Unstamped Arbitration Agreement Invalid, Says Supreme Court

In a 3:2 verdict, the Supreme Court says commercial contracts subject to stamp duty not enforceable if unstamped.

<div class="paragraphs"><p>Supreme Court of India. (Source: Reuters)&nbsp; </p></div>
Supreme Court of India. (Source: Reuters) 

The Supreme Court delivered a key judgement on Tuesday in the realm of arbitration law, holding that an unstamped arbitration agreement would be considered non-existent in law.

The judgement was delivered by a 3:2 majority, with a concurring view from Justices KM Joseph, Aniruddha Bose, and CT Ravikumar. Justices Ajay Rastogi and Hrishikesh Roy took a dissenting view.

The majority view held that a commercial contract containing an arbitration clause would become unenforceable if it wasn't stamped.

The court can examine an arbitration agreement on the basis of the original agreement or the certified copy, which must clearly indicate if stamp duty has been paid. If no such indication is given, the court would not act on such a certified copy, the majority view said.

The minority view disagreed, saying a certified copy of an arbitration agreement, even if it wasn't stamped or was inadequately stamped, would be a valid document for appointing an arbitrator at the pre-reference stage.

Laying out the dissenting opinion, Justice Hrishikesh Roy said the objective behind the Arbitration and Conciliation Act, 1996, was to avoid procedural complexity and litigation between courts. He said enforcement of the arbitration agreement should not be stalled on an issue that is capable of being resolved at a later stage by the arbitrator.

Deferring the issue of stamping to the stage of arbitration would achieve the object of both the acts, namely the Arbitration and Conciliation Act and the Stamp Act, as Justice Roy highlighted. He appealed to the legislature to make the necessary amendments to the Stamp Act in its application to the Arbitration Act to get rid of the inconsistencies.

In his minority view, Justice Ajay Rastogi said an examination of the arbitration agreement should be done cautiously so that the legislative intent behind the provisions is not disturbed by opening the door wide open for judicial intervention.

The case reached the Supreme Court in 2020. A bench of Justices DY Chandrachud, Indu Malhotra, and Indira Banerjee held that just because a commercial contract is unstamped, it doesn’t mean that the arbitration clause in it will become invalid.

However, the case was referred to a larger bench as the court was of the view that the issue required to be authoritatively settled by a constitution bench.

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