Garware Wall Ropes and Indo Unique: The Road Ahead in Treatment of Arbitration Clauses Contained in Unstamped Instruments.
The full chapter may be found by clicking on the PDF link to the left.
The Supreme Court in Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd. (Garware) decided that a court cannot appoint an arbitrator if the arbitration agreement was contained in an unstamped document, unless the deficit stamp duty and penalty was paid. The basis for this decision was an earlier decision in SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Company Pvt. Ltd. (SMS Tea). On the other hand, the Bombay High Court in Gautam Landscapes Pvt. Ltd. v. Shailesh S. Shah (Gautaum Landscapes) held that reliefs under Section 9 and Section 11 of the Arbitration and Conciliation Act, 1996 (Act) could be granted even if an arbitration agreement was contained in an unstamped document. The judgment in Gautam Landscapes has been carried in appeal before the Supreme Court and is pending as of July 2020. In the meantime, the Apex Court in N.N. Global Mercantile Pvt. Ltd v. Indo Unique Flame Ltd. (Indo Unique) on 11.01.2021 overruled SMS Tea and referred the decision in Garware to a larger bench.
The issue of enforceability of an arbitration agreement in an unstamped document is specific to India and involves the interplay of two principles: (i) separability of arbitration agreements and (ii) effect of fiscal legislations. Indo Unique considered the first of these principles and doubted the correctness of the decision in Garware. While referring it to the larger bench, this judgment correctly appreciated the separability presumption in view of the amendments introduced to the Act in 2015, particularly after the insertion of Section 11(6A). On the other hand, the Supreme Court in Garware seems to have incorrectly applied the separability presumption and undermined the true legislative intent of the 2015 amendments which was to minimise judicial intervention.
This article considers the interplay of both these principles and considers the parameters which the Apex Court should bear in mind while deciding the reference in Garware.