In Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899
Background
Under India's Stamp Act, any commercial document ("instrument") that has not paid the required stamp duty cannot be admitted as evidence or "acted upon" until the duty (plus penalty) is paid. Many commercial contracts contain an arbitration clause, and a running controversy had built up over years of conflicting Supreme Court decisions as to whether a company or person could still send a dispute to arbitration if the underlying contract had not been properly stamped, or whether the arbitration clause itself was legally non-existent until the stamp duty was paid. A five-judge Constitution Bench in an earlier 2023 decision ("NN Global 2") had ruled, by a 3:2 majority, that an unstamped arbitration agreement is void and cannot be acted upon at all. A curative petition (the rarest and final form of Indian Supreme Court review, used only to correct a serious miscarriage of justice) was then filed asking a larger bench to revisit that ruling.
Decision Breakdown
A seven-judge Bench overruled the earlier "NN Global 2" decision (along with two older precedents, SMS Tea Estates and Garware Wall Ropes, on this point). It held that failing to stamp, or under-stamping, a contract makes that document merely "inadmissible" in evidence, not void or non-existent, and that this is a curable defect fixable simply by paying the duty plus penalty later. It ruled that when a court is asked under the Arbitration Act to appoint an arbitrator or refer parties to arbitration, it should only check whether an arbitration agreement "prima facie exists". It should not get bogged down examining or resolving stamping objections at that stage. Any dispute about whether the document was properly stamped should instead be examined by the arbitral tribunal itself once appointed, consistent with the arbitration law's overall design of minimizing court interference and letting arbitral tribunals rule on their own jurisdiction. Justice Khanna's separate opinion agreed with this conclusion but added his own detailed reasoning on how Sections 33, 35, and 36 of the Stamp Act should be read.
Lesson Learnt
A technical revenue-collection defect (like unpaid stamp duty) in a business contract does not kill an arbitration clause inside it: the clause remains valid and can send the dispute to arbitration, with the stamping issue simply deferred to be sorted out (and cured, if needed) by the arbitrator later, rather than blocking access to arbitration altogether.