A seven judge bench of the
Background
The
In
The Constitution Bench in
(a) An unstamped instrument containing an arbitration agreement is void under Section 2(g) of the Contract Act;
(b) An unstamped instrument, not being a contract and not enforceable in law, cannot exist in law. The arbitration agreement in such an instrument can be acted upon only after it is duly stamped;
(c) The "existence" of an arbitration agreement contemplated under Section 11(6A) of the Arbitration Act is not merely a facial existence or existence in fact, but also "existence in law";
(d) The Court acting under Section 11 of the Arbitration Act cannot disregard the mandate of Sections 33 and 35 of the Stamp Act requiring it to examine and impound an unstamped or insufficiently stamped instrument; and
(e) The certified copy of an arbitration agreement must clearly indicate the stamp duty paid.
In the present reference before the seven judge bench of the
Observations of the
The
(a) The observations in N N Global 2 conflates the distinction between enforceability and admissibility. It was discussed that the essence of the difference between voidness and admissibility is that when an agreement is void, we are speaking of its enforceability in a court of law. When it is inadmissible, we are referring to whether the court may consider or rely upon it while adjudicating the case. Section 35 of the Stamp Act renders a document inadmissible and not void.
(b) The decision of the majority in N N Global 2 (supra) assumes that the inadmissibility of the document in evidence renders it unenforceable. However, the effect of the principle of competence-competence is that the arbitral tribunal is vested with the power and authority to determine its enforceability. The question of enforceability survives, pending the curing of the defect which renders the instrument inadmissible. By appointing a tribunal or its members, courts are merely giving effect to the principle enshrined in Section 16 of the Arbitration Act. The appointment of an arbitral tribunal does not necessarily mean that the agreement in which the arbitration clause is contained as well as the arbitration agreement itself are enforceable and the arbitral tribunal will answer these questions.
(c) In N N Global 2, it was held that the failure to stamp an arbitration agreement is not a "curable defect." Relying on the provisions of the Contract Act as well as Section 11(6-A) of the Arbitration Act, it was further held that an unstamped arbitration agreement is void, which observation is not correct. This is because Section 2(j) of the Contract Act provides that "a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable" and Section 2(j) is not attracted when an instrument is rendered inadmissible under Section 35 of the Stamp Act.
(d) The concept of separability or severability of an arbitration agreement from the underlying contract is a legal fiction which acknowledges the separate nature of an arbitration agreement. The
Holding of the
The decision in N N Global 2 (supra) and
The
(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; and
(d) Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal.
This landmark judgment has provided much needed clarity on the fate of unstamped arbitration agreements and resolved the prevailing inconsistencies in the judgments rendered by various courts. The
Footnotes
1 In Re Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899 Curative Pet(C) No. 44/2023 In R.P.(C) No. 704/2021 In C.A. No. 1599/2020.
2 (2011) 14 SCC 66.
3 (2019) 9 SCC 209.
4 (2021) 2 SCC 1.
5 (2021) 4 SCC 379.
6 (2023) 7 SCC 1.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Ms Ashima Obhan
N - 94, Second Floor
110017
Tel: 114 020 0200
Fax: 114 020 0299
E-mail: Essenese@obhans.com
URL: www.obhanandassociates.com
© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source