Citation: 2023 SCC OnLine SC 495
Court: Supreme Court of India
Bench: Constitution Bench (5 Judges)
Date of Judgment: April 25, 2023
Background:
Parties:
Appellant: NN Global Mercantile Pvt. Ltd.
Respondent: Indo Unique Flame Ltd. & Ors.
Indo Unique Flame Ltd. had awarded a work contract to NN Global Mercantile Pvt. Ltd. The contract contained an arbitration clause, which was part of an unregistered and unstamped agreement. The issue arose whether such an agreement, being unenforceable under the Indian Stamp Act, could nonetheless be relied upon for referring parties to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996.
Key Legal Issues
- Whether an arbitration clause in an unstamped or insufficiently stamped agreement is valid and enforceable?
- Can courts refer parties to arbitration under Section 11 of the Arbitration Act without first examining whether the underlying contract is properly stamped?
- Whether such an agreement is void or voidable for the purposes of arbitration?
Arguments
Appellant (NN Global): Argued that the arbitration clause is severable and independent from the rest of the contract, and arbitration should not be denied merely because of non-stamping.
Respondent (Indo Unique Flame): Argued that the contract is unenforceable under the Indian Stamp Act, and hence, the arbitration clause embedded in such an instrument cannot be enforced unless duly stamped.
Judgment Summary
- Held that an unstamped or inadequately stamped agreement is inadmissible in evidence under the Indian Stamp Act, and courts must impound such documents before acting upon them. Consequently, if an arbitration agreement is contained in such an instrument, it cannot be enforced until it is duly stamped. The process of referring parties to arbitration cannot proceed until stamping issues are resolved. The court clarified that the “doctrine of separability” of arbitration clauses does not override mandatory statutory requirements like stamping.
- Argued that arbitration clauses should be considered independently, and the issue of stamping can be left to the arbitrator. Emphasised the importance of minimal judicial interference under the pro-arbitration regime of the Arbitration Act.
Final Judgment
The Supreme Court ruled in favour of Indo Unique Flame Ltd., holding that an arbitration clause in an unstamped contract is not enforceable until the contract is duly stamped. The matter must be referred to the competent authority for stamp duty payment, and only after compliance can arbitration proceedings commence.
Significance
This judgment overruled previous conflicting judgments, including the 2021 NN Global 3-judge bench decision. It has far-reaching implications for arbitration in India, making stamping a pre-condition for the enforceability of arbitration clauses. The decision has stirred debate within legal and business communities regarding its potential to delay arbitration proceedings.