The Supreme Court of India overruled a decision from 2023 regarding the enforceability of arbitration agreements, on which stamp duty was not paid as mandatorily required under the Indian Stamp Act.
The Indian Stamp Act provides that ‘stamp duty’ (an indirect tax paid to the Government) must be paid on all instruments on which such duty is levied, and non-payment of the stamp duty would render the instrument inadmissible in evidence. In April 2023, the Supreme Court delivered a judgement which held that an arbitration agreement on which stamp duty has not been paid under the Indian Stamp Act would be unenforceable and void.
This judgement was reconsidered by a seven-judge bench of the Supreme Court in December 2023. The Supreme Court drew a distinction between voidness and inadmissibility and held that non-stamping of an agreement merely renders it inadmissible in evidence and not void. This decision was also supported by the fact that non-stamping is a curable defect as per the provisions of the Indian Stamp Act, and the Supreme Court pointed out that voidness of an agreement is in no way curable. The Supreme Court also held that the language of the Indian Stamp Act confers the power of determining issues of stamping upon an arbitral tribunal as well.
Finally, the Supreme Court held that non-stamping of an arbitration agreement would not affect a court’s powers to refer a dispute to arbitration or to appoint an arbitrator under the Indian Arbitration and Conciliation Act, as the courts would only have to determine whether prima facie an arbitration agreement exists.
Even though this judgement comes as a relief to entities intending to utilise arbitration with Indian parties, care should be taken to ensure that any agreements with Indian parties are duly stamped to avoid enforcement challenges in the future.
Srijoy Das, IDI Country Expert for Agency and Franchising in India
Shivalik Chandan
