Deficiently Stamped Arbitration Agreements

Deficiently Stamped Arbitration Agreements: The Supreme Court Finally Decides

In April 2023, a five-judge bench of the Supreme Court issued a decision in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited (“NN Global 2”) which held that a deficiently stamped agreement is void, unenforceable and cannot exist in law. Further, the Supreme Court in NN Global 2 held that such an agreement must be impounded by a court called upon to appoint an arbitrator.
NN Global 2 was met with criticism as it would lead to inordinate delays in the appointment of arbitrators and the commencement of arbitration proceedings, if stamping of agreements was made a pre-condition to these actions. It also impacted the manner in which legal practitioners summarized their due diligence findings of deficiently stamped agreements.
On December 13, 2023, a seven-judge bench of the Supreme Court revisited NN Global 2 in Re Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899. This decision overruled NN Global 2, and provided much-needed clarity on the issue of admissibility and the enforceability of deficiently stamped agreements.
This note discusses the key findings of the decision of the seven-judge bench of the Supreme Court.


Arbitration Clause in an Unstamped or Insufficiently Stamped Agreement

An Arbitration Clause in an Unstamped or Insufficiently Stamped Agreement: The Supreme Court Decides

A five-judge bench of the Supreme Court of India has in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited & Others held by a 3:2 majority that an arbitration clause contained in an instrument that is not duly stamped is non-existent in law until such agreement is validated by payment of the requisite stamp duty following the procedure laid down under the relevant legislation for payment of stamp duty, particularly the Indian Stamp Act, 1899. The minority was of the view that non-payment of stamp duty on an agreement liable to stamp duty, being a curable defect, would not render the arbitration clause contained within such agreement to be void.
The following are the key takeaways from the decision. First, if an arbitration agreement (either standalone or contained as a provision in a contract) is found to be unstamped, it would be impounded immediately and returned only upon payment of the requisite stamp duty and penalty. Second, if such arbitration agreement is insufficiently stamped and the deficit in stamp duty is nominal, parties may undertake a self-assessment and pay the deficit stamp duty and penalty. Should parties not be able to self-assess the deficit in stamp duty, they are required to formally submit the agreement for adjudication with the relevant authority. Third, the judgment expressly notes that it does not comment on Section 9 of the Arbitration Act and Conciliation Act, 1996, as amended, in relation to application by parties to the courts for interim reliefs.


Government Dues and IBC Waterfall

Government Dues and IBC Waterfall: Are We Heading Towards a Non-uniform Approach Across Sectors?  

The waterfall mechanism under the Insolvency and Bankruptcy Code, 2016 (“IBC”) gives priority to debts owed to financial creditors over operational dues, including statutory dues. However, certain recent case law and proposed statutory amendments have questioned this principle. In particular, a proposal has emerged that government dues secured pursuant to a transaction or an agreement should have priority over other dues (including financial dues). The Telecommunication Bill, 2022 proposes that the spectrum of telecom companies under insolvency should be returned to the central government on failure of payment of dues. This note discusses certain implications of such proposed changes.


Emergency Arbitrations in India

Emergency Arbitrations in India: Viability and Enforceability

Interim measures are often required at early stages in an arbitration to protect the parties’ respective positions for the duration of the arbitration proceedings, including by way of orders to preserve evidence, prevent dissipation of assets and secure the amount in dispute (including costs of the arbitration). Emergency arbitration offers a disputing party an avenue to obtain urgent interim relief from an arbitrator appointed exclusively for the purpose, on an expedited basis before the arbitral tribunal is constituted and without having to resort to court proceedings for interim relief. We discuss the efficacy of, and challenges in relation to, decisions of an emergency arbitrator in disputes involving Indian parties or where any relief granted is required to be enforced in India.


Enforcement of Securities Law

Global Investigations Review: The Guide to International Enforcement of the Securities Laws (Second Edition)

We are pleased to present the India chapter of the Global Investigations Review’s Guide to International Enforcement of the Securities Laws (Second Edition). The India chapter has been authored by Niti Dixit, Shahezad Kazi, Zahra Aziz and Gladwin Issac, all lawyers at S&R.
The India chapter provides information on relevant statutes and the government authorities responsible for investigating and enforcing them, conduct most commonly the subject of securities enforcement, and legal issues that commonly arise in enforcement investigations in India.   


free trade agreements

Bilateral Courts: Wooing Europe with Investor-friendly Free Trade Deal

Negotiations between the EU and India in respect of a significant trade and investment deal are currently ongoing. This EU-India deal involves three separate agreements: (1) a free trade agreement (FTA), (2) an investment protection agreement (IPA), and (3) an agreement on geographical indications. Of particular interest is the proposed investment court system (ICS) in the IPA. Although ICS marks a break from standard dispute-resolution mechanisms under investment treaties, it has been used by the EU in the past across FTA-plus deals signed with Canada, Vietnam, and Singapore. Previously, investor-state arbitration (ISA) was the standard template for resolving international investment disputes. Now, the EU wants to include ICS in all its future treaties. While it remains to be seen whether ICS offers a superior paradigm relative to ISA, the EU itself has argued, including before UNCITRAL, that ICS will ensure a more consistent jurisprudence and improve judicial accountability. Nevertheless, as India looks to export more capital in the future, whether ICS will be able to protect investors better in the long run is something that India needs to think about.


India’s place in the International Investment Regime

The Elephant in the Room: India’s Place in the International Investment Regime

On August 29, 2022, the Delhi High Court set aside an arbitral award from 2015 issued by the International Chamber of Commerce in the Antrix-Devas dispute. While the High Court’s verdict is being hailed as a significant win for the Indian government, it is also time that India became more proactive in global debates related to foreign investment and learnt how to avoid such defensive situations in the first place. This note discusses why India should start asserting itself as a key player in the international investment regime and identifies the areas in which it has been falling short in this regard, including, in particular, in respect of its corresponding dispute resolution system.


Enforceability Of Arbitration Agreement

Does Non-payment of Stamp Duty Affect Enforceability of Arbitration Agreements?

There is, often, a complex interplay between transnational legal standards for the enforcement of commercial contracts and various domestic legislations. One such category of legislations in India which affects, and sometimes delays, the enforcement of arbitration agreements are legislations relating to collection of stamp duty, in particular the Indian Stamp Act, 1899 and certain state-specific legislations relating to collection of stamp duty (collectively, the “Stamp Duty Law”). Under the Stamp Duty Law, an insufficiently stamped instrument is liable to be impounded. Further, until such an instrument is sufficiently stamped, the instrument remains inadmissible in evidence. What then is the fate of an arbitration clause within an instrument that is either not stamped or insufficiently stamped? Will the relevant authority before which such instrument is presented under the provisions of the Arbitration and Conciliation Act, 1996 refuse to refer the parties to arbitration; appoint an arbitrator; grant interim relief sought by the party? Or, would the separability doctrine (that an arbitration agreement is separate and distinct from the substantive contract in which it is contained) salvage such an arbitration clause?


Material Adverse Effect

Renewed Spotlight on Material Adverse Effect Clauses following Covid-19 and the Musk-Twitter Dispute

Material Adverse Effect (“MAE”) clauses are once again in focus with the recent Musk-Twitter dispute arising from the termination of the transaction related to the acquisition of Twitter on MAE grounds. This note discusses certain issues relating to MAE clauses from a practical perspective in an M&A setting and how these clauses have been interpreted by courts in the past.


shareholder activism in india

Shareholder Activism in India: The Zee-Invesco Decision

India has witnessed a significant increase in institutional shareholder activism over the past few years. As a consequence of the rapid rise in shareholder activism, there has been much greater focus on the rights of minority shareholders in relation to a company. In this context, the judgment of the division bench of the Bombay High Court on March 22, 2022 in Invesco Developing Markets Fund v. Zee Entertainment Enterprises Limited addresses two key issues: (i) the statutory right of shareholders to call a shareholders’ meeting and (ii) the appropriate judicial forum for such shareholder disputes.