Insufficiency of stamping doesn’t make an agreement invalid: SC

New Delhi: The Supreme Court on Wednesday held the arbitration clause in an unstamped or insufficiently stamped agreement between parties is enforceable.

The top court made it clear that such kind of defect is curable and it would not render the contract invalid.

A seven-judge Constitution bench led by Chief Justice of India D Y Chandrachud overruled its judgement in the case titled as M/s N N Global Mercantile Pvt Ltd vs M/s Indo Unique Flame Ltd And Ors, which had by majority of 3:2 held that unstamped or insufficient agreements, having arbitration clauses, are not enforceable.

On Wednesday, in a unanimous verdict, the apex court held that non-stamping or insufficient stamping of an agreement has nothing to do with the validity of the document as it is a curable defect.

"An arbitration agreement or its certified copy is not rendered void or unenforceable because it is unstamped or insufficiently stamped," the bench ruled.

The CJI, who authored the judgment on behalf of himself and five judges, Justices Sanjay Kishan Kaul, B R Gavai, Surya Kant, J B Pardiwala and Manoj Misra, said “insufficiency of stamping” does not make an agreement invalid or unenforceable but makes it inadmissible in evidence.

The CJI said the agreements which are not stamped or inadequately stamped are not void ab initio (invalid from beginning) or unenforceable, they are inadmissible in evidence. The CJI said objection in connection with the stamping of the agreement falls within the ambit of the arbitral tribunal.

Justice Sanjiv Khanna authored a separate and concurring judgment.

The court was called upon to resolve an issue which arose in the context of three statutes – the Arbitration and Conciliation Act 1996, the Indian Stamp Act 1899, and the Indian Contract Act 1872. The Stamp Act imposes duty on “instruments”. An instrument which is unstamped or insufficiently stamped is inadmissible in evidence and cannot be acted upon in terms of its provisions.

Arbitration agreements are often embedded in underlying instruments or substantive contracts. When an application is made for the appointment of an arbitrator, an objection is raised on the ground that the arbitration agreement is inadmissible because it is in an instrument which is unstamped or inadequately stamped.

So the primary issue before the court was whether such arbitration agreements would be non-existent, unenforceable, or invalid if the underlying contract is not stamped.