INDIA: Arbitration clauses in agreements which have not been duly stamped cannot be enforced. / Amendments to the Competition Act passed by Parliament.

Arbitration clauses in agreements which have not been duly stamped cannot be enforced.

In April 2023, The Supreme Court of India held that when a document on which stamp duty is to be paid as per the Indian Stamp Act contains an arbitration clause and such document has not been duly stamped, it cannot be deemed to be an enforceable contract and the arbitration clause will stand unenforceable as well.

The Indian Stamp Act states that any document which is chargeable to stamp duty may not be “acted upon, registered or authenticated” by a person or public officer, unless that document is stamped. Two cases in the Supreme Court of India had earlier held (in 2011 and 2019) that an arbitration clause in an unstamped agreement (which the agreement is to be stamped as per the law) may not be enforced until the agreement is stamped. In 2021, these judgements were overruled by a three-Judge bench of the Supreme Court, wherein it was held that an arbitration clause in an agreement (or an arbitration agreement) is a separate and distinct instrument from the underlying contract, and once the arbitration agreement’s independent nature is established, it may be acted upon, irrespective of the validity of the underlying contract. However, this decision also referred the matter to be authoritatively settled by a Constitution bench (a five-Judge bench) of the Supreme Court.

In this reference to a Constitution bench, the Supreme Court held (by a 3:2 majority) that if a contract which is to be stamped as per applicable law has not been stamped, any arbitration agreement or clause which is a part of that contract will not be enforceable. Such a contract (and the corresponding arbitration agreement) will only be enforceable once the stamp duty and requisite penalty for delay in stamping is paid on the contract.

The minority dissenting opinion in this judgement pointed out the adverse effect this would have on the intent of the Indian Arbitration and Conciliation Act, which was passed with a view to streamline the arbitration process in India. An appeal has also been made to the Indian legislature in the dissenting opinion to pass appropriate amendments to the provisions of the Indian Stamp Act with regard to their applicability on the Indian Arbitration and Conciliation Act. However, till such time as such amendments are made (or the present judgement is overruled), care must be taken to ensure that all agreements enforceable in Indian courts which contain arbitration clauses are adequately stamped at their execution.

Amendments to the Competition Act passed by Parliament.

On April 3, 2023, the Indian Parliament passed an amendment to India’s antitrust Statute, the Competition Act, 2002. The amendment, aimed at enabling the regime to deal with how businesses work today, including in particular digital markets, introduces new enforcement mechanisms for offences under the Act. Some of the major changes brought about by the 2023 amendment are:

1. In order to cover killer acquisitions, a deal value threshold has been introduced, whereby the antitrust regulator’s (CCI’s) approval is required for transactions where the value exceeds INR 20,000,000,000 (approximately USD 241,340,800) and where the entity being acquired, taken control of, merged or amalgamated has “substantial business operations” in India. What constitutes “substantial business operations” is to be determined by regulations, which have not been issued yet.
2. The time limit for the CCI to form its opinion on a combination approval has been reduced – the maximum timeframe has been reduced from 210 days from date of issue of notice to the CCI to 150 days from date of issue of notice.
3. The maximum penalty for furnishing false information in cases of combinations has been increased from INR 10,000,000 (approximately USD 120,700) to INR 50,000,000 (approximately USD 603,000).
4. The amendment introduces mechanisms for settlements and commitments of disputes. Entities which are being investigated by the CCI for contravention of the Competition Act,2002 may make applications for settling the case or offering a commitment regarding the contravention.

While several of the above provisions will need to be notified in order to come into effect, the increase in the maximum penalty for furnishing false information has been brought into effect on 18 May 2023.

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

Shivalik Chandan