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Legal Groundbreaker: Supreme Court's Verdict on Unstamped Arbitration Agreements Imminent

In a significant legal development, the Supreme Court of India is gearing up to address a crucial question that has long perplexed the legal community: are arbitration agreements that lack proper stamping or are insufficiently stamped legally enforceable? Chief Justice of India (CJI) DY Chandrachud, presiding over a five-judge bench, has declared that the court will soon hear a curative petition on this pressing issue. This move could potentially reshape the landscape of arbitration law in India. Here are the key details and implications of this momentous announcement:
CJI Chandrachud's Pledge to Review Unstamped Arbitration Agreements

CJI Chandrachud, during a recent session, announced the court's intention to hear a curative petition that challenges the enforceability of arbitration agreements lacking proper stamping. He stated, "Curative petition on the issue of registration and stamping – that may be taken up. I will just list it possibly next week or something. We would like your assistance. Irrespective of whether you are appearing in that matter or not, we would like assistance."

This call for assistance extends to lawyers specialized in arbitration law, even if they are not representing any parties involved in the specific case. The CJI emphasized the importance of addressing various related laws, including the Stamp Act, and expressed a commitment to review and settle the pertinent legal questions. He even hinted at the possibility of referring the matter to a seven-judge bench if deemed necessary.

The Case That Sparked the Debate

The origins of this debate can be traced back to a 2020 judgement by a three-judge bench, which ruled that an arbitration clause in an agreement, requiring proper stamping but lacking it, cannot be enforced by the court. The curative petition under consideration seeks to challenge this ruling. Notably, a five-judge bench, including CJI Chandrachud, Justices SK Kaul, Sanjiv Khanna, BR Gavai, and Surya Kant, decided to hear the curative petition in open court.

This decision underscored the case's significance and potential impact on arbitration law in India.

The Constitution Bench's Interpretation

In April of the same year, a Constitution Bench comprising Justices K.M. Joseph, Ajay Rastogi, Aniruddha Bose, Hrishikesh Roy, and C.T. Ravikumar deliberated on the issue and delivered a judgement with a 3:2 majority. The majority view held that an unstamped instrument could not be considered a legally enforceable contract under S. 2(h) of the Contract Act. Justice Rastogi and Justice Roy, in contrast, opined that the arbitration agreement's enforceability should not be affected by stamping issues.

The minority judgement contended that stamp deficiency was a curable defect and should not render the arbitration agreement void. This difference in interpretation adds complexity to the ongoing debate.

Further Delay Due to Expert Committee Review

Simultaneously, the Supreme Court was considering another crucial issue related to the appointment of arbitrators. Specifically, the court sought to determine whether an ineligible person could appoint an arbitrator. To address this question, an expert committee, led by Dr. T.K. Vishwanathan, a former Secretary of the Department of Legal Affairs, was established by the Ministry of Law and Justice on June 14, 2023. The court initially deferred the matter for two months to allow the committee to review arbitration laws in India.

However, during the recent session, AG for India R Venkataramani informed the court that the review process was still ongoing. Consequently, he requested a further deferral of the hearing. CJI Chandrachud accepted this request, stating, "The AG states that a consultative process is being carried out by the government on the proposed amendments to the Arbitration and Conciliation Act 1996. It has been submitted that reference to the Constitution bench may be taken up by the middle of November at which point of time there may be clarity on the law."

Implications for Arbitration Law in India

The pending decision on the enforceability of unstamped or insufficiently stamped arbitration agreements has far-reaching implications for arbitration law in India. The outcome will determine whether such agreements can be legally upheld, potentially affecting numerous ongoing arbitrations and contractual disputes.

The varying interpretations presented by the Constitution Bench and the ongoing expert committee review add layers of complexity to these legal questions. Therefore, the Supreme Court's upcoming deliberations, with the assistance of specialized lawyers, will be closely watched by legal experts, stakeholders, and parties involved in arbitration agreements.

The legal community awaits the Supreme Court's verdict on the curative petition challenging the enforceability of unstamped arbitration agreements. The decision may not only provide clarity on this contentious issue but also shape the future of arbitration law in India, ensuring that arbitration agreements are both legally robust and enforceable. Stay tuned for further updates as this important case unfolds.