M/S. N.N. GLOBAL MERCANTILE PVT. LTD. versus M/S. INDO UNIQUE FLAME LTD. & OTHERS

Citation: [2021] 4 S.C.R. 933 · Decided: 11-01-2021 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Matter referred to larger bench

Cited by 1 judgment(s) · cites 16 · see the full citation network in Lexace

Judgment (excerpt)

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[2021] 4 S.C.R. 933
933
M/s. N.N. GLOBAL MERCANTILE PVT. LTD.
v.
M/s. INDO UNIQUE FLAME LTD. & OTHERS
(Civil Appeal Nos. 3802-3803/2020)
JANUARY 11, 2021
[DR DHANANJAYA Y CHANDRACHUD,
INDU MALHOTRA AND INDIRA BANERJEE, JJ.]
Arbitration and Conciliation Act, 1996 – ss. 8, 11 and 37 –
Maharashtra Stamp Act, 1958 – ss. 30, 32A, 33, 34, 35, 36, 37, 41
and 58 – Commercial Courts Act, 2015 – s.13(1A) – Respondent
no.1 furnished bank guarantee for Rs.29.29 crores in favour of
KPCL, in pursuance of the work order awarded to it by KPCL for
work of washing of coal – Subsequently, respondent no.1 entered
into a sub-contract/work order dated 28.09.2015 (with arbitration
clause) with the appellant company for transportation of coal from
its washery – Appellant company also furnished bank guarantee of
Rs.3,36,00,000/- in favour of the banker of the respondent no.1 –
Dispute arose between KPCL and respondent no.1, which led to
invocation of the bank guarantee by KPCL – In turn, respondent
no.1 invoked the bank guarantee furnished by the appellant
company – Appellant filed a civil commercial suit against the
respondent no.1 for a declaration that respondent no.1 was not
entitled to encash the bank guarantee as the work order was not
acted upon – It was also alleged that invocation of bank guarantee
was fraudulent – The Commercial Court directed to maintain status-
quo – Respondent no.1 filed an application u/s.8 of the 1996 Act
seeking reference to arbitration – Application rejected by the
Commercial Court – It held that the arbitration clause in the work
order dated 28.09.2015 was not a general arbitration clause, which
would cover bank guarantee – Bank guarantee was an independent
contract – Writ petition by respondent no.1 – The High Court held
that application u/s. 8 of the 1996 Act was maintainable and disputes
could be resolved through arbitration – It also held that the filing
of suit before the Commercial Court was not justified – Issues arised
for consideration before the Supreme Court were: (i) Whether an
arbitration agreement would be enforceable and acted upon, even
if the work order dated 28.09.2015 is unstamped and un-
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
enforceable under the Stamp Act; (ii) Whether allegation of the
fraudulent invocation of bank guarantee is an arbitrable dispute;
(iii) Whether writ petition was maintainable to challenge an order
rejecting an application for reference to arbitration u/s.8 of the
1996 Act – Held: Non-payment or deficiency of Stamp duty on the
work order does not invalidate the main contract – The arbitration
agreement contained in the work order is independent and distinct
from the underlying commercial contract – s.3 of the Maharashtra
Stamp Act does not subject an arbitration agreement to payment of
Stamp Duty – 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 – 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 – The civil
aspect of fraud is considered arbitrable – The criminal aspect of
fraud, forgery, or fabrication, which would be visited with penal
consequences and criminal sanctions can be adjusted by a Court
of law, since it may result in conviction, which is in the realm of
public law – In the instant case, the allegation of fraud with respect
to the invocation of the bank guarantee are arbitrable, since it arises
out of the disputes between the parties inter se and is not in realm of
public law – The writ petition filed by the respondent no.1 was not
maintanable, since a statutory remedy under the amended s.37 of
the 1996 Act is available.
Arbitration – Arbitration agreement – Held: An arbitration
agreement is a distinct and separate agreement, which is independent
from the substantive commercial contract in which it is embedded –
This is based on the premise that when parties enter into a commercial
contract containing an arbitration clause, they are entering into
two separate agreements viz. (i) the substantive contract which
contains the rights and obligations of the parties arising from the
commercial transaction; and, (ii) the arbitration agreement which
contains the binding obligation of the parties to resolve

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