Jan, 04 2024

The Supreme Court of India, in a significant ruling by a 7-Judge bench on 13th Dec’23, addressed the issue of the validity of unstamped arbitration agreements. This judgment resolves a long-standing ambiguity regarding whether such agreements are enforceable.

Key Points of the Judgment:

1. Enforceability of Unstamped Agreements: The Supreme Court held that unstamped or inadequately stamped agreements, while inadmissible under the Evidence Act, are not rendered void ab initio. This means that arbitration clauses in such agreements remain enforceable??.
2. Context: This judgment overrules the previous 5-Judge Bench decision in the case of N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., given on 25th April, 2023 where it was held that unstamped arbitration agreements are not valid in law. 
3. Inadmissible vs. Void: The court differentiated between the admissibility of an instrument in evidence and its validity or enforceability. An unstamped or inadequately stamped instrument is inadmissible in evidence but not void. This non-stamping is considered a curable defect??.
4. Stamp Act and Arbitration Act: The judgment emphasized that the Stamp Act, a fiscal legislation, should not override the objectives of the Arbitration Act, which aims to minimize court intervention in arbitration and provide a speedy dispute resolution mechanism??.
5. Separability of Arbitration Agreement: The court reaffirmed the principle of separability, which allows an arbitration agreement to be treated as independent of the underlying contract. This ensures that the arbitration agreement remains valid and enforceable even if the main contract is void or terminated??.
6. Jurisdictional Issues and Stamping: The court clarified that issues related to the stamping of agreements fall within the jurisdiction of the arbitral tribunal, not the courts. This upholds the principle of minimal court interference in arbitration matters??.
7. Burden of Proof: The party relying on an arbitration agreement has the burden of proving its existence, typically established through prima facie evidence. The referral court's role is not to conduct a mini-trial on the agreement's validity but to determine if an arbitration agreement prima facie exists??.

This landmark judgment harmonizes the operation of the Arbitration and Conciliation Act with the Stamp Act and the Contract Act, ensuring that the arbitration process is not hindered by technicalities related to stamp duty. It upholds the sanctity of arbitration agreements and reinforces the pro-arbitration stance of Indian jurisprudence.