Arbitration Clauses in Unstamped Agreements are Enforceable: Supreme Court [Read Order]

Top Stories Arbitration Clauses in Unstamped Agreements are Enforceable: Supreme Court [Read Order] By Kalyani B. Nair – On December 13, 2023 1:31 pm – 2 mins read A Seven Judge Bench of the Supreme Court of India observed that the arbitration clauses in unstamped agreements are enforceable. The bench comprising Chief Justice of India DY Chandrachud, Justice Sanjay Kishan Kaul, Justice Sanjiv Khanna, Justice B R Gavai, Justice Surya Kant, Justice JB Pardiwala, and Justice Manoj Misra passed the judgement in the caseIn Re Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and the Indian StampAct 1899.

A Five Judge bench consisting of CJI DY Chandrachud, Justice SK Kaul, Justice Sanjiv Khanna, Justice BR Gavai and Justice Surya Kant has made the reference while hearing a curative petition challenging a judgment from 2020 wherein it was held that an arbitration clause in an insufficiently stamped agreement cannot be acted upon by the Court and the Court was of the view that the issue was too important and had caused a lot of uncertainty which had to be considered by a larger bench.

The petitioners argued that existence of an arbitration agreement and validity of the arbitration agreement were twodifferent concepts. Further, under Section 11 of the Arbitration and Conciliation Act, 1996, the power of the court wasconfined to the examination of the existence of the agreement and not to the validity of the same. CJI DY Chandrachud observed that “a. Agreements which are not stamped or inadequately stamped are not void ab initio or unenforceable, they are in admissible in evidence. Non-stamping or inadequate stamping is a curable defect. An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. Theconcerned court must examine if arbitration agreement prima facie exists. Any objection in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal.”

The decision passed by the Supreme Court on 2021by the three-judge bench comprising of Justice D.Y. Chandrachud, Justice Indu Malhotra and Justice Indira Banerjee in NN Global Mercantile Limited vs. Indo Unique Flame Limited and Ors. (“NN Global”) held severability and separability of an arbitration agreement from the underlying substantive agreement in which it may be embedded, thereby stating that non-stamping or insufficient stamping of the substantive agreement does not render the underlying arbitration agreement as void and unenforceable.

On making reference to the Constitution Bench of 5 judges comprising of Justice K.M. Joseph, Justice Annirudha Bose, Justice Ajay Rastogi, Justice Hrishikesh Roy and Justice C.T. Ravikumar, the said decision of the three-judge bench in NN Global was declared as not in accordance with the law. On 25th April, 2023, the SC, by a 3:2 majority held that an agreement containing an arbitration clause which is chargeable to stamp duty and is unstamped or insufficiently stamped, cannot be enforced as per sections 2(g) and 2(h) of the Indian Contract Act, 1872 thereby rendering such contracts non-existent in law and incapable of being acted upon

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