'Unstamped arbitration agreements are valid in law', says SC's latest ruling

New Delhi, Dec 13 (IANS) The Supreme Court on Wednesday overruled its earlier decision laying down that an arbitration agreement would be invalid or void ab initio if the underlying contract was not stamped as per the relevant Stamp Act.

In an unanimous decision, a 7-judge Constitution Bench headed by CJI D.Y. Chandrachud said that non-stamping or insufficient stamping does not render an agreement void but merely makes it inadmissible in evidence.

The Constitution Bench held that non-stamping or insufficient stamping of an agreement is a curable defect under Indian Stamp Act, 1899.

It added that to obligate courts to determine the issue of stamping of arbitration agreement at the pre-referral stage will defeat the objectives of the Arbitration and Conciliation Act, 1996.

In his separate concurring opinion, Justice Sanjiv Khanna held that inadequate or non-stamping of an arbitration agreement will not make it invalid.

In September this year, the Supreme Court had agreed to refer the issue to a 7-judge bench having regard to the larger ramifications of the decision rendered in the case of NN Global Mercantile Pvt Ltd vs. Indo Unique Flame Ltd & Ors.

In that case, a five-judge Constitution Bench in April this year had laid down by a ratio of 3:2 that non-stamped or insufficiently-stamped arbitration agreements are not enforceable in the eyes of law.

The majority opinion delivered had held that arbitration agreements not validated by Stamp Act would stand non est in law rendering them void or unenforceable in law.

On the other hand, two judges in their distinct minority judgments, had opined that stamp deficiency may be cured and unstamped arbitration agreements are valid at the pre-referral stage.

In view of the verdict delivered on Wednesday by the 7-judge bench, the above ratio stands overruled.