The Supreme Court of India has recently delivered a significant ruling on the enforceability of arbitration clauses in commercial contracts that are not duly stamped. This decision, rendered in the case of M/s. N. N. Global Mercantile Private Limited v. M/s. Indo Unique Flame Ltd. & Ors., has finally settled a longstanding dispute that had led to conflicting views among various three-judge benches. The court’s judgment has far-reaching implications for the treatment of unstamped instruments and their impact on the enforceability of arbitration agreements.


The roots of this issue lie in the interpretation of the Indian Stamp Act, 1899, and its interaction with the Arbitration and Conciliation Act, 1996. The central question revolves around whether the non-payment of stamp duty renders the arbitration clause unenforceable or if the doctrine of separability can preserve the validity of the arbitration agreement despite the deficiency in stamping?

In the case of N. N. Global Mercantile Private Limited v. Indo Unique Flame Limited & Ors. (“N. N. Global”), a three-judge bench grappled with the question of whether an arbitration agreement could be enforced if the underlying commercial contract containing the agreement was unstamped and therefore deemed unenforceable under the Stamp Act. The bench relied on the doctrine of separability, which treats the arbitration agreement as distinct from the underlying contract, and held that the non-payment of stamp duty on the commercial contract would not invalidate the arbitration clause. This decision marked a departure from the earlier ruling in SMS Tea Estates Private Limited v. Chandmari Tea Company Private Limited (“SMS Tea”), where the court had held that the court cannot act upon an instrument that is not duly stamped, including the arbitration agreement contained therein.

The conflicting views among the benches led to further confusion when a two-judge bench in Garware Wall Ropes Limited v. Coastal Marine Constructions & Engineering Limited (“Garware”) followed the SMS Tea decision, holding that an unstamped agreement is unenforceable, thereby rendering the arbitration clause non-existent until the agreement is duly stamped. This position was subsequently affirmed in the case of Vidya Drolia and Others v. Durga Trading Corporation (“Vidya Drolia”).

Decision of the Supreme Court

To resolve the conflicting views and provide clarity on the issue, the Supreme Court referred the matter to a constitution bench. The primary question before the court was whether the statutory bar contained in Section 35 of the Stamp Act, which applies to instruments chargeable to stamp duty, also renders the arbitration agreement in such an instrument non-existent until the stamp duty is paid on the underlying contract.

In the judgment delivered by a 3:2 majority, with Hon’ble Justice K. M. Joseph writing the majority opinion on behalf of himself and Hon’ble Justice Aniruddha Bose, the court arrived at a definitive ruling. The majority agreed that while the Stamp Act is a fiscal measure aimed at collecting revenue, it must be implemented rigorously, and an unstamped or insufficiently stamped document cannot be used as evidence and is legally unenforceable.

The majority opinion emphasized that the Stamp Act operates not only as a procedural law but also as a substantive law. According to Section 2(j) of the Indian Contract Act, 1872, only legally enforceable agreements can be treated as contracts. As a result, an agreement that becomes unenforceable under a substantive law, such as the Stamp Act, it is no longer considered to be a valid contract. Therefore, an unstamped or insufficiently stamped agreement is void and cannot exist in law, and the only way to validate it is through the process outlined in Section 33 and other provisions of the Stamp Act.

The majority opinion held that the decisions in SMS Tea, Garware, and Vidya Drolia were correct in asserting that an unstamped instrument, including the arbitration agreement contained therein, is unenforceable until it is duly stamped. The court clarified that under such circumstances, court acting under Section 11 of the Arbitration and Conciliation Act, 1996, is not free to disregard the provisions of the Stamp Act. The court cannot turn a blind eye to stamp duty requirements and allow circumvention of the law.

A separate concurring opinion authored by Hon’ble Justice C. T. Ravikumar supported the majority view and highlighted the court’s authority to receive evidence under Section 11(6) of the Arbitration Act. It stated that the court cannot abstain from applying the Stamp Act’s provisions when the instrument is unstamped or not adequately stamped. This interpretation aligns with the Appointment of Arbitrators by the Chief Justice of India Scheme, 1996, which requires the production of a certified copy of the instrument, including the payment of stamp duty thereof. Insufficiently stamped copies cannot be acted upon.

Dissenting Opinions

Two separate dissenting opinions were penned by Hon’ble Justice Ajay Rastogi and Hon’ble Justice Hrishikesh Roy. Justice Rastogi argued that deficiencies in an instrument, whether unstamped or insufficiently stamped, can be rectified, rendering the instrument not permanently invalid. He emphasized the need for the law to adapt to the evolving arbitration regime and reduce the scope of judicial intervention. At the pre-referral stage of appointment under Section 11(6A) of the Arbitration Act, objections to an arbitration agreement’s stamping cannot render the agreement non-existent. Such objections fall within the arbitral tribunal’s purview under Section 16 of the Arbitration Act.

Justice Roy, in his dissenting opinion, contended that non-payment of stamp duty is a curable defect and does not affect the transaction’s validity. He highlighted that failure to stamp a document does not render it invalid and argued that the Arbitration Act, being a special law, cannot be rendered void by a general law like the Stamp Act. He further criticized the decision in Garware, stating that it contradicts both the Arbitration Act and the Stamp Act, and found the Vidya Drolia decision partly incorrect.


The majority decision of the Supreme Court in M/s N. N. Global Mercantile Private Limited v. M/s. Indo Unique Flame Ltd. & Ors. has brought clarity to the enforceability of arbitration clauses in unstamped commercial contracts. While the ruling aligns the Arbitration Act with the Stamp Act, the dissenting opinions serve as a reminder of the possibility of future developments in this area of law. The decision has implications for the scope of judicial intervention in arbitration proceedings and reflects the ongoing efforts to strike a balance between revenue collection and the promotion of arbitration in India.