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INDIA: Supreme Court of India’s decision on stamp duty on underlying contract for a valid arbitration clause.

The Arbitration and Conciliation Act, 1996 (“the Act”) is the regulation relating to arbitration law in India.

Srijoy DAS - 15.10.19
Country expert

Section 11 of the Act provides various terms relating to the appointment of arbitrators and states that an application can be made out to the relevant court having jurisdiction over the subject matter of a dispute, in order to obtain an order of appointment of arbitrator.

In a recent landmark judgment of the Supreme Court of India[1], while discussing arbitration clauses in the main transaction documents, the court has held that an application under Section 11 (for appointment of arbitrator for dispute resolution) can only be made on satisfaction of payment of stamp duty for the main transaction document under the relevant provisions of the Indian Stamp Act, 1988. The Indian Stamp Act levies stamp duty on instruments recording transactions.

The Supreme Court has held that the courts, where an application under Section 11 of the Act is filed, must impound the instrument which has not borne stamp duty and must hand it over to the relevant authority under the state specific stamp act, which will then decide issues relating to payment of stamp duty and penalty (if any) as expeditiously as possible, and preferably within a period of 45 days from the date on which the authority receives the instrument. As soon as stamp duty and penalties (if any) are paid on the instrument, any of the parties can bring the instrument to the notice of the court, which will then proceed to expeditiously hear and dispose of the Section 11 application. This will also ensure that once a Section 11 application is allowed and an arbitrator is appointed, the arbitrator can then proceed to decide the dispute within the time frame provided by the Act.

The judgement has provided clarity for applications filed under Section 11. The issue of stamp duty requirements has not been discussed relating to interim injunctions. 

Considering that arbitration arrangements are paramount to a distribution, franchise or license relationship in India, and in fact to most contractual relationships in India, proper execution of the contractual documents is critical. Irrespective of the applicability of the said decision on applications for interim injunctions, it is important that any entity entering into a distribution or franchise or license agreement with an Indian entity must ensure that the contract dealing with the transaction is properly executed and stamp duty is paid as per Indian law and procedure, in order to avoid disputes relating to an arbitration clause contained in an unstamped agreement.

 

[1] Garware Wall Ropes Limited Vs. Coastal Marine Constructions & Engineering Limited, Civil Appeal Number 3631 of 2019

 

Srijoy Das, IDI Country Expert for agency & distribution in India

Harsahib Chadha, Archer & Angel

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