Supreme Court Cites Landmark Decision Regarding Unstamped Arbitration Agreements
On September 26, a 5-judge bench headed by Chief Justice of India DY Chandrachud made a reference to the NN Global Case, while deliberating on a curative petition.
Supreme Court Cites Landmark Decision Regarding Unstamped Arbitration Agreements
On September 26, a 5-judge bench headed by Chief Justice of India DY Chandrachud made a reference to the NN Global Case, while deliberating on a curative petition. This petition was filed against the Supreme Court's 2020 ruling, which had a bearing on the enforceability of arbitration clauses in unstamped agreements.
In 2020, in the case of Bhaskar Raju and Brothers and Anr v. S Dharmaratnakara Rai Bahadur Arcot Narain, the SC had observed that an arbitration clause in an agreement which is required to be duly stamped, if not sufficiently stamped, cannot be acted upon by the Court
On April 25, 2023, a constitutional bench comprising five judges of the Supreme Court issued a divided decision in the case of N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited, with a majority vote of 3:2. The ruling clarified that both an arbitration agreement and a document containing such an agreement, when not properly stamped or lacking sufficient stamp duty as required by the Stamp Act, cannot be considered legally binding contracts under the provisions of the Contract Act.
Until this case was decided, there was uncertainty surrounding the legal enforceability of arbitration agreements found within unstamped or inadequately stamped agreements, and there were conflicting viewpoints on this matter among the judges of the Supreme Court.
In the recent proceeding, the bench noted that the matter at hand was of significant importance and had resulted in widespread uncertainty within the domain of arbitration law.
The CJI said– "We have to adjudicate on the correctness of the judgment in NN Global. It is too important an issue. We will not allow this hearing to be deflected.”
When Senior Advocate Shyam Divan expressed reservations about the restricted scope of curative pleas, the Court responded by acknowledging the challenges faced by arbitrators nationwide. They said that "Arbitrators across the country are facing the situation where they are being told - 'see the agreement is unstamped and now open the case...' So this uncertainty has to end." The Court emphasized the need to resolve this uncertainty.
The bench held– "Having regard to the larger ramifications and the view of the majority in NN Global, we are of the considered view that the proceedings should be Placed before a seven-judge bench. The proceeding should be listed for hearing on 11th October 2023.”
Thus, to streamline the proceedings, Advocates Devesh Pandey and Pritha Srikumar have been designated as nodal counsel. All pertinent compilations and documents related to the case must be filed by October 6, 2023.
This acknowledgement underscores the gravity and complexity of the issue related to the enforceability of arbitration clauses in unstamped agreements, which has created considerable ambiguity in the field of arbitration law.
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