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Is payment of stamp duty in arbitration important?
The Apex Court, in the case of NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd.,[1], observed that non-payment of the stamp duty in a commercial contract does not invalidate the arbitration clause mentioned in the agreement. The bench decided to refer the matter to a constitutional bar after realising that it differed from the earlier Supreme Court judgments of SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd (2011) 14 SCC 66, Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited (2019) 9 SCC 209 and the three-judge bench of Vidya Drolia v. Durga Trading Corporation (2019) 20 SCC 406.
The judgment authored by Indu Malhotra, J. framed the following question to be authoritatively settled by a Constitution bench of five judges:
“Whether the statutory bar contained in Section 35 of the Indian Stamp Act, 1899 applicable to instruments chargeable to Stamp Duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument?”
The Court believed that there was no legal impediment to the enforceability of the arbitration agreement, pending payment of stamp duty on the substantive contract. It observed that since the arbitration agreement is an independent agreement between the parties and is not chargeable to the amount of stamp duty, the non-payment of stamp duty on the commercial contract would not invalidate the arbitration clause or render it unenforceable has an independent existence of its own.
The Court believed that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement and render it non-existent in law and unenforceable, was not the correct position in direction. Because of the finding in paragraph 92 of the judgment in Vidya Drolia by a co-ordinate bench, which has affirmed the judgment in Garware, the issue above was required to be authoritatively settled by a Constitution Bench of the Supreme Court, the Court held.
[1] 2021 SSC OnLine SC 13.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre shall not be responsible for any errors caused due to human error or otherwise.
- validity of arbitration matters
- payments of stamp duty
- commercial arbitration matters
