In a recent landmark decision on December 13, the Supreme Court dispelled legal uncertainties surrounding unstamped or inadequately stamped agreements. The ruling, presided over by a distinguished bench led by Chief Justice DY Chandrachud, emphasized a critical distinction between the admissibility of such agreements in evidence and their validity or enforceability in the eyes of the law.
Contrary to a previous 5-judge bench judgment in M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors, the Supreme Court held that arbitration clauses in unstamped agreements are indeed enforceable. The earlier ruling, which deemed such agreements unenforceable, was overruled in a bold move by the current bench.
The heart of the decision lies in the court’s assertion that the insufficiency of stamping does not render an agreement void or unenforceable. Instead, it renders the document inadmissible in evidence. The court clarified that the admissibility of a document is distinct from its enforceability, stating, “An agreement can be void without its nature as a void agreement having an impact on whether it may be introduced in evidence.”
Addressing the core of the matter, the judgment delved into Section 35 of the Stamp Act, elucidating the legal implications of stamp duty on instruments. Notably, the section expressly states that “No instrument chargeable with duty shall be admitted in evidence,” underlining the pivotal concept of admissibility in legal proceedings. The court further emphasized that non-payment or inadequate payment of stamp duty does not render the instrument invalid but deems it inadmissible.
Crucially, the ruling characterized non-payment of stamp duty as a curable defect. It highlighted Section 2(j) of the Stamp Act, clarifying that this provision is not applicable when an instrument is rendered inadmissible under Section 35. The judgment asserted that the Stamp Act provides a structured procedure for rectifying this defect, reinforcing the notion that the non-payment of stamp duty is a curable, rather than fatal, flaw.
In essence, the Supreme Court’s decision brings clarity to the interplay between arbitration agreements, the Arbitration and Conciliation Act 1996, and the Indian Stamp Act 1899. It establishes a nuanced understanding that non-stamping is a curable defect, ensuring that unstamped agreements remain enforceable, albeit inadmissible in evidence.
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