Arbitration Clause In Unstamped Agreement Enforceable? Supreme Court Refers 'NN Global' To Seven-Judge Bench

The Supreme Court on Tuesday(September 26) referred to a seven-judge bench the issue whether that unstamped/insufficiently stamped arbitration agreements are unenforceable. A 5-judge bench led by Chief Justice of India DY Chandrachud made the reference while hearing a curative petition against its 2020 ruling that had held that an arbitration clause in an insufficiently stamped agreement cannot be acted upon by court.

The other judges of the bench were Justice Sanjay Kishan Kaul, Justice Sanjiv Khanna, Justice B R Gavai and Justice Surya Kant.

While hearing the curative petition, the validity of the judgment delivered by a 5-judge bench in April this year in the case of M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors arose for consideration. In NN Global, a Bench comprising Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy and Justice C.T. Ravikumar had answered the reference on the issue by a 3:2 majority. The majority had decided that an instrument which is not stamped cannot be said to be a contract enforceable in law within the meaning of S. 2(h) of the Contract Act.

In today's proceedings, the bench remarked that it was "too important an issue" and had "caused limitless uncertainty" in the area of Arbitration law and had to be considered by a larger bench. This was because older agreements were now being opened owing to being unstamped. The bench held–

"Having regard to the larger ramifications and the view of the majority in NN Global, we are of the considered view that the proceedings should be placed before a seven judge bench. The proceedings shall be listed for hearing on 11 October 2023."

Mr Debesh Panda and Ms Pritha Srikumar were appointed as the nodal counsels in this case. All compilations were directed to be filed on or before October 6, 2023. The 7-judge bench will hear the matter on October 11.

Senior Advocate Arvind Datar, appearing for the petitioner challenging the 2020 ruling, argued that the courts were not to get into the validity of arbitration agreements at all. Per contra, Senior Advocate Shyam Divan, respondent in the matter stated that his case pertained to a 1997 agreement and nothing survived in the matter. He stated that the respondents had filed an application for recall for notice issued in curative petition and that they were challenging the maintainability. Divan therefore urged the bench to not reopen the factual issues in the matter and not to consider the legal issue in the present reference.

The CJI assured Divan that the bench will hear his arguments on the maintainability of the matter but the same shall be done at a later stage before the seven judge bench. The CJI said–

"We have to adjudicate on the correctness of the judgment in NN Global. It is too important an issue. We will not allow this hearing to be deflected..."

The CJI further assured that the issue will not be kept pending for long as a seven-judge bench had already been constituted to hear another matter. Thus, the same bench could also hear this matter. 

Yesterday, the Supreme Court constituted a seven-judge bench to hear the reference of the judgement in PV Narasimha Rao v State (1998) which had held that legislators enjoyed immunity from prosecution in cases of bribery in relation to parliamentary vote and speech as per Article 105(2) and Article 194(2) of the Indian Constitution. The bench comprises CJI DY Chandrachud, Justices AS Bopanna, MM Sundresh, PS Narasimha, JB Pardiwala, Sanjay Kumar and Manoj Misra. 

Background

The Supreme Court in its judgment dated 14th February 2020 in the case Bhaskar Raju and Brothers and Anr V. s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities and Ors had observed that an arbitration clause in an agreement which is required to be duly stamped, if not sufficiently stamped, cannot be acted upon by the Court.

In the said case, one of the parties to the agreement filed a petition under Section 11(6) of the Arbitration Act before the High Court of Karnataka. The other party, entered appearance and contended that the lease deed being insufficiently stamped had to be mandatorily impounded under Section 33 of the Karnataka Stamp Act, 1957 and it could not be relied upon unless proper duty and penalty was paid. However, the High Court invoked the power under Section 11(6) of the Act, and appointed an Arbitrator to decide the dispute between the parties.