the
existence or validity of the arbitration agreement. For that
purpose, an arbitration clause which forms a part of a
contract shall be treated as an agreement independent of
the other terms of the contract. A decision by the arbitral C
tribunal that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.”
3.10 The French Cour de Cassation recognised the doctrine
of separability in broad terms in the Gosset v. Caparelli,5
wherein it was held that: D
“In international arbitration, the agreement to arbitrate,
whether concluded separately or included in the contract
to which it relates, is always save in exceptional
circumstances, … completely autonomous in law which
excludes the possibility of it being affected by the possible E
invalidity of the main contract.”
3.11 The doctrine of kompetenz – kompetenz is based on
the premise that the arbitration agreement is separate and
independent from the substantive underlying contract in
which it is embedded. Equally, an arbitration agreement F
exists and can be acted upon irrespective of whether the
main substantive contract is valid or not.
The Court of Appeal in the seminal decision rendered in
Fiona Trust & Holding Corporation v. Privalov,6 held
that the allegation of invalidity of the underlying contract,
G
would not preclude the arbitral tribunal from determining
the said issue in the first instance, even though the alleged
illegality would render the contract void from inception. In

5
Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963), 545.
6
[2007] EWCA Civ 20. H
952 SUPREME COURT REPORTS [2021] 4 S.C.R.

A this case, the arbitration agreement was contained in a
charter party agreement, wherein it was alleged that it had
been procured through bribery by the owner’s agent, and
was invalid from its inception. It was held that only if the
arbitration agreement is itself directly impeached, and
rendered void or unenforceable on grounds which relate to
B
the arbitration agreement itself, and not merely as a
consequence of the invalidity of the underlying contract,
that the courts may refuse reference to arbitration. To
discourage parasitical challenges and dilatory tactics in
resisting reference to arbitration, the Court of Appeal held
C in paragraph 38 that :
“38. … As we have sought to explain, once the separability
of the arbitration agreement is accepted, there cannot be
any question but that there is a valid agreement.
…
D
If there is a contest about whether an arbitration agreement
had come into existence at all, the court would have a
discretion as to whether to determine that issue itself, but
that will not be the case where there is an overall contract
which is said for some reason to be invalid eg for illegality,
E misrepresentation or bribery and the arbitration agreement
is merely part of the contract. …’’
3.12 In the Appeal filed in the Fiona Trust case before the
House of Lords, in Fili Shipping Co Ltd and others v.
Premium Nafta Products Ltd and others7, Lord Hoffman
F opined :
“It amounts to saying that because the main agreement and
the arbitration agreement were bound up with each other,
the invalidity of the main agreement should result in the
invalidity of the arbitration agreement. The one should fall
G with the other because they would never have been
separately concluded. But section 7 in my opinion means
that they must be treated as having been separately
concluded and the arbitration agreement can be invalidated
only on a ground which relates to the arbitration agreement
H 7
[2007] UKHL 40.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 953
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

and is not merely a consequence of the invalidity of the A
main agreement.”
Lord Hope in his separate opinion, held that :
“The owners’ argument was not that there was no contract
at all, but that they were entitled to rescind the contract
including the arbitration agreement because the contract B
was induced by bribery. Allegations of that kind, if sound,
may affect the validity of the main agreement. But they do
not undermine the validity of the arbitration agreement as a
distinct agreement. The doctrine of separability requires
direct impeachment of the arbitration agreement before it C
can be set aside. This is an exacting test. The argument
must be based on facts which are specific to the arbitration
agreement. Allegations that are parasitical to a challenge
to the validity to the main agreement will not do. That being
the situation in this case, the agreement to go to arbitration
must be given effect.” D

3.13 The law as it stands in U.K. today is that if the court
while entertaining a plea to refer the parties to arbitration,
is satisfied of the existence of the arbitration agreement, it
is incumbent to refer the parties to arbitration, even if
objections to the validity of the substantive contract are E
raised. Where the arbitration agreement is embedded in an
underlying contract, the court would not entertain the dispute
on the issue of jurisdiction until the arbitral tribunal has ruled
on this issue. Lord Hoffman opined that :
“But that is in my opinion exactly the kind of argument which F
s 7 was intended to prevent. It amounts to saying that
because the main agreement and the arbitration agreement
were bound up with each other, the invalidity of the main
agreement should result in the invalidity of the arbitration
agreement. The one should fall with the other because they G
would never have been separately concluded and the
arbitration agreement can be invalidated only on a ground
which relates to the arbitration agreement and is not merely
a consequence of the invalidity of the main agreement.” 8
8
[2007] 4 ALL ER 951 at 960, at paragraph 19. H
954 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 3.14 On the issue of whether a claim of fraud in the
inducement of the entire contract is to be decided by the
court, or the arbitrator, was considered by the U.S. Supreme
Court in Prima Paint Corporation v. Flood & Conklin
MFG. CO.,9
B The Court held that:
“If the claim is fraud in the inducement of the arbitration
clause itself an issue which goes to the ‘making’ of the
agreement to arbitrate—the federal court may proceed to
adjudicate it. But the statutory language does not permit
C the federal court to consider claims of fraud in the
inducement of the contract generally.……
In so concluding, we not only honor the plain meaning of
the statute but also the unmistakably clear congressional
purpose that the arbitration procedure, when selected by
D the parties to a contract, be speedy and not subject to delay
and obstruction in the courts.”
3.15 The United States Supreme Court in Buckeye Check
Cashing, Inc v. Cardegna et. al,10 followed the earlier
decisions in Prima Paint and Southland Corp. v.
E Keating.11 Scalia, J. opined :
“Prima Paint and Southland answer the question
presented here by establishing three propositions. First, as
a matter of substantive federal arbitration law, an arbitration
provision is severable from the remainder of the contract.
F Second, unless the challenge is to the arbitration clause itself,
the issue of the contract’s validity is considered by the
arbitrator in the first instance. Third, this arbitration law
applies in state as well as federal courts. The parties have
not requested, and we do not undertake, reconsideration of
those holdings. Applying them to this case, we conclude
G that because respondents challenge the Agreement, but not
specifically its arbitration provisions, those provisions are
enforceable apart from the remainder of the contract. The
9
388 US 395 (1967).
10
US SC 440 (2006).
H 11
79 L Ed 2d: 465 US 1 (1984).
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 955
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

challenge should therefore be considered by an arbitrator, A
not a court.”
3.16 In Rent-A- Center, West, Inc. v. Jackon, 12 the U.S.
Supreme Court opined :
“There are two types of validity challenges under § 2: “One
type challenges specifically the validity of the agreement to B
arbitrate,” and “[t]he other challenges the contract as a
whole, either on a ground that directly affects the entire
agreement (e.g., the agreement was fraudulently induced),
or on the ground that the illegality of one of the contract’s
provisions renders the whole contract invalid.” Buckeye, C
546 U.S., at 444. In a line of cases neither party has asked
us to overrule, we held that only the first type of challenge
is relevant to a court’s determination whether the arbitration
agreement at issue is enforceable. See Prima Paint
Corp. v. Flood & Conklin Mfg. Co., 388 US 395, 403-
404 (1967); Buckeye, supra, at 444-446; Preston v. Ferrer, D
552 US 346, 353-354 (2008). That is because § 2 states
that a “written provision” “to settle by arbitration a
controversy” is “valid, irrevocable, and enforceable” without
mention of the validity of the contract in which it is contained.
Thus, a party’s challenge to another provision of the contract, E
or to the contract as a whole, does not prevent a court from
enforcing a specific agreement to arbitrate. “[A]s a matter
of substantive federal arbitration law, an arbitration provision
is severable from the remainder of the contract.” Buckeye,
546 U.S., at 445; see also id., at 447 (the severability rule is
based on §2). F

……
The Court asserts that its holding flows logically from Prima
Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395
(1967), in which the Court held that consideration of a G
contract revocation defense is generally a matter for the
arbitrator, unless the defense is specifically directed at the
arbitration clause, id., at 404. We have treated this holding
as a severability rule: When a party challenges a contract,
12
561 US 63 (2010). H
956 SUPREME COURT REPORTS [2021] 4 S.C.R.

A “but not specifically its arbitration provisions, those provisions
are enforceable apart from the remainder of the
contract.” Buckeye Check Cashing, Inc. v. Cardegna,
546 US 440, 446 (2006).
……
B The second line of cases bearing on who decides the validity
of an arbitration agreement, as the Court explains, involves
the Prima Paint rule. See ante, at 71. That rule recognizes
two types of validity challenges. One type challenges the
validity of the arbitration agreement itself, on a ground arising
C from an infirmity in that agreement. The other challenges
the validity of the arbitration agreement tangentially—via a
claim that the entire contract (of which the arbitration
agreement is but a part) is invalid for some reason.
See Buckeye, 546 U.S., at 444. Under Prima Paint, a
challenge of the first type goes to the court; a challenge of
D the second type goes to the arbitrator. See 388 U.S., at
403-404; see also Buckeye, 546 U.S., at 444-445.
The Prima Paint rule is akin to a pleading standard, whereby
a party seeking to challenge the validity of an arbitration
agreement must expressly say so in order to get his dispute
E into court.”
4. The Indian Arbitration and Conciliation Act, 1996 is based on
the Model Law. Section 16 gives statutory recognition to the doctrine of
separability and kompetenz – kompetenz. Section 16 provides :
“16. Competence of arbitral tribunal to rule on its
F 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
G
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.”
H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 957
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

4.1 The legislative policy of minimal interference is enshrined A
in Section 5, which by a non-obstante clause prohibits judicial
intervention except as specified in Part I of the Arbitration
Act. A conjoint reading of Sections 5 and 16 would indicate
that all civil commercial matters, including the issue as to
whether the substantive contract was voidable can be
B
resolved through arbitration.
4.2 This Court in Uttarakhand Purv Sainik Kalyan Nigam
Ltd. v. Northern Coal Field Ltd.13, speaking through one
of us (Indu Malhotra, J.) discussed the application of the
doctrine of kompetenz – kompetenz in the Indian legislation,
and observed : C

“7.7. Based on the recommendations of the Law
Commission, Section 11 was substantially amended by the
2015 Amendment Act, to overcome the effect of all previous
judgments rendered on the scope of power by a non obstante
clause, and to reinforce the kompetenz-kompetenz principle D
enshrined in Section 16 of the 1996 Act. The 2015
Amendment Act inserted sub-section (6-A) to Section 11
which provides that:
“(6-A) The Supreme Court or, as the case may be, the
High Court, while considering any application under sub- E
section (4) or sub-section (5) or sub-section (6),
shall, notwithstanding any judgment, decree or order of
any court, confine to the examination of the existence
of an arbitration agreement.”
(emphasis supplied) F
7.8. By virtue of the non obstante clause incorporated in
Section 11(6-A), previous judgments rendered in Patel Engg.
and Boghara Polyfab, were legislatively overruled. The
scope of examination is now confined only to the existence
of the arbitration agreement at the Section 11 stage, and G
nothing more.
7.9. Reliance is placed on the judgment in Duro Felguera
S.A. v. Gangavaram Port Ltd. [Duro Felguera S.A. v.
13
(2020) 2 SCC 455. H
958 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC
(Civ) 764. Refer to TRF Ltd. v. Energo Engg. Projects Ltd.,
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , wherein this
Court held that: (SCC p. 759, para 48)
“48. … From a reading of Section 11(6-A), the intention
B of the legislature is crystal clear i.e. the court should
and need only look into one aspect—the existence of an
arbitration agreement. What are the factors for deciding
as to whether there is an arbitration agreement is the
next question. The resolution to that is simple — it needs
to be seen if the agreement contains a clause which
C provides for arbitration pertaining to the disputes which
have arisen between the parties to the agreement.”
(emphasis supplied)
7.10. In view of the legislative mandate contained in Section
D 11(6-A), the Court is now required only to examine the
existence of the arbitration agreement. All other preliminary
or threshold issues are left to be decided by the arbitrator
under Section 16, which enshrines the kompetenz-
kompetenz principle.

E 7.11. The doctrine of “kompetenz-kompetenz”, also referred
to as “compétence-compétence”, or “compétence de la
recognized”, implies that the Arbitral Tribunal is empowered
and has the competence to rule on its own jurisdiction,
including determining all jurisdictional issues, and the
existence or validity of the arbitration agreement. This
F doctrine is intended to minimise judicial intervention, so that
the arbitral process is not thwarted at the threshold, when a
preliminary objection is raised by one of the parties. The
doctrine of kompetenz-kompetenz is, however, subject to
the exception i.e. when the arbitration agreement itself is
G impeached as being procured by fraud or deception. This
exception would also apply to cases where the parties in
the process of negotiation, may have entered into a draft
agreement as an antecedent step prior to executing the final
contract. The draft agreement would be a mere proposal
to arbitrate, and not an unequivocal acceptance of the terms
H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 959
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

of the agreement. Section 7 of the Contract Act, 1872 A
requires the acceptance of a contract to be absolute and
unqualified [Dresser Rand S.A. v. Bindal Agro Chem Ltd.,
(2006) 1 SCC 751. See also BSNL v. Telephone Cables
Ltd., (2010) 5 SCC 213 : (2010) 2 SCC (Civ) 352. Refer
to PSA Mumbai Investments Pte. Ltd. v. Jawaharlal Nehru
B
Port Trust, (2018) 10 SCC 525 : (2019) 1 SCC (Civ) 1] . If
an arbitration agreement is not valid or non-existent, the
Arbitral Tribunal cannot assume jurisdiction to adjudicate
upon the disputes. Appointment of an arbitrator may be
refused if the arbitration agreement is not in writing, or the
disputes are beyond the scope of the arbitration agreement. C
Article V(1)(a) of the New York Convention states that
recognition and enforcement of an award may be refused
if the arbitration agreement “is not valid under the law to
which the parties have subjected it or, failing any indication
thereon, under the law of the country where the award
D
was made”.
7.13. In view of the provisions of Section 16, and the
legislative policy to restrict judicial intervention at the pre-
reference stage, the issue of limitation would require to be
decided by the arbitrator. Sub-section (1) of Section 16
provides that the Arbitral Tribunal may rule on its own E
jurisdiction, “including any objections” with respect to the
existence or validity of the arbitration agreement. Section
16 is as an inclusive provision, which would comprehend all
preliminary issues touching upon the jurisdiction of the
Arbitral Tribunal. The issue of limitation is a jurisdictional F
issue, which would be required to be decided by the
arbitrator under Section 16, and not the High Court at the
pre-reference stage under Section 11 of the Act. Once the
existence of the arbitration agreement is not disputed, all
issues, including jurisdictional objections are to be decided
by the arbitrator.” G

4.3 In A. Ayyasamy v. Parmasivam & Ors., 14 Dr. D.Y.
Chandrachud, J. in his separate opinion observed that :

14
(2016) 10 SCC 386. H
960 SUPREME COURT REPORTS [2021] 4 S.C.R.

A “53. The Arbitration and Conciliation Act, 1996, should in my view
be interpreted so as to bring in line the principles underlying its
interpretation in a manner that is consistent with prevailing
approaches in the common law world. Jurisprudence in India must
evolve towards strengthening the institutional efficacy of
arbitration. Deference to a forum chosen by parties as a complete
B
remedy for resolving all their claims is but part of that evolution.
Minimising the intervention of courts is again a recognition of the
same principle.”
5. We will now apply the law to the facts of the present case.
C 5.1 The Appellant-Global Mercantile submitted that the
application under Section 8 for reference of disputes to arbitration
was not maintainable, since as per Section 34 of the Maharashtra
Stamp Act, 1958 the Work Order being an unstamped document
could not be received in evidence for any purpose, or acted upon,
unless it is duly stamped. Consequently, the arbitration clause in
D the unstamped agreement also could not be acted upon or enforced
since the arbitration clause would have no existence in law, unless
the applicable stamp duty (and penalty, if any) is paid on the Work
Order. Reliance was placed on paragraph 22 of the judgment in
Garware Wall Ropes Limited v. Coastal Marine Constructions
E and Engineering Limited,15 wherein it has been held : “.. that
an arbitration clause in an agreement would not exist when it
is not enforceable by law”. It was submitted that the High Court
while allowing the application under Section 8, had enforced a
non-existent arbitration clause, which was in violation of Section
34 of the Maharashtra Stamp Act, 1958 and the law laid down by
F this Court.
It was further contended that since 03.01.2018 to date,
the Respondent No.1 had not indicated its willingness to pay the
stamp duty, even though the Appellant had raised this objection.
There was no justifiable reason to grant any further opportunity
G to Respondent No.1 to pay the stamp duty, and enforce the clause
in view of the judgment of this Court in Naina Thakkar v.
Annapurna Builders.16

15
(2019) 9 SCC 209.
16
H (2013) 14 SCC 354.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 961
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

5.2 Indo Unique – the Respondent No.1 submitted that even A
though the Work Order dated 28.09.2015 is an unstamped
agreement, it would be enforceable after it is duly stamped, for
which an opportunity must be given to the parties to make up the
deficient stamp duty and penalty as may be assessed by the
Collector. Non-payment of stamp duty would not render the
B
agreement unenforceable, but was a curable defect.
5.3 Statutory scheme under the Maharashtra Stamp Act, 1958.—
(a) Section 3 of the Maharashtra Stamp Act, 1958 is the charging
section, which specifies the instruments which are chargeable to stamp
duty of the amount specified in Schedule I of the Act. C
Section 3 provides:
“3. Instruments chargeable with duty. —
Subject to the provisions of this Act and the exemptions contained
in Schedule I, the following instruments shall be chargeable with D
duty of the amount indicated in Schedule I as the proper duty
therefore respectively, that is to say—
(a) every instrument mentioned in Schedule I, which, not having
been previously executed by any person, is executed in the
State on or after the date of commencement of this Act; ’’
E
(b) Section 30 provides :
“30.- Duties by whom payable. –
In the absence of an agreement to the contrary, the expense of
providing the proper stamp shall be borne, -
F
(a) in the case of any instrument described in any of the following
articles of Schedule I, namely :-
…
…
G
(f-a) in case of instruments of works contract as provided in Article
63 of SCHEDULE I, by the person receiving the contract ;
…
(c) Section 32A provides :
H
962 SUPREME COURT REPORTS [2021] 4 S.C.R.

A “32A. Instrument of conveyance, etc. under valued how to be
dealt with.–
(1) Every instrument of conveyance, exchange, gift, certificate
of sale, deed of partition or power of attorney to sell
immoveable property when given for consideration, deed
B of settlement or transfer of lease by way of assignment
and also any other instruments mentioned in SCHEDULE
I chargeable with duty on the basis of market value of the
property, presented for registration under the provisions of
the Registration Act, 1908, shall be accompanied by a true
copy thereof.
C
Provided that, in case of such instruments executed on
or after the 4th July 1980, to the date of commencement of
the Bombay Stamp (Amendment) Act, 1985, an extract of
the instrument to be taken from the registration record shall
be deemed to be the true copy accompanying the
D instrument, presented for registration for the purposes of
sub-section (1). …”
(d) Section 33 provides:
“ CHAPTER IV
E Instruments not duly stamped
33. Examination and impounding of instruments.—
(1) Subject to the provisions of section 32A, 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
F
of police, or any other officer, empowered by law to investigate
offences under any law for the time being in force, 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,
G impound the same irrespective whether the instrument is or is
not valid in law.
(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
H of the value and description required by the law for the time
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 963
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

being in force in the State when such instrument was executed A
or first executed:
Provided that—
(a) nothing herein contained shall be deemed to require any
Magistrate or Judge of Criminal Court to examine or impound,
if he does not think fit so to do, any instrument coming before B
him in the course of any proceeding other than a proceeding
under Chapter IX or Part D of Chapter X of the Code of
Criminal Procedure, 1973;
(b) in the case of a Judge of a High Court, the duty of examining
and impounding any instrument under this section may be C
delegated to such officer as the Court appoints in this behalf.”
Section 33 casts a statutory obligation on every person
empowered by law, or holding a public office, or a person who
by consent of parties (which would include an arbitrator) is
empowered to receive evidence, to examine the instrument D
presented before him, and ascertain whether the instrument is
duly stamped. This would include the court being an authority
empowered to receive an instrument in evidence. In view of
the statutory interdict, the bar against the admissibility of an
unstamped instrument, is absolute in nature, including for a E
collateral purpose.17
The phrase “duly stamped” implies that the instrument
must be stamped with the requisite amount of duty determined
in accordance with the Schedule to the Act.18 If it is found that
the instrument is not stamped, or inadequately stamped, it is F
mandated by law to impound the instrument, and deal with it in
accordance with provisions of the Stamp Act.
(e) Section 34 operates as a statutory bar from receiving any
instrument in evidence, or relying on it for any purpose
whatsoever, or being acted upon, or registered, or authenticated,
G
by any such person or public officer, unless the instrument is
duly stamped.

17
Avinash Kumar Chauhan v. Vijay Krishna Mishra, (2009) 2 SCC 532.
18
Black Pearl Hotels (P) Ltd. v. Planet M. Retail Ltd., (2017) 4 SCC 498. H
964 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Section 34 provides:
“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,
B registered or authenticated by any such person or by any public
officer unless such instrument is duly stamped or if the instrument
is written on sheet of paper with impressed stamp such stamp
paper is purchased in the name of one of the parties to the
instrument:
C Provided that—
(a) any such instrument shall, subject to all just exceptions, be
admitted in evidence on payment of—
(i) the duty with which the same is chargeable, or in the case of
an instrument insufficiently stamped, the amount required to make
D up such duty, and
(ii) a penalty at the rate of 2 per cent of the deficient portion of
the stamp duty for every month or part thereof, from the date of
execution of such instrument:
Provided that, in no case, the amount of the penalty shall exceed
E
double the deficient portion of the stamp duty.
(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;
F
(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 IX or Part D of Chapter X of
the Code of Criminal Procedure, 1973;
G (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 Collector as provided by Section 32 or any other provision
of this Act;

H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 965
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

(e) nothing herein contained shall prevent the admission of a copy A
of any instrument or of an oral admission of the contents of any
instrument, if the stamp duty or a deficient portion of the stamp
duty and penalty as specified in clause (a) is paid.”
(f) Section 35 provides that:
“35. Admission of instrument where not to be questioned.— B
Where an instrument has been admitted in evidence, such
admission shall not, except as provided in section 58, be called
in question at any stage of the same suit or proceeding on the
ground that the instrument has not been duly stamped.”
(g) Section 36 provides that: C

“36. Admission of improperly stamped instruments.—The
State Government may make rules providing that, where an
instrument bears a stamp of sufficient amount but of improper
description, it may, on payment of the duty with which the
same is chargeable, be certified to be duly stamped, and any D
instrument so certified shall then be deemed to have been duly
stamped as from the date of its execution.”
(h) Section 37 provides that:
“37. Instruments impounded how dealt with.-
E
(1) When the person impounding an instrument under section
33 has by law or consent of parties authority to receive
evidence and admits such instrument in evidence upon
payment of a penalty as provided by section 34 or of duty
as provided by section 36, he shall send to the Collector
F
an authenticated copy of such instrument, together with a
certificate in writing, stating the amount of duty and penalty
levied in respect thereof, and shall send such amount to
the Collector, or to such person as he may appoint in this
behalf.
(2) In every other case, a person so impounding the original G
instrument shall prepare an authentic copy of such
instrument and where it is a true copy or an abstract
referred to in section 31 or true copy referred to in section
33A, he shall send such authentic copy or, the true copy
or, as the case may be, an abstract to the Collector, for H
966 SUPREME COURT REPORTS [2021] 4 S.C.R.

A the purpose of taking action on the authentic copy or a
true copy or, as the case may be, an abstract as if it were
the original instrument and endorsing thereon a certificate
with reference to the instrument under clause (a) of sub-
section (1) of section 39 or under sub-section (1) of section
41, as the case may be. On receipt of the authentic copy,
B
the true copy or, as the case may be, an abstract with the
certificate as aforesaid endorsed thereon, the person who
has impounded the original instrument shall copy on the
original instrument the certificate endorsed on the authentic
copy and shall authenticate such certificate; and where it
C is a true copy or an abstract on which the certificate as
aforesaid is endorsed, the registering officer who has
forwarded the true copy or an abstract shall make
appropriate entries in respect of the instrument of which
it was a true copy or an abstract, in the relevant register
maintained by him and on an application made in this behalf
D
issue under his signature a certificate to the effect that
the proper duty or, as the case may be, the proper duty
and penalty (stating the amount of each) have been levied
in respect of that instrument, and the name and residence
of the person paying such duty and penalty.”
E Once the duty (and penalty, if any) leviable under Schedule
I is paid on the instrument, and the instrument is duly endorsed by
the Collector, the instrument shall be admissible in evidence, and
acted upon as provided by Section 41 of the Maharashtra Stamp
Act.
F (i) Section 41 provides :
“41. Endorsement of instruments on which duty has been
paid under section 34, 39 or 40 –
(1) When the duty and penalty (if any) leviable in respect of
G any instrument (not being any instrument referred to in
sub-section (1) of section 32A), have been paid under
section 34, section 39 or section 40, the person admitting
such instrument in evidence or the Collector, as the case
may be, shall certify by endorsement thereon that the
proper duty or, as the case may be, the proper duty and
H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 967
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

penalty (stating the amount of each) have been levied in A
respect thereof, and the name and residence of the person
paying them.
(2) Subject to the provisions of section 53A, every instrument
so endorsed shall thereupon be admissible in evidence,
and may be registered and acted upon and authenticated B
as if it had been duly stamped, and shall be delivered on
the application in this behalf, to the person who produced
it or to the person from whose possession it came into the
hands of the Officer impounding it, or to any other person
according to the directions of such person:
C
Provided that –
(a) no instrument which has been admitted in evidence
upon payment of duty and a penalty under section 34,
shall be so delivered before the expiration of one month
from the date of such impounding, or if the Collector D
has certified that its further detention is necessary and
has not cancelled such certificate;
(b) nothing in this section shall affect the provisions of
rule 9 of Order XIII in Schedule I of the Code of Civil
Procedure, 1908.” E
(j) Section 58 provides that :
“58. Revision of certain decisions of Courts regarding the
sufficiency of stamps.—
(1) When any Court in the exercise of its civil or revenue
F
jurisdiction or any Criminal Court in any proceeding under
Chapter IX or Part D of Chapter X of the Code of Criminal
Procedure 1973, makes any order admitting any instrument in
evidence as duly stamped or as not requiring a stamp, or upon
payment of duty and a penalty under section 34, the Court to
which appeals lie from, or reference are made by, such first G
mentioned Court may, of its own motion or on the application
of the Collector, take such order into consideration.
(2) If such Court, after such consideration is of opinion that
such instrument should not have been admitted in evidence
without the payment of duty and penalty under section 34, or H
968 SUPREME COURT REPORTS [2021] 4 S.C.R.

A without the payment of a higher duty and penalty than those
paid, it may record a declaration to that effect, and determine
the amount of duty with which such instrument is chargeable,
and may require,-
i. the party or person concerned to make the payment of
B the proper duty or the amount required to make up the
same, together with a penalty under section 34, or
payment of a higher duty and penalty than those paid, to
itself or to the Collector; and
ii. any person in whose possession or power such instrument
C then is, to produce the same, and may impound the same
when produced.
(3) When any declaration has been recorded under sub-section
(2), the Court recording the same shall send a copy thereof to
the Collector, and, where the instrument to which it relates has
D been impounded or is otherwise in the possession of such Court,
shall also send him such instrument.
(3A) When the duty and penalty leviable in respect of any
instrument in accordance with, the declaration made under
sub -section (3) and required to be paid thereunder are paid to
E the Court or to the Collector, then the Court or, as the case
may be, the Collector shall certify by endorsement thereon
that the proper duty and penalty, stating the amount of each,
have been le-vied in respect of such instrument, and the name
and residence of the person paying the same.

F (3B) Every instrument so endorsed shall thereupon be delivered,
on an application in this behalf, to the person from whose
possession the instrument came in the possession of such Court,
or as such person may direct, to any other person authorised
by him.
(4) The Collector may thereupon, notwithstanding anything
G
contained in the order admitting such instrument in evidence,
or in any certificate granted under section 41, or in section 42,
prosecute any person for any offence against the stamp law
which the Collector considers him to have committed in respect
of such instrument:
H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 969
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

Provided that – A
(a) no such prosecution shall be instituted where the amount
including duty and penalty, which, according to the determination
of such Court, was payable in respect of the instrument under
section 34 ,is paid to the Court or the Collector, unless the
Collector thinks that the offence was committed with an B
intention of evading payment of the proper duty;
(b) except for the purposes of such prosecution no declaration
made under this section shall affect the validity of any order
admitting any instrument in evidence or of any certificate
granted under section 41.” C
(k) Item No. 63 of Schedule I of the Maharashtra Stamp Act,
1958 provides that :

D

E

5.4 The Stamp Act is a fiscal measure enacted to secure the
revenue of the State on certain classes of instruments specified in
Schedule I of the Act. The stringent provisions of the Stamp Act have
been framed to protect the interest of the revenue of the State. Section F
34 of the Maharashtra Stamp Act, 1958 operates as a statutory bar to an
unstamped instrument being admitted in evidence, or being acted upon,
for any purpose, by any authority having by law or consent of parties,
the power to receive evidence, unless such instrument is duly stamped.
The proviso to Section 34 states that upon payment of the requisite stamp
duty, the instrument may be admitted in evidence. G

The words “for any purpose” occurring in the Indian Stamp Act
was interpreted by the Privy Council in Ram Rattan v. Parma Nand,19
wherein it was held :
19
(1945-46) 73 IA 28: AIR 1946 PC 51. H
970 SUPREME COURT REPORTS [2021] 4 S.C.R.

A “That the words ‘for any purpose’ in Section 35 of the Stamp Act,
should be given their natural meaning and effect and would include
a collateral purpose (and that) an unstamped partition deed cannot
be used to corroborate the oral evidence for the purposes of
determining even the factum of partition as distinct from its terms.”
B 5.5 Section 41(1) of the Maharashtra Stamp Act, 1958 provides
that after the instrument is duly stamped, it would be endorsed by
the Collector. Once the object of payment of Stamp Duty is satisfied,
the party making a claim on the basis of that instrument, will not
be defeated, on the ground of the initial defect or irregularity.
Section 41(2) of the said Act provides that upon payment of Stamp
C Duty and endorsement by the concerned Collector, the defect of
admissibility and legality of such instrument would stand cured.
5.6 This Court in SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari
Tea Co. Pvt. Ltd.20 considered the issue whether an arbitration
agreement in an unregistered and unstamped lease deed, which
D required compulsory registration under Sections 17 and 19 of the
Registration Act 1908, was valid and enforceable, being a part of
the said lease deed which was invalid and unenforceable. A two-
judge bench of this Court considered the following two issues :
(i) Whether an arbitration agreement contained in an unregistered
E (but compulsorily registerable) instrument is valid and enforceable?
(ii) Whether an arbitration agreement in an unregistered instrument
which is not duly stamped, is valid and enforceable?
With respect to the first issue, the Court held as follows :
F “11. Section 49 makes it clear that a document which is
compulsorily registerable, 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
G
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

20
(2011) 14 SCC 66.
H Followed in Naina Thakkar v. Annapurna Builders, (2013) 14 SCC 354.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 971
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

which is incidentally connected with that transaction. The question A
is whether a provision for arbitration in an unregistered document
(which is compulsorily registerable) 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.
12. When a contract contains an arbitration agreement, it is a B
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 C
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. D
13. 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 E
property requiring registration and the other relating to resolution
of disputes which is not compulsorily registerable—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 F
transfer.
…
16. An arbitration agreement does not require registration under
the Registration Act. Even if it is found as one of the clauses in a G
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 the Registration Act read with Section 16(1)(a) of the Act,
an arbitration agreement in an unregistered but compulsorily
H
972 SUPREME COURT REPORTS [2021] 4 S.C.R.

A registerable document can be acted upon and enforced for the
purpose of dispute resolution by arbitration.”
With respect to a contract or instrument which is voidable at the
option of a party (as by way of illustration u/S. 19 of the Indian Contract
Act, 1872) in paragraph 15 of the judgment, it was held that the invalidity
B which 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. Paragraph 15 reads as follows :
“15. But where the contract or instrument is voidable at the option
C of a party (as for example under Section 19 of the 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
D 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.”
With respect to the second issue of whether an arbitration
agreement in an unstamped contract can be acted upon, it was held as
E follows :
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 instrument.
F Section 35 of the Stamp Act is distinct and different from Section
49 of the Registration Act in regard to an unregistered document.
Section 35 of the Stamp Act, does not contain a proviso like Section
49 of the Registration Act enabling the instrument to be used to
establish a collateral transaction.
G …
21. 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
H the conclusion that it is not properly stamped, it should be
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 973
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

impounded and dealt with in the manner specified in Section 38 of A
the 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.”
B
(emphasis supplied)
5.7 The judgment in SMS Tea Estates was passed on an
application filed u/S. 11 of the Arbitration Act, for reference of
disputes to arbitration prior to the 2016 Amendment being passed.
At that time, the law as it prevailed, as expounded in the C
Constitution Bench decision in SBP & Co. v. Patel Engineering
Ltd.21, and other cases like National Insurance Co. v. Boghara
Polyfab22, Master Construction Company v. Union of India23
etc. held that at the pre-reference stage in an application u/S.
11(6), the Court may determine certain threshold issues, such as
whether the claim was time-barred, a stale claim, or whether there D
had been accord and satisfaction, which would preclude the
necessity of reference to arbitration.
5.8 Section 11 was amended by the 2016 Amendment Act, which
inserted clause (6A), which now provides that notwithstanding
any judgment, decree or order of any Court, the examination would E
be confined only to the existence of an arbitration agreement.
The amendment of 2016 legislatively overruled the position with
respect to the jurisdiction u/S. 11 of the Arbitration Act, and
confined the examination only to the existence of an arbitration
agreement. In Duro Felguera v. Gangavaram Port Ltd.24 it F
was held that the legislative intent was clear that at the pre-
reference stage, there must be minimal judicial intervention, and
the only issue to be decided would be the existence of the arbitration
agreement, and nothing more. This position was affirmed by a
three-judge bench in Mayavati Trading Private Limited v.
Pradyuat Deb Burman.25 G

21
(2005) 8 SCC 618.
22
(2009) 1 SCC 267.
23
(2011) 12 SCC 357.
24
(2017) 9 SCC 729.
25
(2019) 8 SCC 714. H
974 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 5.9 The issue whether an arbitration clause in a document /
agreement / conveyance which requires compulsorily to be
stamped under the relevant Stamp Act, but is not duly stamped,
would be enforceable after the insertion of clause (6A) in Section
11, came up for consideration before a two-judge bench of this
Court in Garware Wall Ropes Ltd. (supra).
B
In Garware Wall Ropes Limited (supra), the Court held as under:
“19. It will be seen that neither in the Statement of Objects and
Reasons nor in the Law Commission Report is there any mention
of SMS Tea Estates. This is for the very good reason that the
C Supreme Court or the High Court, while deciding a Section 11
application, does not, in any manner, decide any preliminary
question that arises between the parties. The Supreme Court or
the High Court is only giving effect to the provisions of a mandatory
enactment which, no doubt, is to protect revenue. SMS Tea
Estates has taken account of the mandatory provisions contained
D in the Stamp Act and held them applicable to judicial authorities,
which would include the Supreme Court and the High Court acting
under Section 11.
A close look at Section 11(6-A) would show that when the
Supreme Court or the High Court considers an application under
E Sections 11(4) to 11(6), and comes across an arbitration clause in
an agreement or conveyance which is unstamped, it is enjoined
by the provisions of the Stamp Act to first impound the agreement
or conveyance and see that stamp duty and penalty (if any) is
paid before the agreement, as a whole, can be acted upon. It is
F important to remember that the Stamp Act applies to the agreement
or conveyance as a whole. Therefore, it is not possible to bifurcate
the arbitration clause contained in such agreement or conveyance
so as to give it an independent existence, as has been contended
for by the respondent. The independent existence that could be
given for certain limited purposes, on a harmonious reading of the
G Registration Act, 1908 and the 1996 Act has been referred to by
Raveendran, J. in SMS Tea Estates when it comes to an
unregistered agreement or conveyance.
However, the Stamp Act, containing no such provision as is
contained in Section 49 of the Registration Act, 1908, has been
H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 975
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

held by the said judgment to apply to the agreement or conveyance A
as a whole, which would include the arbitration clause contained
therein. It is clear, therefore, that the introduction of Section 11(6-
A) does not, in any manner, deal with or get over the basis of the
judgment in SMS Tea Estates, which continues to apply even after
the amendment of Section 11(6-A).
B
…
22. When an arbitration clause is contained “in a contract”, it is
significant that the agreement only becomes a contract if it is
enforceable by law. We have seen how, under the Stamp Act, an
agreement does not become a contract, namely, that it is not C
enforceable in law, unless it is duly stamped. Therefore, even a
plain reading of Section 11(6-A), when read with Section 7(2) of
the 1996 Act and Section 2(h) of the Contract Act, would make it
clear that an arbitration clause in an agreement would not exist
when it is not enforceable by law. This is also an indicator that SMS
Tea Estates has, in no manner, been touched by the amendment D
of Section 11(6-A).
…
29. This judgment in Hyundai Engg. case [United India Insurance
Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd., (2018) 17 E
SCC 607 : (2019) 2 SCC (Civ) 530] is important in that what was
specifically under consideration was an arbitration clause which
would get activated only if an insurer admits or accepts liability.
Since on facts it was found that the insurer repudiated the claim,
though an arbitration clause did “exist”, so to speak, in the policy,
it would not exist in law, as was held in that judgment, when one F
important fact is introduced, namely, that the insurer has not
admitted or accepted liability. Likewise, in the facts of the present
case, it is clear that the arbitration clause that is contained in the
sub-contract would not “exist” as a matter of law until the sub-
contract is duly stamped, as has been held by us above. The G
argument that Section 11(6-A) deals with “existence”, as opposed
to Section 8, Section 16 and Section 45, which deal with “validity”
of an arbitration agreement is answered by this Court’s
understanding of the expression “existence” in Hyundai Engg.
case [United India Insurance Co. Ltd. v. Hyundai Engg. &
H
976 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ)
530] , as followed by us.
….
37. One reasonable way of harmonising the provisions contained
in Sections 33 and 34 of the Maharashtra Stamp Act, which is a
B general statute insofar as it relates to safeguarding revenue, and
Section 11(13) of the 1996 Act, which applies specifically to speedy
resolution of disputes by appointment of an arbitrator expeditiously,
is by declaring that while proceeding with the Section 11
application, the High Court must impound the instrument which
C has not borne stamp duty and hand it over to the authority under
the Maharashtra Stamp Act, who will then decide issues qua
payment of stamp duty and penalty (if any) as expeditiously as
possible, and preferably within a period of 45 days from the date
on which the authority receives the instrument. As soon as stamp
duty and penalty (if any) are paid on the instrument, any of the
D parties can bring the instrument to the notice of the High Court,
which will then proceed to expeditiously hear and dispose of the
Section 11 application. This will also ensure that once a Section
11 application is allowed and an arbitrator is appointed, the
arbitrator can then proceed to decide the dispute within the time-
E frame provided by Section 29-A of the 1996 Act.”
(emphasis supplied)
6. We have carefully perused the provisions of the Maharashtra
Stamp Act, 1958 and Schedule I appended thereto, which enlists the
instruments specified in Section 3, on which stamp duty is chargeable.
F We find that an arbitration agreement is not included in the Schedule as
an instrument chargeable to Stamp Duty.
Item 12 of Schedule I to the Maharashtra Stamp Act, 1958 includes
an Award passed by an arbitrator to be chargeable for payment of Stamp
Duty, which reads as follows:
G

H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 977
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

A

B

In Shriram EPC Limited v. Rioglass Solar SA,26 this Court
held that the payment of Stamp Duty is applicable to awards made in
India, but does not include a “foreign award” which has not been included
C
in the Schedule to the Stamp Act, 1899.
6.1 The issue which has arisen in the present case is whether
the arbitration agreement incorporated in the unstamped Work
Order dated 28.09.2015, would also be legally unenforceable, till
such time that the Work Order is subjected to payment of Stamp
D
Duty. Undisputedly, the Work Order is chargeable to payment of
Stamp Duty under Item No. 63 of the First Schedule to the
Maharashtra Stamp Act, 1958.
6.2 In our view, the non-payment or deficiency of Stamp
Duty on the Work Order does not invalidate the main contract.
Section 34 provides that an unstamped instrument would not be E
admissible in evidence, or be acted upon, till the requisite stamp
duty is paid. This would amount only to a deficiency, which can
be cured on the payment of the requisite stamp duty.
6.3 The point for consideration is whether the non-payment
of Stamp Duty on the Work Order, would render the arbitration F
clause invalid, non-existent, or unenforceable in law, till the stamp
duty is paid on the substantive commercial contract.
6.4 The arbitration agreement contained in the Work Order
is independent and distinct from the underlying commercial
contract. The arbitration agreement is an agreement which G
provides the mode of dispute resolution. Section 3 of the
Maharashtra Stamp Act does not subject an arbitration agreement
to payment of Stamp Duty, unlike various other agreements

26
(2018) 18 SCC 313. H
978 SUPREME COURT REPORTS [2021] 4 S.C.R.

A enlisted in the Schedule to the Act. This is for the obvious reason
that an arbitration agreement is an agreement to resolve disputes
arising out of a commercial agreement, through the mode of
arbitration. On the basis of the doctrine of separability, the
arbitration agreement being a separate and distinct agreement
from the underlying commercial contract, would survive
B
independent of the substantive contract. The arbitration agreement
would not be rendered invalid, un-enforceable or non-existent,
even if the substantive contract is not admissible in evidence, or
cannot be acted upon on account of non-payment of Stamp Duty.
6.5 A three-Judge Bench of this Court in Hindustan Steel
C Limited v. M/s. Dilip Construction Company27 held that :
“4. The award, which is an “instrument” within the meaning
of the Stamp Act was required to be stamped. Being
unstamped, the award could not be received in evidence by
the Court, nor could it be acted upon. But the Court was
D competent to impound it and to send it to the Collector with a
certificate in writing stating the amount of duty and penalty
levied thereon. On the instrument so received the Collector
may adjudge whether it is duly stamped and he may require
penalty to be paid thereon, if in his view it has not been duly
E stamped. If the duty and penalty are paid, the Collector will
certify by endorsement on the instrument that the proper duty
and penalty have been paid.
5. An instrument which is not duly stamped cannot be received
in evidence by any person who has authority to receive evidence,
F and it cannot be acted upon by that person or by any public
officer. Section 35 provides that the admissibility of an
instrument once admitted in evidence shall not, except as
provided in Section 61, be called in question at any stage of the
same suit or proceeding on the ground that the instrument has
not been duly stamped.
G
6. Relying upon the difference in the phraseology between
Sections 35 and 36 it was urged that an instrument which is
not duly stamped may be admitted in evidence on payment of
duty and penalty, but it cannot be acted upon because Section
27
H (1969) 1 SCC 597.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 979
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

35 operates as a bar to the admission in evidence of the A
instrument not duly stamped as well as to its being acted upon,
and the Legislature has by Section 36 in the conditions set out
therein removed the bar only against admission in evidence of
the instrument. The argument ignores the true import of Section
36. By that section an instrument once admitted in evidence
B
shall not be called in question at any stage of the same suit or
proceeding on the ground that it has not been duly stamped.
Section 36 does not prohibit a challenge against an instrument
that it shall not be acted upon because it is not duly stamped,
but on that account there is no bar against an instrument not
duly stamped being acted upon after payment of the stamp C
duty and penalty according to the procedure prescribed by the
Act. The doubt, if any, is removed by the terms of Section
42(2) which enact, in terms unmistakable, that every instrument
endorsed by the Collector under Section 42(1) shall be
admissible in evidence and may be acted upon as if it has been
D
duly stamped.
7. The Stamp Act is a fiscal measure enacted to secure revenue
for the State on certain classes of instruments: It is not enacted
to arm a litigant with a weapon of technicality to meet the case
of his opponent. The stringent provisions of the Act are
conceived in the interest of the revenue once that object is E
secured according to law, the party staking his claim on the
instrument will not be defeated on the ground of the initial
defect in the instrument. Viewed in that light the scheme is
clear. Section 35 of the Stamp Act operates as a bar to an
unstamped instrument being admitted in evidence or being acted F
upon; Section 40 provides the procedure for instruments being
impounded, sub-section (1) of Section 42 provides for certifying
that an instrument is duly stamped, and sub-section (2) of
Section 42 enacts the consequences resulting from such
certification.”
G
(emphasis supplied)
6.6 In our view, there is no legal impediment to the
enforceability of the arbitration agreement, pending payment of
Stamp Duty on the substantive contract. The adjudication of the
rights and obligations under the Work Order or the substantive
H
980 SUPREME COURT REPORTS [2021] 4 S.C.R.

A commercial contract would however not proceed before complying
with the mandatory provisions of the Stamp Act.
6.7 The Stamp Act is a fiscal enactment for payment of
stamp duty to the State on certain classes of instruments specified
in the Stamp Act. Section 40 of the Indian Stamp Act,1899 provides
B the procedure for instruments which have been impounded, and
sub-section (1) of Section 42 requires the instrument to be endorsed
after it is duly stamped by the concerned Collector. Section 42(2)
provides that after the document is duly stamped, it shall be
admissible in evidence, and may be acted upon.
C 6.8 In our view, the decision in SMS Tea Estates does not
lay down the correct position in law on two issues i.e. (i) that an
arbitration agreement in an unstamped commercial contract cannot
be acted upon, or is rendered un-enforceable in law; and (ii) that
an arbitration agreement would be invalid where the contract or
instrument is voidable at the option of a party, such as u/S. 19 of
D the Indian Contract Act, 1872.
We hold that since the arbitration agreement is an
independent agreement between the parties, and is not chargeable
to payment of stamp duty, the non-payment of stamp duty on the
commercial contract, would not invalidate the arbitration clause,
E or render it un-enforceable, since it has an independent existence
of its own. The view taken by the Court on the issue of separability
of the arbitration clause on the registration of the substantive
contract, ought to have been followed even with respect to the
Stamp Act. The non-payment of stamp duty on the substantive
F contract would not invalidate even the main contract. It is a
deficiency which is curable on the payment of the requisite Stamp
Duty.
6.9 The second issue in SMS Tea Estates that a voidable
contract would not be arbitrable as it affects the validity of the
G arbitration agreement, is in our view not the correct position in
law. The allegations made by a party that the substantive contract
has been obtained by coercion, fraud, or misrepresentation has to
be proved by leading evidence on the issue. These issues can
certainly be adjudicated through arbitration.

H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 981
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

We overrule the judgment in SMS Tea Estates with A
respect to the aforesaid two issues as not laying down the correct
position in law.
6.10 The Garware judgment has followed the judgment in
SMS Tea Estates. The Counsel for the Appellant has placed
reliance on paragraph 22 of the judgment to contend that the B
arbitration clause would be non-existent in law, and unenforceable,
till Stamp Duty is adjudicated and paid on the substantive contract.
We hold that this finding is erroneous, and does not lay
down the correct position in law. We have already held that an
arbitration agreement is distinct and independent from the C
underlying substantive commercial contract. Once the arbitration
agreement is held to have an independent existence, it can be
acted upon, irrespective of the alleged invalidity of the commercial
contract.
6.11 We notice that the judgment in Garware Wall Ropes D
Limited has been cited with approval by a co-ordinate bench of
this Court in Vidya Drolia & Ors. v. Durga Trading
Corporation.28 Paragraph 92 of the judgment reads thus :
“92. We now proceed to examine the question, whether the
word ‘existence’ in Section 11 merely refers to contract E
formation (whether there is an arbitration agreement) and
excludes the question of enforcement (validity) and therefore
the latter falls outside the jurisdiction of the court at the referral
stage. On jurisprudentially and textualism it is possible to
differentiate between existence of an arbitration agreement
and validity of an arbitration agreement. Such interpretation F
can draw support from the plain meaning of the word
“existence’. However, it is equally possible, jurisprudentially
and on contextualism, to hold that an agreement has no
existence if it is not enforceable and not binding. Existence of
an arbitration agreement presupposes a valid agreement which G
would be enforced by the court by relegating the parties to
arbitration. Legalistic and plain meaning interpretation would
be contrary to the contextual background including the definition
clause and would result in unpalatable consequences. A
28
Delivered on 14.12.2020 in C.A. No. 2402 / 2019. H
982 SUPREME COURT REPORTS [2021] 4 S.C.R.

A reasonable and just interpretation of ‘existence’ requires
understanding the context, the purpose and the relevant legal
norms applicable for a binding and enforceable arbitration
agreement. An agreement evidenced in writing has no meaning
unless the parties can be compelled to adhere and abide by the
terms. A party cannot sue and claim rights based on an
B
unenforceable document. Thus, there are good reasons to hold
that an arbitration agreement exists only when it is valid and
legal. A void and unenforceable understanding is no agreement
to do anything. Existence of an arbitration agreement means
an arbitration agreement that meets and satisfies the statutory
C requirements of both the Arbitration Act and the Contract Act
and when it is enforceable in law. We would proceed to
elaborate and give further reasons :
(i) In Garware Wall Ropes Ltd., this Court had examined the
question of stamp duty in an underlying contract with an
D arbitration clause and in the context had drawn a distinction
between the first and second part of Section 7(2) of the
Arbitration Act, albeit the observations made and quoted above
with reference to ‘existence’ and ‘validity’ of the arbitration
agreement being apposite and extremely important, we would
repeat the same by reproducing paragraph 29 thereof :
E
“29. This judgment in Hyundai Engg. case is important in
that what was specifically under consideration was an
arbitration clause which would get activated only if an insurer
admits or accepts liability. Since on facts it was found that
the insurer repudiated the claim, though an arbitration clause
F did “exist”, so to speak, in the policy, it would not exist in
law, as was held in that judgment, when one important fact
is introduced, namely, that the insurer has not admitted or
accepted liability. Likewise, in the facts of the present case,
it is clear that the arbitration clause that is contained in the
G subcontract would not “exist” as a matter of law until the
sub-contract is duly stamped, as has been held by us above.
The argument that Section 11(6A) deals with “existence”,
as opposed to Section 8, Section 16 and Section 45, which
deal with “validity” of an arbitration agreement is answered
by this Court’s understanding of the expression “existence”
H in Hyundai Engg. case, as followed by us.”
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 983
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

Existence and validity are intertwined, and arbitration agreement A
does not exist if it is illegal or does not satisfy mandatory legal
requirements. Invalid agreement is no agreement.”
6.12 We doubt the correctness of the view taken in paragraph
92 of the three-judge bench in Vidya Drolia. We consider it
appropriate to refer the findings in paras 22 and 29 of Garware B
Wall Ropes Limited, which has been affirmed in paragraph 92
of Vidya Drolia, to a Constitution Bench of five judges.
7. The next issue which arises is as to which authority would
exercise the power of impounding the instrument under Section 33 read
with Section 34 of the Maharashtra Stamp Act, in a case where the C
substantive contract contains an arbitration agreement.
7.1 In an arbitration agreement, the disputes may be referred
to arbitration by three modes.
a) The first mode is where the appointment of the arbitrator
takes place by the parties consensually in accordance with the D
terms of the arbitration agreement, or by a designated arbitral
institution, without the intervention of the court. In such a case,
the arbitrator/tribunal is obligated by Section 33 of the Indian Stamp
Act, 1899 (or the applicable State Act) to impound the instrument,
and direct the parties to pay the requisite Stamp Duty (and penalty, E
if any), and obtain an endorsement from the concerned Collector.
This would be evident from the provisions of Section 34
of the Stamp Act which provides that “any person having by
law or consent of parties authority to receive evidence” is
mandated by law to impound the instrument, and direct the parties F
to pay the requisite stamp duty.
b) The second mode of appointment is where the parties
fail to make the appointment in accordance with the arbitration
agreement, and an application is filed under Section 11 before the
Court to invoke the default power for making the appointment.
G
In such a case, the High Court, or the Supreme Court,
as the case may be, while exercising jurisdiction under Section 11,
would impound the substantive contract which is either unstamped
or inadequately stamped, and direct the parties to cure the defect
before the arbitrator / tribunal can adjudicate upon the contract.
H
984 SUPREME COURT REPORTS [2021] 4 S.C.R.

A c) The third mode is when an application is filed under
Section 8 before a judicial authority for reference of disputes to
arbitration, since the subject matter of the contract is covered by
an arbitration agreement. In such a case, the judicial authority will
make the reference to arbitration. However, in the meanwhile,
the parties would be directed to have the substantive contract
B
stamped in accordance with the provisions of the relevant Stamp
Act, so that the rights and obligations emanating from the
substantive contract can be adjudicated upon.
7.2 In the case of an application under Section 9 of the
Arbitration Act, 1996 the situation would be different. If an
C application for urgent interim reliefs is filed under Section 9 before
the Court, and it is brought to the attention of the Court that the
substantive contract is not duly stamped, the Court would grant
ad-interim relief to safeguard the subject-matter of the arbitration.
However, the substantive contract would then be impounded, and
D the concerned party be directed to take the necessary steps for
payment of the requisite stamp duty in accordance with the
provisions of the relevant Stamp Act, within a time-bound period.
It is made clear that the payment of Stamp Duty on the
substantive contract as assessed by the Collector, would however
E be subject to the right of revision / appeal available under the
relevant Stamp Act.
8. Whether the fraudulent invocation of the Bank Guarantee
is arbitrable?
8.1 In the present case, the Appellant-Plaintiff in the Commercial
F Suit inter alia submitted that the Bank Guarantee was furnished
to ensure due execution of the Work Order dated 28.09.2015. It
was submitted on behalf of the Appellants that the invocation of
the bank guarantee was fraudulent, since the agreement had never
been acted upon. There was no invoice raised or payment received
G under the Work Order. In the absence of any legal liability for
payment under the Work Order, the invocation of the bank
guarantee was fraudulent.
8.2 The High Court held that the allegations of fraud made in this
case are simple, which do not in the normal course constitute any
criminal offence, nor are the allegations so complex in nature
H
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 985
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

which would entail extensive evidence being led, hence the disputes A
could be resolved through arbitration.
8.3 Under the Arbitration Act, the earliest decision on the issue of
arbitrability of allegations of fraud was considered by a two-judge
bench in N. Radhakrishnan v. Maestro Engineers.29 In this
case, the applicant had made serious allegations against the B
respondents of having committed malpractices in the account
books, and mani-pulation of finances of the partnership firm. An
application under Section 8 was filed by the respondents for
reference of disputes to arbitration. The Court took the view that
since the issues involved detailed investigation into the allegations
and production of elaborate evidence, it could not be properly C
dealt by an arbitrator, and ought to be settled by a court of law.
This decision relied on the judgment in Abdul Kadir v. Madhav
Prabhakar, 30 which was passed under the 1940 Act. The
judgment in Abdul Kadir in turn relied upon an English judgment
rendered in Russel v. Russel,31 wherein it was held that a party D
against whom an allegation of fraud is made, has the right to defend
himself in a public forum.
8.4 The judgment in N. Radhakrishnan (supra) is based on an
outdated view of the law propounded in Russel v. Russel, which
ante-dates even the first English Arbitration Act of 1899. E
Arbitrability of fraud is no longer an issue relating to the competence
of the arbitrator, or dealing with voluminous evidence. Arbitrators
are competent to deal with allegations of civil fraud. The judgment
in Russel is obsolete, which would be evident from the various
enactments of the English Arbitration Act. Under Section 24(2)
of the 1950 Act, the court could revoke the authority of a tribunal F
to deal with claims involving issues of fraud. This provision was
repealed by Section 107(2) of the English Arbitration Act, 1996
Act. Russel in his Commentary on Arbitration observed that an
29
(2010) 1 SCC 72.
Followed in G
Ivory Properties & Hotels Pvt. Ltd. v. Nusli Neville Wadia, 2011 (2) Arb LR 479 (Bom);
See also article by Justice D.R. Dhanuka (Retd.) reported in Journal Section of 2010 (2)
Arb LR 13;
RRB Energy Ltd. v. Vestas Wind System & Ors., (2015) 219 DLT 516.
30
AIR 1962 SC 406: [1962] 3 SCR 702.
31
[1880] 14 Ch. D 471.
H
986 SUPREME COURT REPORTS [2021] 4 S.C.R.

A arbitral tribunal does not have the jurisdiction to impose criminal
sanctions on a party, its power is limited to the civil consequences
of fraud.32
8.5 In Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra,33 a
two-judge bench took a different view by holding that at the pre-
B reference stage under Section 11, the court is not required to
examine the allegations of fraud and forgery. The scope of
examination is only the existence of a valid and enforceable
arbitration agreement as a condition precedent for making a
reference. The ground that allegations of fraud, forgery and
fabrication are likely to involve recording of evidence, or involve
C some delay in disposal, were not relevant grounds to be considered
at the pre-reference stage.
8.6 The legislature amended sub-section (1) of Section 8 to provide
that a judicial authority shall refer the parties to arbitration, ‘unless
it finds that prima facie no valid agreement exists’. The amended
D Section 8 reads :
“8. Power to refer parties to arbitration where there is an
arbitration agreement.- (1) A judicial authority, before which an
action is brought in a matter which is the subject of an arbitration
agreement shall, if a party to the arbitration agreement or any
E person claiming through or under him, so applies not later than the
date of submitting his first statement on the substance of the dispute,
then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration unless
it finds that prima facie no valid arbitration agreement exists.
F (2) …
(3) … ’’
The issue of arbitrability of fraud was subsequently considered
by a two-judge bench in A. Ayyasamy v. A. Paramasivam & Ors.34.
The Court held that Section 8 mandates reference to arbitration, unless
G
the arbitration agreement is found to be invalid. It has been recognised
that certain categories of disputes which are of public nature, are not

32
Russel on Arbitration, Pg.72, para 2-083, and Pg.83, para 2-107.
33
(2012) 2 SCC 144.
H 34
(2016) 10 SCC 386.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 987
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

capable of adjudication and settlement by arbitration, which is a private A
forum constituted by consent of parties.
The Court made a distinction between cases where there are
allegations of serious fraud and fraud simplicitor. Mere allegations of
fraud simplicitor are not a sufficient ground to decline reference to
arbitration. Parties may be referred to arbitration where allegations of B
fraud pertain to disputes between parties inter se, and have no implication
for third parties. The courts may, however, refuse to make a reference
to arbitration only in those cases where there are very serious allegations
of fraud, which make a virtual case of criminal offence of fraud, or
where allegations of fraud are so complicated, that it becomes absolutely
essential that such complex issues be decided only by the civil courts on C
appreciation of voluminous evidence. This would also include those cases
where there are serious allegations of forgery or fabrication of documents,
or where fraud is alleged with respect to the arbitration clause itself, or
where the fraud alleged is of such a nature that it permeates the entire
contract, including the agreement to arbitrate. The judicial authority must D
carefully sift the materials for the purpose of determining whether the
defence is merely a pretext to avoid arbitration. It was opined that the
Arbitration Act must be interpreted to bring it in consonance with the
prevailing arbitration jurisprudence in the common law world.
8.7 The judgment in Ayyasamy (supra) was followed in Rashid E
Raza v. Sadaf Akhtar,35 wherein the twin test laid down in para
25 of Ayyasamy was followed i.e. : (i) does the plea of fraud
permeate the entire contract and above all, the agreement of
arbitration, rendering it void, or (ii) whether the allegations of fraud
touch upon the internal affairs of the parties inter se having no
implication in the public domain. F

8.8 In the subsequent decision of Ameet Lalchand Shah & Ors.
v. Rishabh Enterprises & Anr.,36 allegations of fraud arising from
criminal breach of trust and misrepresentation regarding the
equipment procured and leased for the setting up and operating of
a Photovoltaic solar plant were made. A civil suit was filed praying G
for a declaration that all the agreements were vitiated by fraud
and misrepresentation. An application was filed under Section 8
seeking reference of the disputes to arbitration
35
(2019) 8 SCC 710.
36
(2018) 15 SCC 678. H
988 SUPREME COURT REPORTS [2021] 4 S.C.R.

A under all the four agreements. This Court held that only where
the court is satisfied that the allegations of fraud are serious and
complicated in nature, would it be more appropriate for the court
to deal with the subject matter of the disputes, rather than relegate
the parties to arbitration. It is the duty of the court to impart a
sense of business efficacy to commercial transactions, and mere
B
allegations of fraud would not be sufficient to decline reference
of disputes to arbitration.
8.9 In a recent judgment delivered in Avitel Post Studioz Ltd. &
Ors. v. HSBC PI Holdings (Mauritius Limited),37 which
pertains to an international commercial contract, the issue of
C arbitrability of fraud arose for consideration. This Court held that
the same set of facts may have civil as well criminal consequences.
If it is clear that a civil dispute involves questions of fraud,
misrepresentation, etc. which can be the subject matter of a
proceeding under Section 17 of the Indian Contract, 1872, and/or
D the tort of deceit, the mere fact that criminal proceedings can or
have been instituted in respect of the same subject matter, would
not lead to the conclusion that a dispute which is otherwise
arbitrable, ceases to be so.
This view has been affirmed by a co-ordinate bench in
E Deccan Paper Mills v. Regency Mahavir38 and Vidya Drolia
& Others v. Durga Trading Corporation39.
8.10 In our view, all civil or commercial disputes, either contractual
or non-contractual, which can be adjudicated upon by a civil court,
in principle, can be adjudicated and resolved through arbitration,
F unless it is excluded either expressly by statute, or by necessary
implication. The Arbitration and Conciliation Act, 1996 does not
exclude any category of disputes as being non arbitrable. Section
2(3) of the Arbitration Act however recognizes that certain
categories of disputes by law may not be submitted to arbitration.40
In all jurisdictions, certain categories of disputes are reserved by
G

37
(2020) SCCOnLine SC 656.
38
(2020) SCCOnLine SC 655.
39
Civil Appeal No.2402 of 2019 decided vide Judgment dated 14.12.2020.
40
Section 2(3). This Part shall not affect any other law for the time being in force by
H virtue of which certain disputes may not be submitted to arbitration.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 989
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

the legislature, as a matter of public policy, to be adjudicated by a A
court of law, since they lie in the realm of public law.
8.11 Traditionally, disputes relating to rights in rem are required to
be adjudicated by courts and / or statutory tribunals. A right in
rem is a right exercisable against the world at large. Actions in
rem refer to actions which create a legal status such as citizenship, B
divorce, testamentary and probate issues, etc. A lis in rem is not
arbitrable by a private tribunal constituted by the consent of parties.
Actions in personam determine the rights and interests of parties
to the subject matter of the dispute, which are arbitrable.
The broad categories of disputes which are considered to C
be non arbitrable are penal offences which are visited with criminal
sanction; offences pertaining to bribery / corruption; matrimonial
disputes relating to divorce, judicial separation, restitution of
conjugal rights, child custody and guardianship matters, which
pertain to the status of a person; testamentary matters which
pertain to disputes relating to the validity of a Will, grant of probate, D
letters of administration, succession, which pertain to the status
of a person, and are adjudicated by civil courts.
Certain categories of disputes such as consumer disputes41;
insolvency and bankruptcy proceedings; oppression and
mismanagement, or winding up of a company; disputes relating to E
trusts, trustees and beneficiaries of a trust42 are governed by
special enactments.
This Court in Booz Allen & Hamilton Inc. v. SBI Home
Finance Ltd.43 has recognized some examples of disputes which
are not arbitrable, and held that : F
“36. The well recognized examples of non-arbitrable disputes
are : (i) disputes relating to rights and liabilities which give rise
to or arise out of criminal offences; (ii) matrimonial disputes
relating to divorce, judicial separation, restitution of conjugal
rights, child custody; (iii) guardianship matters; (iv) insolvency G
and winding up matters; (v) testamentary matters (grant of

41
Emaar MGF Land Limited v. Aftab Singh, (2019) 12 SCC 751.
42
Vimal Kishor Shah & Others v. Jayesh Dinesh Shah & Others. (2016) 8 SCC 788.
43
(2011) 5 SCC 532. H
990 SUPREME COURT REPORTS [2021] 4 S.C.R.

A probate, letters of administration and succession certificate);
and (vi) eviction or tenancy matters governed by special statutes
where the tenant enjoys statutory protection against eviction
and only the specified courts are conferred jurisdiction to grant
eviction or decide the disputes.”
B 8.12 The civil aspect of fraud is considered to be arbitrable in
contemporary arbitration jurisprudence, with the only exception
being where the allegation is that the arbitration agreement itself
is vitiated by fraud or fraudulent inducement, or the fraud goes to
the validity of the underlying contract, and impeaches the arbitration
clause itself. Another category of cases is where the substantive
C contract is “expressly declared to be void” under Section 1044
of the Indian Contract Act, 1872 where the agreement is entered
into by a minor (without following the procedure prescribed under
the Guardian and Wards Act, 1890) or a lunatic, which would be
with a party incompetent to enter into a contract.
D 8.13 The civil aspect of fraud can be adjudicated by an arbitral
tribunal. The civil aspect of fraud is defined by Section 17 of the
Indian Contract Act, 1872 as follows :
“17. Fraud defined. – Fraud means and includes any of the
following acts committed by a party to a contract, or with his
E connivance, or by his agent, with intent to deceive
another party thereto or his [agent], or to induce him to enter
into the contract:
(1) the suggestion, as a fact, of that which is not true, by
one who does not believe it to be true;
F
(2) the active concealment of a fact by one having
knowledge or belief of the fact;

44
Section 10. What agreements are contracts.—All agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful consideration
G
and with a lawful object, and are not hereby expressly declared to be void.
Nothing herein contained shall affect any law in force in India, and not hereby expressly
repealed, by which any contract is required to be made in writing or in the presence of
witnesses, or any law relating to the registration of documents.
Section 11. Who are competent to contract.—Every person is competent to contract
who is of the age of majority according to the law to which he is subject, and who is of
H sound mind and is not disqualified from contracting by any law to which he is subject.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 991
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

(3) a promise made without any intention of performing it; A
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares
to be fraudulent.”
8.14 We will now consider whether voidable agreements are B
arbitrable. Voidable agreements are defined by Section 19 of the
Contract Act as :
“19. Voidability of agreements without free consent.—When
consent to an agreement is caused by coercion, fraud or
misrepresentation, the agreement is a contract voidable at the C
option of the party whose consent was so caused.
A party to a contract, whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract
shall be performed, and that he shall be put in the position in
which he would have been if the representation made had been D
true.
Exception.—If such consent was caused by misrepresentation
or by silence, fraudulent within the meaning of Section 17, the
contract, nevertheless, is not voidable, if the party whose consent
was so caused had the means of discovering the truth with
E
ordinary diligence.
Explanation.—A fraud or misrepresentation which did not cause
the consent to a contract of the party of whom such fraud was
practised, or to whom such misrepresentation was made, does
not render a contract voidable.”
F
In the case of voidable agreements, such disputes would be
arbitrable, since the issue whether the consent was procured by coercion,
fraud, or misrepresentation requires to be adjudicated upon by leading
cogent evidence, which can very well be decided through arbitration.
Until it so proved and upheld as per Sections 2(i) and (j) of the Indian
Contract Act, 1872 such an agreement would remain enforceable, and G
is not void.
8.15 In Swiss Timing Ltd. v. Commonwealth Games 2010
Organising Committee,45 a single judge (exercising powers u/S.
45
(2014) 6 SCC 677. H
992 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 11) opined that when a plea is taken to avoid arbitration on the
ground of the underlying contract being void, the court is required
to ascertain the true nature of the defence. Often, the terms ‘void’
and ‘voidable’ are used loosely and interchangeably. The court
ought to examine the plea by keeping in mind the provisions of the
Indian Contract Act, 1872. In cases where the court comes to a
B
conclusion that the contract is void without receiving any evidence,
it may be justified in declining the reference to arbitration in a few
isolated cases. These would be cases where the court can readily
conclude that the contract is void upon a meaningful reading of
the contract document itself. However, it would not be permissible
C to circumvent arbitration where the defence taken is that the
contract is voidable, which are cases covered under circumstances
mentioned inter alia in Sections 12, 14, 15, 16, 17, 18 of the Indian
Contract Act, 1872.
Even though Swiss Timing Ltd. was a decision of a
D designate of the Chief Justice under Section 11 of the 1996 Act
(prior to the Amendment), and would have no precedential value
in view of the judgment of this Court in State of West Bengal v.
Associated Contractors,46 the reasoning in Swiss Timing Ltd.
has been cited with approval by this Court in Avitel Post Studioz
Ltd. & Ors. v. HSBC PI Holdings (Mauritius Limited)47.
E
8.16 The ground on which fraud was held to be non arbitrable
earlier was that it would entail voluminous and extensive evidence,
and would be too complicated to be decided in arbitration. In
contemporary arbitration practice, arbitral tribunals are required
to traverse through volumes of material in various kinds of disputes
F such as oil, natural gas, construction industry, etc. The ground
that allegations of fraud are not arbitrable is a wholly archaic
view, which has become obsolete, and deserves to be discarded.
However, the criminal aspect of fraud, forgery, or fabrication,
which would be visited with penal consequences and criminal
G sanctions can be adjudicated only by a court of law, since it may
result in a conviction, which is in the realm of public law.48

46
(2015) 1 SCC 32.
47
(2020) SCCOnLine SC 656.
48
Malhotra’s Commentary on the Law of Arbitration, [4th ed., Wolters Kluwer (2020)],
H p.339, Volume I.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 993
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

8.17 In the present case, the allegations of fraud with respect A
to the invocation of the Bank Guarantee are arbitrable, since it
arises out of disputes between parties inter se, and is not in the
realm of public law.
9. Maintainability of the Writ Petition
9.1 We are of the view that the Writ Petition filed by the B
Respondent No. 1 to challenge the Order dated 18.01.2018 passed
by the Special Commercial Court / District Judge-I in Commercial
Dispute No. 62/2017 was not maintainable, since a statutory
remedy under the amended Section 37 of the Arbitration Act is
available. Section 37(1) has been amended by Act 3 of 201649. C
Section 37(1)(a) provides for an appeal to be filed against an Order
refusing to refer the parties to arbitration.
Section 37(1)(a) reads as :
“37. Appealable orders. – (1) An appeal shall lie from the
following orders (and from no others) to the Court authorised D
by law to hear appeals from original decrees of the Court
passing the order, namely:-
(a) Refusing to refer the parties to arbitration under section
8;…”
E
9.2 Since the judgment and order of the Commercial Court dated
18.01.2018 refusing to refer the parties to arbitration was an appealable
order under Section 37(1)(a) of the Arbitration Act, the Writ Petition
was not maintainable. The appeal would lie before the Commercial
Appellate Division of the High Court under Section 13(1A) of the
Commercial Courts Act, 2015. Section 13(1A) read as : F
“13. Appeals from decrees of Commercial Courts and
Commercial Divisions.–(1) Any person aggrieved by the
judgment or order of a Commercial Court below the level of a
District Judge may appeal to the Commercial Appellate Court
within a period of 60 days from the date of judgment or order. G
(1A) Any person aggrieved by the judgment or order of a
Commercial Court at the level of District Judge exercising
original civil jurisdiction or, as the case may be, Commercial

49
which came into effect on 23.10.2015. H
994 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Division of a High Court may appeal to the Commercial
Appellate Division of that High Court within a period of sixty
days from the date of the judgment or order:
Provided that an appeal shall lie from such orders passed
by a Commercial Division or a Commercial Court that are
B specifically enumerated under Order XLIII of the Code of
Civil Procedure, 1908 (5 of 1908) as amended by this Act and
Section 37 of the Arbitration and Conciliation Act, 1996 (26 of
1996).”
In view of the availability of a statutory remedy, the
C judgment of the High Court passed under Articles 226 and 227
of the Constitution is liable to be set aside on the ground of
maintainability.
10. In the present case, since both parties have admitted the
existence of the arbitration agreement between the parties, as recorded
D in the judgment of the High Court, and even before this Court during oral
submissions, parties may either appoint a sole arbitrator consensually;
failing which, an application u/S. 11 for appointment of the arbitrator
may be made before the High Court.
11. In view of the discussion hereinabove, we hold that :
E (i) The impugned judgment and order dated 30.09.2020 in W.P.
No. 1801 of 2020 passed by the Bombay High Court is set
aside;
(ii) We direct the Secretary General of this Court to impound
the Work Order dated 28.09.2015, and forward it to the
F concerned Collector in Maharashtra for assessment of the
Stamp Duty payable on the said instrument, to be completed
within a period of 45 days from receipt of the same;
(iii) On determination of the Stamp Duty payable, the Appellant
/ Plaintiff is directed to make the payment assessed by the
G Collector u/S.30(f-a) of the Maharashtra Stamp Act, 1958
within a period of four weeks from the date of receipt of
communication of the Order;
The Stamp Duty assessed by the Collector will, however,
be subject to the statutory right available to file a revision /
H appeal under the Maharashtra Stamp Act.
M/s. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO 995
UNIQUE FLAME LTD. & OTHERS [INDU MALHOTRA, J.]

(iv) With respect to the invocation of the Bank Guarantee, the A
Appellant may seek interim relief u/S. 9 of the Arbitration
and Conciliation Act, 1996.
We extend the stay granted by the High Court for a further period
of eight weeks.
12. We are of the considered view that the finding in SMS Tea B
Estates and Garware that the non-payment of stamp duty on the
commercial contract would invalidate even the arbitration agreement,
and render it non-existent in law, and un-enforceable, is not the correct
position in law.
In view of the finding in paragraph 92 of the judgment in Vidya C
Drolia by a co-ordinate bench, which has affirmed the judgment in
Garware, the aforesaid issue is required to be authoritatively settled by
a Constitution bench of this Court.
We consider it appropriate to refer the following issue, to be
authoritatively settled by a Constitution bench of five judges of this Court: D
“Whether the statutory bar contained in Section 35 of the Indian
Stamp Act, 1899 applicable to instruments chargeable to Stamp
Duty under Section 3 read with the Schedule to the Act, would
also render the arbitration agreement contained in such an
instrument, which is not chargeable to payment of stamp duty, as E
being non-existent, un-enforceable, or invalid, pending payment
of stamp duty on the substantive contract / instrument ?’’
In light of the same, the Registry may place this matter before the
Hon’ble Chief Justice of India for appropriate orders/directions.
F

Ankit Gyan Issue referred to Constitution Bench.

G

H