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  • Harshal Chhabra, Shaswat Kashyap

Beyond NN Global: The Supreme Court Revisits “Unstamped Arbitration Agreements”

[Harshal and Shaswat are students at Gujarat National Law University.]

The recent judgement passed by the Hon’ble Supreme Court of India (Court) in In Re, Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 (In Re: The Interplay) has effectively addressed a crucial issue that posed a challenge to the future of Indian arbitration.

The judgement overrules the earlier decision in NN Global Mercantile (Private) Limited v. Indo Unique Flame Limited (NN Global 2) and has resolved the impediment posed by insufficiently stamped agreements during the appointment of arbitrators under Section 11 of the Arbitration and Conciliation Act 1996 (Act). Previously, objections to the appointment of arbitrators, on grounds of improper stamping, would halt the entire process. Post In Re: The Interplay, such objections would no longer trigger an automatic suspension of the arbitral procedure.

In NN Global 2, the Court had emphasized that “non-stamping of the substantive contract would render the arbitration agreement non-existent in the eyes of the law.” However, in In Re: The Interplay, the Court, while upholding the principle of kompetenz-kompetenz, clarified that the issue of insufficient stamping in agreements should not obstruct arbitration proceedings, especially during the stage of referring parties to arbitration. Notably, the Court affirms that the matter of stamp duty falls within the domain of Section 16 of the Act, and it is within the competence of the arbitral tribunal to rule on this issue. This judgement aligns with the legislative intent of the Act, particularly the amendment to Section 11(6-A) of the Act, marking a positive step in the evolving landscape of arbitration in India.

This article aims to dissect the reasoning provided by the seven-judge bench in In Re: The Interplay and analyze the background of the issue, addressing the challenge of insufficiently stamped agreements in arbitration. Further, the article underscores the significance of the judgement for the future of Indian arbitration.


Unstamped Agreements: The Story So Far

This saga unfolds with the Court’s pronouncement in SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited (SMS Tea Estates), wherein the Court held that “an arbitration clause embedded in an unstamped or insufficiently stamped instrument could not be enforced as per Section 35 of the Indian Stamp Act 1899.” To put it simply, the Court could not act on an arbitral agreement unless the requisite stamp duty and related penalty had been fully paid.

However, the holding in SMS Tea Estates was nullified when the Parliament inserted Section 11(6-A) (appointment of the arbitrator) in the Act. This limited the Court’s authority to determining the existence of an arbitration agreement and ousted its power to adjudicate on its validity. However, the judgement in Garware Wall Ropes Limited (Garware) added another layer of obstacles, hindering the progress of arbitration in India. The Court in Garware held that a straightforward interpretation of Section 11(6A) of the Act in conjunction with Section 7(2) (arbitration agreement) of the Act and Section 2(h) of the Indian Contract Act 1872 (Contract Act), unmistakably indicates that an arbitration clause in an agreement lacks validity if it is not legally enforceable. The Court’s ruling in Garware was reaffirmed in Vidya Drolia v. Durga Trading Corporation (Vidya Drolia).

NN Global’s Legal Shift

Initially, in NN Global Mercantile Private Limited v. Indo Unique Flame Limited (NN Global 1), a three-judge Bench of the Court addressed the validity of an arbitration agreement within an unstamped or insufficiently stamped contract. Interestingly, the court here departed from its previous position. The Court in NN Global 1, while endorsing the doctrine of severability, held that an arbitration clause is separable from the underlying contract. Therefore, the arbitration clause can be enforceable even if the contract is invalid. The Court also affirmed the kompetenz-kompetenz doctrine, stating that an arbitral tribunal alone has the competence to rule on its jurisdiction, including objections related to the existence, validity, and scope of the arbitration agreement.

Post the insertion of Section 11(6-A), the Court clarified that the role of a court acting under Section 11 of the Act is limited to determining the existence of an arbitration agreement. Thus, contrary to the stance in SMS Tea Estates and Garware, the Court in NN Global 1 asserted that the arbitration agreement remains valid despite the absence of stamp duty payment on the underlying contract.

Further, it stated that the judgement in Garware stood affirmed by the coordinate bench in Vidya Drolia. Thus, even though the Court gave its contrary opinion, it referred the case to a five-judge bench to settle the issue authoritatively.

The five-judge constitutional bench again ruled back to the Garware position by a 3-2 majority. It held that an arbitration clause within an unstamped agreement is not legally enforceable, and cannot be utilized even for the limited purpose of appointing an arbitrator. Thus, the arbitration agreement would remain non-existent in law until the underlying agreement is duly stamped. It further stated that “any inadequacy in stamp duty payment renders the arbitration agreement invalid, preventing any action until the deficiency is rectified.” Thus, the position held in Garware and Vidya Drolia was restored.

The interpretation in NN Global 2, seen by some as regressive, transforms a remediable defect into a potentially obstructive jurisdictional issue, impacting arbitral proceedings from the outset.


As noted earlier, it was observed in NN Global 2 that an unstamped or inadequately stamped agreement lacks enforceability and stands void until appropriately stamped. The Court in In Re: The Interplay, while rejecting the judgement in NN Global 2, reverted to NN Global 1’s position of separability of an arbitration clause. Moreover, it categorically stated that if an instrument lacks the appropriate stamp duty, it becomes inadmissible rather than void. Non-stamping is considered a curable defect under the Stamp Act 1899 (Stamp Act), offering a corrective procedure. In contrast to a curable defect, there is no established procedure for rectifying a void agreement. The Act does not designate instruments as void due to non-payment or insufficient payment of stamp duty.

Further, reliance was made on Thiruvengadam Pillai v. Navaneethammal, where the arbitral agreement was written on two stamp papers, bought on different dates. Ruling that the agreement was valid, the Court clarified that mere procedural irregularities would not automatically invalidate the arbitral agreement. At the same time, it would not be admissible as evidence in courts. The Court has differentiated between legal validity and admissibility, stating that the Stamp Act has an essentially fiscal purpose. Thus, an irregular agreement might not always be invalid. Further, even if the agreement is not written on the required stamp paper, it can be admitted in due accordance with Section 42 of the Stamp Act along with payment of duty and penalty.

The Court emphasized that Section 2(j) of the Contract Act does not apply when an instrument is deemed inadmissible under Section 35 of the Stamp Act. The impact of the latter provision is not to make an unstamped agreement unenforceable. If it were unenforceable, it would suggest that the agreement is void.

Furthermore, the Court while dealing with the principle of Kompetenz- Kompetenz, traced it back to the text of Section 16 of the Act. The court stated that Section 16 grants the arbitral tribunal the authority to decide on its jurisdiction, including challenges to the existence or validity of the arbitration agreement. Section 35 of the Stamp Act states that an unstamped instrument is ineffective until stamped, raising the question of the tribunal’s authority to determine if stamp duty is unpaid. To answer this question, the Court relied on Uttarakhand Purv Sainik Kalyan Nigam Limited which establishes the tribunal’s broad jurisdiction, encapsulating preliminary issues like stamping. The Court said that Section 33 and Section 35 of the Stamp Act allow an arbitral tribunal, by virtue of them being constituted by parties’ consent, to impound and examine the instrument in case the stamping is contested.

The court concluded that post the insertion of Section 11(6-A), the courts have been confined to determine the existence, not validity, of an arbitration agreement, thereby aligning with the ruling in Duro Felguera and Mayavati Trading. This interpretation aims to expedite arbitration, endorsing India as an arbitration hub.

Conclusion: Jurisdictional Clarity

The landmark decision In Re: The Interplay signifies a pivotal moment in Indian arbitration, resolving the longstanding challenge posed by insufficiently stamped agreements. The Court has given meaning to Section 5 of the Act, which restricts the extent of judicial intervention in arbitration matters. In particular, the non-obstante clause in the provision indicates that courts can only intervene if expressly allowed by the Act, which, as held by the Court, is not the position here. The bench further ruled that Section 33 and Section 35 of the Stamp Act do not apply to proceedings under Section 11 or Section 8 of the Act due to the overriding effect of Section 5. Hence, the Court defied another layer of reasoning given in NN Global 2 which said that the court in Section 11 proceedings must give effect to Sections 33 and Section 35 of the Stamp Act despite the interdict in Section 5 of the Act.

This interpretative shift not only expedites arbitration proceedings but also positions India as a favourable arbitration hub. The Court’s nuanced analysis, emphasizing the inadmissibility rather than voidness of unstamped agreements, reflects a balanced approach, fostering the evolution of arbitration jurisprudence in the country.

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