POSITION OF ARBITRATION CLAUSE IN AN UNSTAMPED CONTRACT

 

The clause in an agreement/contract that requires the parties to resolve their disputes through the process of arbitration is an arbitration clause. This distinctive feature of an arbitration clause is that it prevents the parties to dispute from filing law suits against each other and settle the dispute in a much easier, cost effective and time saving manner.

A substantial period of time has passed in settling the issue related to the position of an arbitration clause in an unstamped agreement/contract. Recently a division bench of the Hon’ble Supreme Court in the case of N.N. Global Mercantile Pvt. Ltd. v. Indo Unique frame Pvt. Ltd. held that and arbitration clause in an unstamped or insufficiently stamped contract being and independent contract is valid and enforceable. According to the Hon’ble Justice Mrs. Indu Malhotra, Hon’ble Mr. Dhananjaya Chandrachud and Hon’ble Mrs. Indira Banerjee the case has given rise to issue such as applying the Doctrine of severability of an arbitration agreement from the underlying substantive contract in which it is embedded.  This position of arbitration clause was decided in the said case by overruling the judgment SMS Tea Estates Pvt. Ltd. V. Chandmari Tea Co. Pvt. Ltd. The ration led down in the Chandmari Case (Supra) was, that an unstamped arbitration clause in an agreement which is compulsory registrable or chargeable to stamp duty cannot be a ground for appointing and arbitrator. This same judgment was upheld in the matter of Garware Wall Ropes Limited v. Costal Marine Co. And Engineers and subsequently Garware Wall Ropes judgment (supra) was upheld in the matter of Vidya Drolia V. Durga Trading Corporation. This chain of judgments has been overruled by the recent judgment in the matter of N.N. Global Mercantile Pvt. Ltd. v. Indo Unique frame Pvt. Ltd. (supra). The fact of the matter now is there is a conflict between two judgments namely Vidya Drolia Judegment (supra) and   N.N. Global Mercantile Judgment (supra). Both these judgments were delivered by a strength of Three Judges Bench, and to settle, it the issue is now being referred to a larger bench of the Hon’ble Supreme Court. Further in the matter of Intercontinental Hotels Group (India) Pvt. Ltd. V. Waterline Hotels Pvt. Ltd. the Hon’ble Supreme Court of India is of the view that the matters related to the arbitration clauses in and unstamped or insufficiently stamped agreements/contracts cannot be kept on a standby mode until a Constitution Bench consisting five Judges of the Hon’ble Apex Court decide the correct position of law in the matters of the arbitration clauses. The Hon’ble Supreme Court by raising the issue of Doctrine of Severability in the InterContinental Judgment has made it’s stand clear that the Court will have a judicial interference only to the extent that is needed, just in the manner as it has been provided in the section 5 of The Arbitration and Conciliation Act.

By,

Atharva Inamdar

Intern Team K&T Forlex 

Mumbai | Pune | New Delhi | Singapore | Shanghai

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Bibliography: 

https://indiankanoon.org/doc/310829/#:~:text=5.,so%20provided%20in%20this%20Part.

https://www.indiacode.nic.in/bitstream/123456789/1978/1/AAA1996__26.pdf

https://main.sci.gov.in/supremecourt/2020/23926/23926_2020_38_1502_25365_Judgement_11-Jan-2021.pdf