M/S N. N. GLOBAL MERCANTILE PRIVATE LIMITED versus M/S INDO UNIQUE FLAME LTD. & ORS. (25/04/2023) — Supreme Court headnote

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Summary

A five-Judge Bench decided whether the bar in Section 35 of the Indian Stamp Act, 1899 renders an arbitration agreement in an unstamped instrument non-existent. By 3:2 (K.M. Joseph J. for himself and Bose J., Ravikumar J. concurring) the Court held that an unstamped instrument exigible to duty is not an enforceable contract under Section 2(h) of the Contract Act, is void under Section 2(g) and does not exist in law until validated under the Stamp Act; that a court acting under Section 11 of the Arbitration Act must impound an unstamped original despite Section 11(6A) and Section 5; and that SMS Tea Estates and Garware (paragraphs 22 and 29) state the law while N.N. Global (2021) was wrongly decided. Rastogi and Roy JJ. dissented: non-stamping is a curable defect, the Section 11 court examines only prima facie existence, and stamping is for the arbitrator.

Issues

Whether the statutory bar in Section 35 of the Indian Stamp Act, 1899 renders an arbitration agreement contained in an instrument chargeable to stamp duty non-existent in law pending payment of stamp duty on the instrument (the reference as reformulated, since an arbitration agreement is itself chargeable under Article 5 of Schedule I).
Whether, after the insertion of Section 11(6A) confining the court to examining the 'existence' of an arbitration agreement, a court acting under Section 11 of the Arbitration and Conciliation Act, 1996 is bound to examine and impound an unstamped or insufficiently stamped instrument under Sections 33 and 35 of the Stamp Act, or must leave stamping to the arbitral tribunal under Section 16.
Whether the non-obstante clause in Section 5 of the Arbitration Act and the doctrines of separability and kompetenz-kompetenz displace the mandate of Sections 33 and 35 of the Stamp Act.
How an application under Section 11 supported by a certified copy of the arbitration agreement, as permitted by the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996, is to be dealt with when the original is unstamped.
Whether SMS Tea Estates, paragraphs 22 and 29 of Garware Wall Ropes and paragraphs 146 and 147 of Vidya Drolia correctly state the law, and whether the three-Judge decision in N.N. Global (2021) overruling SMS Tea Estates was correct.

Provisions considered

Sections 33 and 35, Indian Stamp Act, 1899Majority: every person with authority to receive evidence, including a court under Section 11 and an arbitrator, must impound an instrument that is not duly stamped, and such an instrument cannot be admitted in evidence for any purpose or acted upon; this is a peremptory duty the Section 11 court cannot abdicate. Dissent (Roy J.): a Section 11 court is not an authority to receive evidence after the 2015 amendment, so Section 35 is not attracted at that stage and impounding may be deferred to the arbitrator or Collector. (¶¶ Joseph J. 45, Joseph J. 46, Joseph J. 62, Joseph J. 84, Joseph J. 85, Joseph J. 91, Joseph J. 106, Joseph J. 107, Joseph J. 113, Ravikumar J. 3, Ravikumar J. 5, Rastogi J. 43, Roy J. 79.3, Roy J. 79.4)
Sections 17, 36, 42(2) and 62; Article 5(c) of Schedule I, Indian Stamp Act, 1899Stamping must occur before or at execution and default is penalised; once duty and penalty are paid and the instrument endorsed under Section 42(2) it becomes admissible and may be acted upon. All Judges accepted that an arbitration agreement is itself chargeable under the residuary entry in Article 5, which removed the premise of the 2021 reference. The dissenting Judges relied on the proviso to Section 35, Sections 36 and 42 and Hindustan Steel to hold that non-stamping is a curable defect that never renders an instrument void. (¶¶ Joseph J. 21, Joseph J. 49, Joseph J. 50, Joseph J. 52, Joseph J. 61, Joseph J. 62, Joseph J. 74, Rastogi J. 39, Rastogi J. 45, Rastogi J. 50, Rastogi J. 94, Roy J. 14, Roy J. 28, Roy J. 30, Roy J. 32.3)
Sections 2(g), 2(h), 2(j) and 10, Indian Contract Act, 1872Majority: an agreement unenforceable by reason of a substantive law such as the Stamp Act is not a contract under Section 2(h), is void under Section 2(g) and therefore cannot be the 'arbitration agreement' contemplated by Section 11(6A); unlike voidable contracts under Sections 19 and 19A, which may be left to the arbitrator. Roy J.: the Arbitration Act is a special law whose Section 7 governs formal validity, so the general words of Sections 2(g) and 2(h) cannot render an arbitration agreement void for want of stamping. (¶¶ Joseph J. 53, Joseph J. 57, Joseph J. 70, Joseph J. 71, Joseph J. 72, Joseph J. 110, Roy J. 77, Roy J. 78.2, Roy J. 79.1)
Section 11(6A), Arbitration and Conciliation Act, 1996Majority: inserted on the 246th Law Commission Report to curb the wide review sanctioned by SBP and Boghara Polyfab, it confines the court to the existence of an arbitration agreement, but 'existence' means existence in law, and the provision does not relieve the court of its duty under the Stamp Act. Dissent: the examination is a prima facie one of formal existence under Section 7, namely whether the agreement is in writing and the core contractual ingredients are met, with stamping left to the tribunal. (¶¶ Joseph J. 25, Joseph J. 26, Joseph J. 31, Joseph J. 32, Joseph J. 75, Joseph J. 88, Joseph J. 107, Joseph J. 111, Rastogi J. 65, Rastogi J. 71, Rastogi J. 92, Roy J. 53, Roy J. 54, Roy J. 56)
Section 5, Arbitration and Conciliation Act, 1996Majority: the non-obstante clause bars judicial intervention except as provided in Part I, but a court giving effect to Sections 33 and 35 of the Stamp Act while acting under Section 11 does not interfere contrary to Section 5. Roy J.: Section 5 goes beyond Article 5 of the Model Law and overrides any other law, confirming that the Arbitration Act is a self-contained special code. (¶¶ Joseph J. 23, Joseph J. 90, Ravikumar J. 3, Roy J. 34, Roy J. 36, Roy J. 78.4, Roy J. 78.5)
Section 7, Arbitration and Conciliation Act, 1996Majority: an arbitration agreement must be an agreement, in writing, satisfying the Contract Act, though the legal relationship it covers may be non-contractual; an agreement by exchange of letters may itself fall within proviso (c) to Section 35 of the Stamp Act. Roy J.: Section 7 contains no stamping or signature requirement and, as the special law, governs formal validity. (¶¶ Joseph J. 24, Joseph J. 76, Joseph J. 77, Joseph J. 79, Joseph J. 80, Joseph J. 82, Joseph J. 83, Roy J. 78.1, Roy J. 78.2)
Section 16, Arbitration and Conciliation Act, 1996Majority: the separability principle in Section 16 preserves the arbitration clause against termination or invalidity of the main contract but has no play in relation to the court's duty under the Stamp Act, since a party cannot stamp only the clause and leave the main agreement unstamped. Dissent: kompetenz-kompetenz and separability mean all objections including stamping are for the tribunal, and the clause cannot be defeated by a formal defect in the main contract. (¶¶ Joseph J. 38, Joseph J. 107, Joseph J. 108, Rastogi J. 82, Rastogi J. 84, Rastogi J. 97, Roy J. 81.2, Roy J. 81.5, Roy J. 85.1)
Sections 8 and 45, Arbitration and Conciliation Act, 1996Section 8 as amended speaks of a prima facie finding that no 'valid' agreement exists and Section 45 of 'null and void, inoperative or incapable of being performed'; the majority noted the different wording of Section 11(6A), while the dissent read the contrast as confining Section 11 to existence alone. (¶¶ Joseph J. 28, Joseph J. 34, Joseph J. 72, Rastogi J. 72, Rastogi J. 75, Rastogi J. 86, Rastogi J. 88, Roy J. 55)
Sections 62, 63, 74, 76 and 79, Indian Evidence Act, 1872Majority and Ravikumar J.: the 'certified copy' permitted by paragraph 2(a) of the 1996 Scheme is a certified copy of a public document under Sections 74 and 76, carrying the presumption under Section 79, and must disclose the stamp duty paid on the original; a copy cannot be impounded but equally cannot be acted upon. Rastogi J.: an arbitration agreement is not a public document, so the Scheme contemplates an authenticated copy which is not an 'instrument' and attracts no stamping objection at the pre-referral stage. (¶¶ Joseph J. 98, Joseph J. 99, Joseph J. 101, Joseph J. 103, Joseph J. 104, Joseph J. 112, Ravikumar J. 9, Ravikumar J. 11, Ravikumar J. 15, Ravikumar J. 16, Ravikumar J. 18, Rastogi J. 77, Rastogi J. 79, Rastogi J. 80)

Held

Majority: An instrument exigible to stamp duty which contains an arbitration clause and is not stamped is not a contract enforceable in law under Section 2(h) of the Contract Act and is not enforceable under Section 2(g); being neither a contract nor enforceable, it cannot exist in law. Such an instrument is void in the sense of being unenforceable until validated under the Stamp Act, though not still-born, since impounding, payment of duty and penalty and endorsement under Section 42(2) give it life. (¶¶ Joseph J. 62, Joseph J. 70, Joseph J. 74, Joseph J. 75, Joseph J. 110, Joseph J. 114, Joseph J. 115, Ravikumar J. 6)
Majority: The view in SMS Tea Estates, followed in Garware (paragraphs 22 and 29) and Dharmaratnakara, as to the effect of an unstamped contract containing an arbitration agreement and the steps the court must take, is correct; Vidya Drolia is approved to the extent it approves those paragraphs; the three-Judge decision in N.N. Global (2021) was wrongly decided in holding otherwise and overruling SMS Tea Estates and Garware. (¶¶ Joseph J. 61, Joseph J. 64, Joseph J. 65, Joseph J. 109, Joseph J. 110)
Majority: Section 11(6A) confines the court to examining the existence of an arbitration agreement, but 'existence' is not mere facial existence; it means existence in law. The Stamp Act, enacted by the same legislature, is meant to be enforced, and Section 11(6A) cannot be read as requiring the court to turn a blind eye to Sections 33 and 35. Giving effect to those provisions is not judicial interference barred by Section 5. (¶¶ Joseph J. 64, Joseph J. 75, Joseph J. 88, Joseph J. 90, Joseph J. 91, Joseph J. 107, Joseph J. 111, Ravikumar J. 3)
Majority: Where the original instrument is produced under Section 11 and is unstamped, the court is duty-bound to impound it under Section 33 and follow the Stamp Act procedure culminating in the certificate under Section 42(2), after which it may process the application. Relegating the issue to the arbitrator would amount to abdication of a statutory duty; the matter is best resolved under the court's watch, and the argument of delay does not justify ignoring the legislature's command. (¶¶ Joseph J. 105, Joseph J. 106, Joseph J. 107, Joseph J. 113, Ravikumar J. 5, Ravikumar J. 17)
Majority (caveat): Where the instrument bears stamp but a party objects that it is insufficiently stamped, the court must ordinarily examine the matter under Section 33(2); but if the objection appears on its face wholly without foundation, the court may make the reference on the basis of an existing arbitration agreement and leave it to the arbitrator to exercise the power under Section 33 if necessary. Objections that the contract is void under Section 20 or voidable under Sections 19 and 19A of the Contract Act may likewise be left to the arbitrator. (¶¶ Joseph J. 72, Joseph J. 73, Joseph J. 107)
Majority: An application under Section 11 may be supported by the original or a certified copy; a certified copy must clearly disclose the stamp duty paid on the original, as held in SMS Tea Estates, and if it does not the court should not act on it. A copy cannot be impounded, since only the original is an instrument, but neither can it be acted upon under Section 35; the court may call for information under paragraph 5 of the Scheme, including on stamp duty. Ravikumar J. added that only a certified copy under Section 63(1) read with Sections 74, 76 and 79 of the Evidence Act, and not any other copy, satisfies the Scheme. (¶¶ Joseph J. 101, Joseph J. 102, Joseph J. 103, Joseph J. 104, Joseph J. 112, Joseph J. 116, Ravikumar J. 15, Ravikumar J. 16, Ravikumar J. 18, Ravikumar J. 20)
Majority: The doctrine that an arbitration agreement is a distinct agreement exists so that the arbitral mechanism survives the termination, rescission or invalidity of the main contract; it has no application to the court's duty under Sections 33 and 35 where both the clause and the main agreement are exigible to duty. Accepting that a party may stamp only the arbitration clause and leave the main agreement unstamped would encourage contravention of the Stamp Act, and using the unstamped instrument to prove the arbitration agreement would be using it for a collateral purpose, which Section 35, unlike Section 49 of the Registration Act, forbids. (¶¶ Joseph J. 107, Joseph J. 108)
Majority: The Stamp Act, though a fiscal measure, is not merely procedural law; Section 17 fixes the time of stamping and Section 62 penalises default. Hindustan Steel and Chiranji Lal, which treat the Act as not intended to arm a litigant with a technicality, concerned instruments already validated or the running of limitation and do not detract from the court's duty when an unstamped instrument is produced. The Court expressed no view on proceedings under Section 9. (¶¶ Joseph J. 52, Joseph J. 62, Joseph J. 66, Joseph J. 67, Joseph J. 69, Joseph J. 117)
Dissent (Rastogi J.): Deficiencies under the Stamp Act can be cured and never render an instrument permanently invalid; Sections 33 and 35 concern only the original instrument, and since the Scheme permits a certified or authenticated copy at the pre-referral stage, no stamping objection arises there. The Section 11(6A) court examines only the prima facie existence of an arbitration agreement under Section 7, namely whether it is in writing and the core contractual ingredients are fulfilled, and on rare occasions arbitrability; all other preliminary and debatable issues, including stamping and validity, are for the arbitral tribunal under Section 16. SMS Tea Estates stands overruled and paragraphs 22 and 29 of Garware and paragraphs 146 and 147 of Vidya Drolia are overruled to that extent. (¶¶ Rastogi J. 45, Rastogi J. 50, Rastogi J. 69, Rastogi J. 71, Rastogi J. 75, Rastogi J. 77, Rastogi J. 80, Rastogi J. 92, Rastogi J. 97)
Dissent (Roy J.): The bar in Section 35 is not absolute; read with its proviso and Sections 36 and 42, non-stamping is a curable defect and no provision of the Stamp Act renders a document void. The Arbitration Act is a special, self-contained code; Section 7 governs the formal validity of an arbitration agreement and the general words of Sections 2(g) and 2(h) of the Contract Act cannot render it void. A Section 11 court after 2015 is not an authority to receive evidence, so Section 35 is not attracted and stamping should be deferred to the arbitrator or Collector, who can protect the revenue. Garware wrongly imported the 'existence in law' reasoning of Hyundai Engineering, which did not concern stamping. SMS Tea Estates stands overruled and Garware and Vidya Drolia are overruled to that extent; the legislature was urged to resolve the inconsistency between the two Acts. (¶¶ Roy J. 28, Roy J. 31.6, Roy J. 32.3, Roy J. 76, Roy J. 77, Roy J. 78.2, Roy J. 79.1, Roy J. 79.3, Roy J. 79.4, Roy J. 84.1, Roy J. 86.2, Roy J. 87.3, Roy J. 87.4, Roy J. 88)

Result

Reference answered by a 3:2 majority: Sections 33 and 35 of the Stamp Act render an arbitration agreement contained in an instrument chargeable to duty non-existent in law unless the instrument is validated under the Stamp Act; a court under Section 11 must impound an unstamped original and may act on a certified copy only if it discloses the stamp duty paid; SMS Tea Estates and Garware (paragraphs 22 and 29) approved and N.N. Global (2021) held wrongly decided; no pronouncement on Section 9. Rastogi and Roy JJ. dissented.