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Non-payment of Stamp duty on commercial contract do/do not invalidate Arbitration agreement: Supreme Court refers Constitution bench
A three-judge bench comprising of Justices DY Chandrachud, Indu Malhotra and Indira Banerjee, has observed that non-payment of stamp duty on the commercial contract will not invalidate the arbitration agreement.
The issues raised in this appeal was whether an arbitration agreement can be enforceable and acted upon, even if the order is unstamped under the Stamp Act?
The court observed that in SMS Tea Estates Pvt. Ltd. V. M/s. Chandmari Tea Co. Pvt. Ltd. (2011) 14 SCC 66, it was held that when a commercial contract is unstamped, it cannot be enforceable in law and such an arbitration agreement will be invalid and voidable.
The Court also observed another judgement in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering limited (2019) 9 SCC 209, where it was held that until the stamp duty is paid on the substantive contract, the arbitration clause will be non-existent in law.
The bench after referring to the judgements of the Apex court held as follows:
1. When the arbitration agreement is formed by the parties, the arbitrator or the tribunal is obligated by Section 33 of the Indian Stamp Act,1899 to impound the instrument and direct the parties to pay the requisite Stamp Duty and obtain an endorsement from the collector.
2. If the substantive contract is either unstamped or considered invalid, the Judicial authority will exercise jurisdiction under section 11 and will direct the parties to cure the defect before the tribunal or arbitration.
3. The parties will be directed to have the contract stamped under the Stamp Act if an application is filed under Section 8 for references of disputes to arbitration.
4. When an application for urgent interim relief is filed before the court and if the contract is unstamped, the court can grant ad-interim relief to safeguard the matter of the arbitration.
The bench set aside the High Court judgement on the ground that the writ petition was not maintainable as the order of the commercial court could be appealed under Section 37(1)(a) of the Arbitration and Conciliation Act.
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