Submitted by: K. Singhania
I am delighted to share with you my views on Supreme Court of India’s recent judgement in the matter of Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd.,. The Apex court in ordered that a Court cannot appoint an arbitrator if the arbitration clause is contained in an unstamped or insufficiently stamped agreement.
“When an arbitration clause is contained “in a contract”, it is significant that the agreement only becomes a contract if it is enforceable by law. Under the Indian Stamp Act, 1899, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped”.
Our Analysis
A quick look at the object of the Indian Stamp Act, 1899, will convince one to consider the provisions of the Indian Stamp Act, 1899, as a fiscal measure, the principal object of which is to secure revenue for the State. The object of the enactment is not to enable parties to raise technical objections to meet the case of their opponent.
This issue of an arbitration clause being in an unstamped or insufficiently stamped agreement can be resolved by allowing the parties to impound the documents after the Court appoints the arbitrator under Section 11 of the Act. No prejudice would be caused to any party if the arbitrator were to commence the arbitration and if at all desirous, ask the parties to impound the documents containing the arbitration clause thereafter. This will also ensure that none of the parties are benefitted from their own wrong and safeguard India’s image of being a pro-arbitration jurisdiction.
In alternative, the Court should clarify that this judgment will only apply to current and future agreements where the arbitration has not commenced. Such clarification will avoid any further delays in the arbitration process by not allowing the parties to raise objections regarding the stamping of agreements in front of the court or the arbitrator.
In most of the jurisdictions, there is no requirement of payment of stamp duties on commercial contracts. Therefore, in a matter of international commercial arbitration, where one of the parties is from foreign jurisdiction, the obligation to pay the stamp duty shall be on the Indian party. Further, the legislature should put a uniform stamp duty in all the commercial agreements or should remove any stamp duty where the agreement includes the possibility of international commercial arbitration.
