Whether non-payment of stamp duty on the commercial contract would invalidate the arbitration agreement? Matter referred to larger bench. Supreme Court.

M/s. N.N. Global Mercantile Pvt Ltd. vs M/s. Indo Unique Flame Ltd. & Others. Civil Appeal 3802 – 3803 / 2020 decided on 11 January 2021. Justice Dr Dhananjaya Y Chandrachud, Justice Indu Malhotra and Justice Indira Banerjee

Judgment Link: https://main.sci.gov.in/supremecourt/2020/23926/23926_2020_38_1502_25365_Judgement_11-Jan-2021.pdf

12. We are of the considered view that the finding in SMS Tea Estates and Garware 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 un-enforceable, is not the correct position in law. In view 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 aforesaid issue is required to be authoritatively settled by a Constitution bench of this Court.

We consider it appropriate to refer the following issue, to be
authoritatively settled by a Constitution bench of five judges of this Court : “ 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 ? ”

Compiled by S. Basavaraj, Advocate, Daksha Legal.