In the case of Re Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and The Indian Stamp Act 1899, the Indian Supreme Court has upheld the validity of unstamped or inadequately stamped agreements.
In April 2023, the Supreme Court had previously ruled by a 3:2 majority in the matter of M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors. that unstamped or insufficiently stamped arbitration agreements are unenforceable. As a consequence of the N.N. Global case’s far-reaching ramifications, the Supreme Court referred the decision to a seven-judge bench to review.
The N.N. Global judgment
On 13 December 2023, the seven-judge bench led by Chief Justice DY Chandrachud unanimously set aside the decision delivered in the N.N. Global case.
In doing so, the court concluded that:
- Agreements that are not stamped or are inadequately stamped are inadmissible in evidence under s35 of the Indian Stamp Act 1899 (“Stamp Act”) and that such agreements are not rendered void or void ab initio (ie legally null from the start) or unenforceable.
- Non-stamping or inadequate stamping is a curable defect.
- Any objection relating to stamping shall not fall for determination under sections 8 (Power to refer parties to arbitration) or 11 (Appointment of arbitrators) of the Indian Arbitration and Conciliation Act, 1996 (“Indian Arbitration Act”).
- Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal.
The court held that the issue of stamping is a jurisdictional issue and that any objection in relation to stamping falls within the ambit of an arbitral tribunal. It follows that while granting interim measures under section 9 (Interim measures, etc., by Court) of the Indian Arbitration Act, the court shall not delve into the issue of stamping. In reaching this conclusion, the court relied on the principle of competence-competence, which enables the tribunal to rule on its own jurisdiction. The corollary of the competence-competence principle is that the court may only examine arbitration agreements on a prima facie standard of review.
While applying harmonious construction of the Indian Arbitration Act, the Indian Contract Act 1872 and the Stamp Act, the court emphasised that the Stamp Act should not be used to arm litigants with weapons of technicality to delay the adjudication of a matter. Having said that, the court’s intention is not to disregard or detract from the Stamp Act while giving effect to the Arbitration Act. In cases concerning stamping, the arbitral tribunal is bound by the provisions of the Stamp Act, including those relating to admissibility and impounding.
Commentary
Earlier this year, the Government of India formed an expert committee to recommend reforms to improve India’s arbitration ecosystem. This is a proactive effort to promote India as a modern seat for international arbitration. The review calls on the committee to analyse ways to establish India as a leading competitor in arbitration services. Some of the terms of reference of the review are to evaluate weaknesses, strengths and challenges to the current arbitration regime, compare the Indian arbitration regime with foreign jurisdictions, modify the arbitration framework to expedite enforcement of awards and explore the feasibility of enacting separate laws to facilitate domestic and international arbitration.
Sherina Petit, Head of Stewarts’ International Arbitration Practice and India Practice, says: “This landmark decision clarifies India’s position regarding the validity and enforcement of arbitration agreements when dealing with unstamped/inadequately stamped documents. The Supreme Court has advocated a pragmatic and balanced approach while interpreting laws in favour of modern commercial realities/business interests. The decision highlights the Indian position that arbitration should be a one-stop forum for dispute resolution, with minimal judicial intervention.”
We will continue to monitor and assess upcoming case laws and further developments on the reforms to the Indian Arbitration Act for our clients.
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