Several judicial rulings have addressed contrary judgements on "whether arbitration clause in an unregistered or unstamped agreement would be regarded as valid or invalid?" Many High Courts and even the Supreme Court rendered contradictory judgments. Accordingly, the matter was referred to the constitutional bench in the case of
The Constitutional Bench has now addressed this issue wherein it has held that an unstamped agreement in not admissible. In this article, we will analysis the rational of this Constitutional Bench Judgement which has far reaching consequences.
Brief Facts
A subcontract was entered between the Petitioner and Respondent containing an arbitration clause. However, on account of some disagreements, the Respondent invoked the Bank Guarantee provided by the Petitioner. Following that, a lawsuit was brought about before the
The three member bench of the Supreme Court while dealing with this case held that the rulings of (a)
Judgement
The
- The bench dealt with the scope and nature of Section 11 (i.e. Appointment of Arbitrators) and Section 16 (i.e. Competence of
Arbitral Tribunal to rule on its Jurisdiction) of the Arbitration Act. - Bench further opined on Section 16, while referring to 'Kompetenz - Kompetenze' which is a legal doctrine, whereby a legal body, such as a court or arbitral tribunal is empowered and has competence to rule on its own jurisdiction (including validity of the arbitration agreement).
-
The majority upheld the view taken in
SMS Tea Estates andGarware Wall Ropes that an unstamped contract containing an arbitration agreement and the steps to be taken by the Court represent the right position in law. - The majority further concurred that "an instrument which is exigible to stamp duty, may contain arbitration clause and which is not stamped, cannot be said to be a contract which is enforceable in law within the meaning of section 2(h) of the Contract Act and is not enforceable under section 2(g) of the Contract Act.
However, minority bench members flagged concerns that such a judgement of majority would stall the very objective of Arbitration Act as non-stamping or insufficient stamping may delay the process of appointment of Arbitrators thereby leading to delay in adjudication of disputes.
While the judgment provides much clarity on the long prevailing issue of admissibility of unstamped documents for adjudication of arbitral disputes, the judgement may not bode well for
Originally published by Bar & Bench.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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