[By Swarnendu Chatterjee & Shreya Mittal]
The authors are Advocate-on-Record, Supreme Court of India and a student at National Law Institute University, Bhopal respectively.
(This is in continuation of the Part I of the blog where the author discusses the background and the verdict of the Supreme Court in the above-captioned case. In this Part, the author highlights the principle of arbitral autonomy and minimum judicial intervention and the doctrine of harmonious construction as applied in this case. Finally, the author concludes by summarizing the judgment and underlining the apparent criticism.)
A. Arbitral Autonomy and the Principle of Minimum Judicial Interference
Arbitration is a voluntary method for resolving disputes between parties that is founded on their agreement to submit their issues to an arbitral tribunal made up of one or three impartial arbitrators, who are either selected by the parties themselves or on their behalf.[1] The Judgement visits important principles enshrined in the Arbitration and Conciliation Act, 1996 to reason its decision.
The principle of arbitral autonomy gives the Arbitral Tribunal the power to govern its own jurisdiction. It comes from the consent of the parties which excludes or limits the jurisdiction of legal systems to that specifically given in the concerned statutes, i.e., for India being the Arbitration and Conciliation Act, 1996. The principle of judicial non-interference also encompasses the principle of arbitral autonomy. The Supreme Court holds that the principle of separability goes beyond the issue of Kompetenz-Kompetenz principle.
The word “authority” under Section 33 of the Stamp Act includes the Arbitral Tribunal as it is a creation of law supported by the provisions of the Arbitration Act and the intention of the parties to arbitrate. The stamp objection could be before the Arbitral Tribunal and taking the issue before the court would hold up the process. Rather, the alternative could be to limit the jurisdiction of the Court to interfere to the stage after the Arbitral Award has been passed instead of derailing the process.
B. Harmonious Construction of the Arbitration Act, the Stamp Act, and the Contract Act
Every statute is enacted by the Parliament with a legislative intent which gives purpose for the existence of the statute that must be taken into consideration while interpreting various provisions of the statute. However, it may be possible that while interpreting a provision of a statute, it may come into conflict with some other statute. Here, the Courts try to interpret the conflicting provisions harmoniously, so that it does not defeat the purpose of the statute. While interpreting, the Courts should keep in mind to not render the statute a “dead” letter and it must be so interpreted to give full effect to the conflicting provisions.
With emerging developments in the field of Arbitration and UNCITRAL Arbitration Rules coming into place, the Arbitration Act was enacted by the Parliament to put India’s domestic laws at par with the international standards. On one hand, the intent of the legislature in enacting the Arbitration Act was to ensure the facilitation of an effective arbitration process and the reduction of judicial intervention within the arbitral proceedings. While on the other, the object of the Stamp Act was to generate revenue for the State. The two Acts come into conflict over here which is most precisely dealt by in the Judgement.
The Judgement gives primacy to the Arbitration Act over the Stamp Act and the Contract Act, in matters involving arbitration agreements. This is reasoned by the way of classifying the Arbitration Act as a special legislation and the other two as general laws. The Arbitration Act governs the domain of arbitration in India. The issue here is in relation to arbitration agreements and not in general agreements or contracts as defined in the Contract Act. The Arbitration Act defines arbitration agreements and broadly deals with all the legal aspects of them.
The Court in N N Global 2, while interpreting the various conflicting provisions, observes that in proceedings under Section 11 of the Arbitration Act, the interdict in Section 5 of the Arbitration Act would not take away limb from Sections 33 and 35 of the Stamp Act, and that it would not amount to judicial interference. However, interpreting differently, the Judgement does not agree with the said position of law laid down.
The Judgement gives importance to the non-obstante clause in Section 5 of the Arbitration Act which reads as, “5. Extent of judicial intervention.—Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” The Arbitration Act being a special law coupled with the non-obstante clause, the Judgement observes that it excludes the operation of Sections 33 and 35 of the Stamp Act, thus observing that the decision in N N Global 2 was not the correct position of law.
The unqualified object of the Stamp Act is, among others, securing revenue for the state. However, the consequent cost of holding an unstamped or under-stamped agreement as unenforceable would result in derailing many arbitration proceedings over the country. Eventually, the price to be paid would be disastrous and it would miss the purpose of the Stamp Act. On the other hand, the principles upheld in the SC Judgement by letting the Arbitral Tribunal decide the issue of the validity of unstamped or under-stamped arbitration agreements while not interrupting the arbitration process would be in the best interests of revenue. Additionally, the revenue demand could be met during the arbitration process.
II. CONCLUSION
In the author’s view, the Supreme Court has set the jurisdictional framework in line with accepted and expected international arrangements of arbitrability. The Supreme Court has effectively gone on record to say that it was the Parliament’s view to further endeavor to make India an arbitration friendly regime. In the same vein, the Supreme Court has correctly set the legal framework in the right direction by upholding the validity of arbitration agreements contained in the unstamped or under-stamped instruments. The Supreme Court also correctly carved out the independent space for arbitration in India as the judgement must not only be viewed from the perspective of revenue generation by the State, but it must be rather understood as furthering doctrines in favour of the Alternative Dispute Resolution mechanisms and laws in India.
The foundational basis of arbitrability of a dispute rests in the will of the parties to take the recourse of appointing an independent third party arbitrator and preclude the jurisdiction of State courts. Therefore, the mere establishment of the will of the parties to refer an issue to arbitration precludes the jurisdiction of the courts to interfere or adjudge the validity of an arbitration agreement even if such agreement is contained in an unstamped instrument. The unstamping or under-stamping of such an instrument becomes a mere procedural infirmity once the will of parties is concluded. Therefore, the stamp objections must fall in the jurisdiction of the Arbitral Tribunal.
However, the Supreme Court did miss the opportunity to lay down clear guidelines regarding the situations when the court could interfere with the jurisdiction of the Arbitral Tribunal. The Supreme Court had an opportunity to limit the jurisdiction of the court to Section 34 of the Arbitration cases and let the Arbitral Tribunal work independently in its sphere. A further round of litigation may be expected in the Supreme Court on this issue.
[1] Pruthiviraj Gohil, ‘The Power Of Arbitration: Resolving Disputes Efficiently And Fairly’, World Litigation Forum, <https://worldlitigationforum.org/articles/the-power-of-arbitration-resolving-disputes-efficiently-and-fairly/>.