Arbitration Clauses In Unstamped Agreements Enforceable : Supreme Court 7-Judge Bench Overrules 'NN Global' Decision

Conclusions :

CJI DY Chandrachud read out the conclusions of the judgment as follows :

a. Agreements which are not stamped or inadequately stamped are not void ab initio or unenforceable, they are inadmissible in evidence.

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 if an arbitration agreement prima facie exists.

d. Any objection in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal.

e. The decision in NN Global 2 and SMS Tea Estates are overruled.

CJI Chandrachud in his judgment pointed out that one of the objectives of the Arbitration and Conciliation Act is to minimise the supervisory role of courts in arbitration contracts. Obligating the Court to decide the issue of stamping under S 8 and 11 will defeat the purpose of the legislation.

Justice Sanjiv Khanna wrote a concurring opinion stating that unstamped agreements are not rendered void or void ab initio.

In 2020, the Supreme Court, 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.

The petitioners argued that existence of an arbitration agreement and validity of the arbitration agreement were two different concepts. Further, under Section 11 of the Arbitration and Conciliation Act, 1996, the power of the court was confined to the examination of the existence of the agreement and not to the validity of the same. Thus, the court only had to determine if an agreement existed. The same, as per the petitioners, could be done by dissecting the nature of correspondence between the parties, including telecommunication, statements, zoom calls etc. However, the validity of the agreement was for the arbitrator to decide upon. Petitioners added that the ambit of Section 16, which deals with the competence of an arbitral tribunal to rule on its jurisdiction, was wide enough to allow the Arbitrator to make considerations with respect to the stamping of the document. They also relied upon the 'doctrine of separability' to argue that even if an agreement was null and void, the arbitration agreement within it would still survive as it was 'separate'.

Per contra, the respondents questioned the Supreme Court five judge bench's decision of referring the matter to a seven judge bench in its curative jurisdiction. It was asserted that the court's curative jurisdiction could only be exercised with regards to injustice done in an individual cause.