Unstamped Arbitration Agreement Cannot Be Acted Upon Until Stamp Duty Paid: SC

N.N. Global Mercantile Private Limited Vs Indo Unique Flame Ltd. & Ors. (Supreme Court of India)

Summary: The Supreme Court Constitution Bench considered the legal effect of an unstamped or insufficiently stamped instrument containing an arbitration agreement and, in particular, whether the arbitration agreement could be treated as existing and acted upon before the underlying instrument was duly stamped. The reference arose from the three-Judge decision in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited, which had disagreed with the earlier approach in SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited and Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited. The central issue required the Court to reconcile the mandatory provisions of the Indian Stamp Act, 1899 with the policy of minimal judicial intervention embodied in the Arbitration and Conciliation Act, 1996.

The majority examined Sections 33 and 35 of the Stamp Act and the statutory scheme governing instruments chargeable to stamp duty. It held that when an instrument which is exigible to stamp duty is not duly stamped, the statutory bar against admitting or acting upon that instrument applies until the defect is cured in the manner contemplated by the Stamp Act. According to the majority, an arbitration clause contained in such an instrument cannot be separated for the purpose of allowing the Court to act upon it at the referral stage when the instrument itself is rendered inadmissible. The defect of non-stamping is curable, but the instrument cannot be acted upon until the requisite stamp duty and penalty, where applicable, are paid and the statutory endorsement is obtained.