By way of a recent decision pronounced on
The court's jurisdiction to adjudicate issues at the pre-appointment stage has been the subject matter of numerous cases before the SCI as well as various High Courts in
The divergent stands taken by different benches of the SCI are summarized hereinunder:
Judgment | Date of judgment | Holding | |
2 judges | An unstamped arbitration clause in an agreement that is compulsorily registrable or chargeable to stamp duty cannot be the basis for the appointment of an arbitrator. | ||
2 judges |
Upholds | ||
Vidya Drolia v. Durga | 3 judges |
Upholds | |
3 judges | Arbitration agreement would not be rendered invalid,
Issue referred to a larger bench. |
What followed was a period of uncertainty concerning the fate of arbitration clauses contained in unstamped or insufficiently stamped agreements during the pendency of the reference of this issue before a Constitution Bench of five judges of the SCI. Being cognizant of time-sensitivity when dealing with arbitration issues and the fact that several matters were languishing at a pre-appointment stage, the SCI observed in
The present article seeks to trace the jurisprudence on the issue of the enforceability of arbitration clauses contained in unstamped or insufficiently stamped agreements from
The question of existence of an arbitration agreement contained in an unstamped or insufficiently stamped document was dealt with in
It must be noted that the judgment in
Section 11(6A) of the A&C Act - The
Section 11(13) of the A&C Act - An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the
Subsequent to the 2015 Amendment, a full judge bench of the
- Whether the Court can grant relief under Section 9 of the A&C Act for an unstamped or insufficient stamped document containing the arbitration agreement?
- Considering the insertion of Section 11(6A) to the A&C Act, could the courts now appoint an arbitrator regardless of the insufficient stamp duty or an unpaid stamp duty?
The
It is also relevant to note that the above ratio in Gautam Landscapes was considered by the SCI in
N.N. Global decision
The N.N Global judgment overruled
The SCI in the case of N.N Global placed heavy reliance on the UNCITRAL Model Law and the doctrine of severability. The Court noticed that Section 3 of Maharashtra Stamp Act, 1958 did not mandate that arbitration agreements have to be stamped. The Court discarded the findings in
The Court went further and held that non-payment or deficiency of stamp duty is a curable defect. However, the court was cognizant of the fact that the findings of
The position after N.N Global
Before the Intercontinental Judgment, the interpretation given by N.N. Global to unstamped or insufficiently stamped agreements came up for consideration before the Hon'ble
The Hon'ble
Intercontinental Judgment
WHPL resisted the petition under Section 11 of the A&C Act on the ground that the HMA, which contains the arbitration agreement, was an unstamped document. Relying on Garware, WHPL contended that an agreement which is not duly stamped cannot be relied on or acted upon unless the unstamped document is impounded, and the applicable stamp duty and penalty is assessed and paid.
IHG submitted that since they have paid the requisite stamp duty, the SCI should appoint a sole arbitrator. This was objected to by WHPL on the ground that IHG had failed to pay proper stamp duty as per law.
The SCI observed that Courts had very limited jurisdiction under Section 11(6) of the A&C Act, which is limited to examining issues relating to existence of the arbitration agreement. Therefore, the Court should not entertain questions of arbitrability / validity inasmuch as these are matters to be adjudicated upon by arbitrators.
Recognising the 'time-sensitivity when dealing with arbitration issues', the SCI in the context of a petition under Section 11 of the A&C Act held as follows:
"23...All these matters are still at a pre-appointment stage, and we cannot leave them hanging until the larger Bench settles the issue. In view of the same, this Court - until the larger Bench decides on the interplay between Sections 11(6) and 16 - should ensure that arbitrations are carried on, unless the issue before the Court patently indicates existence of deadwood."
On the issue of enforceability of an arbitration clause contained in an unstamped or insufficiently stamped agreement, the SCI held that it is not permissible for a court hearing a petition under Section 11 of the A&C Act to determine the sufficiency of stamp duty payable on any agreement and the same is a question which is to be decided at a later stage.
However, the court carved out an exception to this, and while relying on N.N. Global, held that if it is a question of complete non stamping of an agreement, then a court 'might' have an occasion to examine such an issue under a petition under Section 11 of the A&C Act seeking appointment of arbitrator(s).
Analysis
The primary objective of the Indian Stamp Act, 1899 (or corresponding State enactments) is to generate revenue for the government and subsequently, such documents become admissible as evidence. However, any insufficiency in relation to payment of stamp is not to be looked into while the court is exercising their jurisdiction under Section 11 of the A&C Act and the limited scope of the provision only allows them to prima facie examine the existence of an arbitration agreement.
The SCI, by way of the Intercontinental Judgment has highlighted that whether stamp duty is inadequately paid or otherwise, is a question which can be entertained at a later stage. The Court also noted that in a case where the documents are unstamped to begin with, the court would have looked into the concerns raised in N.N Global. However, curiously, this observation does not relate back to the SCI's judgment in N.N Global. Reflecting on the observations of the SCI in N.N Global, it is noticed that the SCI was of the opinion that an inadequately stamped or non-stamped agreement (making no distinction between the two) will not render the arbitration agreement non-existent. The SCI provided the following justification for its aforesaid finding: (i) stamping or absence thereof is a curable defect; and (ii) doctrine of severability enshrined under Section 16 of the A&C Act provides that the arbitration agreement is separate from the substantive contract.
In view of the above, it would appear that the Intercontinental Judgment has added another layer of ambiguity by contemplating a distinction based on N.N. Global between agreements which are completely unstamped and agreements which are insufficiently stamped. It is pertinent to note that no such distinction was carved out in the case of N.N. Global and the SCI's reliance thereon appears to be misplaced.
It is quite apparent from the Intercontinental Judgment that the SCI is trying to enforce the doctrine of severability of arbitration agreement from the substantive contract enshrined under Section 16 of the A&C Act and reinforce the principle of minimal judicial interference provided under Section 5 of the A&C Act. Further, SCI's efforts to ensure that technical prerequisites do not defeat the arbitration agreement entered into by the parties are commendable. However, as mentioned above, the distinction made by the SCI in the Intercontinental Judgment on the basis of N.N. Global is likely to cause further confusion and this judgment may be misinterpreted by unscrupulous litigants to renege on their obligations arising out of an arbitration clause contained in an unstamped or insufficiently stamped agreement. In the absence of any rational basis for such a distinction, the present issue will be finally laid to rest only once the 5 judge bench of the SCI renders a final and conclusive decision on the enforceability of an arbitration clause contained in unstamped or insufficiently stamped agreement.
Footnotes
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