On Wednesday,
A seven-judge Constitution Bench of the Supreme Court delivered a unanimous ruling stating that unstamped arbitration agreements, while considered inadmissible, are not inherently void from the beginning. This ruling reverses the previous decision by a five-judge Bench in NN Global Mercantile v Indo Unique Flame (2023) and SMS Tea Estates v Chandmari Tea Co. Pvt Ltd., (2011). In NN Global, a majority of three out of five judges concluded that an arbitration agreement lacking proper stamping was invalid and could not be enforced.
The Chief Justice of India (CJI) DY Chandrachud, along with Justices Sanjay Kishan Kaul, Sanjiv Khanna, BR Gavai, Surya Kant, JB Pardiwala, and Manoj Misra, collectively issued this unanimous ruling.
The Court clarified that non-payment of stamp duty renders an instrument inadmissible, but it does not make it void. The Court emphasized that the non-payment of stamp duty is a curable defect. Importantly, the ruling shifted the responsibility of determining the validity of the arbitration agreement, specifically in terms of stamping, from the courts to the arbitral tribunal.
The Court based this decision on the doctrine of competence-competence, which asserts the tribunal’s authority to rule on its jurisdiction. It highlighted that when parties sign an arbitration agreement, they confer jurisdiction on the arbitral tribunal. The separability provision in the process gives rise to the doctrine of competence, limiting court interference at the referral stage and providing the arbitral tribunal the opportunity to rule on its jurisdiction independently.
The Chief Justice of India (CJI) DY Chandrachud, along with Justices Sanjay Kishan Kaul, Sanjiv Khanna, BR Gavai, Surya Kant, JB Pardiwala, and Manoj Misra, collectively issued this unanimous ruling.
The seven-judge Constitution Bench of the Supreme Court issued its verdict in a case specifically addressing the validity of arbitration agreements contained in unstamped documents. The bench, after having reserved its judgment on October 12, ultimately delivered its decision on this matter.
The conclusions reached in this judgment are summarised below:
a. Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. Such agreements are not rendered void or void ab initio or unenforceable;
b. Non-stamping or inadequate stamping is a curable defect;
c. An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists;
d. Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal; and
e. The decision in NN Global 2 (supra) and SMS Tea Estates (supra) are overruled. Paragraphs 22 and 29 of Garware Wall Ropes (supra) are overruled to that extent.
With these observations, the Bench concluded that the decisions in NN Global and SMS Tea Estates are overruled.
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