Interplay between arbitration agreements and stamp laws – Void or Inadmissible in Evidence? – Supreme Court clarifies

Brief Overview:

An arbitration agreement contained in an unstamped or insufficiently stamped instrument is enforceable and such an instrument is only inadmissible in evidence, not void.
Held by the Hon’ble Supreme Court of India (“Supreme Court”) in the matter of 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]

Technical Details: 

In a reference made to a 7-judge bench, the Supreme Court has answered the issue of whether an arbitration agreement contained in an instrument, which is unstamped or insufficiently stamped, would be non-existent, unenforceable, or invalid. While clarifying the position, the Supreme Court has overruled its earlier decision passed by a 5-judge bench in NN Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. [(2023) 7 SCC 1] which held that an unstamped instrument containing an arbitration agreement is void under Section 2(g) of the Indian Contract Act, 1872 and such an instrument would have to be impounded even at the stage of making a reference under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

While answering the reference, the Supreme Court held that:

1)  An agreement which is not stamped or is inadequately stamped is only inadmissible in evidence under Section 35 of the Indian Stamp Act, 1899 (“Stamp Act”) and is not rendered void or void ab initio or unenforceable.

2)  Non-stamping or inadequate stamping is a curable defect for which the procedure has been laid down under the Stamp Act.

3)  An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act by the referral court. Any objection in relation to stamping of the agreement falls within the ambit of the arbitral tribunal.

4)  At the stage of referring the parties to arbitration, the referral court should not impound an unstamped or insufficiently stamped instrument. The concerned court only has to examine whether an arbitration agreement exists in terms of Section 7 of the Arbitration Act.

JC takeaway: 

In a pro-arbitration decision, the Supreme Court has upheld the enforceability of arbitration agreements contained in unstamped or insufficiently stamped instruments. This decision will reduce judicial intervention during the arbitration process. The issue of stamping can be decided upon by the arbitral tribunal, which in essence is a curable defect. This decision further comes at a time when the Ministry of Law and Justice has constituted an expert committee for examining the working of arbitration laws in India, which has been assigned the task of recommending reforms to the Arbitration Act.

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