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Synopsis

A seven-judge bench of the Supreme Court has ruled today that unstamped arbitration agreements are enforceable.

The bench comprising CJI DY Chandrachud along with Justices Sanjay Kishan Kaul, Sanjiv Khanna, BR Gavai, Surya Kant, JB Pardiwala, and Manoj Misra has set aside a five judge-Constitution Bench decision from April wherein it was ruled by a 3:2 majority that arbitration agreements that are not stamped are not legally valid. 

In September, the Supreme Court had referred the issue involving enforceability of unstamped arbitration agreements to a seven-judge bench.

A 5-judge bench consisting of CJI DY Chandrachud, Justice SK Kaul, Justice Sanjiv Khanna, Justice BR Gavai and Justice Surya Kant has made the reference while hearing a curative petition challenging a judgment from 2020 wherein it was held that an arbitration clause in an insufficiently stamped agreement cannot be acted upon by court.

Court was of the view that the issue was too important and had caused a lot of uncertainty which had to be considered by a larger bench.

Notably, the validity of a recent judgment delivered by a 5-judge bench also arose for consideration.

In April this year, a five judge-Constitution Bench had ruled by a 3:2 majority that arbitration agreements that are not stamped are not legally valid.  The judges who authored the majority opinion were Justice KM Joseph, Justice CT Ravikumar, and Justice Aniruddha Bose. However, Justice Ajay Rastogi and Justice Hrishikesh Roy disagreed with the majority opinion, stating that unstamped arbitration agreements are acceptable during the pre-referral stage.

The majority opinion said:

“The court is duly empowered to act under the Stamp Act if a document is not stamped. Arbitration agreement not validated by Stamp Act would not stand in law.”

However, the dissenting judges observed that the existence of a certified copy of the Arbitration agreement whether unstamped or not is enforceable for the appointment of the arbitrator.

“Such examination should not open the door wide open for judicial examination. Existence of a certified copy of the Arbitration agreement whether unstamped or not is enforceable for the appointment of the arbitrator. All the preliminary maintainability issues of the document are referrable to the arbitrator. Decision in Tea Estates stands overruled. The objective behind the 1996 Act was to inter alia avoid procedural complexity and litigation between courts. Impounding and stamping will frustrate the same, as enforcement will be stalled when it can be solved at a later stage,” the dissenting judges had opined.

Case Title: In Re Interplay Between Arbitration Agreements