By – Punya Rai
In the Supreme Court of India
|NAME:-||N.N Global Mercantile Pvt Ltd Vs . Indo Unique Flame|
|DATE OF DECISION:-||11 January 2021|
|BENCH||Justice Dr DY Chandrachud, Justice Indu Malhotra and Justice Indira Banerjee|
|APPLETANT :-||N.N Global Mercentile|
|RESPONDENT:-||Indo unique flame and others|
|ARTICLES :-||226 and 227 , 16 (1),|
|SECTIONS :-||sec 3 of Maharashtra stamp Act ,1958 , section 30, 32A, 33, 34,35,36,37, 41 58, 41(1),|
The choice of the 3-Judge Bench of the Supreme Court of India in N.N. Worldwide Mercantile (P) Ltd. v. Indo Unique Flame Ltd. (Worldwide Mercantile) has without a doubt denoted the initiation of another time of favourable to discretion law in India. The original judgment of the Supreme Court followed through on 11-1-2021 has acquired India more consonance with the assessments of the courts in the western world that have spearheaded worldwide mediation statute for quite a long time. The current article will consider the sweeping impact of the judgment and will feature the way the Supreme Court through its pertinent and contemporary thinking hosts disposed of the chains that headstrong gatherings would weaponize to dodge their commitments in respecting legitimate discretion arrangements.
BACKGROUND OF THE CASE: –
Indo Unique was granted a delicate by Karnataka Power Corporation Ltd. (‘KPCL’). Along these lines, it entered a sub-contract with Global Mercantile. Under Clause 9 of the Work Order, Global Mercantile outfitted a bank ensure. Because of a conflict with KPCL, Indo Unique summoned the bank to ensure which prompted the current question.
Indo Unique documented an application under Section 8 of the (‘ACA’) act 1966 under the steady gaze of the Commercial Court to allude the debate to mediation as far as Clause 10 of the Work Order. Upon an ominous decision from the Commercial Court, Indo Unique recorded an update to the Bombay High Court (‘HC’). Worldwide Mercantile protested bury Alia because the assertion arrangement was contained in an unstamped Work Order and accordingly unenforceable under Section 34 of (‘MSA’) 1958. The HC maintained the practicality of the application while leaving the issue of unenforceability of discretion understanding and extortion to the arbitral council. Therefore, Global Mercantile was claimed before the SC.
FACTS OF THE CASE: –
Observe the realities that prompted the debate. Respondent 1 Indo Unique (Indo Unique) was granted a work request from the Karnataka Power Corporation Ltd. (KPCL) for washing of coal. From that point, in the compatibility of the said work request Indo Unique outfitted a bank ensure for KPCL through Respondent 2 State Bank of India (SBI). Accordingly, Indo Unique entered a sub-contract with the appealing party Company N.N. Worldwide Mercantile (Global Mercantile) for transportation of coal. Condition 9 of this sub-contract contained arrangements for a security store to be outfitted by Global Mercantile. Condition 10 typified an intervention arrangement for the goal of debates emerging from the sub-contract. In like manner, Global Mercantile outfitted a bank ensure for SBI. Certain debates emerged under the chief agreement that prompted the conjuring of the bank to ensure by KPCL. Further, Indo Unique conjured the bank ensure outfitted by Global Mercantile under the sub-contract. The summon of the bank ensure under the sub-contract prompted a progression of procedures that originated from a choice of the Commercial Court in Nagpur which was in the long run tested under the watchful eye of the Bombay High Court via a writ request documented under Articles 226 and 227 of the Constitution of India. The High Court dismissed the discoveries of the business court and through its judgment held that there was a substantial assertion arrangement between the gatherings while permitting an application under Section 8 of the Arbitration and Conciliation Act, 1996 (the Act) to be kept up with. The High Court additionally proceeded to dismiss the dispute that the supposed fake conjuring of the bank assurance could not be settled through intervention. The High Court additionally held that the conflict of the discretion arrangement being unenforceable as the sub-contract was unstamped could be raised at the hour of documenting an application under Section 11 of the Act or at some other proper time before the Arbitral Tribunal. Oppressed by the choice of the Bombay High Court, Global Mercantile liked to practice its established cure and recorded an exceptional leave appeal under the watchful eye of the Supreme Court of India.
The Supreme Court needed to manage three issues, two of which are inside the domain of the current article. The principal issue was whether an intervention arrangement would be enforceable on the off chance that it was available in an understanding which was unstamped and unenforceable under the applicable Stamp Act. The subsequent issue was whether the claim of fake summons of the bank ensure was a topic fit for settlement by assertion.
ISSUE RAISED: –
I. Regardless of whether a mediation understanding would be enforceable and followed up on, regardless of whether the Work Order dated 28.09.2015 is unstamped and un-enforceable under the Stamp Act?
ii. Regardless of whether a claim of the deceitful conjuring of the bank ensure is an arbitrable question?
iii. Regardless of whether a Writ Petition under Articles 226 and 227 of the Constitution would be viable to challenge an Order dismissing an application for reference to mediation under Section 8 of the Arbitration Act?
ARGUMENTS FROM APPLETANT: –
- Global Mercantile filed a Civil (Commercial) Suit No.62 of 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 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
- 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.
- 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 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
ARGUMENTS FROM RESPONDENT:-
- Indo Unique filed an application under section 8 of the Arbitration and conciliation act, 1996 (“Arbitration Act”) in Civil (Commercial) Suit No.62 of 2017, seeking reference of disputes to arbitration
- Indo Unique then filed Civil Revision Petition No.9 of 2018 before the Bombay High Court challenging the Order passed by the Commercial Court.
- On an objection being raised on the maintainability of the Civil 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.
- 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 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 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 Supreme Court while passing its judgment has put a hefty dependence on the conventions of detachability and kompetenz-kompetenz while taking note of their significance in the present day and contemporary arbitral law. The Supreme Court depended on worldwide arbitral law of the worldwide assertion areas of interest, for example, the UK, US and France while emphasizing the need to offer impact to the embodiment of the 1985 UNICITRAL Model Law on which the Arbitration and Conciliation Act is based. The Court likewise noticed the administrative aim of limiting legal obstruction in the discretion cycle and featured the reasoning behind the revision of Section 11 of the Act in 2015. The Court at the hour of applying the law to the realities that had emerged before it noticed a portion of its previous choices. In SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.  (SMS Tea) where bury Alia the Court held that an unstamped arrangement cannot be followed up on to authorize an assertion understanding contained in it. The judgment in SMS Tea  propounded a division between the two parts of an unregistered and an unstamped arrangement.
The Court in SMS Tea  while concisely applying the precept of detachability to the part of non-enlistment held that the non-enrolment of an understanding would not influence the unenforceability of the intervention arrangement contained in it. In any case, about the part of non-instalment of stamp obligation, the Court held that the exacting and compulsory arrangements of the Stamp Act could not be perused agreeably with the pertinent arrangements of the Arbitration and Conciliation Act. It is relevant to note here that the judgment in SMS Tea  was passed before the 2016 Amendment of Section 11 of the Act and the law as it stood then depended on the choice of the Constitutional Bench in SBP and Co. v. Patel Engg. Ltd.  and National Insurance Co. Ltd. Boghara Polyfab (P) Ltd.  were at the pre-reference stage under Section 11(6) of the Act certain limit issues could be inspected by the Court.
The Court in Global Mercantile  while proceeded to take note of the significance of limiting legal mediation at the pre-reference stage after the correction of Section 11 of the Act and comparing authoritative overruling of Patel Engg. ended up at chances with another judgment of a similar court which was strangely passed after the expansion of sub-segment (6-A) to Section 11. In Garware Wall Ropes Ltd. v. Beach front Marine Constructions and Engg. Ltd.  (Garware) the Court conveyed a judgment putting hefty dependence on the proportion laid by Raveendran, J. in SMS Tea . The two-Judge Bench although utilizing somewhat extraordinary speculation arrived at a similar resolution as in SMS Tea . The Court in Garware  proceeded to express that an intervention statement in an agreement would be enforceable just if the agreement were enforceable in law. Further, it proceeded to express that an agreement would become enforceable just on the off chance that it is appropriately stepped. The Court held that accordingly on a conjoint perusing of the pertinent arrangements of the Stamp Act, Contract Act and Arbitration and Conciliation Act confirmed that an unstamped understanding could not be upheld by law. Apparently, the Court in Garware  has neglected to perceive the reasoning behind the fiction of distinguishableness and has wrongly attached the destiny of the assertion consent to the considerable agreement.
Returning to the Global Mercantile , in the wake of considering the current situation on the law as it stood, the Court proceeded to convey an assessment despite what is generally expected. The Court held that the non-instalment of stamp obligation on the meaningful business agreement would not deliver the assertion arrangement contained in it as unenforceable or invalid. The Court proceeded to reason by embracing an amicable development between the compulsory arrangements of the applicable Stamp Act and its obligation to implement intervention arrangements. The Court depended broadly on the teaching of detachability, filling in the deficiency of Court’s proportion in Garware . The Court likewise noticed that the non-instalment or insufficiency under the Stamp Act was a reparable imperfection and consequently there was no compelling reason to remain assertion until stamp obligation is paid. Appropriately, the Court overruled the situation in SMS Tea  on this issue. The Court likewise communicated contradict with the discoveries in Garware . The Court noticed that the situation in Garware  was as of late avowed by the judgment of a facilitate Bench in Vidya Drolia v. Durga Trading Corpn. The Court taking note of that it could not stand firm on the footing set down in Garware  according to incuriam alluded this inquiry to be dictated by a Constitutional Bench of 5 Judges. Likewise, the Court in Global Mercantile  set down clear and basic rules regarding the strategy where the unstamped instrument is to be managed at the hour of arrangement of Arbitrator. Strangely, the Court recognized the reason for Section 11 from Section 9 and set out that if there should arise an occurrence of an application documented under Section 9 of the Act petitioning God for earnest substitute reliefs, the Court would initially need to allow temporary help to protect the topic of the intervention and afterwards appropriate the instrument for an instalment of imperative stamp obligation.
Continuing forward to the second issue of whether the charge of the deceitful summons of the bank ensure was arbitrable, the Court depended upon different decisions of its own and expressed that the previous thoughts which courts held onto to hold misrepresentation as non-arbitrable were completely old and outdated. The Court disposed of these misgivings that were regularly predicated on evaluation of voluminous proof, absence of aptitude of mediators, deficiencies of arbitral system and the misconstrued ideas of homegrown public strategy and in this manner held misrepresentation as arbitrable.
Apparently, Global Mercantile advances the favourable to assertion approach in India. The court has limited its ward to only analysing the presence of the intervention understanding under Section 11(6A) of the ASA. It has likewise kept gatherings from bringing up specialized criticisms on the grounds of unstamped archives.
Further, the court has built up the capability of the arbitral council to decide issues as for the voidable and void nature of the agreements just as instances of extortion. As for the arbitrability of misrepresentation, the court has likewise discarded the test dependent on the volume of proof. This further lifts the self-rule of the referees and sets up them as skilled as other legal officials in dealing with complex debates.