Amidst the current climate of “limitless uncertainty in the area of arbitration,” the Supreme Court has opted to convene a seven-judge bench to reexamine its ruling from April. This ruling asserted that an arbitration clause lacks legal enforceability if the accompanying agreement is either unstamped or inadequately stamped.
The April judgment had been anticipated to introduce additional delays in the appointment of arbitrators, adding an extra layer of scrutiny. Furthermore, it ran counter to India’s pro-arbitration stance.
A Constitution bench led by Chief Justice of India Dhananjaya Y. Chandrachud acknowledged the “larger ramifications and consequences” of the majority’s view in the NM Global case, emphasizing the need for a seven-judge bench to reassess the correctness of the five-judge bench’s stance.
This development transpired during the hearing of a curative petition that called for a reconsideration of the April 25 verdict.
The April judgment, decided by a 3-2 majority, heavily relied on the 1899 Indian Stamps Act, which mandates the compulsory registration or stamp duty for specific agreements. It also held that a court could examine the aspects of stamping and other compliances before an arbitrator’s appointment.
The legal community had deemed the April verdict a significant disruption in the arbitration landscape. Sushmita Gandhi, a partner at IndusLaw, noted the judgment’s far-reaching impact on arbitral proceedings, its disharmony with the existing arbitration framework, and the ensuing uncertainties and delays. She stated that referring the matter to a larger bench was an anticipated course of action.
Manmeet Singh, senior partner at Saraf and Partners, concurred that the judgment represented a setback for India’s pro-arbitration regime, introducing complications and delays by examining stamp duty at the outset. He emphasized that the Supreme Court’s willingness to entertain the curative petition signified a recognition of the need for a review.
During Tuesday’s proceedings, the Constitution bench deemed this matter of “very important” significance in establishing clarity within the arbitration landscape.
The bench lamented the pervasive situation where arbitrators frequently encounter claims that agreements lack proper stamping, thereby necessitating case reevaluation. They stressed the ongoing and pervasive uncertainty in arbitration, emphasizing the imperative need for resolution.
Senior advocate Shyam Divan, representing one of the parties involved, expressed objections to reopening his case, asserting that the relevant issues were no longer applicable.
However, the bench insisted on the necessity of a live case for reviewing the April verdict. They emphasized the paramount importance of upholding the legitimacy of the arbitration regime in India over technical objections.
October 11 has been scheduled as the next hearing date, with the bench affirming its intention to conclude arguments during that session.
The bench also appointed advocates Pritha Srikumar and Debesh Panda as nodal counsel to coordinate the preparation of documents and submissions and facilitate the proceedings.
The April 24 ruling came after deliberating multiple judgments since 2011, which offered varying perspectives on the enforceability of arbitration clauses in unstamped or inadequately stamped agreements.
The majority judgment invoked the Stamps Act, asserting that an arbitration agreement, if not properly stamped, cannot be considered a legally enforceable contract. It posited that an arbitration agreement, as defined by the 1996 Arbitration and Conciliation Act, is subject to stamp duty. The minority, however, contended that the enforcement of unstamped or insufficiently stamped arbitration agreements was possible until the arbitrator or arbitral tribunal was appointed.
The Supreme Court’s decision to revisit this issue reflects the pivotal role arbitration plays in India’s legal landscape and the need for legal clarity and consistency in this domain.
