Non Stamping Of An Agreement A Curable Defect, Only Makes A Document Inadmissible & Not Void: Supreme Court

On December 13, the Supreme Court ruled that arbitration clauses in unstamped or inadequately stamped agreements were enforceable. In doing so, the Court overruled the judgment rendered by a 5-judge bench in April this year in M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors which had by a 3:2 majority held that unstamped arbitration agreements are not enforceable.

The bench comprising Chief Justice of India DY Chandrachud, Justice Sanjay Kishan Kaul, Justice Sanjiv Khanna, Justice B R Gavai, Justice Surya Kant, Justice JB Pardiwala, and Justice Manoj Misra held that insufficiency of stamping does not make the agreement void or unenforceable but makes it inadmissible in evidence. 

The judgment distinguished between the admissibility of a document in evidence and its validity or enforceability in law. The court clarified that an agreement can be void and unenforceable while still being admissible in evidence. It stated–

"The admissibility of a particular document or oral testimony, on the other hand, refers to whether or not it can be introduced into evidence. An agreement can be void without its nature as a void agreement having an impact on whether it may be introduced in evidence."

Doing so, the judgement stated that Section 2(g) of the Contract Act provides that an agreement not enforceable by law is said to be void. Thus, similarly, an agreement can be valid but inadmissible in evidence. It clarified that when an agreement is void, it was speaking of its enforceability in a court of law. However, when it was inadmissible, the court was referring to whether the court may consider or rely upon it while adjudicating the case. This was the essence of the difference between voidness and admissibility.

In the judgement, the bench highlighted the nature of Section 35 of the Stamp Act, bringing clarity to the legal implications of stamp duty on instruments. The section explicitly states, "No instrument chargeable with duty shall be admitted in evidence," emphasizing the crucial concept of admissibility in legal proceedings. The term "admitted in evidence" is central to understanding the impact of stamp duty on instruments, indicating whether or not the instrument can be presented and considered in a court of law. Sub-section (2) of Section 42 further reinforces this principle by specifying that an instrument, for which stamp duty is duly paid and endorsed accordingly, will be deemed "admissible in evidence."

The court stated that non-payment or inadequate payment of stamp duty does not render the instrument invalid. Instead, it deems the instrument inadmissible. This distinction was significant, as the ruling emphasized that the Stamp Act does not declare instruments without proper stamping as void. The non-payment of stamp duty was characterized as a curable defect, as per the judgement which stated that the Stamp Act itself provided a structured procedure for rectifying this defect.

"Section 2(j) is not attracted when an instrument is rendered inadmissible under Section 35 of the Stamp Act. The effect of the latter is not to render an unstamped agreement unenforceable. If it was unenforceable, it would imply that it was void," added the judgement. 

Case Title: 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

Citation : 2023 LiveLaw (SC) 1049