Arbitration clause in unstamped, insufficiently stamped agreements is enforceable: SC

PTI, NEW DELHI, DEC 13, 2023 : A seven-judge Constitution bench of the Supreme Court Wednesday held the arbitration clause in an unstamped or insufficiently stamped agreement between parties is enforceable and such a defect is curable and does not render the contract invalid.

The verdict, having significant and far reaching consequences in corporate and other agreements containing arbitration clauses to resolve disputes between contracting parties, overrules a five-judge bench judgment rendered in April this year. The court, in the case titled as M/s N N Global Mercantile Pvt Ltd vs M/s Indo Unique Flame Ltd. And Ors, had by majority of 3:2 held that unstamped or insufficient agreements, having arbitration clauses, are not enforceable. Overruling the verdict, the bench headed by Chief Justice D Y Chandrachud delivered a unanimous verdict and held that non-stamping or insufficient stamping of an agreement has nothing to do with the validity of the document as it is a curable defect. Writing the judgment for himself and five judges -- justices Sanjay KishanKaul, B R Gavai, Surya Kant, J B Pardiwala and Manoj Misra, the CJI said "insufficiency of stamping" does not make an agreement void (invalid) or unenforceable but makes it inadmissible in evidence.

"Agreements which are not stamped or inadequately stamped are not void ab initio (invalid from beginning) or unenforceable, they are inadmissible in evidence.... Non- stamping or inadequate stamping is a curable defect," the CJI said. "Any objection in relation to the stamping of the agreement falls within the ambit of the arbitral tribunal," he said while overruling the earlier judgment. Justice Sanjiv Khanna wrote a separate and concurring judgment. The apex court, on October 12, had reserved its verdict on reconsideration of an earlier order of its five-judge bench which had held that unstamped arbitration agreements are not enforceable in law. The bench had heard submissions of various senior lawyers, including Darius Khambata and Shyam Divan, before reserving its judgment.

Earlier on September 26, the apex court had referred to a seven-judge bench the issue of reconsidering the correctness of a verdict delivered by a five-judge bench which had said that unstamped arbitration agreements are not enforceable in law. The order was passed by a five-judge bench headed by the CJI while considering a curative petition in which the matter regarding the need for reconsideration of the five-judge bench judgement delivered on April 25 was raised. "Having regard to the larger ramifications and consequences of the view of the majority in NN Global (April verdict)... we are of the considered view that the proceedings should be placed before a seven-judge bench to reconsider the correctness of the view of the five-judge bench," the bench had said while referring the matter to larger one.

In its verdict in April, the five-judge bench, by a majority of 3:2, had said: "An instrument, which is exigible to stamp duty, may contain an arbitration clause and which is not stamped, cannot be said to be a contract, which is enforceable in law within the meaning of section 2(h) of the Contract Act and is not enforceable under section 2(g) of the Contract Act." "An unstamped instrument, when it is required to be stamped, being not a contract and not enforceable in law, cannot, therefore, exist in law," it had said. On July 18, the apex court had issued notice on the curative petition and said it be listed for hearing in the open court.