Supreme Court of India reconsiders whether unmarked instrument containing arbitration agreement admissible in evidence – Arbitration and Dispute Resolution

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Background:

The issue was decided by a seven-judge bench of the Supreme Court of India (SCI) when a five-judge SCI bench referred the matter to a seven-judge SCI bench to reconsider the implications of the decision in NN Global 21 where a five-judge SCI court held that an unmarked or insufficiently stamped instrument containing an arbitration agreement was void and unenforceable. Such documents are not admissible as evidence and the arbitration agreement can only be effective if the document is properly stamped.

The SCI did not address substantive issues and limited itself to legal issues that needed to be determined.

The admissibility of an arbitration agreement in evidence was decided in the context of the interplay between S. 35 Indian Stamp Act, 1899 and S. 11. (6) (A) and section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) .

S. 35 of the Indian Stamp Act, 1899 states that dutiable instruments will not be accepted in evidence unless such instrument is duly stamped. § 11 paragraph 4, § 11 paragraph 5 and § 11 6 letter And the Arbitration Act deals with the authority of the court to appoint arbitrators and the scope of the investigation that the court is to conduct in the matter of the arbitration agreement. at the time of appointment of the arbitrator. Section 8 of the Arbitration Act deals with the power of the court to refer the parties to arbitration.

The question was whether the authority of the referring court according to § 8 and § 11 of the Arbitration Act is extended to review the document containing the arbitration agreement, is it sufficiently indicated. NN Global 2 (Supra) held that agreements which are not stamped or are insufficiently stamped are void and unenforceable. This would potentially lead to situations where the referring court could not refer the parties to arbitration if the document containing the arbitration clause was not properly marked.

Decision of SCI

  1. Agreements that are not stamped or that are insufficiently stamped are inadmissible according to Section 35 of the Stamp Act. Such agreements are not void ab initio or void and unenforceable.

  2. Non-stamping or insufficient stamping is a curable defect.

  3. Objection to stamping is not considered under Section 8 or 11 of the Arbitration Act. The court concerned must review whether an arbitration agreement prima facie exists;

  4. Any objections to the stamping of the contract shall fall within the jurisdiction of the arbitral tribunal;

  5. The decisions in NN Global 2 (supra) and SMS Tea Estates (supra) are reversed. Paragraphs 22 and 29 of Garware Wall Ropes (above) are hereby repealed.

Conclusion

The decision of the Supreme Court of India striking down NN Global 2 and SMS Tea Estates is the correct approach as insufficiency of striking an instrument is a curable defect and should not prevent a party from approaching the court for relief.

In the future, it is prudent for the parties to have the underlying instrument containing the arbitration clause properly stamped according to local law. This should preferably be done during the execution of the contract.

footnote

1. 2023 (7) SCC 1

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.

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