- A seven-judge Constitution Bench on Wednesday held that arbitration agreements embedded in unstamped or insufficiently stamped substantive commercial contracts or instruments are not invalid, unenforceable or even non-existent.
- The Supreme Court judgment gives a significant shot in the arm for India’s ambition to become an international arbitration hub to quickly resolve commercial disputes.
- Earlier, arbitrations on such disputes had struck a roadblock owing to non-payment of the required stamp duty for or insufficient stamping of contracts by the parties.
N.N. Global case, 2023
- “Arbitration aims to provide speedy, efficient, and binding resolution of disputes that have arisen between the parties in regard to their substantive obligations,” the court noted.
- The Chief Justice clarified that arbitration agreements would not be non-existent, unenforceable, or invalid if the underlying contract was not stamped.
- The judge said non-payment or insufficient stamping of contracts under the Stamp Act would not affect arbitration proceedings under the Arbitration Act. Such contracts were only inadmissible in evidence under the Stamp Act.
Self-contained code
- The Arbitration Act is a self-contained code.
- Accordingly, matters governed by the Arbitration Act such as the arbitration agreement, appointment of arbitrators and competence of the arbitral tribunal to rule on its jurisdiction have to be assessed in the manner specified under the law.
- Therefore, provisions of other statutes [Stamp Act] cannot interfere with the working of the Arbitration Act, unless specified otherwise, the Chief Justice wrote.
- The court said an arbitration agreement is presumed to have separate existence from the contract.
What is Arbitration?
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.
Its principal characteristics are
- Arbitration is consensual
- The parties choose the arbitrator(s)
- Arbitration is neutral.
- Arbitration is a confidential procedure.
- The decision of the arbitral tribunal is final and easy to enforce.
Arbitration And Conciliation Act, 1996
- An Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental there.
- The Act’s emphasis on minimizing judicial intervention and ensuring a speedyresolution has played a crucial role in fostering a more dynamic and responsivedispute resolution environment in the country.
- Enacted to streamline and modernize the arbitration process, this statute provides a comprehensive framework for the fair and efficient settlement of conflicts.
- The main objectives of the Act are as follows: To ensure that rules are laid down for international as well as domestic arbitration and conciliation.
Indian Council of Arbitration (ICA)
- The ICA was established in 1965 as a specialized arbitral body at the national level under the initiatives of the Govt. of India and apex business organizations like FICCI etc.
- The Indian Council of Arbitration is a registered society under the Societies Registration Act, 1860, operating on a not-for-profit basis.
- Based in New Delhi, the main objective of ICA is to promote amicable, quick and inexpensive settlement of commercial disputes by means of arbitration, conciliation, regardless of location.