Unstamped Arbitration Agreement No Enforceable

The Supreme Court in a recent judgment has given the interpretation of the arbitration agreement which has far-reaching consequences. The Apex Court ruled that in the absence of the payment of stamp duty under the Stamp Duty Act, the arbitration agreement is not a valid contract, and the same cannot be enforceable under the law. It is held by the Supreme Court that in case of non-payment of the stamp duty, the arbitration clause/agreement cannot be enforced and thus the dispute between the parties with regard to the main contract cannot be referred to arbitration.

The Constitutional Bench of Supreme Court comprising five judges, Hon'ble Mr Justice K.M. Joseph, Mr?Hon'ble Justice Anirudda Bose, Hon'ble Mr Justice C.T. Ravikumar, Hon'ble?Mr Justice Ajay Rastogi, Hon'ble Justice Hrishikesh recently by a majority judgment dated 25.04.2023 of 3:2 has held that the provisions of Sections 33 and the bar under Section 35 of the Stamp Act, applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Stamp Act, would render the Arbitration Agreement contained in the such instrument as being non-existent in law unless the instrument is validated under the Stamp Act.

The majority judgment is written by the Hon’ble Mr Justice K M Joesh and it was ruled by the Apex Court that the view taken by the Supreme Court in SMS Tea Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66 and followed in Garware [Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC 209: (2019) 4 SCC (Civ) 1 (2021) 4 SCC 379 3 324] that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-existent in law, and unenforceable, is the correct position in law and overruled the judgment N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited and others (2021) 4 SCC 379.