Supreme Court's April Arbitration verdict under review

The Supreme Court of India has opted for a seven-judge bench to reevaluate its April ruling, which determined that an arbitration clause is unenforceable if the agreement lacks sufficient stamping. This decision comes in light of the prevailing "limitless uncertainty in the area of arbitration." The April ruling, by a 3:2 majority, relied on the 1899 Indian Stamps Act, stating that certain agreements must be either registrable or subject to stamp duty.

The April verdict is expected to cause further delays in the appointment of arbitrators by introducing an additional layer of scrutiny. It also runs counter to India's pro-arbitration position.

A call for reconsideration

The constitution bench led by Chief Justice of India Dhananjaya Y Chandrachud stated that, "Having regard to the larger ramifications and consequences of the view of the majority in the NM Global case, these proceedings should be placed before a seven-judge bench to reconsider the correctness of the view of the five-judge bench."

The April ruling, reached by a 3:2 majority, emphasized the need for certain agreements to be properly stamped or registered. If an agreement was found to be insufficiently stamped or not stamped at all, the instrument was to be impounded at the pre-appointment stage.

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Legal experts welcomed the decision to refer the matter to a larger bench. The April ruling had a significant impact on arbitration, causing uncertainty and delays.

A matter of clarity

The constitution bench acknowledged the importance of resolving the issue to bring clarity to the arbitration landscape in India. Arbitrators have been confronted with situations where unstamped agreements necessitate reopening cases, contributing to ongoing uncertainty.

The bench fixed October 11 as the next date for hearing, emphasizing the importance of settling the matter. Advocates were appointed to facilitate the proceedings and compile documents.

The April ruling emerged from a series of judgments dating back to 2011, which presented divergent views on the enforceability of arbitration clauses in unstamped or insufficiently stamped agreements. The majority in the April judgment argued that the Stamps Act mandate required stamping for enforceability, while the minority view raised concerns about procedural complexity and delays resulting from pre-appointment scrutiny of stamp duty.

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The April ruling has had a significant impact on arbitration proceedings, introducing uncertainty and procedural challenges. The decision to revisit it reflects a commitment to addressing these issues and maintaining India's pro-arbitration stance.