A recent Indian court ruling has “reaffirmed the pro-arbitration stance of the Indian Supreme Court” in arbitration cases, an expert has said.
The seven-judge bench overturned an earlier ruling and found that “unstamped arbitration agreements are enforceable”. The decision (151-page / 1012KB) is “important for parties to Indian arbitrations as it allows them to practically plan for local law requirements such as stamp duty when entering into arbitration agreements”, said construction arbitration expert Mohammed Talib of Pinsent Masons.
The previous ruling (298-page / 1.62MB PDF) by a five-judge bench in April raised concerns about the enforcement of arbitration agreements where the contracts were governed by Indian law, due to the Indian Stamp Act of 1899. The Act requires all agreements to be stamped or to pay stamp duty to the Indian government. This meant that arbitration agreements that were not stamped were not admissible as evidence under Indian law.
However, in the recent decision, the Indian Supreme Court held that when parties sign an arbitration agreement, they are deemed to have independently signed the arbitration agreement. This means that the courts can decide whether an agreement exists, rather than whether it is valid or not. It is then up to the arbitrator to determine validity. Talib said the decision helps to reassure all parties about the role of the court in India and is a good indication that the court will not continue to expand the role of the court system into arbitration, but will continue to support the autonomy of the tribunal.
The Supreme Court judgment stated: “If a party submits an arbitration agreement or a certified copy thereof, the referral court is only required to consider whether there is an arbitration agreement within the meaning of Section 7 of the Arbitration Act. Under Section 11, the referring court is not required to examine whether a certified copy of the agreement/instrument/contract discloses the fact that stamp duty has been paid on the original. Accordingly, we are of the view that the decision of this Court in SMS Tea Estate (supra), as reiterated in N N Global 2 (supra), is no longer valid in law”.
The earlier Supreme Court decision limited the situations in which Indian-seated arbitrations could proceed. However, the latest decision provides more scope for arbitration in India, with the reversal of the decision “important to confirm the development of India as a pro-arbitration seat”, Talib added.
Arbitration expert Wee Jian Ang of Pinsent Masons said that the decision to overrule “highlights that this type of curable issue will not be allowed to derail the progress of arbitration in India”. However, he said that the decision could be “a short-term problem as sophisticated parties will still need to ensure that agreements are properly stamped”.