Stamping the Unstamped
Published: Aug 13, 2024
By Shoba Ramamoorthy
THE purpose of arbitration law, as tersely stated in Redfern and Hunter1 is that "it is to be expeditious where the law is slow, cheap where the law is costly, simple where the law is technical, a peacemaker instead of a stirrer-up of strife"
The law relating to arbitration was consolidated in India in the year 1996, by repealing three enactments- the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 and enacting the Arbitration and Conciliation Act, 1996. (A&C Act, for short) The clear and categorical objective of this enactment was to minimise the supervisory role of the Courts while providing for a just, fair, effective, swift and cost-efficient settlement of disputes.
Just as the 1940 Act, the 1996 Act substantially failed in providing the optimum thrust to achieve its objects. The issue of the scope of interference by a Court, under this Act, has time and again demanded the attention of the Apex Court and by its judgments, the Supreme Court reiterated the need for restraint by Courts in entertaining disputes, which the litigating parties had agreed to resolve by arbitration.
A recent judicial pronouncement of the Supreme Court has settled one such controversy that emerged in SMS Tea Estates Case2 decided in 2011. A two-judge Bench ruled that an arbitration agreement forming part of an unstamped instrument, which required to be stamped in law, could not be acted upon. This law was affirmed by a three-judge Bench in Vidya Drolia's case3 in 2021.
In the case of N.N. Global4 (2021), another three-judge Bench of the Supreme Court doubted the correctness of earlier decisions and referred the issue to a Constitution Bench, which upheld (3:2) the view taken in SMS Tea. The Constitution Bench judgment in N.N. Global was premised on the legal principle that an unstamped instrument is void in law. And therefore, an arbitration agreement contained in such an instrument is unenforceable in law.
In 2023, a Curative Petition was filed in the Supreme Court, seeking reconsideration of a decision rendered in Bhaskar Raju's5 case applying the law laid down in SMS Tea. This Curative Petition was referred to a seven judge Bench, having regard to the ramifications and consequences of the decision on the subject issue.
And…."The Interplay Between Arbitration Agreements Under A&C Act, 1996 & Stamp Act, 1899, IN RE"6 was taken up for consideration by a seven judge Bench of the Supreme Court, presided by the Chief Justice of India.
Having adverted to the history of the controversy, we now move on to the controversy itself.
Section 7 of the A&C Act mandates that an arbitration agreement shall be in writing, in the form of a clause in an agreement or in the form of a separate agreement; in a document signed by both the parties or in exchange of correspondence between the parties. The separate nature of an arbitration agreement is acknowledged in the Act, having regard to the primary intention of the contracting parties to settle their disputes by arbitration, regardless of the validity of the underlying contract.
It is a well-recognized principle of public international law that a legal authority possessing adjudicatory powers has the right to decide on its own jurisdiction. This principle, also referred to as the Doctrine of Competence-Competence, is incorporated in the A&C Act in section 16, which empowers the Arbitral Tribunal to decide on its own jurisdiction. Put in another perspective, the Competence-Competence Doctrine forbids the Courts from entertaining any objection to the existence and validity of the arbitration agreement, before the arbitrators have themselves exercised the right to decide.
In 2014, the Law Commission of India7 strongly recommended the introduction of an appropriate provision in the A&C Act to confine judicial intervention at the pre-arbitral stage to a mere examination, i.e, a prima facie determination, of the existence of an arbitration agreement and this was acted upon by the Legislature, by inserting Section 11 (6-A), vide Amendment Act of 2015.
With this clarity in the purport and principles of arbitration, the Supreme Court proceeded to analyse the Stamp Act. The Stamp Act, essentially is a fiscal legislation whose object is to augment revenue for the State. The Act mandates that any instrument chargeable with duty shall not be admitted in evidence, by any lawful authority, if it is not duly stamped (Section 35).
What then is the legal status of an insufficiently stamped or unstamped instrument? Is it wholly and forever invalid in law or could such a defect be cured so as to validate the instrument? The Apex Court explained the subtle yet definite distinction between inadmissibility and voidness of a document/instrument. Void documents could be admitted to evidence, if they are not eclipsed by any other requirement, such as stamping. But the Courts shall never enforce agreements, once they are found to be void. However, an otherwise valid contract or instrument cannot be admitted in evidence, if a statutory bar as in Section 35 of the Stamp Act operates. The Supreme Court declared that once the duty and the penalty (if any) is paid, then the statutory bar dissipates ; the document/ instrument becomes admissible in evidence and could be relied upon by Courts.
The Supreme Court, while harmoniously construing the provisions of the A&C Act, Stamp Act and the Contract Act, in the backdrop of arbitral autonomy and minimum judicial interference, declared that A&C Act will have primacy in matters relating to arbitration agreements and the interpretation of laws must give effect to the objects and purposes of both the A&C Act and the Stamp Act.
Consequently, the controversy was resolved by upholding the validity of an arbitration agreement contained in an unstamped or insufficiently stamped contract since the defect is a curable one and any objection thereto falls within the jurisdiction of the Arbitral Tribunal.
However, is there no scope for another controversy? What about an arbitration clause in an unregistered and unstamped document, where the law mandates registration and stamping? Is non-registration of a compulsorily registrable document a curable defect? Could the parties avail the benefit of "Collateral Purpose" concept recognised in Section 47 of the Indian Registration Act?
In my humble opinion, all arbitration agreements which satisfy the requirements as provided in section 7 of A&C Act are valid, regardless of the nature of the document in which they are incorporated. The only exception could be the category of cases where there is no consensus-ad-idem whatsoever, as in cases of fraud or forgery, misrepresentation or coercion.
References : -
1 Redfern and Hunter on International Arbitration (7th Edition Oxford University Press, 2023).
2 SMS Tea Estates (P) Ltd., V. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66.
3 Vidya Drolia Vs. Durga Trading Corpn., (2021) 2 SCC 1.
4 N.N. Global Mercantile (P) Ltd. V. Indi Unique Flame Ltd., (2021) 4 SCC 379 = 2021-TIOLCORP-07-SC-MISC-LB.
5 Curative Petition (Civil) No. 44 of 2023 in Review Petition (Civil) No. 704 of 2021 in Civil Appeal No. 1599 of 2020.
6 (2024) 6 Supreme Court Cases 1
7 Law Commission of India, 246th Report (2014)
