STAMPING OUT UNCERTAINTY: THE LEGAL FIASCO OF

UNSTAMPED ARBITRATION AGREEMENTS IN INDIA

I. INTRODUCTION AND OVERVIEW OF THE ACTS IN PLAY

“It is to be expeditious where the law is slow, cheap where the law is costly, simple where the
law is technical, a peacemaker instead of a stirrer-up.”1

The above quote correctly puts that, Indian arbitration landscape has undergone a
metamorphosis in recent years, with the interplay between the Arbitration and Conciliation
Act, 1996 (Arbitration Act) 2 and the Indian Stamp Act, 1899 (Stamp Act) 3 being a key area
of focus. The recent landmark ruling by the seven-Judge Bench in N.N. Global Mercantile (P)
Ltd. v. Indo Unique Flame Ltd.4 (hereinafter referred as N.N. Global III) whose cause title
was changed to be “In Re : Interplay between the arbitration agreements under the Arbitration
and Conciliation Act, 1996 and the Indian Stamp Act, 1899”, has not only corrected past
inconsistencies but has also paved the way for a more robust and arbitration-friendly legal
framework. This pro-arbitration ruling has been widely accepted by the arbitration community
and is a testament to India’s commitment to promote alternative dispute resolution
mechanisms.

Through this essay, we make an attempt to analyse the interplay between these two crucial
legislations, by delving into their complexities. In the intricate dance between the Stamp Act
and the Arbitration Act, a delicate balance must be struck between the fiscal needs of the state
and the autonomy of arbitral proceedings, along with providing a comprehensive understanding
of the current state of arbitration in India and the challenges that lie ahead.

1
Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) 3.
2
The Arbitration and Conciliation Act, 1996.
3
The Indian Stamp Act, 1899.
4
Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp
Act, 1899, In re, 2023 SCC OnLine SC 1666.

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 A. Stamp Act: A financial homage to the state's coffers.

The Stamp Act, a fiscal statute intricately woven into the fabric of legal transactions, serves as
the guardian of revenue for the state, and its provisions are required to be mandatorily adhered.
In accordance with Section 17 of the Stamp Act 5, all instruments subject to duty and executed
in India must undergo stamping either before or at the time of execution. Non-compliance with
this requirement triggers penalties, as specified in Section 62 of the Stamp Act 6. One of the
crucial provisions, Section 35 of the Stamp Act7 expressly specifies that any instrument, which
is not duly stamped, is inadmissible in evidence and according to Section 42 of the Stamp Act 8,
an instrument achieves admissibility once the payment of duty, along with any applicable
penalty, is duly completed. These provisions collectively establish a structured framework
within the Stamp Act, emphasizing the significance of adherence to stamping requirements for
the legal admissibility of instruments.

B. Arbitration Act: A self-contained code.

Arbitration is designed for prompt and efficient dispute resolution 9, and the enactment of the
Arbitration Act in India serves as a comprehensive and self-contained legal framework10,
including both international and domestic commercial arbitration, ensuring a fair efficient
procedure with reasons for awards, limiting tribunal jurisdiction, minimizing court
involvement, allowing enforcement of awards, recognizing the equivalence of conciliation
agreements to arbitral awards, and facilitating the enforcement of foreign awards. India was
incorporated into a pro-arbitration regime in accordance with the Geneva Convention,
UNCITRAL Model Law, and New York Convention by means of this legislation. 11
The legislature aimed for very minimum judicial interference and arbitral autonomy, but that
does not exclude judicial interference altogether, but only limits it to the situations that requires

5
The Indian Stamp Act, 1899, § 17.
6
The Indian Stamp Act, 1899, § 62.
7
The Indian Stamp Act, 1899, § 35.
8
The Indian Stamp Act, 1899, § 42.
9
Food Corpn. of India v. Indian Council of Arbitration, (2003) 6 SCC 564.
10
Subal Paul v. Malina Paul, (2003) 10 SCC 361.
11
Shubham Tripathi, ‘Stamped Out Or Not: Finality To The Issue Of Unstamped Arbitration Agreement’ N. N.
(Live Law, 26 December 2023) https://www.livelaw.in/law-firms/law-firm-articles-/unstamped-arbitration-
agreement-arbitration-and-conciliation-act-indian-stamp-act-curative-petition-ss-rana-co-245351 accessed 13
January 2023.

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assistance of judicial authorities for successful implementation and enforcement of arbitral
process.12

II. FLIP-FLOPS AND CONTRADICTIONS: A JUDICIAL ODYSSEY

The legal saga leading to N.N. Global III commenced nearly a decade ago in 2011 with the
SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd. (hereinafter referred as SMS Tea
Estates)13, which marked the genesis for a tumultuous journey characterized by contradictory
judgments and legal uncertainties. Though the central question was the validity of arbitration
agreements within unstamped or inadequately stamped contracts, the Supreme Court has
rendered decisions that exhibit a lack of consistency, which we term as ‘flip-flops’, and it is
necessary to respectfully highlight and analyse the flaws and contradictions that have
contributed to legal instability.

A. Sowing Seeds of Uncertainty: SMS Tea Estates

In the SMS Tea Estates case, the Supreme Court delved into the intricacies of the Stamp Act,
and had set the tone for subsequent developments. Section 35 of the Stamp Act14 emphasised
the inadmissibility of the instruments which are not duly stamped and posed a formidable
barrier, making it clear that the Court, in the absence of sufficient stamping, cannot act upon
the instrument. A distinction was drawn between a stamped but unregistered instrument and an
unstamped one. It was also clarified that an arbitration agreement is an independent entity from
the main contract and is exempted from registration under the Registration Act.15 However, the
dynamics changed when it came to stamping, where the Court held that if the agreement was
unstamped, it would necessitate impounding. Now, this non-enforceability of the unstamped
agreements, affected the very head start of the arbitration, going contrary to the very purpose
of the act that was promotion of arbitration in India and reduction of the burden of courts.

12
Union of India v. Popular Construction Co., (2001) 8 SCC 470; P Anand Gajapathi Raju v. P.V.G. Raju,
(2000) 4 SCC 539.
13
SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd. (2011) 14 SCC 66.
14
The Indian Stamp Act, 1899, § 35.
15
The Registration Act, 1908

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 B. Championing the autonomy of arbitration agreements: N.N. Global I

In the legal journey preceding N.N. Global III, a pivotal case, N.N. Global Mercantile (P) Ltd.
v. Indo Unique Flame Ltd. (hereinafter referred as N.N. Global I)16, grappled a 3-Judge bench
with the validity of arbitration agreements within unstamped or inadequately stamped
contracts. The Supreme Court, emphasizing the principle of separability, asserted that an
arbitration agreement stands independently from the underlying contract. Leveraging the
doctrine of kompetenz-kompetenz, articulated in Section 16(1) of Arbitration Act 17, the Court
upheld the Arbitral Tribunal's exclusive competence to adjudicate on jurisdiction-related
matters as well as on the matters of validity, existence and scope of the agreement.
Distinguishing prior decisions like SMS Tea Estates 18 and Garware Wall Ropes 19, the Court
maintained that the non-payment of stamp duty on the main contract doesn't invalidate the
arbitration agreement. However, it expressed reservations about certain conclusions in Vidya
Drolia20, prompting a reference to a 5-Judge Bench for authoritative settlement. Above all, this
judgement was in consonance with the intention of promoting arbitration, and making India a
pro-arbitration regime with minimum judicial interference.

C. A seismic shift: N.N. Global II

In N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. (hereinafter referred as N.N.
Global II)21, a 5-Judge Bench diverged from the precedents set in N.N. Global I, challenging
the stance taken in SMS Tea Estates. The majority opinion refuted the notion that non-stamping
or inadequate stamping of the main contract doesn't affect the validity of the arbitration
agreement, deeming it untenable. Contrary to N.N. Global I's foundation that arbitration
agreements are not subject to duty, N.N. Global II asserted that they are still liable for stamp
duty. Additionally, the decision delved into the principles of stamping instruments,
emphasizing the stringent enforcement of the Stamp Act for revenue safeguarding. The
Supreme Court, cautioning against the misuse of Stamp Act, clarified that admissibility as
evidence is contingent upon Section 42(2) of the Stamp Act, and an unstamped instrument is
subject to mandatory impounding under Section 33. In essence of this judgement, the absence

16
N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. (2021) 4 SCC 379.
17
The Arbitration and Conciliation Act, 1996, § 16(1).
18
Id. at 13.
19
Garware Wall Ropes Ltd. v. Coastal Marine Constructions and Engg. Ltd. (2019) 9 SCC 209
20
Vidya Drolia v. Durga Trading Corpn. (2021) 2 SCC 1.
21
N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. (2023) 7 SCC 1.

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of stamping deprives parties of legal safeguards and nullifies rights that would have been
upheld with appropriate stamping. The view taken herein lead to a delay in the process of
appointment of arbitrators, further delaying the process of dispute resolution.

D. Respectful navigation of the legal fiasco created by courts divergent perspectives

While N.N. Global I championed the autonomy of arbitration agreements from stamp duty
implications, N.N. Global II introduced a seismic shift, challenging established notions and
had the effect of increasing the burden on courts. The divergence prompts a thoughtful
reflection on the evolving jurisprudential landscape, inviting contemplation on the
harmonization of principles to foster legal certainty and coherence. NN Global II steered the
trajectory of arbitration in India in a direction contrary to global practices, where the validity
of arbitration agreements was consistently upheld. India found itself in the paradoxical position
of being a less arbitration-friendly jurisdiction by subjecting the Arbitration Act, a specialized
legislation, to the intricacies of the highly technical Stamp Act. This departure from the
intended purpose of the Act contributed to an unfavourable environment for arbitration in the
country.

III. JURISPRUDENTIAL ADVANCEMENT: N.N. GLOBAL III

Setting aside the N.N. Global II verdict, the larger seven-judge bench ruled that agreements
that are not stamped or insufficiently stamped are deemed inadmissible in evidence as per
Section 35 of the Stamp Act22, but are not rendered void or void ab initio or unenforceable if
arbitration agreement prima facie exists between parties. The Court ruled that NN Global II
prioritises the provisions of Stamp Act at the expense of the Arbitration Act, destroying the
very purpose of the Arbitration Act. The deficiencies in meeting formalities in the underlying
contract do not automatically render the arbitration agreement invalid, making it a curable
defect. The core of this judgment lies in acknowledging that non-stamping or inadequate
stamping is a rectifiable and curable error. It emphasizes the need to distinguish between courts
under Section 8 and Section 11 of the Arbitration Act. The referral court's role is limited to
assessing the prima facie existence of the arbitration agreement, while objections related to
stamping fall within the jurisdiction of the Arbitral Tribunal. In finality, the court overturned
the rulings in both N.N. Global II and SMS Tea Estates.

22
The Indian Stamp Act, 1899, § 35.

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For now the N.N. Global III has put a full stop on the instability surrounding the unstamped
arbitration agreements and due to the wide range of clarity it gives, it is certainly a
Jurisprudential advancement, which will severely benefit the realm of Arbitration in India.

E. Harmonious Construction; An Interplay of the Acts

It is quite certain that inconsistencies or contradictions may arise between two or more statutes
and in such situations, the courts are tasked with harmonious interpretation of inconsistent or
contradictory statues. It must not be forgotten that the object of the Stamp Act was never to
arm a litigant with a weapon of technicality to meet the case of their opponent. 23 Harmonious
interpretation should not defeat the purpose of the statute or render it ineffective, and ruled that
the Arbitration Act will have primacy over the Stamp Act or the Contract Act 24 as Stamp Act
is a general law, whereas Arbitration Act is a special law. The broad language of the non
obstante under Section 5 of the Arbitration Act signifies the legislative intent to curtail judicial
intervention during arbitration 25 and eliminate obstacles that might hinder the operation of this
special legislation. 26 Interference of provisions from other statutes in the operation of the
Arbitration Act is impermissible unless explicitly specified otherwise. The Arbitration Act
serves as a comprehensive and exhaustive legal framework for matters within its scope, and
any departure from its stipulated procedures would violate its essential provisions.

The principle of separability, affirming the autonomy of arbitration agreements from the
underlying contracts, has found recognition across various legal jurisdictions. In the United
Kingdom, the House of Lords decision in Heyman vs Darwins27 marked the inception of this
doctrine. Similarly, in the United States, the separability presumption is elucidated in the case
Prima Paint Corporation vs Flood & Conkling Mfg. Co.28 The doctrine is also enshrined in
Singapore's Arbitration Act, explicitly stating that an arbitration clause within a contract is
treated as an independent agreement. Internationally, both the New York Convention and the
UNCITRAL Model Law underscore the separability of arbitration agreements, emphasizing

23
Hindustan Steel Ltd. case, (1969) 1 SCC 597.
24
State of Tamil Nadu v. M K Kandaswami (1975) 4 SCC 745.
25
Union of India v. Popular Construction Co., (2001) 8 SCC 470; P. Anand Gajapathi Raju v. P.V.G. Raju,
(2000) 4 SCC 539.
26
State of Bihar v. Bihar Rajya M.S.E.S.K.K. Mahasangh, (2005) 9 SCC 129; Chandavarkar Sita Ratna Rao v.
Ashalata S. Guram, (1986) 4 SCC 447.
27
Heyman v Darwins Ltd [1942] AC 356.
28
Prima Paint Corporation vs Flood & Conkling Mfg. Co. 388 U.S. 395 (1967).

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their distinct nature from the underlying contracts. The ruling in N.N. Global III aligns with
this global trend, reinforcing the significance of the separability doctrine in arbitration
jurisprudence.

IV. LEGISLATIVE INTENT AND THE WAY FORWARD

"The aim of law is the maximum liberty of individuals." - John Rawls

N.N. Global III has upheld the real and practical legislative intents behind these acts by wiping
out the instability on unstamped arbitration agreements. Parliament envisioned Arbitration as
truly an alternative of dispute resolutions and aimed to make India a powerful arbitration seat,
and thus nothing should come in between and mess with the process of arbitration. Arbitration
is an important component in a developed economy and many arbitrations have been avoided
in India due to this technical complexity of stamping requirement. This judgement truly lays to
rest this ghost once in for all and now the object and wood of Arbitration Act is no more missed
by putting it at the mercy of the technicality of Stamp Act. This judgement truly means a lot
more and is a full stop to the no brainer that, revenue interests far more better served by
promoting arbitration than by collecting funds through stamp act. Legislatively, the Stamp Act
is rooted in the legislative objective of safeguarding public revenue rather than obstructing
commercial activities, seeks to preserve essential instruments vital for the smooth functioning
of trade and commerce. Viewing the deficiency in stamping as a curable defect, its impact
wanes once the State's revenue interest is secured. This imperfection is transient and doesn't
compromise the validity of arbitration agreements, and we truly believe that arbitrations should
not be and could not be derailed due to any frivolous or technical requirements.

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