SC to revisit order that ruled unstamped arbitration agreements as not enforceable

Arbitration, Supreme Court

The Supreme Court on September 26 decided to reconsider its April order which held that unstamped arbitration agreements are not legally enforceable, a move which will have a bearing on the way arbitration cases proceed.

A bench led by Chief Justice of India (CJI) DY Chandrachud referred the case to a seven-judge bench, which would hear the case on October 11, saying the decision stemmed from considering the consequences of the five-judge bench judgment.

Appearing for petitioners, senior advocate Arvind Datar argued that the earlier judgment had not considered various aspects of the stamp and contracts acts, as a result, it had become unsustainable.

The judgment expanded the scope for the court's interference in arbitration proceedings, thereby making it more strenuous for parties to arbitrate, he said.

Senior advocate Shyam Divan, who appeared for a respondent, requested the case be disposed of on facts but did not object to the court reconsidering the order.

In April 2023, a five-judge constitution bench led by Justice KM Joseph held that unstamped arbitration agreements were not legally enforceable.

Lawyers including Harish Salve said the judgment may prolong arbitration proceedings and also act against the very intention of arbitration law.

The law requires that the stamp duty for a document be paid for it to become enforceable legally. The case was referred to the constitution bench after two three-judge benches came to different conclusions.

In 2020, a bench led by CJI NV Ramana had held that stamping of an arbitration agreement was mandatory for it to be referred to an arbitrator.

In 2021, a bench led by Justice Chandrachud, who took over as the CJI in late 2022, said an arbitration agreement would not be rendered invalid, unenforceable or non-existent, on account of non-payment of stamp duty. The bench, too, referred the case to a larger bench to settle the matter.