The Ministry of Law and Justice in June constituted an expert committee for examining the working of arbitration law in India, and recommending reforms to the Arbitration and Conciliation Act.
Overturning a previous ruling, the Supreme Court on Wednesday unanimously ruled that arbitration clauses contained in unstamped or insufficiently stamped agreements doesn’t make the agreements invalid, and thus, legally enforceable.
The seven-judge Constitution Bench ruled that deciding whether the arbitration agreement has been stamped/partially stamped or not, is the domain of arbitral tribunal and not courts; and said that considering agreements non-enforceable only on account of unstamping at the beginning of proceedings goes against the “rationale of the law”. Stamping refers to the payment made as stamp duty on the value of the agreement.
The court held that unstamped agreements are inadmissible under Stamp Act, but not rendered “void ab initio” (void from the beginning). It also said that the aspect of stamping does not fall for determination under Sections 8 or Section 11 of the Arbitration Act.
In April, a five judge bench of the apex court in the case of ‘NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd & Ors’ had held that unstamped or improperly stamped agreements were not valid in law. In September, the court then referred the judgement to a seven-judge bench for reconsideration.
“With all due respect, the Supreme Court’s decision in NN Global would have defeated the objective of the Arbitration and Conciliation Act to minimise court interference in the arbitral process. By leaving the issue of stamping to the arbitral tribunal, the Bench has upheld and given primacy to parties’ decision to opt for arbitration, and prevented this decision from being watered down due to what is in essence a curable defect,” said Divyam Agarwal, Partner – Dispute Resolution at JSA Advocates & Solicitors
Ateev Mathur, Partner, SNG & Partners, Advocates & Solicitors, said: “Today’s verdict gives complete clarity. It would result in a smooth arbitration process without judicial intervention on issues of stamping at the stage of Section 8 or Section 11. Arbitrations would now not be stalled on the issue of non-stamping of the underlying contract.”
The Ministry of Law and Justice in June constituted an expert committee for examining the working of arbitration law in India, and recommending reforms to the Arbitration and Conciliation Act.
