The Supreme Court clarifies the position as to un-stamped agreements, and in the process, provides important clarity on a number of other issues.
The ink was barely dry on the Hon’ble Supreme Court’s majority decision in the case of NN Global (2)[1], before the court referred the matter to a seven-judge bench for re-examination. On 13 December 2023, the seven-judge bench in the case titled: In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act 1899[2] (‘In Re: Interplay…) authoritatively overruled NN Global (2). The position of law on un-stamped arbitration agreements, as it stands after In Re: Interplay…, may be summarized as under:
a) Non-stamping / deficient stamping of an arbitration agreement, or an instrument , does not invalidate it. The Indian Stamp Act, 1899 (“ISA”) contains procedures to rectify this defect by the process of impounding, and thereafter, the payment of proper stamp duty (along with penalties, if any). Thereafter, the agreement, maybe admitted into evidence and acted upon. These are curable defects and consequently, cannot invalidate an agreement.
b) Until such time that the defect related to stamping is not cured, the agreement remains inadmissible in evidence. However, it would not render the same void – ab initio, or otherwise.
c) Section 11(6A) of the Arbitration and Conciliation Act, 1996 (“ACA”) provides that a court, when faced with a petition for appointment of an arbitrator, must confine itself solely to a prima facie examination as to the existence of an arbitration agreement. Such an examination would, therefore, preclude an examination as to proper stamping Pertinently, in the oft-cited case of Vidya Drolia , this section was considered to have been omitted by virtue of the 2019 amendments to the ACA – which the Hon’ble Court has now clarified as an error.
d) The Hon’ble Court also clarified that the ambit of Section 8 of the ACA is slightly different from Section 11(6A), inasmuch as, under Section 8, a judicial authority is required to carry out a prima facie examination as to the existence of a valid arbitration agreement (the omission, in Section 11(6A), of the word ‘valid’, driving the difference). However, in-line with its finding that non-stamping does not affect the validity of an agreement, it would follow that even under Section 8, an authority cannot delve into issues related to stamping.
e) Ultimately, issues relating to the proper stamping can be gone into by the arbitrator alone and courts would be excluded, by virtue of Sections 8 or 11, to examine the same. While holding that the arbitrator is a legitimate authority to impound an agreement under Section 33 of the ISA, the following factors also drove the Hon’ble Court’s rationale for the same:
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- to harmoniously resolve the conflict between the ACA and ISA by ensuring that the ISA’s mechanism for improper stamp duty is followed, while upholding the primacy of the ACA as enshrined within its Section 5;
- to strengthen the principle of kompetenz-kompetenz, i.e. the competence of an arbitral tribunal to decide on its jurisdiction under Section 16 of the ACA;
- to safeguard the principle of minimal judicial interference; and
- to ensure that initiation of arbitrations are not delayed on this account.
This decision comes as a welcome relief to parties and practitioners, to the extent that it does not treat un-stamped arbitration agreements as stillborn and allows for arbitrations to be initiated and arbitral tribunals to be formed. The removal of yet another ‘entry barrier’ to arbitration, especially within Sections 8 and 11, is a shot in the arm for principles of minimal judicial intervention.
However, there appear to be certain un-settled points arising from this judgment. An arbitrator is a quasi-judicial authority, appointed by consent of parties under an agreement to adjudicate disputes. The fact that it is now expected to enforce a statutory command, viz. to impound an agreement, may lead to fresh questions for future determination. For instance, what would the ramifications for the arbitration (or the award) be, if the arbitrator does not impound an improperly stamped/unstamped instrument? What would happen if the arbitrator insists on parties paying stamp duty which is greater in quantum to what both parties have calculated? It is also interesting to note that the Hon’ble Court expressly admitted that issues relating to proper stamping, impounding and calculating stamp duty are time-consuming affairs; thus, by shifting this burden on to arbitrators, it has increased the potential for delays. In that sense, while the In Re: Interplay decision would be seen as a pro-arbitration precedent, it also reinforces the necessity of proper and timely stamping of agreements executed/enforced in India.
Another significant ramification of In Re: Interplay… arises with respect to the Hon’ble Court’s walking back on its error in Vidya Drolia and clarifying that Section 11(6A) continues to operate. Consequently, the Hon’ble Court also appears to have acknowledged that a court’s power when dealing with petitions for appointment under Section 11(6A), is trammeled to only examining the existence of an arbitration agreement. This appears to be a return to an approach taken by it in its judgments[5] prior to Vidya Drolia, wherein the ambit of courts’ powers were narrower. Until sub-section 6A is finally omitted, it would be interesting to see these positions co-exist – if at all.
Authors: Mr. Anshuman Pande (Partner) and Ms. Sanya Gangar (Associate)
Footnotes
[1] N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2023) 7 SCC 1 (“NN Global (2)”), a 5-judge bench decision.
[2] In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act 1899 (“In Re: Interplay…”); judgment dated 13 December 2023 in Curative Pet(C) No. 44/2023 In R.P.(C) No. 704/2021 In C.A. No. 1599/2020.
[3] The terms ‘agreement’ and ‘instrument’ are being used interchangeably herein for convenience. The ISA uses the term ‘instrument’ as a broader term which includes agreements.
[4] Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 (“Vidya Drolia”).
[5] For instance, in Duro Felguera, S A v. Gangavaram Port Ltd. (2017) 9 SCC 729, and Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714.