Arbitration Clause In Unstamped Agreements Enforceable? CJI Says Curative Petition Will Be Heard Soon, Seeks Assistance Of Specialised Lawyers

The Supreme Court on Wednesday said that it will soon hear the curative petition on the issue whether that unstamped/insufficiently stamped arbitration agreements are unenforceable.

Chief Justice of India DY Chandrachud, who was presiding over a 5-judge bench, said that the curative petition might be heard next week. CJI also invited lawyers specialised in arbitration law to assist the Court in the matter, regardless of whether they are appearing for any of the parties involved in the case.

The bench, also comprising Justice Hrishikesh Roy, Justice PS Narasimha, Justice Pankaj Mithal, and Justice Manoj Misra, had convened to hear a reference on another issue relating to the Arbitration and Conciliation Act 1996 - whether a person, who is ineligible to be appointed as an arbitrator, can appoint an arbitrator. During the sitting, CJI made the statement regarding the curative petition on the arbitration-stamping issue.

"Curative petition on the issue of registration and stamping– that may be taken up. I will just list it possibly next week or something. We would like your assistance. Irrespective of whether you are appearing in that matter or not, we would like assistance. Those who would like to be heard, contact the court master. He will give you the date when it is on...various other laws are involved– the Stamp Act, etc. We will hear the review and settle the law. If you feel that there are some points for consideration and we may have to refer to a seven bench, tell us", CJI said.

Recently, a 5-judge comprising CJI DY Chandrachud, Justices SK Kaul, Sanjiv Khanna, BR Gavai and Surya Kant had agreed to hear in open court the curative petition on the issue (Bhaskar Raju and Brothers and Anr V. s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities and Ors). This curative petition is filed against a 2020 judgment of a 3-judge bench which held that an arbitration clause in an agreement which is required to be duly stamped, was not sufficiently stamped, cannot be acted upon by the Court.

In April this year, a Constitution Bench comprising Justice K.M. Joseph, Justice Ajay Rastogi, Justice Aniruddha Bose, Justice Hrishikesh Roy and Justice C.T. Ravikumar had answered the reference on the issue by a 3:2 majority. The majority had decided that an instrument which is not stamped cannot be said to be a contract enforceable in law within the meaning of S. 2(h) of the Contract Act.

In the Constitution bench judgement(N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd), Justice Joseph in concurrence with Justice Bose and Justice Ravikumar had decided that "an instrument which is exigible to stamp duty may contain an arbitration clause and which is not stamped cannot be said to be a contract enforceable in law within the meaning of S. 2(h) of the Contract Act and is not enforceable under S 2(g) of the Contract Act”.

Justice Rastogi and Justice Roy concluded that non-stamping or insufficient stamping of the substantive instrument would not render the arbitration agreement unenforceable. The minority judgment noted that stamp deficiency being a curable defect would not render the arbitration agreement void.

As regards the reference on the issue whether an ineligible person can appoint an arbitrator, the court had earlier decided to defer the matter for two months in view of the constitution of an expert committee to review the arbitration law in India. Today, Attorney General for India R Venkataramani stated that the review process was still underway and sought for deferring the hearing further. The CJI accepted the request and said–

"The AG states that a consultative process is being carried out by the government on the proposed amendments to the Arbitration and Conciliation Act 1996. It has been submitted that reference to the Constitution bench may be taken up by the middle of November at which point of time there may be clarity on the law."

The committee, headed by Dr. T.K. Vishwanathan, Former Secretary of the Department of Legal Affairs, was constituted by the Ministry of Law and Justice on June 14, 2023.