IN RE: INTERPLAY BETWEEN ARBITRATION AGREEMENTS

immoral or opposed to public policy. An instrument whether unstamped or insufficiently stamped will not fall foul on the ground of consideration or object of the agreement being immoral, neither will it fall foul as opposed to public policy.

37. In B.O.I. Finance Ltd. v. Custodian and Others48 this Court after examining the case law on the subject of public policy, observed that in pursuant to an agreement to do an illegal act, a transaction, in part, takes place which would otherwise be valid if there was no such prior agreement, then notwithstanding the illegality of the contract, the completed transaction itself cannot be regarded as invalid.

38. Following this judgment, in Canara Bank and Others v. Standard Chartered Bank49, it is held that for the contract to be declared void on the ground of public policy, it must be shown that the object and consideration of the contract was one which was illegal. Where the object and consideration of the contract is not illegal as in the case of sale/ purchase of securities and payment of price, the contract will not be void on the ground of being opposed to public policy. The contention that the performance of contract in violation of law will be void on ground of public policy was rejected. These observations were made in the context of the argument that there was violation of law while carrying out the contract and the arrangement was opposed to public policy.

39. A judgment by Mr. Justice S.S. Nijjar in Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee50, has elaborately dealt with the terms ‘void’ and ‘voidable’ and states that they are used loosely and interchangeably with each other, though strictly in law, they are not so. It is also important to draw a distinction between contracts which are void, and those which are void ab initio due to lack of elements of offer or acceptance, which prevents a contract from coming into operation. Thus, a contract by a minor or by a person of unsound mind would be void due to lack of effectual offer or acceptance. But once the contract is made, that is to say where parties, whatever their innermost state of mind, have to all

48 (1997) 10 SCC 488. 49 (2002) 10 SCC 697. 50 (2014) 6 SCC 677.

IN RE: INTERPLAY BETWEEN ARBITRATION AGREEMENTS UNDER 1211 THE ARBITRATION AND CONCILIATION ACT 1996 AND THE INDIAN STAMP ACT 1899 [SANJIV KHANNA, J.]

outward appearances, agreed with sufficient certainty in the same terms of the subject matter, then the contract is good unless and until it is set aside for failure of some condition on which the existence of contract depends, or for fraud, or on some other equitable ground. Neither party can rely upon its own mistake to say that it was a nullity from the beginning, no matter that it was a mistake which to his mind was fundamental, no matter that the other party knew that he was under a mistake.51

40. The judgment in Vidya Drolia and Others v. Durga Trading Corporation52, after referring to Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.53, draws a distinction between contract obtained through fraud, and post contract fraud or cheating. The latter falls outside the scope of Section 17 of the Contract Act. It observes that the fraud may permeate the entire contract and above all the agreement of arbitration, rendering it void. However, it may not be so when the allegations of fraud touch upon the internal affairs of the parties inter se, having no implication in the public domain.

41. There are also two aspects of the judgment in Vidya Drolia (supra), which need to be noticed. First, I agree to and accept the error made by me in the judgment which observes that Section 11(6A) of the Arbitration Act has ceased to be operative in view of the enforcement of Section 3 of the Arbitration and Conciliation (Amendment) Act, 2019. As rightly observed by Hon’ble the Chief Justice, Section 3 of the Arbitration and Conciliation (Amendment) Act, 2019which relates to the amendment to Section 11 has not been enforced. Secondly, as has been noted in the judgment of Hon’ble the Chief Justice and in Career Institute Educational Society v. Om Shree Thakurji Educational Society54, the issue before this Court in Vidya Drolia (supra)was not the validity of an unstamped or under-stamped arbitration agreement. No specific opinion was expressed on this question.

51 See ITC Ltd.v. George Joseph Fernandes and Another(1989) 2 SCC 1, which quotes from Smith v. Hughes LR (1871) 6 QB 597 and Sollev. Butcher (1950) 1 KB 671. The judgment in ITC Ltd.(supra) was under the Arbitration Act,1940 and should not be applied to interpret the Arbitration and Conciliation Act, 1996. 52 (2021) 2 SCC 1. 53 (2021) 4 SCC 713. 54 2023 SCC OnLine SC 586.

p. 1212 Copy page pinpoint

The reference to the validity of an unstamped arbitration agreement, as mentioned in Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd.55, was only to serve the purpose of drawing a comparison between the ‘existence’ and the ‘validity’ of an arbitration agreement, and not a comment or opinion on the ‘existence’ of unstamped or under-stamped arbitration agreements.

42. For the reasons set out in detail by Hon’ble the Chief Justice and recorded herein, I agree with the conclusions drawn, and referred to above. I also concur with the other findings and ratio in the judgment by Hon’ble the Chief Justice.

Headnotes prepared by: Matters to be placed before appropriate Bench. Bibhuti Bhushan Bose

55 (2019) 9 SCC 209.