Revisiting The Synthesis Of Stamping Requirements And The Validity Of Arbitration Clauses

Introduction 

In the arbitration mechanism, minimal level of judicial interference is ordinarily expected in order to accelerate arbitral efficacy. The judicial authorities are subject to ascertain the arbitrability of the dispute being the subject matter of the proceedings.

The Trajectory of Legal Position

The maintenance of judicial discipline is peremptory for ensuring consistency and certainty in the development of law. For this reason, it is imperative to recognize irregularities and appositely harmonize them. 

I.                 SMS Tea Estates v. Chandmari Tea Company (2011)

The inconsistencies between the Stamp Act and the Arbitration Act were initially addressed in the SMS Tea Estates case. Herein, the court took a constricted stance by limiting the scope of rectifications and the usage of alternative dispute resolution. The confliction arises on the fact that an unstamped instrument is permitted to serve as valid evidence for particular purposes but the appointment of arbitrator is solely barred on the instance of unregistration. 

II.               Garware Wall Ropes v. Coastal Marine Constructions and Engg (2019)

In this case, the court upheld that the appointment of arbitrator cannot be proceeded unless the unstamped instrument is sufficiently stamped along with penalty duly paid. 

III.             Pravin Electricals v. Galaxy Infra and Engineering (2021)

In Pravin Electricals v. Galaxy Infra, the court elucidated on the anomalous nature of the Sections 8 and 11 of the Arbitration Act with regard to appeal, judicial intervention and stage of impoundment of unstamped instrument. The court asserted that the Sections 8 and 11 are of complementary nature, thereby subjecting the court to impound the unstamped document during preliminary review under Section 11(6A) of the Arbitration Act.

 IV.            NN Global Mercantile v. Indo Unique Flame (2021)

The judgments of SMS Tea Estate and Garware decelerated the arbitration mechanism by resorting to technical and legal compliances. As a result, the findings were overruled by the NN Global Mercantile case , considering an unstamped arbitration agreement enforceable which can still be acted upon. The bench reviewed the Hindustan Steel v. Dilip Construction case and furthered that the provisions of the Stamp Act constitute fiscal measures in order to collect revenue, thus payment of the stamp duty and penalty deficit renders the instrument admissible as valid evidence. 

V.              N.N. Global Mercantile v. Indo Unique Flame (2023)

A five-judge bench overruled the NN Global Mercantile case and went back to square one by relying on SMS Tea Estate and Garware Judgments, wherein the court vested the impoundment power to the judicial authority at prereferral stage. Justice H. Roy dissented that impounding an arbitration agreement at the pre-referral stage will only defeat the purpose of the Arbitration Act, and for that reason should be avoided. He proposed one way to harmonize Section 35 of Stamp Act and Section 11 of the Arbitration Act by requiring the Section 11 judge to defer necessary stamping and impounding to the arbitrator or collector, as applicable. 

 VI.            Re: Interplay between Arbitration Agreements (2023)

In Re: Interplay, the bench overturned the earlier five-judge bench verdict. It held that arbitration agreements having unstamped or insufficiently stamped instruments are not invalid, unenforceable or non-existent. The court maintained that Arbitration Act is a self-contained code where an arbitration agreement is juridically independent from the underlying contract in which it is stipulated, and deemed the cases SMS Tea Estate and Garware erroneous. 

Conclusion 

The incongruity among provisions raises questions on the jurisdiction of adjudication and arbitration. In so far as the usage of arbitration is concerned, the requirements of stamping of an instrument posed a hindrance by unnecessarily prolonging the proceedings. Although the stamping requirements have alleviated over time, it is crucial to appropriately balance an efficacious process of arbitration and referral role of courts in the arbitral process. 

References:

·       M/S SMS Tea Estates Private Ltd v. M/S Chandmari Tea Company Private Ltd, 2011 (14) SCC 66 

·       Pravin Electricals Pvt. Ltd. v. Galaxy Infra and Engineering Pvt. Ltd, AIR OnLine 2021 SC 149 

·       N.N. Global Mercantile Pvt. Ltd v. Indo Unique Flame Ltd, (2021) 4 SCC 379

·        Hindustan Steel Ltd. v. Dilip Construction Company, (1969) 1 SCC 597

·       N.N. Global Mercantile Pvt. Ltd v. Indo Unique Flame Ltd, (2023) 7 SCC 1, Judgment dated 25 th April 2023

·        Dissenting Opinion of Justice H Roy. https://www.scobserver.in/wp-

·       content/uploads/2023/04/JusticeHrishikesh-Roys-Dissenting-Opinion.pdf Last visited on 7 th January 2025.

·        Re: Interplay between Arbitration Agreements under The Arbitration and Conciliation Act 1996 and The

·       Indian Stamp Act 1899, Curative Petition (C) No. 44 of 2023, Judgment dated 13 th December 2023.

·       Pasl Wind Solutions (P) Ltd v. GE Power Conversion (India) (P) Ltd, (2021) 7 SCC 1

·       Redfern and Hunter on International Arbitration, 7th edn, Oxford University Press, 2023

This article is authored by Riya Sharma. She was among the Top 40 performer in the Contract Drafting Quiz Competition organized by Lets Learn Law.