Case: – Bhaskar Raju and Brothers and Anr v/s Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities and Ors.; Curative Petition (C) No. 44 of 2023
In a significant development of the Hon’ble Supreme Court of India, a seven-judge bench of the Supreme Court delivered a landmark judgment clarifying the enforceability of arbitration agreements in unstamped or inadequately stamped agreements. The ruling overturned a previous judgment and provided key insights into the treatment of stamping defects in arbitration clauses.

  1. Enforceability of Unstamped Agreements: The Supreme Court held that agreements lacking proper stamping are not void ab initio or unenforceable; instead, they are deemed inadmissible in evidence. This crucial distinction emphasizes that such agreements can still be enforced after curing the stamping defect.
  2. Curability of Stamping Defects: The court highlighted that non-stamping or inadequate stamping is a curable defect under the Indian Stamp Act. This implies that parties can rectify the stamping issue, ensuring the enforceability of the arbitration agreement.
  3. Jurisdiction of Courts and Arbitral Tribunals: The judgment clarified that objections related to stamping should not be determined under Sections 8 or 11 of the Arbitration Act. Instead, the court’s role is to examine the prima facie existence of the arbitration agreement. Matters pertaining to stamping fall within the purview of the arbitral tribunal.
  4. Overruling Previous Judgments: The decision explicitly overruled the judgment in M/s. N.N. Global Mercantile Pvt. Ltd. v. M/s. Indo Unique Flame Ltd. And Ors, which had held by a 3:2 majority that unstamped arbitration agreements are not enforceable. The Court also overturned the decision in NN Global 2 and SMS Tea Estates.
  5. Minimizing Court Supervision in Arbitration Contracts: Chief Justice of India emphasized one of the objectives of the Arbitration and Conciliation Act—to minimize the supervisory role of courts in arbitration contracts. The obligation of the court to decide stamping issues under Sections 8 and 11 was deemed contrary to this legislative purpose.
    The case originated from a curative petition challenging the 2020 ruling in Bhaskar Raju and Brothers v. Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities and Ors. The curative petition questioned the correctness of the earlier decision in NN Global, leading to the constitution of a seven-judge bench.
    The Petitioners argued that the existence of an arbitration agreement and its validity are distinct concepts. They contended that the court’s role, under Section 11 of the Arbitration Act, is confined to examining the existence of the agreement, while the validity is a matter for the arbitrator. The respondents questioned the referral to a seven-judge bench, asserting that curative jurisdiction applies only to individual injustices.
    The Supreme Court’s ruling marks a significant shift in the approach to unstamped arbitration agreements, recognizing their enforceability after rectifying stamping defects. The decision aligns with the legislative intent of minimizing court interference in arbitration contracts and underscores the curability of procedural defects. This landmark judgment provides clarity and coherence in the interplay between arbitration agreements and stamping requirements.

Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate

Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/

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