Enforceability of an unstamped arbitral agreement
The judiciary has debated whether an arbitration provision in an unstamped or
poorly stamped agreement may be implemented. The issue regarding the
applicability of arbitration clauses in such unstamped or inadequately stamped
agreements was, however, resolved by a five-judge Supreme Court panel in the
recent case of N.N. Global Mercantile Private Limited.
A subcontract between the petitioner and defendant had an arbitration provision.
When disagreements developed, the respondent referred to the bank guarantee that
the petitioner had supplied. Regarding the use of the guarantee, a dispute
The respondent filed an application requesting that the dispute to be referred
to arbitration before the HC as a writ. The HC considered the enforceability of
the arbitration agreement due to the sub-contract being unregistered and
unstamped. The HC noted that this issue could be raised in an application under
Section 11 or before the Arbitral Tribunal. The matter was appealed before the
Supreme Court on the question of whether an arbitration clause in a contract can
be considered valid and enforceable if it has not been adequately stamped?
Pre NN Global
The SC in SMS Tea Estate v Chandmari Tea Company
 noted that if an
insufficiently stamped document is placed before the court in a S. 11 petition,
the court must first impound the agreement and then only after the payment of
the stamp duty, it may proceed with the appointment of an arbitral tribunal.
Post the said judicial pronouncement, a legislative amendment through Section
11(6A) in the Arbitration Act restricted the scope of judicial intervention to
merely examining the existence of an arbitration agreement. In Duero Felgera,
the court noted that under a S. 11 application the Courts have a confined role
to merely probe the existence of an arbitration agreement.
This position was altered when the division bench of the SC in the case of
Garware held that the ruling in SMS Tea Estates would not be impacted by the
insertion of Section 11(6A) in the Act. In N.N. Global Mercantile, the court
doubted this position, since an arbitration agreement is an independent
contract, it cannot be invalidated merely by insufficiently stamped main
contract. The SC referred the issue to a larger 5 judge bench to render the
Current Position on Law
The Supreme Court by a 3:2 majority, has now settled the law in N.N. Global
Mercantile Private Limited v. Indo Unique Flame Limited. It was held that the
payment of the requisite stamp duty can only happen "under the watchful gaze of
Only those agreements that are enforceable by law are contracts as per the
scheme of the Indian Contract Act. The court also noted that the provision in S.
35 of the stamp act is strictly worded and does not provide any exemption to
In the usual course, agreements are enforced through civil courts and by public
authorities in some cases. As the scheme of the Stamp Act precludes any
authority giving effect to an unstamped/ insufficiently stamped agreement, the
Court observed that such an agreement would not constitute as enforceable
agreements. Therefore, an agreement would not be enforceable until it is
validated as per the procedure provided under the Stamp Act.
The Court further expounded its observation with S.2(j) and S. 2(g) of the
Contract Act, which rendered an unenforceable contract to be void. An unstamped
instrument, of which the arbitration clause is a part of, cannot be allowed to
be used as it would amount to establishing a collateral transaction, considering
arbitration agreement has an independent existence from the main contract.
On the restriction imposed by Section 11(6A) of the Act, the Court held that the
section envisages a contract to begin with for the bar to operate. The Court
ruled that the said section does not merely envisage the literal existence of an
arbitration agreement, but rather an enforceable contract. Hence, an arbitration
agreement must satisfy the requirements under the Contract Act without which
there can be no reference to arbitration. The rationale behind including 11(6A)
in the Act was to stop excessive interference by Courts but this cannot be
extended to mean that the Courts would disregard the legislative enactment
The SC provided an exception that when the document on the face of it appears to
be stamped but its sufficiency is contended (without foundation), then a
reference is made to the existing arbitration agreement and left to the wisdom
of the arbitrator.
The certified copy of the arbitration agreement will also only become
enforceable if it discloses the factum of the payment of the applicable stamp
duty on its original. If the original document is not sufficiently stamped, the
Court cannot impound the certified copy however it is precluded from acting upon
The verdict has clarified the Indian position on stamp duties. It was a settled
principle in law that necessary stamp duty must be remitted for an arbitration
agreement to be valid. The present judgement has now put the onus on the court
to decide this question at the stage of appointment of the arbitrator itself.
Critics have pointed out that this decision would increase judicial delays in
the legal system. It focuses on the narrow interpretation of the legislature and
now the intention of the parties who entered into the contract. Now respondents
may contest the insufficiency of the stamp to delay the process of appointing an
arbitrator. The legislature should bring out relevant amendments to the Stamp
Act to streamline it with the current practice of arbitration.
- Ali, S. and Chaturvedi, A. (2023) Enforceability of an unstamped arbitration
agreement, India Corporate Law. Available at: https://corporate.cyrilamarchandblogs.com/2023/05/enforceability-of-an-unstamped-arbitration-agreement/#_ftn1
(Accessed: 22 June 2023).
- Ratho, S. (no date) Stamping Of The Underlying Contract For A Valid
Arbitration Clause � An 'Existential' Crisis, Icc India Arbitration
Newsletter | Issue 4.
Available at: https://nishithdesai.com/Content/document/pdf/Articles/190618_A_Issue4_ICC_India_Arbitration_Newsletter.pdf
(Accessed: 22 June 2023).
- M/s N.N. Global Mercantile Private Limited v M/s Indo Unique Flame Ltd. & Ors. Civil Appeal 3802-3803 of 2020
- SMS Tea Estate (SMS Tea Estate Pvt Ltd v. Chandmari Tea Company Pvt Ltd, (2011) 14 SCC 66)
- Duro Felguera v Gangavaram Port Ltd, (2017) 8 SCC 729
- Garware Wall Ropes (Garware Wall Ropes Ltd v. Coastal Marine Constructions & Engineering Ltd, Appeal (Civil) 3631/2019)