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Stamp Of Invalidity Or Separate But Equal? The Indian Supreme Court Says: If Unstamped, Agreement Cannot Be Acted Upon

25 May 2023

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By: Shalaka Patil (Partner), and Paulomi Mehta (Senior Associate)

This piece was originally published on the Kluwer Arbitration Blog.

In an India-seated arbitration, if your contract is unstamped or insufficiently stamped, the Supreme Court of India has now confirmed in its authoritative judgement passed on April 25, 2023, in N N Global Mercantile Private Limited v. Indo Unique Flame Ltd. & Ors. (“NN Global”) that this would be a valid ground to disallow acting upon the arbitration agreement until such defect is cured. In the judgment passed by a 3 to 2 majority, the dissenting minority view held that the stamping and impounding need not be done at the threshold stage and that non-stamping of the substantive contract would not render the arbitration agreement non-existent in law. In India, the Indian Stamp Act, 1899 (“Stamp Act”) requires all agreements or instruments to be stamped or paid up with stamp duty. As a fiscal law, it ensures the government is not deprived of revenue. Under the Stamp Act, a contract which is not stamped or insufficiently stamped is invalid and cannot be relied on for evidence by a party.

NN Global has far-reaching ramifications on all India-seated arbitrations where Stamp Act applies, whether domestic or international.

The decision in NN Global was rendered after a three-judge bench, in its 2021 judgment, made a reference to a larger bench to authoritatively settle the question- whether an arbitration clause contained in an unstamped agreement would be rendered invalid. An analysis of the prior 2021 three-judge bench judgement was presented in a blog post here.

This post explores how the determination of the validity of the arbitration agreement is likely to have an impact on litigation strategy, the appointment of arbitrators and how parties will weigh commercially- putting off payment of stamp duty against making upfront payment and opting for arbitration.

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