In a significant judgement delivered on 25 April, 2023, the Hon’ble Supreme Court of India (SC) in M/s. N.N. global Mercantile Private Limited v. M/s. Indo Unique Flame Ltd. & Ors held that an arbitration agreement that has not been properly stamped or does not have sufficient stamping cannot be enforced in view of Section 35 of the Stamp Act.
What was the Court’s stance on insufficiently stamped arbitration agreements ?
- The issue of the enforceability of insufficiently stamped arbitration agreements was resolved by a 5-judge panel, including Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy, and Justice C.T. Ravikumar, with a majority decision of 3:2.
- The Supreme Court has taken a firm stance on the matter, ruling that such agreements cannot be acted upon unless they are duly stamped as required under Section 35 of the Stamp Act.
- The Court has even gone further to declare that an arbitration agreement included in an unstamped or insufficiently stamped instrument is legally non-existent unless it is properly validated.
Impact of the decision?
Although compliance with stamp duty requirements is imperative for ensuring the validity of arbitration agreements, it is crucial to assess the potential impact of such prerequisites on the efficiency of the arbitration process. The Court’s decision to take a hyper-technical approach may impede the expeditious appointment of arbitrators by the courts. Only time will tell, whether this decision will affect India’s pro-arbitration approach or whether the existing legislative framework will call for amendments in order to align with the current arbitration regime?
