
M/S. N.N. GLOBAL
MERCANTILE PVT. LTD.
VERSUS
M/S. INDO UNIQUE
FLAME LTD. & OTHERS.
Civil Appeal No. 3802/03 OF 2020, Decided On January
11, 2021
JUDGES: Dr Dhananjaya Y Chandrachud, Indu
Malhotra & Indira Banerjee JJ.
Facts: IU, a
company, applied for grant of work of beneficiation/washing of coal to K Ltd. (“KPCL”) in an open tender. K awarded the Work Order to IU. In pursuance of the aforesaid Work
Order, IU furnished Bank Guarantees
for Rs.29.29 crores in favour of K through
its bankers.
Thereafter, IU, subsequently entered into a
sub-contract termed as a Work Order with GM, the appellant company, for the
transportation of coal from its washery at District Yavatmal to the stockyard,
siding, coal handling and loading into the wagons at District Chanderpur,
Maharashtra. As per the Work Order, GM
furnished a Bank Guarantee for Rs.3,36,00,000/- in favour of SBI-the banker of IU.
Under the principal
contract with K dated 18.09.2015,
certain disputes and differences arose with IU,
which led to the invocation of the Bank Guarantee by K. Thereafter, IU,
invoked the Bank Guarantee furnished by GM
under the Work Order. It was this invocation of the Guarantee which led to the
proceedings travelling from the Commercial Court to the Bombay High Court and
all the way up to the Supreme Court. The following
issues had arisen before the Hon’ble Apex Court
ISSUE:
Whether an arbitration
agreement would be enforceable and acted upon, even if the Work Order is
unstamped and un-enforceable under the Stamp Act?
HELD:
The Apex Court with regard to the facts of the case
at hand held that the arbitration agreement contained in the Work Order is
independent and distinct from the underlying commercial contract. The Court
further went on to observe that an arbitration agreement is an agreement to
resolve disputes arising out of a commercial agreement, through the mode of
arbitration and on the basis of the doctrine of separability, the arbitration
agreement being a separate and distinct agreement from the underlying
commercial contract, would survive independent of the substantive contract. Moreover,
the Court held that 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.
In conclusion the Court held 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, or render it
un-enforceable, since it has an independent existence of its own. The
non-payment of stamp duty on the substantive contract would not invalidate even
the main contract. It is a deficiency which is curable on the payment of the
requisite Stamp Duty.
ISSUE:
Whether allegation of the
fraudulent invocation of the bank guarantee is an arbitrable dispute?
HELD:
The Supreme Court observed that 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, 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.
The Court further went on to observe that 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, etc. The ground that allegations of fraud are not
arbitrable is a wholly archaic view, which has become obsolete, and deserves to
be discarded.
ISSUE:
Whether a Writ Petition
under Articles 226 and 227 of the Constitution would be maintainable to
challenge an Order rejecting an application for reference to arbitration under
Section 8 of the Arbitration Act?
HELD:
With regard to the maintainability of
the Writ Petition under Article 226/2227 of the Constitution of India the Court
held that since, a statutory remedy under the amended Section 37 of the
Arbitration Act is available, therefore, the writ petition was not maintainable.