[Disclosure – I have participated in an arbitration where the lawyers for the opponents adopted this strategy]
This is an interesting case in which despite existence of an arbitration clause in the agreement between the parties, Tantia Constructions went to Court to seek relief under its writ jurisdiction, which relief was granted by the High Court.
The Supreme Court held that an alternative remedy (arbitration in this case) is not an absolute bar to invocation of writ jurisdiction.
In my view, this decision increases the scope for interference by courts, in cases where the parties have agreed to resolve their disputes by arbitration, beyond the scope of interference warranted by A&C Act. In a situation where arbitration proceedings have already commenced, this decision could enable a party to seek interim relief in the form of a writ, from a Court, even though the A&C Act clearly provides for provisions for seeking interim relief from Court under Section 9 and from the tribunal itself under Section 17.
3. Booz Allen Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532
In this case SBI Home Finance had filed a suit for enforcement of a mortgage made in its favour. An application was filed by one of the parties under Section 8 of A&C Act, for reference of disputes to arbitration, since there was an arbitration clause agreed to by the parties. The question before the Court was, whether the dispute relating to enforcement of mortgage was covered within the arbitration clause.
The Supreme Court observed that there are three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, (i) whether the disputes are capable of adjudication and settlement by arbitration, i.e., whether the disputes, having regard to their nature, could be resolved by an arbitral tribunal or whether they would exclusively fall within the domain of Courts, (ii) whether the disputes are covered by the arbitration agreement, and (iii) whether the parties have referred the disputes to arbitration.
We are only concerned with (i) here.
The Court observed that an agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but create only a personal obligation. Therefore if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A decree for sale of a mortgaged property requires the Court to protect the interests of persons other than the parties to the suit and empowers the Court to entertain and adjudicate upon rights and liabilities of third parties (other than those who are parties to the arbitration agreement). Therefore, a suit for enforcement of a mortgage being the enforcement of a right in rem will have to be decided by Courts of law and not by arbitral tribunals.
The Court held that the scheme relating to adjudication of mortgage suits contained in Code of Civil Procedure, 1908, provides for the procedure prescribed for adjudication of the mortgage suits, the rights of mortgagees and mortgagors, the parties to a mortgage suit, and the powers of a Court adjudicating a mortgage suit. This scheme makes it clear that such suits are intended to be decided by public fora and therefore, impliedly barred from being referred to or decided by private fora, namely an arbitral tribunal.
In a dispute arising between the parties, from an unregistered lease deed (which was required to be compulsory registered under the Registration Act, 1908), the question before the Court was whether the parties could rely on such unregistered instrument, as evidence before the arbitral tribunal. The Court also discussed the implications, on the arbitration proceedings, of not stamping the main agreement, which contains the arbitration clause.
The Supreme Court held that an arbitration agreement, forming a part of an instrument, which is required to be stamped under the applicable laws, if not sufficiently stamped, has no legal effect. Although, such deficiency can be cured upon payment of insufficient stamp duty and penalty, as may be applicable.
Such an instrument when required to be compulsorily registered under the Registration Act, 1908, and not so registered, can be received as evidence by an arbitrator only for the limited purpose of (i) evidence of a contract in a suit for specific performance, and (ii) evidence of collateral transaction not required to be effected by a registered instrument.
This is an important development, which should caution parties to adequately stamp and register their agreements, as and when required by law, in order to not face a situation where the agreement itself cannot be received in evidence before an arbitral tribunal.