In a significant ruling, a seven-judge bench of the Supreme Court concluded that arbitration clauses within unstamped or inadequately stamped agreements are enforceable. The bench clarified that while insufficiency of stamping renders agreements inadmissible in evidence, it does not render them void or unenforceable, highlighting that the defect is curable under the Indian Stamp Act.

This judgment overturned the earlier decision of a five-judge bench rendered in April this year in the case of M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors. The previous ruling had, by a majority of 3:2, held that unstamped arbitration agreements lack enforceability.

The bench, headed by Chief Justice of India DY Chandrachud and comprising Justices Sanjay Kishan Kaul, Sanjiv Khanna, B R Gavai, Surya Kant, JB Pardiwala, and Manoj Misra, delivered the judgment in the case titled “In Re Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899.”

Key Conclusions from the Judgment:

Chief Justice DY Chandrachud outlined the key conclusions of the judgment as follows:

1. Unstamped or inadequately stamped agreements are not void ab initio or unenforceable but are inadmissible in evidence.

2. Insufficient stamping is a curable defect under the Indian Stamp Act.

3. Objections related to stamping do not fall within the purview of Sections 8 or 11 of the Arbitration Act. The court’s role is to determine the prima facie existence of an arbitration agreement.

4. Issues pertaining to the stamping of an agreement come under the jurisdiction of the arbitral tribunal.

5. The earlier decisions in NN Global and SMS Tea Estates cases stand overruled.

CJI Chandrachud highlighted that one of the primary objectives of the Arbitration and Conciliation Act is to minimize the judicial intervention in arbitration contracts. Mandating the court to decide stamping issues under Sections 8 and 11 would contradict this legislative intent.

Justice Sanjiv Khanna, in his concurring opinion, affirmed that unstamped agreements are not rendered void ab initio, reinforcing the bench’s collective stance.

Background of the Case:

The seven-judge bench’s decision emerged from a curative petition filed against the 2020 ruling in Bhaskar Raju and Brothers and Anr V. s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities and Ors. Initially, a five-judge bench referred the matter to a larger seven-judge bench in September this year to reassess the correctness of the NN Global case.

Previously, in the case of Bhaskar Raju and Brothers, the Supreme Court observed that an arbitration clause in an inadequately stamped agreement cannot be enforced. However, in the recent ruling, the apex court overturned this stance.

The arguments before the court involved the petitioners stressing that the existence and validity of an arbitration agreement are distinct concepts. They emphasized that the court’s role under Section 11 of the Arbitration and Conciliation Act was to examine the agreement’s existence, leaving the validity to be decided by the arbitrator. Conversely, the respondents questioned the court’s jurisdiction in exercising the curative power to review the matter.

The decision has significant importance for the arbitration landscape, clarifying the enforceability of unstamped arbitration agreements and the division of responsibilities between the courts and arbitral tribunals concerning stamping issues.

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