Is Arbitration Clause In Unstamped Contract Valid? Supreme Court Constitution Bench Appoints Senior Advocate Gourab Banerji As Amicus

A Bench comprising Justices K.M. Joseph, Ajay Rastogi, Aniruddha Bose, Hrishikesh Roy and C.T. Ravikumar thought it fit to appoint an Amicus since there was no contesting respondent in the matter of on date.

The Counsel appearing for the petitioner apprised the Bench that that respondent's bank has already en-cashed the concerned Bank Guarantee and maybe that is the reason for their absence.

Justice Joseph reckoned, "If there is nobody opposing we might have to consider appointing an Amicus."

The Counsel also informed the Bench that the judgment which contains the reference order goes beyond the scope of the arguments made on both sides.

"The whole judgment is on things we never argued."

Justice Rastogi stated, "Now when the matter is before us, we have to decide the issue."

The petitioner and the respondent in the matter has entered into a sub-contract which contained an arbitration clause. Certain disputes arose and the respondent invoked the Bank Guarantee furnished by the petitioner. A suit was filed regarding the said invocation. The respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 in the suit and sought for reference of disputes to arbitration. However, the Commercial Court rejected the application. A revision petition was filed by the respondent before the Bombay High Court. Considering objections on maintainability the Court granted liberty to the respondent to withdraw the review and file a writ petition. Subsequently, in the writ petition filed by the respondent, the High Court held that the Section 8 application was maintainable. One of the issues before the High Court was that the arbitration agreement was unenforceable since the sub-contract was unregistered and unstamped. It noted that the said issue can be raised in application under Section 11 or before the Arbitral Tribunal. In appeal, the Apex Court noted that the view taken in SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co Pvt. Ltd. and Garware Wall Ropes Limited v. Coastal MarineConstructions and Engineering Limited that non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-existent in law, and unenforceable, is not the correct position in law. Considering that Garware was affirmed by Vidya Drolia And Ors. v. Durga Trading Corporation, which is a coordinate Bench, the 3-Judge Bench of the Apex Court thought it fit to refer the matter to a Constitution Bench. The issue framed is as under -

"Whether the statutory bar contained in Section 35 of the Indian Stamp Act, 1899 applicable to instruments chargeable to Stamp Duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, un- enforceable, or invalid, pending payment of stamp duty on the substantive contract / instrument ? "

The matter has been posted for hearing on the 6th of December, 2022.

Case Status: M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors. CA No. 3802-03/2020