In December, 2023, a
seven-judge bench of the Supreme Court of India (hereinafter ‘Supreme Court’)
unanimously overruled a five-judge Bench’s judgment in NN Global-II, and held
that the Court at the stage of appointment of an arbitrator under Section 11 of
the Arbitration and Conciliation Act, 1996 (hereinafter ‘Arbitration Act’) can
appoint an arbitrator and leave the issue of stamping to be decided by the
arbitrator. It is imperative to note that the five-judge Bench Reference was
essentially borne out of a three-judge bench decision in NN Global-I, wherein
the Supreme Court doubted the correctness of view taken by a coordinate bench
in Vidya Drolia that the non-payment of stamp duty on a contract would
invalidate even the arbitration agreement, and render it non-existent in law.
The three-judge bench expressed its disagreement with the Vidya Drolia Bench’s
decision that the Court must first impound the unstamped instrument in
pursuance of Section 33 of the Stamp Act, 1899, and thereafter appoint an
arbitrator under Section 11 of the Arbitration Act. The majority in the
Constitutional Bench had come to a conclusion that non-stamping or insufficient
stamp duty on the main agreement containing the arbitration clause would render
invalid the arbitration clause, thereby approving the holding in SMS Tea,
Garware, and Vidya Drolia, thus indicating that the position adopted by the
three-judge bench in NN Global is no longer valid. Against this background, the
paper attempts to critically analyse the issue whether the Court should be
barred from acting upon an unstamped instrument and appointing an arbitrator at
the Section 11 stage.