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Another recent judgement of Hon’ble Supreme Court touching upon a vital practical aspect of any Contract/Agreement having Arbitration clause. The case deals with the question of whether the arbitration clause in a contract, which is required to be registered and stamped, but is not registered and stamped, is valid and enforceable? The Apex court ruled by 3:2 majority held that "an instrument which is exigible to stamp duty may contain an arbitration clause and which is not stamped cannot be said to be a contract enforceable in law within the meaning of S. 2(h) of the Contract Act and is not enforceable under S 2(g) of the Contract Act”.

The facts of the case were that the petitioner and respondent had entered into a sub-contract which included an arbitration clause. Certain disputes arose and the respondent invoked the Bank Guarantee provided by the petitioner. A suit was then filed in regards to said invocation and respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 and sought for referral of disputes to arbitration. One of the issues before the High Court was that the arbitration agreement was not enforceable as the sub-contract was unregistered and unstamped. The High Court noted that the issue could be raised in application under Section 11 or before the Arbitral Tribunal. The Apex Court in appeal observed that the view held in SMS Tea Estates Pvt. Ltd. v. M/s. Chandmari Tea Co Pvt. Ltd. and Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited that non-payment of stamp duty on the commercial contract would make the arbitration agreement invalid and unenforceable in law, is not the correct legal position.

Considering that Garware was affirmed by Vidya Drolia And Ors. v. Durga Trading Corporation, which is a coordinate Bench, the 3-Judge Bench of the Apex Court thought it fit to refer the matter to a Constitution Bench.

During the hearing on the issue of stamping, the Amicus averred that a non-stamped document at the highest may be incapable of being performed. Being a curable defect, non-stamping would not render the instrument null and void.

However, the court while delivering the judgment held that no instrument chargeable with duty under the Stamps Act shall be admitted in evidence or acted upon unless it is properly stamped according to Section 35 of the Stamps Act. This includes any arbitration agreements made in accordance with the 1996 Arbitration and Conciliation Act. If the agreement is not stamped or insufficiently stamped, it is not valid and enforceable.

I feel that it is imperative to look at all your contracts/Agreements now, so as to avoid the technical objection by the other side, after invocation of Arbitration clause. At that stage, the only option left with the parties will be to go under Commercial Courts Act and utilise the contract as a supporting secondary document.