Editor: Jhanvi Vashisht
Bench: Chief Justice D Y Chandrachud, Justice Sanjay Kishan Kaul, Justice Surya Kant, Justice Manoj Misra, Justice BR Gavai, Justice J.B. Pardiwala and Justice Sanjiv Khanna.
Citation: Curative Petition (C) No. 442023 In Review Petition No. 7042021 In C.A. No. 15992020.
Overview:-
The Indian Contract Act, 1872 lays down all the rules and regulations regarding the Contracts. The Arbitration and Conciliation Act, 1996 provides comprehensive laws and rules regarding arbitration proceedings, whereby it also mentions in Sec. 7(5) that if a contract has a clause stating that any dispute regarding the matters of concern will be dealt with by the arbitration (arbitration clause), then it will be treated as an arbitration agreement. The Indian Stamp Act of 1889 provides a regulatory framework for charging the stamp duty on the institutions in transactions where in sec. 35 (Instruments not duly stamped inadmissible in evidence, etc.), mandates for the stamping and brings forth the inadmissibility of unstamped instruments.
ISSUES:-
Is a contract which is unstamped or inadequately stamped containing an arbitration clause, will provide for a valid and legal arbitration agreement or not?
Whether that arbitration agreement, as a question of law, will exist or not, admissible or inadmissible, enforceable or not?
The Court while adjudicating the present matter and issues raised relied upon the case of SMS Tea Estates (P) Ltd. versus. Chandmari Tea Co. (P) Ltd. [2011 14 SCC 44], the Supreme Court held that an unstamped contract having an arbitration agreement would not be considered. A similar rationale was also followed in the case of Garware Wall Ropes Ltd. versus. Coastal Marine Constructions & Engg. Ltd [2019 9 SCC 209], wherein the Court held that an arbitration agreement contained in an unstamped contract will not ‘exist’ as a matter of law and will not be acted upon unless the underlying contract is duly stamped. Thereafter in Vidya Drolia versus. Durga Trading Corporation, [2021 2 SCC 01], the court held that an arbitration agreement will exist only if it is valid and legal.
Further, the Court placed its reliance on “N N Global Mercantile (P) Ltd. versus. Indo Unique Flame Ltd.” [2021 4 SCC 379], wherein the Supreme Court in its three bench judgement while deciding the enforceability of an unstamped arbitration agreement in a SLP held that an arbitration agreement, being separate and distinct from the underlying commercial contract, will not be invalid, unenforceable, or non-existent, hence it is a curable defect. The case was thereafter referred to the Constitutional bench, the five-judge bench in the “NN Global Mercantile v. Indo Unique Flame Ltd.” [2023 7 SCC 01], during which the Court doubted the views expressed in the Garware Wall (supra) and Vidya Drolia (supra), and by the majority of 3:2, it was held that NN Global (2021) does not represent the correct position and pronounced the following judgment:
The majority decision of Justice K. M. Joseph, Justice Aniruddha Bose, and Justice C. T. Ravikumar: That an unstamped instrument containing an arbitration agreement is void under sec 2(g) of Contract Act (voidable contract) and an unstamped instrument is not a contract and not enforceable by law and therefore does not exist. However, it can be treated if it is duly stamped. The term ‘existence’ under sec (6A) of an arbitration agreement is not merely an existence in fact, but also in law. The Court acting under sec 11 of the Arbitration Act cannot overlook Sec 33 and 35 of the Stamp Duty Act, 1899. It was also clarified that the certified copy of the arbitration agreement must clearly indicate stamp duty as paid.
Minority Judgement (dissenting) propounded different legal views: Justice Ajay Rastogi held that under sec 11, the scope of referral court is limited to the ‘existence’ only and all other matters including the stamp duty shall be left to the arbitral tribunal to decide as per sec 16 of the act. Whereas Justice Hrishikesh Roy held that it is a curable defect and will not render it void ab initio.
Thereafter, the Court took the arbitration petition along with the curative petition to decide on the matter, and referred it to a larger bench, i.e. 7 judge bench and directed to change the title of the case (which is the current title) and decided to consider all the relevant prior matters with the present one to give a clear decision.
Submissions made before the Court:-
The Petitioner represented by Senior Counsel, Mr Arvind Datar raised the contentions that the Arbitration Act confines the authority of the referral court to the examination of an arbitration agreement and not the instrument and there is limited power of the Court in deciding the matter in respect of the Stamp. Further adding to it, the Arbitral Tribunal has the competence to rule on its own jurisdiction, including on issues pertaining to stamping. Therefore, the mandate of stamping does not make an instrument void. It only makes the instrument inadmissible in evidence until the defect is cured as per the provisions of the Stamp Act.
Mr. Nikhil Sakhardande raised a contention that the deficiency in stamping is a curable defect, which gets cured as soon as payment is made. Hence, it does not affect the validity of the arbitration agreement. Moreover, the interference will defeat the provision of minimal judicial interference in Arbitration.
Mr. Darius J Khambata submitted before the Hon’ble Court that the doctrine of separability propounds that an arbitration agreement is a self-contained agreement, and different from the underlying contract. And non-stamping of an underlying contract will not ipso-facto invalidate the arbitration agreement.
Therefore, at the pre-arbitral stage, the referral courts should leave all issues pertaining to the stamping for the decision of the arbitral tribunal.
Mr Gourab Banerjee was of the view that the said non-stamping does not make an instrument null and void. Such an instrument, even if unstamped, exists in fact and law, and adjudication of stamp duty is a time-consuming process, and if mandated, it will defeat the goal of fast remedy in arbitration.
On the contrary, the submissions by the Respondent and intervenors stated that the curative petition is not maintainable and not in the ambit of jurisdiction. Arbitration, being a special law, does not limit the application of general law such as the Stamp Duty Act.
The court by adopting a harmonious interpretation of both the acts placed reliance on the case of “Sultana Begum v. Prem Chand Jain” [1997 1 SCC 373], wherein the Court held that it is the court’s duty to avoid head-on clashes between two sections of the act and effort to harmonize them. That the provision of one statute cannot be used to defeat another until and unless it is inevitable. Further, the Court held that in the case when there are two or more principles in conflict in an act, they should be interpreted in such a manner that effect should be given to both. An interpretation which reduces one provision is not a harmonious construction.
While applying the rules of harmonious construction and interpretation of statutes, the court decided the matter. The Court held that the Arbitration and Conciliation Act 1996 is a special law, and the Contract and Stamp Act are general laws. And general laws must give way to special laws. The issue is not whether all agreements are unenforceable under the provisions of the Stamp Act but whether specifically, arbitration agreements are unenforceable. It is the arbitral tribunal and not the court which may test whether the requirements of a valid contract and a valid arbitration agreement are met. If it finds that a valid arbitration agreement exists, it may assess whether the underlying agreement is a valid contract.
The Court further interpreted Sec. 33 and 35 of the Stamp Act, 1899 in particular, to conclude that agreements which are not stamped or inadequately stamped are inadmissible in evidence under Sec 35 of the Stamp Act, however, under such circumstances, it will not render the agreement void or void ab initio or unenforceable. It further held that the non-stamping or inadequate stamping is a curable defect and any objections in relation to the stamping of the agreement fall within the ambit of the Arbitral Tribunal.
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