In a significant development, a seven-judge Constitution Bench of the Supreme Court has reserved its verdict on the contentious issue of the validity of unstamped arbitration agreements. The matter has garnered attention due to its potential implications on the legal and business landscape.
The Bench, comprising Chief Justice DY Chandrachud, Justice Sanjay Kishan Kaul, Justice Sanjiv Khanna, Justice B R Gavai, Justice Surya Kant, Justice JB Pardiwala, and Justice Manoj Misra, was deliberating on the interplay between the Indian Stamp Act and the Indian Arbitration Act.
During the hearings, the Bench expressed reservations about the decision of a previous five-judge Bench in the NN Global case. The majority in the NN Global case had opined that an unstamped instrument cannot be deemed a contract enforceable under the Contract Act’s S. 2(h).
Senior Advocate Arvind Datar, initiating the arguments, distinguished between the existence and validity of an arbitration agreement. He emphasized that while the court’s role is to determine the existence of an agreement, its validity should be left to the arbitrator. He further highlighted the Arbitration and Conciliation Act’s provisions that support this distinction.
Echoing Datar’s sentiments, Senior Advocate Gourab Banerji remarked,
“If the majority in NN Global is accepted, forget arbitration, anyone can turn around and say that this agreement is void.”
Senior Advocate Darius Kambhatta introduced the ‘doctrine of separability’, suggesting that even if an agreement is nullified, the embedded arbitration agreement should remain intact. He also discussed the Competence-Competence doctrine, which grants an arbitral tribunal the authority to decide on its jurisdiction.
On the other side, Senior Advocate Shyam Divan, representing the respondents, questioned the Supreme Court’s decision to refer the matter to a seven-judge bench in its curative jurisdiction. He argued that the court’s curative jurisdiction is narrow and specific, emphasizing the procedural steps that must be followed.
Justice Kaul, responding to Divan’s arguments, posed,
“When a five-judge Constitution bench has found the view of an earlier five-judge bench prima facie incorrect, is a reference to a 7 judge bench not called for?”
CJI Chandrachud also weighed in, noting the potential grave consequences of a flawed legal position and the court’s duty to address it.
The backdrop of this debate is the 2020 Supreme Court judgment in the case of Bhaskar Raju and Brothers vs. Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram & Other Charities and Ors. The court had observed that an insufficiently stamped arbitration clause couldn’t be acted upon.
The outcome of this case will undoubtedly have profound implications for arbitration agreements and the broader legal framework in India.
