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SC Affirms Validity of Arbitration Agreements in Unstamped Contracts

By Amigos IAS

Why is it in the news?

  • A seven-judge Constitution Bench affirmed the validity of arbitration agreements in unstamped or insufficiently stamped commercial contracts.

 More about the news

  • The court affirmed that unstamped or insufficiently stamped agreements are not void or unenforceable.
  • The Arbitration Act is deemed independent of the Stamp Act. Even if a document lacks stamp duty validity, the arbitration agreement remains valid.
  • The court applied the “separation presumption,” treating arbitration agreements as having a distinct existence from the contract. This implies the validity of the arbitration agreement is not dependent on the underlying contract’s validity.
  • The separation presumption aligned with the competence-competence doctrine, empowering the arbitral tribunal to decide its own jurisdiction. This allows an arbitration agreement’s validity even in cases of unstamped or insufficiently stamped commercial contracts, subject to arbitral approval.
  • The seven-judge bench overturned the earlier Supreme Court verdict in the N. Global case, where a five-judge bench deemed an arbitration agreement void and unenforceable without proper stamping.

 

Significance of the Judgment

  • The ruling facilitates the swift resolution of commercial disputes by negating previous stamp duty obstacles in enforcement.
  • The judgment contributes significantly to India’s aspirations of becoming a global arbitration hub by providing clarity and flexibility in enforcing arbitration agreements.

 

Arbitration

·       Arbitration is an Alternative Dispute Resolution (ADR) method wherein a neutral third-party resolves disputes outside the court.

·       Arbitration in India is governed by the Arbitration and Conciliation Act, 1996.

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