Shravan Kumar Yammanur1 and Snehashish Bhattacharya.2
The Indian Supreme Court, in N.N. Global Mercantile Private Limited v. Indo Unique Flame Ltd. & Ors.,3 ("N.N. Global"), deliberated on the validity of an arbitration clause contained in an unstamped agreement. The Court concluded that an insufficiently stamped arbitration agreement is deemed non-existent under S. 35 of the Indian Stamp Act, 1899 ("Stamp Act") and cannot be acted upon until duly paid.4
Developing from N.N. Global's judgment, this post addresses the impact of N.N. Global on existing arbitration awards resulting from unstamped agreements in view of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Award ("New York Convention").5 Further, the post examines how Indian High Courts have interpreted N.N. Global while striving to maintain a pro-arbitration stance and the recent decision of the Supreme Court to refer the issue of validity of unstamped or inadequately stamped arbitration agreement to a 7-judge constitution bench. In the context of these decisions, the post outlines the possible course courts can undertake when an agreement is insufficiently stamped or unstamped.
Impact of N.N. Global on enforceability of existing awards under the New York Convention
Article V(1)(a) of the New York Convention allows for the refusal of enforcement of an award if it is demonstrated that the arbitration agreement is invalid under the law that the parties have subjected the agreement to or under the law of the country where the award was rendered. The dictum in N.N. Global could impact the enforceability of an existing award on the grounds of an invalid arbitration agreement that should not have been acted upon. Following N.N. Global, an award issued by a tribunal constituted under an invalid arbitration agreement, both in Indian and foreign seated arbitrations, is rendered unenforceable if the agreement was executed in India and remained unstamped or inadequately stamped at the time of the making of the award. Consequently, any actions or decisions taken by arbitral tribunals during the period that the agreement does not comply with the Stamp Act would be rendered invalid until such defect is cured.
Legal landscape post N.N. Global: Interpretation by Indian High Courts
Recently, Indian High Courts have trodden the difficult line of observing the principles laid down in N.N. Global while being cognizant of India's strides toward becoming an arbitration-friendly jurisdiction. Faced with disputes where parties have contended inadequate stamping to impound agreements, dismiss applications for appointment of arbitrator, or set aside awards, courts have had to exercise caution in following N.N. Global to discourage unwarranted litigation.
Alliance Import & Chandan Chatterjee- Unstamped agreements and s.11 applications:
In Alliance Import & Export v. GHCL Ltd. ("Alliance Import") before the Bombay High Court, in an application under s.11 of the Arbitration and Conciliation Act, 1996 6 The amicus curiae cited Vidya Amin Tata Capital Financial Services Ltd. v. Kunal Structure (India) Pvt. Ltd. to emphasize the need for the relevant Stamp Act provisions to support the claims.7 The Court concluded that it was duty bound to uphold the N.N. Global decision and Section 33 of the Maharashtra Stamp Act, 1958 while impounding fixture notes and disposing of the arbitration application.
However, the Chhattisgarh High Court, in Chandan Chatterjee v. Gita Sundararaman & Ors., ("Chandan Chatterjee") interpreted insufficiency of stamp duty as, "at the worst, curable by impoundment."8The Court distinguished Chandan Chatterjee from N.N Global, observing that while in N.N. Global the agreement was 'ex facie' insufficiently stamped, in Chandan Chatterjee, the actual stamp payable required interpreting the terms and rights created in the agreement. The Court acknowledged its restricted authority under S. 11(6A) of the Arbitration Act and ruled that the newly appointed arbitrator would assess the insufficiency of stamping and impound the agreement under the Stamp Act.
Ambience Developers- What happens when an arbitrator is successfully appointed?
While N.N. Global adjudicated on the appointment of an arbitrator, the judgment did not address situations where an arbitrator was successfully appointed. In Ambience Developers & Infrastructure v. Zesty Foods, the Delhi High Court was approached with a review petition to reverse the court's order for the appointment of an arbitrator based on an inadequately stamped agreement. The Court stated that given its limited powers under S.11, it is the arbitrator that must adjudicate on inadequacy of stamp duty and take recourse under S. 33 of the Stamp Act to impound the agreement.9
ARG Outlier: Award rendered on an insufficiently stamped agreement:
The Delhi High Court, in ARG Outlier Media Pvt. Ltd. v. HT Media Ltd., addressed the issue of setting aside an award rendered on an insufficiently stamped agreement in a section 34 application of the Arbitration Act. The Court ruled that an award based on an unstamped agreement could not be invalidated solely due to this deficiency. It said that a court cannot act as a court of appeal against the award; rather, the court could only impound the agreement and recommend stamping. Dismissing the application, the Court concluded that it lacked the powers to intervene in enforcing the award on the grounds of insufficient stamping.10
Actions courts can take when an arbitration agreement is unstamped or insufficiently stamped
Following N.N. Global, the Delhi High Court, in Splendor Landbase v. Aparna Ashram Society & Anr., stated that the impounded agreement may be sent to the collector, who will collect stamp duty and penalties following the procedures in S. 40 of the Stamp Act. The Collector would then certify that proper stamp duty has been paid, and the agreement would be admissible as evidence under S. 42 of the Stamp Act.
Alternatively, the court could turn to S. 35(a) of the Stamp Act to allow payment of stamp duty and penalty, after which the agreement could be acted upon under S. 11 of the Arbitration Act and the appointment of an arbitrator could be undertaken.11
Supreme Court refers the issue of validity of unstamped or inadequately stamped arbitration agreement to a 7-Judge Constitution Bench
On 26 September 2023, the Supreme Court of India, led by a five-judge bench headed by Chief Justice DY Chandrachud, referred the crucial issue of whether unstamped or insufficiently stamped arbitration agreements are enforceable to a seven-judge bench. This decision came during the consideration of a curative petition challenging its 2020 decision in M/s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities Vs. M/s Bhaskar Raju & Brothers that had rendered arbitration clauses in insufficiently stamped agreements unenforceable.12 The Supreme Court recognized the substantial significance of this issue, which had created uncertainty in arbitration law and led to the reopening of older agreements. Significantly, the Supreme Court renamed the curative petition case as "In Re Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899", indicating that the Supreme Court is cognizant of the need for a more comprehensive examination of the implications of N N Global on India's position as an arbitration hub. The hearing of the curative petition has been concluded and the Supreme Court has reserved judgement.
The contrary views of the Chhattisgarh High Court and the Bombay High Court for applying N.N. Global in applications for appointment of arbitrators only serves to highlight the uncertainty caused by N.N. Global. The lack of clarity also arms the opposing party with instruments to delay arbitration proceedings thereby undermining arbitration's speedy resolution. Consistency in enforcing awards and alignment with international obligations are crucial for providing a pro-arbitration regime that enhances India's status as a seat of arbitration.
As India strives to solidify its position as an international arbitration hub, it is crucial that the Indian government undertake a comprehensive policy review in light of the Indian Supreme Court's stance in N.N. Global on the application of the Stamp Act to arbitration agreements. The 7-judge bench of the Supreme Court has reserved judgement in the curative petition filed on the issue of the validity of unstamped or inadequately stamped arbitration agreements. This allows the Supreme Court to reconsider its ruling and address the uncertainty raised by N.N. Global. There is an opportunity to provide statutory clarity as well by T K Vishwanathan committee formed by the Government of India to examine arbitration law reforms. This Committee should delve into the implications of N.N. Global and provide a statutory solution to the concerns that have arisen from the implementation of the Indian Stamp Act on arbitrations.
1. Partner at Dentons Link Legal. (Views are personal)
2. Fifth-Year Student at Lloyd Law College, Greater Noida.
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