unstamped arbitration agreements

On 14-02-2020, a 3 Judge Bench comprising of former Chief Justice SA Bobde, Justice BR Gavai and Justice Surya Kant in Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram v. Bhaskar Raju & Bros., (2020) 4 SCC 612, while setting aside the judgment and order of the Karnataka High Court in Bhaskar Raju & Brothers v. Dhamaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities, 2014 SCC OnLine Kar 8629 has held that the lease deed containing the arbitration clause which was required to be duly stamped , was not sufficiently stamped and though the registrar had directed the respondents to pay the stamp duty and penalty , the respondents failed to do so. Thus, the High Court erred in relying on the lease deed. Thus, an arbitration clause in an insufficiently stamped agreement cannot be acted upon by the court.

In April 2023 , in the case of N.N. Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd., 2023 SCC OnLine SC 495, an appeal against a three judge bench judgment in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379, primarily challenging the non-admissibility of an unstamped arbitration agreement and judicial Court’s intervention in matters of arbitration, the 5-Judge Bench comprising of K.M. Joseph, Ajay Rastogi, Aniruddha Bose, Hrishikesh Roy and C.T. Ravikumar, JJ. by a 3:2 majority, held that unstamped arbitration agreements are not valid in law. While KM Joseph, Aniruddha Bose and C.T Ravikumar, JJ. formed the majority, Ajay Rastogi and Hrishikesh Roy, JJ. dissented and opined that unstamped arbitration agreements are valid at the pre-referral stage.

The Court in NN Global case (5Judge Bench), said that the view taken in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66, as followed in Garware Wall Ropes Ltd. v. Coastal Marine Constructions and Engineering Limited, (2019) 9 SCC 209 and by the Bench in Dharmaratnakara Rai Bahadur (supra) as to the effect of an unstamped contract containing an arbitration agreement and the steps to be taken by the Court, represent the correct position in law. Further, N.N. Global (supra) (3 Judge Bench) was wrongly decided, when it held that arbitration agreement being a separate and distinct agreement from the underlying commercial contract would survive independent of the substantive contract and the arbitration agreement would not be rendered invalid , and overruled SMS Tea Estates (supra) and Garware (supra).

Also Read:

[Majority View] Unstamped Arbitration Agreements are not valid in law: Supreme Court

We Dissent! Here’s why 2 out of 5 Judges of Supreme Court ruled unstamped arbitration agreements are valid at pre-referral stage

Having regard to larger ramifications of NN Global case, the Supreme Court viewed that proceedings should be placed before a seven-judge bench to reconsider the correctness of the view by a five-judge bench.

Thus, while hearing a curative petition, the 5 Judge Bench comprising of Dr. DY Chandrachud, C.J. Sanjay Kishan Kaul, Sanjiv Khanna, B R Gavai and Surya Kant, JJ. constituted a 7 Judge bench comprising of Dr. DY Chandrachud, C.J., SK Kaul, Sanjiv Khanna, BR Gavai, Surya Kant, JB Pardiwala, and Manoj Misra, JJ. to hear the judgment relating to unstamped arbitration agreements. The Bench will commence its hearing from 11-10-2023.

Also Read:

Necessity of Stamping of Arbitration Agreements: Is the Conundrum Solved?

N.N. Global Dictum: Has the Stamping Issue’s Resolution Opened a Pandora Box?

[Bhaskar Raju & Brothers v. Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram Other Charities, 2023 SCC OnLine SC 1303, Order dated 26-09-2023]

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