Enforceability of Unstamped Arbitration Agreements in India
The Supreme Court of India, in the landmark case of M/s N.N. Global Mercantile Private Limited v M/S Indo Unique Flame Ltd & Ors has held that an Arbitration Agreement contained in an unstamped instrument is legally unenforceable.
In India, stamp duty is a type of tax imposed by affixing stamps on documents that record or contain certain transactions. The Indian Stamp Act, 1899 (i.e., the ‘Act’) governs the payment of stamp duty across the country. In the absence of a document or instrument being duly stamped as required, the document cannot be taken into evidence and acted upon. In the above case the Court found that although not specifically referred to within the Act, an Arbitration Agreement is an independent agreement and is liable to duty under the provisions of the Act under sweeping up provisions. An unstamped or insufficiently stamped Arbitration Agreement would not be enforceable in law and would be void until stamped.
A failure to present properly stamped documents like Arbitration Agreements, charterparties, bills of lading and more can lead to substantial delays and additional layers of bureaucracy in situations where time is of the essence. It is currently unclear how this decision will impact upon urgent applications to Court for interim relief, or protecting time bars in situations where arbitration is purported to have been commenced but an Arbitration Agreement is not duly stamped. These issues were not directly dealt with by the Court. However, Members are advised to exercise caution and ensure prompt stamping to avoid potential problems.
With thanks to Renata Partners of Mumbai for the above information.
