IN RE: THE INTERPLAY BETWEEN ARBITRATION AGREEMENTS UNDER THE
ARBITRATION AND CONCILIATION ACT, 1996, AND THE INDIAN STAMP ACT
1899.
Held- that the unstamped agreement is inadmissible under the Stamp Act, but
cannot be rendered void ab initio. Thus, arbitration clauses in unstamped or
inadequately stamped agreements are enforceable.
The Court took note of Section 35 of the Stamp Act, which renders instruments
which are not duly stamped inadmissible in evidence. However, Section 42 of the
Stamp Act, an instrument is admissible in evidence once the payment of duty
and a penalty (if any) is complete. After the payment of the appropriate amount
under the appropriate description in Schedule I and the penalty (if any), the
Stamp Act provides for the certification of such payment by an endorsement by
the appropriate authority. Once an instrument has been endorsed, it may be
admitted into evidence, registered, acted upon, or authenticated as if it had been
duly stamped. Hence, it is a curable defect.
In N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.,1 the three-
judge bench held that an arbitration agreement, being separate and distinct from
the underlying commercial contract, would not be rendered invalid,
unenforceable, or non-existent. On referring the case to a 5-judge bench, the
majority opined that unstamped arbitration agreements are not valid before the
law.
Difference between inadmissibility and voidness
The Court said that the admissibility of an instrument in evidence is distinct from
its validity or enforceability in law.
Section 2(g) of the Contract Act provides that an agreement not enforceable by
law is said to be void. The admissibility of a particular document or oral
testimony, on the other hand, refers to whether or not it can be introduced into
evidence. An agreement can be void without its nature as a void agreement has
an impact on whether it may be introduced in evidence. Similarly, an agreement
can be valid but inadmissible in evidence.
The Court remarked that Section 35 of the Stamp Act is unambiguous, it renders
a document inadmissible and not void. The effect of not paying duty or paying an
1 (2021) 4 SCC 379.
