Case Commentary On M/S.N.N.Global Mercantile Pvt.Ltd v/s M/S.Indo Unique Flame Ltd
To be considered valid under the Arbitration and Conciliation Act, 1996, an
arbitration agreement must meet specific requirements outlined in Section 7 of
the Act. These requirements include the agreement being in writing, signed by
both parties, and referencing the arbitration clause in the contract.
Additionally, Section 34 of the Act addresses the enforceability of an
arbitration agreement in the presence of a court decree.
Recently, the Supreme Court made a decision on the validity and enforceability
of an unstamped arbitration agreement, analyzing the relationship between the
Stamp Act 1899, the Contract Act 1872, and the Arbitration and Conciliation Act
1996. The court examined the doctrines of separability and kompetenz-kompetenz
in relation to these acts. The doctrine of separability asserts that an
arbitration clause is separate from the main contract and remains valid even if
the main contract is void or unenforceable. The doctrine of kompetenz-kompetenz
grants the arbitral tribunal the power to determine its own jurisdiction.
Factual Matrix Of The Case:
The respondent and the appellant entered into a subcontract that included an
arbitration clause. Disputes arose between the parties, and the respondent
attempted to invoke a bank guarantee provided by the appellant in the
subcontract. In response, the appellant filed a lawsuit against the invocation
of the bank guarantee.
The respondent then sought arbitration to resolve the dispute, citing Section 8
of the Arbitration and Conciliation Act, 1996. However, the Commercial Court in
Nagpur rejected the arbitration application.A writ petition challenging the
Commercial Court's decision was filed before the Bombay High Court. The High
Court overturned the Commercial Court's order. However, during the High Court
proceedings, it was argued that the arbitration agreement was unenforceable due
to the subcontract lacking stamping.
Consequently, an appeal was filed before the Supreme Court, and one of the
raised issues concerned the validity and enforceability of an unstamped
In a 3:2 majority decision, the Supreme Court of India ruled on an arbitration
agreement's validity. They held that an arbitration agreement without proper
stamping and registration cannot be legally valid and enforceable. The court
also asserted its responsibility to examine the contents of the agreement and
impound the unstamped agreement.
Justices KM Joseph, Aniruddha Bose, and CT Ravikumar opined that an arbitration
agreement lacking sufficient stamping, as defined in the Arbitration Act of
1996, cannot be applied according to the Stamp Act of 1899.
However, Justices Ajay Rastogi and Hrishikesh Roy expressed a different view.
They argued that the absence of stamping on an arbitration agreement is a
correctable issue and should not invalidate the agreement. They also stated that
any disputes regarding stamp duty or the agreement's validity should be resolved
by the arbitral tribunal as per the Arbitration Act.
The court disagreed with the previous ruling in Garware Wall Ropers Ltd v
Coastal Marine Constructions, which allowed the invocation of an agreement once
the stamp duty defect was rectified by depositing the deficit. The court
emphasized that an agreement, including an arbitration clause, only becomes a
contract enforceable by law when it is duly stamped.
The court referred to the judgment in Vidya Drolia v. Durga Trading Corporation,
which restricted instances of court intervention under Section 11. The court
stated that intervention should occur only when it is abundantly clear that the
arbitration agreement does not exist or is illegal. It further noted that the
court should consider the appropriateness of disputes for arbitration during the
Additionally, the court relied on the decision in SMS Tea Estates (P) Ltd. v.
Chandmari Tea Co. (P) Ltd, which stated that an agreement subject to stamp duty
or compulsory registration cannot be used as evidence or relied upon under the
In summary, the majority opinion held that an unstamped and unregistered
arbitration agreement is not legally valid, while the minority opinion stated
that the absence of stamping is a correctable issue, and such disputes should be
resolved by the arbitral tribunal.
Doctrine Of Separability
The doctrine of separability, also known as the doctrine of autonomy or
separability of the arbitration agreement, is a principle in international
arbitration and some national arbitration laws. It states that an arbitration
agreement is considered as a separate and independent contract from the main
contract in which it is contained.
According to the doctrine of separability, the validity, enforceability, and
existence of the arbitration agreement are independent of the validity or
enforceability of the underlying main contract. This means that even if the main
contract is found to be invalid or unenforceable, the arbitration agreement may
still be valid and enforceable.
The doctrine of separability upholds the principle of party autonomy in
arbitration. It enables parties to resolve their disputes through arbitration,
regardless of any issues or challenges with the underlying contract. This
ensures that the arbitration agreement remains valid and can be given effect,
even if the main contract is flawed.
The doctrine of separability is widely recognized and applied in international
arbitration practice and many national arbitration laws. It provides stability
and certainty to arbitration proceedings, allowing parties to rely on the
arbitration agreement as a distinct and independent legal instrument.In the case
of SMS Tea Estates (P) Ltd v. Chandmari Tea Co. (P) Limited, the Supreme
Court of India examined the issue of stamp duty on an arbitration clause in an
unstamped contract. The court concluded that the arbitration agreement would not
be enforceable until the contract was impounded, and the required stamp duty and
penalty were paid.
In the case of Garware Wall Ropers Ltd v Coastal Marine Constructions,
the Supreme Court emphasized the importance of paying the stamp duty and
penalties. However, in the NN Global case, the court ruled that arbitration
proceedings should not be delayed until the stamp duty is paid.
In simpler terms, the doctrine of separability suggests that an arbitration
agreement stands on its own and remains valid even if the main contract is
terminated. However, Indian courts have expressed different opinions regarding
the requirement of paying stamp duty on arbitration agreements. Some cases state
that the agreement is unenforceable until the stamp duty is paid, while others
allow arbitration proceedings to proceed without delay, even if the stamp duty
Principle Of Kompetenz-Kompetenz
The principle of Kompetenz-Kompetenz refers to the authority of the arbitral
tribunal to decide on its own jurisdiction. In the context of the Arbitration
and Conciliation Act of 1996, this principle extends to the power of a judicial
body to appoint an arbitrator under Section 11.
The argument presented in this case relates to the concept of
Kompetenz-Kompetenz. It asserts that under Section 11 of the Arbitration and
Conciliation Act, 1996, the arbitral tribunal has the power to determine its own
jurisdiction and assess the validity of an arbitration agreement. This minimizes
court intervention in arbitral proceedings and ensures the efficient functioning
of the arbitration process.
In simpler terms, the principle of Kompetenz-Kompetenz allows the arbitral
tribunal to decide on its own authority and determine if it has jurisdiction
over a dispute. This principle is enshrined in Section 11 of the Arbitration and
Conciliation Act, 1996, which grants the tribunal the power to assess the
validity of the arbitration agreement. It helps reduce court interference in
arbitration and promotes the efficient operation of the arbitration process.
The recent court decision overturned the previous ruling in the N.N. Global case
and upheld the positions taken in the SMS Tea Estates and Garware cases. It
determined that a document with an arbitration clause that is not stamped will
not be considered a legally enforceable contract under the Contract Act. This
decision weakens the Kompetenz-Kompetenz principle and may impact India's
reputation as a preferred arbitration seat for Indian and international parties.
The requirement to resolve stamp duty issues in court before arbitration can
commence will likely increase time and costs for the parties involved. This
ruling could also contribute to the existing judicial delays and backlog of
commercial cases in the country.
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