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Unstamped Arbitration Agreement Not Rendered Void: SC

In a judgment dated December 13, 2023, a seven-Judge Bench of the Supreme Court held that non-stamping of arbitration agreements was a curable defect and did not render them void or unenforceable.[1]

The question of law that the Court was called upon to deliberate on was whether arbitration agreements were unenforceable if the underlying contract was not stamped. In September 2023, the matter was referred to the seven-Judge Bench to reconsider the decision of the five-Judge Bench in M/s. NN Global Mercantile Private Limited vs. M/s. Indo Unique Flame Ltd. & Ors.[2] wherein it was held that an arbitration clause in an unstamped agreement was not enforceable.

Overturning the decision taken in NN Global, the seven-Judge Bench of Chief Justice Dr. Dhananjaya Y Chandrachud, Justice Sanjay Kishan Kaul, Justice B R Gavai, Justice Surya Kant, Justice J B Pardiwala and Justice Manoj Misra, invoked the concepts of separability, kompetenze-Kompetenze, and arbitral autonomy.

The Court highlighted that the intention behind the imposition of stamp duty under provisions of the Stamp Act, 1899, was to generate revenue for the government. Further, the Court clarified that though non-payment of stamp duty rendered the agreement inadmissible under Section 35 of the Act, the same did not invalidate the agreement. Pointing out the difference between admissibility and validity of agreement, the Court specified that the 1899 Act provided the manner in which such defect could be cured by payment of the duty and penalty.

It was held that the concerned Court should decide on the prima facie existence of the arbitration agreement. Any disputes regarding payment of stamp duty had to be decided by the arbitral tribunal and did not fall within the scope of Sections 8 and 11 of the Arbitration and Conciliation Act, 1996.

[1] In Re: Interplay between the arbitration agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 [Curative Petition (C) No.44 of 2023] and another case

[2] CA No.3802-03/2020