Supreme Court Ruling Affirms Enforceability Of Arbitration Clauses In Unstamped Agreements

In a landmark decision with far-reaching implications for corporate and contractual agreements, a seven-judge Constitution bench of the Supreme Court overturned a previous judgment on Wednesday. The ruling established that the arbitration clause in an unstamped or insufficiently stamped agreement is indeed enforceable, asserting that such a defect is curable and does not render the contract invalid.

The verdict, delivered in the case of M/s N N Global Mercantile Pvt Ltd vs M/s Indo Unique Flame Ltd. And Ors, marks a departure from a five-judge bench judgment rendered in April of this year. The earlier decision, which stated that unstamped or insufficiently stamped agreements with arbitration clauses are not enforceable, has now been overruled.

Chief Justice D Y Chandrachud, heading the bench, declared a unanimous verdict emphasizing that the non-stamping or insufficient stamping of an agreement does not impact the document's validity. The Chief Justice, writing the judgment for himself and five other judges, clarified that "insufficiency of stamping" does not render an agreement void or unenforceable. Instead, it makes the agreement inadmissible in evidence, categorizing the non-stamping or inadequate stamping as a curable defect as reported by The Print.

"Any objection in relation to the stamping of the agreement falls within the ambit of the arbitral tribunal," stated the Chief Justice, overturning the earlier judgment. A separate and concurring judgment was also written by Justice Sanjiv Khanna.

While the detailed judgment is still awaited, the Supreme Court had reserved its verdict on October 12 after reconsidering the earlier order of its five-judge bench. The bench had initially held that unstamped arbitration agreements are not enforceable in law.

The issue had been referred to a seven-judge bench on September 26 to reconsider the correctness of the verdict delivered by the five-judge bench in April. The decision was made in response to a curative petition, with the court expressing the need for reconsideration given the larger ramifications of the previous judgment.

In the April verdict, the five-judge bench had asserted, "An unstamped instrument, when it is required to be stamped, being not a contract and not enforceable in law, cannot, therefore, exist in law."

The Supreme Court, in its ruling on Wednesday, clarified that agreements lacking proper stamping are not void from the beginning or unenforceable. Instead, they are considered inadmissible in evidence, and the issue of stamping is within the purview of the arbitral tribunal.

The court's decision on this matter is anticipated to have a significant impact on future agreements and dispute resolution mechanisms in various sectors.

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