On January 19, A Constitution Bench of the Supreme Court led by Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy and Justice C.T. Ravikumar, continued addressing submissions produced by the Amicus Curiae, Senior Advocate, Mr Gourab Banerji in a 3-Judge reference which highlighted the question - whether the arbitral proceedings clause in a contract, which is needed to be registered and stamped but is not registered and stamped, is valid and enforceable.

Because there is no contesting respondent in the matter, a 5-judge Bench appointed an Amicus to assist it. On January 17, 2023, the Bench began hearing the case (Tuesday).

The petitioner and respondent, in this case, have entered into a subcontract that includes an arbitration clause. Certain conflicts arise, and the respondent activated the petitioner's Bank Guarantee. A lawsuit was filed in response to the aforementioned prompt. In the suit, the respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking the referral of disagreements to arbitration. However, the application was denied by the Commercial Court. The respondent filed a revision petition with the Bombay High Court. After considering the maintainability objections, the Court granted the respondent the right to withdraw the review and file a writ petition. Following that, the High Court ruled in the respondent's writ petition that the Section 8 application was manageable. One of the issues before the High Court was whether the arbitration agreement was enforceable because the subcontract was not registered or stamped. It was stated that the aforementioned issue could be raised in an application under Section 11 or before the Arbitral Tribunal. The Apex Court noted in its appeal that the position taken in SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co Pvt. Ltd. and Garware Wall Ropes Limited v. Coastal MarineConstructions and Engineering Limited that non-payment of stamp duty on the commercial contract would nullify even the arbitration agreement, rendering it non-existent in law and unenforceable, is not the correct legal position.

"Whether the statutory bar contained in Section 35 of the Indian 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? "

On a couple of occasions, the Amicus primarily argued that the Court should limit its jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996 to determine the existence of an arbitration agreement. He argued that Section 16, which engages with an arbitral tribunal's competence to rule on its jurisdiction, was broad enough to enable the arbitrator to recognise the stamping of the document.

In light of the Amicus' submission, Justice Ravikumar asked yesterday whether Section 11(6) would be fully applicable only if the arbitration agreement is found to be invalid and the Court refuses to appoint an arbitrator. If the Court finds the agreement to be valid, it will only take a preliminary look. He believed that if the Legislature had intended the same thing, it would have been explicitly stated. However, the provision makes no mention of this. However, the Judge agreed that harmonised interpretation should be used.

According to the Amicus, the Bench, in this case, was considering a situation in which the Court needed to look beyond the existence of the agreement and into the stamping aspect of it.

Justice Bose stated that the issue is not the existence of the agreement, but the enforceability of the document containing the arbitration clause.

On the issue of enforceability, he stated that it should be investigated if the agreement exists in fact and in law. He contended that an unstamped agreement is a valid agreement whose admissibility is up to the adjudicator.

According to Justice Bose, the Court, acting under Section 11(6), can be the adjudicator deciding on admissibility. However, Amicus argued that the jurisdiction under S. 11(6) is limited to the 'examination of the existence of the arbitration agreement,' and that deciding on permissibility would amount to deciding.

The Amicus eventually concluded his assertions by arguing that making stamp-related decisions while appointing arbitrators at the Section 11 stage would defeat the object and purpose of arbitration, essentially by delaying the entire process.

“This interpretation that you do it at the outset will defeat every thought of arbitration right through. That is the only conclusion that your lordships have to consider. Nobody will get hurt. The Government will not get hurt, they will get their money, they will extract their pound of flesh just a little later…the alternative is neither will the Govt. get its money nor will the arbitration go on.”

Case Status: M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors. 
Citation: CA No. 3802-03/2020