Stamp Act v. Arbitration Act

Saji Koduvath, Advocate, Kottayam

Abstract

The Seven Judge Bench of the Supreme Court held-

• Defect on non-stamping of a document is curable.
• Such a document is not void (though “inadmissible” under Sec. 35 of the Stamp Act)
• The courts, only examine whether the arbitration agreement “prima facie exists” (under Sec. 8 and 11 of the Arbitration Act)
• The objection as to non-stamping fall within the ambit of the arbitral tribunal (Sec. 16) 

Reference to Seven-Judge Bench

The Five Judge Bench decision in NN Global Mercantile v Indo Unique Flame, (2023) 7 SCC 1,  was placed before the  Seven Judge Bench, in a ‘curative petition’, considering the “larger ramifications and consequences” (within the shortest time?).

Findings of the Seven-Judge Bench – on Stamp Act, in Nutshell

• The Stamp Act is a fiscal statute only.
• The Act itself provided for curing defects on non-stamping.
• Hence such unstamped agreements are not void.

Findings of the Seven-Judge Bench – on Arbitration Act, in Nutshell

• The Arbitration Act provided for minimum judicial interference.
• Arbitration Act is a self-contained code.
• It provides for the separability of the arbitration agreement from the main contract.
• Arbitral tribunals had jurisdiction to determine the limits of their own jurisdiction. Thereby, the Arbitral Tribunal can decide “the existence and validity of an arbitration agreement“.
• Harmonious interpretation of  Stamp Act and Arbitration Act is needed, for-
  • The Arbitration Act, a comprehensive legal code.
  • It is a “special” statute.
  • It did not specify stamping as a pre-condition of a valid arbitration agreement.
  • It requires courts to confine at the referral stage to examination of the existence of arbitration agreement.

The Seven Judge Bench highly relied on Section 16 of the Arbitration and Conciliation Act, 1996, which declares the competence of arbitration tribunal to determine the existence or validity of the arbitration agreement .

The Supreme Court has overruled Earlier Decisions

• NN Global Mercantile v. Indo Unique Flame, (2023) 7 SCC 1
• SMS Tea Estates v. Chandmari Tea Co, (2011) 14 SCC 66
• Garware Wall Ropes v. Coastal Marine Constructions, (2019) 9 SCC 209

These (earlier) decisions held –

• Existence of a valid arbitration agreement (with sufficient stamp) was necessary, for ‘reference to arbitrator’ under Sec. 8 of the Arbitration and Conciliation Act, 1996.
• These decisions relied, mainly, on Sec. 8(1) which reads as under:
  • “A judicial authority …. shall … refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.”

FINDINGS OF THE APEX COURT

Non-Stamping Does Not Render a Document Invalid or Nonexistent.

• “194. The interpretation accorded to the Stamp Act by this Court in the present judgment does not allow the law to be flouted. The arbitral tribunal continues to be bound by the provisions of the Stamp Act, including those relating to its impounding and admissibility. The interpretation of the law in this judgment ensures that the provisions of the Arbitration Act are given effect to while not detracting from the purpose of the Stamp Act. 195. The interests of revenue are not jeopardised in any manner because the duty chargeable must be paid before the agreement in question is rendered admissible and the lis between the parties adjudicated. The question is at which stage the agreement would be impounded and not whether it would be impounded at all. The courts are not abdicating their duty but are instead giving effect to:
  • a. The principle of minimal judicial intervention in Section 5 of the Arbitration Act;
  • b. The prima facie standard applicable to Sections 8 and 11 of the Arbitration Act; and
  • c. The purpose of the Stamp Act which is to protect the interests of revenue and not arm litigants with a weapon of technicality by which they delay the adjudication of the lis.
  • d. The interpretation of the law must give effect to the purpose of the Arbitration Act in addition to the Stamp Act.” (emphasis in original).

Referral Court Not to Impound Unstamped Instrument

The Apex Court held as under:

• “218. The discussion in preceding segments indicates that the referral court at Section 11 stage should not examine or impound an unstamped or insufficiently stamped instrument, but rather leave it for the determination by the arbitral tribunal. When a party produces an arbitration agreement or its certified copy, the referral court only has to examine whether an arbitration agreement exists in terms of Section 7 of the Arbitration Act. The referral court under Section 11 is not required to examine whether a certified copy of the agreement/ instrument/ contract discloses the fact of payment of stamp duty on the original. Accordingly, we hold that the holding of this Court in SMS Tea Estate (supra), as reiterated in N N Global 2 (supra), is no longer valid in law.”

Conclusions of the Apex Court

The Apex Court held further as under:

“224. The conclusions reached in this judgment are summarised below:

• Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. Such agreements are not rendered void or void ab initio or unenforceable;
• b. Non-stamping or inadequate stamping is a curable defect;
• c. An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists;
• d. Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal; and
• e. The decision in NN Global 2 (supra) and SMS Tea Estates (supra) are overruled. Paragraphs 22 and 29 of Garware Wall Ropes (supra) are overruled to that extent.”

End Notes

Arbitration and Conciliation Act, Sec. 7, 8 and 16

7. Arbitration agreement.

• In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
• An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
• An arbitration agreement shall be in writing.
• An arbitration agreement is in writing if it is contained in
  • (a) a document signed by the parties;
  • (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or
  • (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
• The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

8. Power to refer parties to arbitration where there is an arbitration agreement.

• (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
• (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof:
  • Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.
• (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

16. Competence of arbitral tribunal to rule on its jurisdiction

• (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,–
• an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
• a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) Where an award is remitted under sub- section (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court: Provided that any time so fixed may be extended by subsequent order of the Court.

(3) An award remitted under sub- section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed.