In a move aimed at addressing the prevailing “limitless uncertainty in the area of arbitration,” the Supreme Court of India has chosen to convene a seven-judge bench to reconsider its April ruling. The April decision, which had sparked concerns in the legal community, held that an arbitration clause would not be legally enforceable if the underlying agreement lacked proper stamping.
The decision in April was perceived as potentially causing further delays in the appointment of arbitrators, adding an additional layer of scrutiny. It also seemed to diverge from India’s pro-arbitration stance. In response, a Constitution bench, led by Chief Justice of India Dhananjaya Y. Chandrachud, proposed the need to review the correctness of the April ruling by referring the matter to a larger bench.
This development arose during the hearing of a curative petition, which sought a reconsideration of the April 25 verdict. The majority in the April decision, with a 3-2 vote, leaned heavily on the 1899 Indian Stamps Act, which mandates the compulsory registration or stamp duty charges for certain agreements. This led them to conclude that a court could scrutinize the aspects of stamping and other compliance issues before an arbitrator was appointed.
Legal experts weighed in on the April verdict’s significant impact on the arbitration landscape. Sushmita Gandhi, a partner at IndusLaw, noted that the judgment had created uncertainties and delays, contradicting the existing arbitration regime. Manmeet Singh, a senior partner at Saraf and Partners, echoed this sentiment, expressing concern about the delay caused by examining stamp duty issues at the arbitration’s outset.
During Tuesday’s proceedings, the Constitution bench stressed the importance of providing clarity to India’s arbitration system, given the widespread issue of agreements being labeled as unstamped, leading to cases being reopened. The bench acknowledged the current “limitless uncertainty in the area of arbitration” and called for its resolution.
Senior advocate Shyam Divan objected to reviving his client’s case, arguing that the issues were no longer relevant. However, the bench insisted on the necessity of a live case to review the April verdict, emphasizing the importance of upholding the legitimacy of the arbitration regime.
The court scheduled the next hearing for October 11 and pledged to conclude the arguments on that date. To facilitate the proceedings, advocates Pritha Srikumar and Debesh Panda were appointed as nodal counsel to prepare a comprehensive compilation of documents and submissions in collaboration with other lawyers involved in the case.
The April 24 ruling had come in response to a series of judgments since 2011 that presented conflicting views on the enforceability of arbitration clauses in unstamped or insufficiently stamped agreements. The majority judgment relied on the Stamps Act, asserting that an arbitration agreement must be properly stamped to be enforceable, as outlined in Section 35 of the Act.
The minority view, however, expressed concerns about the potential hindrance to the arbitration process and procedural complexities that could arise from examining stamp duty at the outset. They argued that unstamped or insufficiently stamped agreements could still be enforceable for the appointment of arbitrators and that validity could be addressed at a later stage without impeding the process.
