Recently, in the matter of N.N Global Mercantile Pvt. Ltd. V. M/s Indo Unique Flame Ltd. & Ors.¹, a constitution bench of the Supreme Court reserved its order in the reference, pertaining to the issue of the validity and enforceability of the arbitration clause in an unregistered and unstamped contract.

In N. N Global Mercantile, the petitioner and the respondent entered into a sub-contract containing an arbitration clause. Thereafter, a dispute arose between the parties and the respondent invoked the bank guarantee furnished by the petitioner. A suit was filed regarding the said invocation. The respondent then, filed an application under Section 8 of the Arbitration and Conciliation Act, 1996² in the suit seeking reference of disputes to arbitration. The key issue raised in this matter was whether the absence of a stamp or a valid registration on the sub-contract renders the arbitration clause in the said contract invalid. In its much applauded and prominent judgement, the Supreme Court allowed reference to arbitration even when the document containing the arbitration clause was unstamped or insufficiently stamped. This judgement was highly suggestive of the pro-Arbitration approach adopted by the Court and their attempt to expose the country to an advanced and highly progressive arbitration regime, similar to the revered international arbitration hubs across the world.

This is not the first time when this issue has fallen into judicial scrutiny. After N. N Global Mercantile, the Supreme Court, in the judgement of Intercontinental Hotels Group v. Waterline Hotels Pvt. Ltd.³, made an effort to provide some clarity on the issue of enforceability of an arbitration clause in an unstamped agreement. However, the judgement rendered in Intercontinental Hotels added an additional layer of ambiguity by contemplating a distinction between agreements which are completely unstamped and those which are insufficiently stamped. There has been a timeline of conflicting judgements on this precarious issue which has created a void of uncertainty regarding the legality of an arbitration clause in an unstamped contract.

In the present reference to the constitution bench to decide upon the question of law in N.N Global Mercantile, since there was no contesting respondent, an extensive argument was presented by the Amicus Curiae appointed by the court. The primary submission was that the determination that an arbitration agreement is duly stamped or not must be left to the arbitrator. It was further argued that upon exercise of jurisdiction under Section 11(6)⁴ of the Arbitration and Conciliation Act, 1996, the court should confine itself to the examination of the existence of an arbitration agreement. The ambit of Section 16, which deals with the competence of an arbitral tribunal to rule on its jurisdiction, is wide enough to allow the arbitrator to make determination with respect to stamping of the instrument.

The Amicus further submitted that under Section 16, apart from jurisdiction, the arbitrator is contemplated to decide on objections with respect to the existence and validity of the arbitration agreement, while under Section 11(6A), which deals with appointment of arbitrators by Courts, the consideration by the Court is confined to the examination of the existence of an arbitration agreement.

The judgement of the constitution bench is much awaited because it holds out an optimistic candle that the court would finally lay to rest the present issue by a final and conclusive decision which would extinguish the ambiguity regarding the validity of arbitration clause in an unstamped or insufficiently stamped agreement.

By - Prachi Pandey