CASE DETAILS
| Bench D.Y. Chandrachud C.J. S.K. Kaul J. Sanjiv Khanna J. B.R. Gavai J. Surya Kant J. J. B. Pardiwala J. Manoj Mishra J. | Case no. (2024) 6 SCC 1 | Acts/law Arbitration & Conciliation Act Indian Stamp Act Indian Contract Act |
INTRODUCTION:
This court was called upon to resolve the issue concerning VALIDITY OF UNSTAMPED ARBITRATION AGREEMENT due to the conflict among three statutes- The Arbitration and Conciliation Act, 1996 (A & C Act), the Stamp Act,1899 (Stamp Act), and Indian Contract Act, 1872 (IC Act). In terms of the Stamp Act, an instrument which is not stamped or insufficiently stamped is not admissible as evidence.
The matter was finally clinched by 7 judges bench INTERPLAY BETWEEN ARBITRATION AGREEMENTS UNDER ARBITRATION AND CONCILIATION ACT, 1996 AND STAMP ACT, 1899 IN RE
Arbitration agreement is often in a form of underlying instrument or a contract. The issue before the court is whether an arbitration agreement is unenforceable, non-existent or invalid in a case where underlying contract is not stamped or insufficiently stamped. To clinch this issue, it is necessary to emphasize on the objective of statutes.
In para 65 to 67 of present case court elaborated the objective of Stamp Act and A & C Act as under:
65. The Stamp Act is a fiscal legislation which is intended to raise revenue for the Government and the statue should be interpreted with due regard to its purpose 67. …The aim of arbitration is to provide speedy, efficient, and binding resolution of disputes that have arisen between the parties in regard to their substantive obligations….
SMS Tea Estate (P) Ltd. vs. Chandmari Tea Co. (P) Ltd. (2011) 14 SCC 66 and Garware wall Ropes Ltd. vs. Costal Marine Construction & Engg. Ltd.: (2019) 9 SCC 209: In both the cases court opined that when underlying contract is unstamped an arbitration agreement could not be acted upon. Court further observed that an agreement is not enforceable under law unless it is duly stamped.
N.N. Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd. (2021) 4 SCC 379: (hereinafter mentioned as N. N. Global Case 1):
A bench of 3 judges held that an arbitration agreement is separate from the underlying commercial contract therefor, the former will not be rendered unenforceable and invalid in a case where said arbitration agreement is unstamped. Moreover, the underlying contract will not turn invalid if unstamped, as the same is a curable defect.
Vidya Drolia vs. Durga Trading Corp. (2021) 2 SCC 1: In the said case court proceeded to construed the term “existence” used in section 11 of A & C Act. It was held that “existence of arbitration agreement” means an agreement that satisfies the requisites of A & C Act and IC Act, then only it will be enforceable under the law. Court relied on Garware wall Ropes Ltd.(supra) the term “existence” and “validity” are intertwined, and arbitration agreement does not exist if it is illegal or does not satisfy legal requirements.
N.N. Global (case 1): Court doubted the correctness of Vidya Drolia and Garware wall Ropes Ltd. and referred the case to five judges to deal with an issue mentioned under:
“Whether the statutory bar contained in Section 35 of the Stamp Act, 1899 applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?”
N.N. Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd. (2023) 7 SCC 1: (Case 2): wherein 3:2 of judges’ bench passed the judgment and held that:
- Unstamped instrument containing arbitration agreement is void under section 2(g) of IC Act;
- Unstamped contract is not enforceable under law, as cannot exist in law;
- Court acting under section 11 of A & C Act cannot disregard section 33 and 35 of Stamp Act.
Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram vs. Bhaskar Raju & Bros. (2020) 4 SCC 612: This case was decided before N.N. Global Case 1 and apex court reversed the decision of High court which referred the parties to arbitration, under section 11 (6) of A & C Act, based on the insufficiently stamped agreement. Further a review petition was filed the same was dismissed thereafter a curative petition was filed. In the meantime, supreme court 5 judges decided N.N. Global Case 2. This 5 judges’ bench in Bhaskar Raju (supra) differed and consequences of view of the majority in N.N. Global Case 2, further this court referred the matter to 7 judges.
MAINTAINABILITY:
A three judges bench judgment was also referred along with the aforesaid curative petition Bhaskar Raju case to seven judges’ bench in present case. Thus, there is question on the maintainability of present petition as only bench of same strength can question on correctness of decision rendered by coordinate bench. In case of contradiction of opinion between the bench of same strength the issue is referred to larger bench. There is an exception to this rule in Union of India vs. Hansoli Devi (2002) 7 SCC 273.
It was contended that reference was made against order VI rule 2 of Supreme court Rules, 2013. In the present case this bench relied on Kantaru Rajeevaru vs. Indian Young Lawyers Assn. (2020) 9 SCC 121: wherein a 9 judges bench held that the term “other proceedings” in Order VI rule 2 of SC rules 2013, gives the widest freedom to do justice with the parties. This rule gives power to refer the matter to larger bench.
However, there is exception to aforesaid rule which was expounded by the apex court in Central Board of Dawoodi Bohara Community vs. State of Maharashtra (2005) 2 SCC 673: Supreme court ascertained two exceptions in case of reference to larger bench:
- Chief justice has power of framing roster he can direct any matter to be listed before bench of any strength;
- Larger bench which is of the view that decision of lesser quorum needs reconsideration, larger bench may reexamine the same, dispensing with the need of specific reference or order of chief justice.
Supreme Court in present case held that court will only deal with the legal issue concerning interpretation and applicability of arbitration law. The maintainability of curative petition is left open.
STAMP ACT 1899:
Section 35 of Stamp Act is significant concerning the issue before this bench Section 35 of Stamp read as under:
Section 35: Instruments not duly stamped inadmissible in evidence:
No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped: ……
The above said provision will render an instrument inadmissible if the same is not stamped. However, there is difference between inadmissible and void instrument,
Difference between voidness and inadmissibility
The term admissibility in law is different from the term enforceability or validity in law. Section 2(g) of Contract Act: A contract not enforceable by the law is said to be void. The term admissible means those documents which the court or judge is bound to receive when introduced as evidence. An agreement may be void but admissible and an agreement may be valid but inadmissible as evidence.
The essence of difference between admissibility and voidness is that Void agreement will only impact enforceability and not admissibility of such agreement, as it will be decided by the court whether to admit such evidence for the adjudication of case or not.
VOIDNESS OF UNSTAMPED AGREEMENT:
In N N Global Case 2 bench gave finding that unstamped agreement is void and the same is not curable defect. This court considered the said decision incorrect by relying on section 2 (j) which provides:
“2(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”
This court in para 59 opined that reading section 35 of Stamp Act with section 2(j) of Contract Act will not render unstamped agreement unenforceable as the section 35 only considers it inadmissible.
Section 45 of the Act says that an instrument becomes admissible on the payment of stamp duty thus unstamped agreement is a curable defect.
In para 54 of present case court concluded as under:
54. Section 35…the term “admitted in evidence” refers to the admissibility of the instrument…..Non-stamping or improper stamping does not result in the instrument becoming invalid. The Stamp Act does not render such an instrument void. The non-payment of stamp duty is accurately characterized as a curable defect.
ARBITRATION & CONCILIATION ACT:
This court has emphasized on the principles of Arbitration law as in “autonomy of arbitration, minimum judicial interference, competence-competence rule, and rule of separability”. Court further appreciated that section 16 of the A & C Act itself recognize the principle of separability which makes the arbitration agreement different from the underlying contract.
Court construed that section 11 (6) (A) of the Act which was appended with 2015 amendment which makes it evident that to minimize the interference of court this section was inserted. Further court relied on Vidya Drolia vs. Durga Trading Corp. (2021) 2 SCC 1 and held that court must confine to the existence of arbitration agreement. Such agreement must satisfy the requirement section 10 of Contract Act however, it is pertinent to note that under section 16 it is Arbitral Tribunal which will adjudicate “whether the condition of contract Act is satisfied or not” and not the referring court.
HARMONIOUS CONSTRUCTION OF STATUTES:
Court observed that arbitration is a special law and same has primacy over the general law that is Stamp Act and Contract in the present case.
Court observed that in N.N. Global Case 2 the bench only confined to the objective of Stamp Act, that is collect revenue rather than to consider the objective of the A & C Act, which is efficacious and speedy remedy. The defect under Stamp Act is curable and unstamped agreement only affects the admissibility of the agreement and does not make it void.
Court evaluated by applying the principle of harmonious construction, that section 33 and 35 of Stamp Act can not applied while exercising the power under section 11 and 8 of A & C Act. Court further held that referral court is not appropriate forum to look into the evidence to establish the existence and validity of arbitration agreement as the same should be before the arbitral tribunal under section 16 of A & C Act.
CONCLUSION:
- An agreement which is unstamped or inadequately stamped under section 35 of the Stamp Act, is not void or unenforceable;
- Unstamped agreement is a curable defect;
- Any issue concerning unstamped agreement should not be adjudged at the stage of section 8 and 11 of A & C Act. Said issue should be raised before arbitral tribunal under section 16.
- The decision of N.N. Global Case 2 (supra) and SMS Tea Estates (supra) is overruled by this 7 judges’ bench. Para no. 22 and 29 of Garware wall (supra) overruled.
Also read:
https://lawsearchindia.com/ongc-vs-saw-pipes-ltd-public-policy-patent-illegality/
https://lawsearchindia.com/booz-allen-and-hamilton-vs-sbi-home-finance-ltd-and-others/