Supreme Court Rules Unstamped Arbitration Agreements as Inadmissible but not Void

The Supreme Court’s seven-judge Constitution Bench ruled that unstamped arbitration agreements are inadmissible but are not rendered void ab initio [In Re: interplay between Indian Stamp Act and Indian Arbitration Act].


The court held that non-payment of stamp duty renders the instrument inadmissible, but it is a curable defect. Overruling a previous decision [NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd & Ors.], the court stated that the arbitration agreement’s stamping is for the arbitral tribunal to decide, relying on the doctrine of competence-competence.


The Supreme Court said “Parties to arbitration agreement conferred jurisdiction on arbitral tribunal, When parties pen their signatures to arbitration agreement they are regarded to independently sign the arbitration agreement. In process the separability provision gives rise to doctrine of competence. The negative aspect of doctrine of competence is that it limits courts interference at referral stage and arbitral tribunal given a chance to rule on their own jurisdiction.”


The judgment emphasized that the court’s role is to determine the existence of an arbitration agreement, while stamp duty issues fall under the tribunal’s purview. The unanimous ruling by the Chief Justice of India (CJI) and six justices clarified that unstamped agreements are not void but merely inadmissible, providing crucial guidance on the interplay between the Indian Stamp Act and the Indian Arbitration Act. The case originated from a Karnataka High Court order in 2014 concerning a lease agreement with an arbitration clause, highlighting the importance of stamp duty in such agreements.


CJI D.Y. Chandrachud concisely outlined the key conclusions of the lead judgment in the following manner:

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;


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


The Supreme Court said that “The corollary of doctrine of competence is that court may only see if an arbitration agreement exists. Whether stamp duty is paid or not would need detail merit of evidence etc. Interpretation accorded to Stamp Act does not allow law to be flouted and it ensures that Arbitration Act does not detract from Stamp Act.”

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