In a groundbreaking verdict on December 13, a seven-judge bench of the Supreme Court overturned the NN Global decision, asserting that arbitration clauses in unstamped or inadequately stamped agreements are indeed enforceable. The ruling emphasized that insufficient stamping does not render the agreement void or unenforceable but deems it inadmissible in evidence, a curable defect under the Indian Stamp Act.
The pivotal judgment, delivered in the case “In Re Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899,” involved Chief Justice of India DY Chandrachud, Justice Sanjay Kishan Kaul, Justice Sanjiv Khanna, Justice B R Gavai, Justice Surya Kant, Justice JB Pardiwala, and Justice Manoj Misra.
Key Conclusions:
Chief Justice DY Chandrachud outlined the core conclusions of the judgment:
a. Agreements lacking proper stamping are not void ab initio or unenforceable; they are merely inadmissible in evidence.
b. Non-stamping or inadequate stamping is a curable defect.
c. The determination of stamping objections does not fall under Sections 8 or 11 of the Arbitration Act. The court’s role is to ascertain the prima facie existence of an arbitration agreement.
d. Objections related to stamping fall within the purview of the arbitral tribunal.
e. The decisions in NN Global 2 and SMS Tea Estates are overruled.
Justice Sanjiv Khanna concurred with the opinion, asserting that unstamped agreements do not render them void or void ab initio.
Background:
This significant case emerged from a curative petition challenging the 2020 ruling in “Bhaskar Raju and Brothers and Anr V. s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities and Ors.” The five-judge bench, while hearing the curative plea, referred the matter to a seven-judge bench in September to reassess the NN Global correctness.
In the 2020 judgment, the Supreme Court had observed that an arbitration clause in an agreement requiring proper stamping, if not sufficiently stamped, cannot be acted upon by the court. The apex court, led by then CJI SA Bobde, had noted the non-registration and insufficient stamping, relying on the “SMS Tea Estates Private Limited vs. Chandmari Tea Company Private Limited” case.
Earlier this year, a Constitution Bench had, by a 3:2 majority, held that arbitration agreements in unstamped contracts are unenforceable.
Arguments Before The Court:
The petitioners contended that the existence and validity of an arbitration agreement were distinct concepts, emphasizing that the court’s power under Section 11 was limited to examining the agreement’s existence, not its validity. They argued that Section 16 allowed the arbitrator to consider stamping issues, invoking the ‘doctrine of separability’ to assert the survival of the arbitration agreement even if the overarching agreement was null and void.
Contrastingly, the respondents questioned the referral of the matter to a seven-judge bench, asserting that curative jurisdiction should address individual causes of injustice.
In a landmark decision, the Supreme Court has validated unstamped arbitration clauses, overturning the NN Global ruling and reshaping the legal landscape.
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