Seven-judge Constitution Bench of Supreme Court reserves verdict on validity of unstamped arbitration agreements

A seven-judge Constitution Bench of the Supreme Court on Thursday reserved its verdict in the batch of petitions dealing with the question of whether unstamped arbitration agreements are valid in law. [In Re: interplay between Indian Stamp Act and Indian Arbitration Act].A Bench of Chief Justice of India (CJI) DY Chandrachud and Justices Sanjay Kishan Kaul, Sanjiv Khanna, BR Gavai, Surya Kant, JB Pardiwala and Manoj Misra finished hearing arguments today..Last month, the Supreme Court had referred the issues decided by a five-judge Constitution Bench judgment in NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd & Ors to a seven-judge bench for reconsideration.The five-judge Constitution Bench in NN Global had on April 25 held by a 3:2 opinion that unstamped arbitration agreements are not valid in law.Soon after, the Union Law Ministry had constituted an expert committee to recommend reforms to the Arbitration and Conciliation Act and to examine the functioning of arbitration law in the country..On Wednesday, the seven-judge Bench orally expressed its reservations with the decision of the five-judge Bench, saying that there were exhaustive limits on judicial intervention in such matters..During the course of yesterday's hearing, Senior Advocate Arvind Datar submitted that the role of the courts was only to examine whether the arbitration agreement existed or not."Stamp or not stamped should be seen by the tribunal and should not be subjected to judicial pitfalls. I do not mean to be disrespectful."Justice Khanna then remarked, "Stamping has nothing to do with validity."The CJI weighed in, saying, "An unstamped agreement is not invalid.".Datar had begun on Wednesday by arguing that the purpose of Section 11(6)(a) of the Abitration Act is to remove the deadlock in appointment of arbitrators.He said that the five-judge Bench in the NN Global decision contradicted the Indian Contract Act and the Stamp Act, adding that the validity of the contract has nothing to do with stamping. On a related note, the CJI renamed the cause title to: In Re: interplay between Indian Stamp Act and Indian Arbitration Act..Senior Advocate Gourab Banerji, the Amicus Curiae, submitted that the case will have a bearing on all Section 11 (Arbitration Act) applications in the future.“Even after the 2015 amendments [to the Act], the ghost of SBP continues”, he said.In its 2005 decision in SBP and Co vs Patel Construction, the top court had held that courts can appoint arbitratrors even on the judicial side, in cases where parties are unable to agree on one.Senior Advocate Darius Khambata argued,"Ultimately the Stamp Act is a means to get revenue for the state and arbitration assists in the process of getting that revenue. Now we are in the process of making India an arbitration hub; now the issue of stamp must be left to the tribunals and the first look should be of the tribunal to decide the matter.".During today's hearing, he argued that an arbitration arbitration is a separate contract in itself."Something that is ex-facie meritless, or ex facie no arbitration agreement then court will see under 11(6)(a), but anything other than that goes to the tribunal. If in doubt refer it...stamp will not be such an issue because it is a curable defect"."The whole object of sending parties to arbitration is stumped and the purpose is defeated," the CJI remarked.Justice Kaul added,"If there is a possibility of being cured how do you throw it out in the threshold? Do we have to look into Stamp Act at all under 11(6)(a)? That is a question."Khambata then stressed that the trend has been towards encouraging institutional arbitration and empowering the arbitral tribunals more with a view to minimise judicial intervention..Senior Advocate Shyam Divan raised grievance with the nature of the proceedings, given the Court's limited curative jurisdiction.Justifying the constitution of the seven-judge Bench, the CJI said,"A position of law that creates great uncertainty and public injury to the world of business should not be left to the vagaries of future litigation. We are conscious of the need to do justice in that case.".The curative petition in this case stems from a review petition filed against a Karnataka High Court order, which had been dismissed by the top court in July 2021.The High Court had, in December 2014, considered a lease deed with an arbitration agreement between the instant parties as valid and appointed an arbitrator. In February 2020, a three-judge Supreme Court Bench had set aside the same..The case arose after a charitable trust (respondents) had entered into a lease agreement with the appellants to develop a multi-purpose community hall and office complex, as well as for the renovation of some properties on their land. The agreement, which was for 38 years, was signed in 1996 and contained a clause for a security deposit of ₹55 lakh.In 2008, a suit was filed by the trust against the appellants, pointing out that only ₹25 lakh had been deposited, while a samadhi in the property had been desecrated. Further, the appellants were accused of trying to file a fresh sale deed in connivance with some of the trust's members.The Bengaluru City Civil Court passed an interim order of status quo. Two years after the suit proceedings commenced, the appellants invoked the arbitration clause before the Karnataka High Court in 2013.Notably, after the orders of a single-judge, the Judicial Registrar noted that the document in question was a lease deed and not an agreement to lease. Therefore, the Registrar directed the appellants to pay a deficit stamp duty and penalty of ₹1,01,56,388.However, the High Court subsequently ignored the Registrar's findings and appointed an arbitrator. The Supreme Court in its curative jurisdiction will now consider whether the same was justified..Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.