Unstamped agreements cannot trigger arbitration

Can an arbitration stipulation in an unstamped or unregistered agreement be enforced? The Supreme Court had settled this issue in the SMS Tea Estates (2011) case. It held that an arbitration stipulation is not invalidated on account of non-registration of a compulsorily registerable document under the Registration Act, 1908. A proviso to section 49 of the Registration Act permitted unregistered documents to be received as evidence for collateral arrangements such as arbitration stipulation.

However, section 35 of the Indian Stamp Act, 1899 (act), prohibited courts from receiving unstamped or inadequately stamped documents as evidence unless it was remedied by impounding and paying the deficient duty and penalty. The Supreme Court ruled that provisions of the act are intended to protect revenue and, therefore, mandatory and the deficiency in stamp duty affects the arbitration clause and cannot be given effect unless rectified at the outset. In case an arbitral tribunal was constituted without court intervention, the arbitrator is mandated to impound the document and give effect to the mandatory provision of the act.

Karthik Somasundram is a partner and Sneha Jaisingh is a managing associate at Bharucha & Partners.

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