Indian supreme court decision confirms it is not essential for arbitration agreements to be stamped

The seven-judge bench overturned a previous ruling and found that “unstamped arbitration agreements are enforceable”. The decision (151 pages/1012 KB)  is “important for parties in Indian arbitration as it allows them to plan practically for local law requirements like stamp duty when entering into arbitration agreements”, said construction arbitration expert Mohammed Talib of Pinsent Masons.

The previous ruling (298-page / 1.62MB PDF)  by five judges in April, sparked concerns over the enforcement of arbitration agreements if the contracts were governed by Indian law, because of the Indian Stamp Act of 1899. Under the act, all agreements are required to be stamped or have a stamp duty paid on them, to benefit the Indian government. This meant that arbitration agreements that are not stamped would not be admissible as evidence under Indian law.

However, in the latest decision the Indian Supreme Court said that when parties sign an arbitration agreement, they are regarded to independently sign the arbitration agreement. This means the courts can decide whether an agreement exists, instead of whether it is valid or not. It is then down to the arbitrator to determine validity. Talib said that the decision helps to confirm to all parties that the role of the court in India and is a good indication that the court will not continue to expand the role of the court system into arbitration, but instead continue to support autonomy of the tribunal.

The Supreme Court ruling said: “When a party produces an arbitration agreement or its certified copy, the referral court only must examine whether an arbitration agreement exists in terms of Section 7 of the Arbitration Act. The referral court under Section 11 is not required to examine whether a certified copy of the agreement/ instrument/ contract discloses the fact of payment of stamp duty on the original. Accordingly, we hold that the holding of this Court in SMS Tea Estate (supra), as reiterated in N N Global 2 (supra), is no longer valid in law.”

The previous Supreme Court decision limited the situations in which Indian-seated arbitrations could proceed. However, the recent decision provides more scope for arbitration proceedings in India, with the decision to overturn “important to confirm the development of India as a pro-arbitration seat”, Talib added.

Arbitration expert  Wee Jian Ang of Pinsent Masons said that the decision to supersede “highlights that this kind of curable problem will not be allowed to derail the progress of arbitration” in India. However, the expert said that the decision could be “a short-term problem as experienced parties will still need to ensure the agreements are duly stamped”.