The Hon’ble High Court of Delhi (“HC”) in batch matters of Religare Finvest Limited Vs. Asian Satellite Broadcast Private Limited and Ors. Arb. A. (Comm.) 6/2021 vide order dated 10th January 2022 has held that for a document to be amenable to Maharashtra Stamp Act (“MSA”) it has to be executed within the territorial boundaries of the state of Maharashtra in terms of sections 2(d) and 2(i) of MSA.
The brief facts of the case are that
1) In 2014 seven companies forming part of the Zee Group of Companies (“group companies”) approached the Appellant herein to avail loan facilities for investment, pursuant to which separate loan agreements were entered into between the Appellant and the group companies.
2) On failure of repayment of debt by the group companies the Appellant invoked arbitration clause contained in the loan agreement and consequently an arbitrator was appointed.
3) The group companies challenged the scope of proceedings and jurisdiction of the Arbitrator under Section 16 of the Arbitration & Conciliation Act 1996 (“the Act”). It was inter-alia contended that, as the loan agreements were first executed in Mumbai, they should have been stamped in accordance with the MSA.
4) The Appellant contested the application raising several jurisdictional objections and on merits contended that the loan agreements are duly stamped as per Article 5(c) of Schedule I-A of the Indian Stamp Act, 1899 (“ISA”).
5) The Arbitrator passed an order, accepting the plea of the group companies. However, instead of terminating the proceedings, they were adjourned sine die, observing that if the Appellant wishes to continue with its claim, it should take the original loan agreement to the Collector of Stamp, Maharashtra – who will, within three months, determine the Stamp Duty payable on the same, including penalty, if any, in terms of the MSA.
6) The Appellant filed an appeal under section 37(2)(a) of the Act on the contention that
(a) There is no legal impediment on the enforceability of an arbitration agreement pending payment of Stamp Duty on the substantive contract; and
(b) Section 1(2) of MSA restricts its applicability only to the State of Maharashtra. In the facts of the present case, the following distinguishing features emerge:- (i) the Loan Agreements were executed by the lender i.e., Appellant, in Delhi; (ii) they are being enforced in Delhi; and (iii) they had been duly stamped under Article 5(c) of Schedule I-A of ISA, as applicable to Delhi.
7) The group companies however argued that both the parties were on the fact that loan agreements were first signed and executed by the Zee Companies in Maharashtra. Thus, the parties clearly understood that the Loan Agreements were to be stamped in accordance with the MSA.
The HC held that the ‘doctrine of severability’ of the arbitration clause, invoked by the Appellant, cannot be misconstrued to mean that in arbitration proceedings, the question of insufficiency of stamp duty has to be ignored altogether. Non payment or deficiency in stamp duty may not invalidate the loan agreements, but certainly, this shortcoming renders such documents to be inadmissible in evidence and liable to be impounded, till the time requisite stamp duty is paid, this is jurisdictional issue, and has been correctly entertained and decided by the learned Arbitrator as a preliminary issue under Section 16 of the Act.
The HC concluded that “19. Thus, the signatures of only Zee Companies on their respective Loan Agreements did not give such documents any legality or validity under the law, until they were also signed by Religare’s representatives. That event, concededly, occurred at a later date, and in Delhi. At that stage, the agreements became “instruments” amenable to stamp duty. Thus, the incident of “execution”/“executed” occurred at Delhi, and not Mumbai.”