The seven Judges bench of the Supreme Court overrules M/s N.N Global Mercantile Pvt. Ltd. Vs. M/s. Indi Unique Flame Ltd. And Ors (“N.N Global Judgement”)1 that arbitration clauses in unstamped or inadequately stamped agreements are enforceable. It is clarified that while the insufficiency of stamping does not make the agreement void or render it unenforceable, it does make the agreement inadmissible in evidence. The Apex Court also held that this defect is curable under the Indian Stamp Act, 1899 (“Indian Stamp Act”)2. Consequently, such unstamped or inadequately stamped agreements may be enforceable if defect of stamping is cured as per the procedure prescribed under the Indian Stamp Act.
The Supreme Court overruled the judgement rendered by a 5 Judges bench in N.N Global Judgement, which earlier, by a 3:2 majority, held inter alia that (a) an unstamped instrument containing an arbitration agreement is void under Section 2(g) of the Contract Act; (b) an unstamped instrument, not being a contract and not enforceable in law, cannot exist in law; and (c) arbitration agreement in such an agreement can be acted upon only after it is duly stamped.
The NN Global Decision had led to significant uncertainty in arbitration law and vis-à-vis the agreements executed on unstamped or under stamped documents prompting the need for reconsideration by larger bench.
This issue was significant enough to warrant consideration by a larger bench to ensure the clearer interpretation and application of the law, as it had broader ramification on the enforceability of contracts under the Contract Act. The conclusion reached by the present judgment of seven-judges bench of the Apex Court are summarised as below:
- 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;
- Non-stamping or inadequate stamping is a curable defect;
- 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;
- Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal.
While dealing with the issue, the bench has confirmed that the “admissibility” of an instrument in evidence is distinct from its “validity” or “enforceability” in law and that the effect of not paying stamp duty or paying an inadequate amount renders an instrument inadmissible and not void or invalid.
agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899. (Date of decision – 13.12.2023)
