Unstamped Arbitration Agreements: What In re Interplay Settled

Few issues have caused as much procedural delay in Indian arbitration as the stamping of the underlying contract. For years, a respondent facing a petition for appointment of an arbitrator could stall the process simply by pointing out that the agreement was insufficiently stamped. In December 2023, a seven-judge bench of the Supreme Court largely closed that door.

This paper sets out the sequence of decisions, the reasoning of the seven-judge bench in In re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, and what parties should still do to protect their position.

The background: SMS Tea Estates to N.N. Global

In SMS Tea Estates v Chandmari Tea Co (2011), the Supreme Court held that a court asked to act on an unstamped instrument containing an arbitration clause must first impound it and ensure that the duty and penalty are paid. The view was reinforced in Garware Wall Ropes v Coastal Marine Constructions (2019), which held that an arbitration clause in an unstamped contract does not exist in law until stamped.

In April 2023, a five-judge bench in N.N. Global Mercantile v Indo Unique Flame, by a 3:2 majority, held that an unstamped instrument containing an arbitration agreement is not enforceable and cannot be acted upon at the referral stage. The decision attracted immediate criticism, since it allowed a fiscal objection to defeat the speed that the 2015 amendments to the Arbitration Act were designed to achieve. A curative petition led to a reference to seven judges.

What the seven-judge bench decided

On 13 December 2023, the seven-judge bench unanimously overruled N.N. Global and the relevant parts of SMS Tea Estates and Garware. Its main conclusions are these.

1. Inadmissible is not void. An agreement that is not stamped or insufficiently stamped is inadmissible in evidence under Section 35 of the Stamp Act, but it is not void or unenforceable. Non-payment of duty is a curable defect.

2. The referral court looks only at existence. Under Section 11(6A) of the Arbitration Act, the court is concerned only with the prima facie existence of an arbitration agreement. Stamping does not bear on existence.

3. The tribunal decides stamping. Objections relating to stamping fall within the jurisdiction of the arbitral tribunal, which can impound the instrument and require payment of duty and penalty under the Stamp Act.

4. Separability and kompetenz-kompetenz prevail. The Arbitration Act, as a special law with a self-contained scheme for minimal judicial interference, is to be harmonised with the Stamp Act so that the fiscal law does not frustrate the arbitral process.

Why the reasoning matters

The Court drew a clear line between the purpose of stamp law and the purpose of arbitration law. The Stamp Act is a fiscal measure meant to secure revenue; it was never intended to be a weapon for a party seeking to avoid its bargain. Treating the defect as fatal at the threshold rewarded the party who had often been responsible for the stamping in the first place.

The bench also emphasised the minimal intervention principle in Section 5 of the Arbitration Act. Allowing courts to conduct a stamping inquiry before appointing an arbitrator would add a layer of litigation the legislature had deliberately removed.

Subsequent developments

The logic of Interplay was extended in SBI General Insurance Co v Krish Spinning (2024), where the Supreme Court held that questions of accord and satisfaction, including whether a full and final settlement discharged the contract, should also generally be left to the tribunal rather than decided at the Section 11 stage. The direction of travel is consistent: the referral court performs a narrow gatekeeping role and the tribunal decides the rest.

Stamping still has consequences

It would be a mistake to read the judgment as making stamp duty irrelevant. The defect is curable, but the cure has a cost:

• the tribunal may impound the agreement and require payment of the deficient duty along with penalty, which under many State stamp laws can be a multiple of the deficit;

• until the duty is paid, the instrument remains inadmissible in evidence, which can affect the claimant's ability to prove its case;

• an award founded on an instrument that was never validated may face challenge at the enforcement stage, particularly where the opposing party preserved its objection; and

• State stamp laws differ significantly, so the applicable rate and penalty depend on where the instrument was executed and where it is received.

Practical guidance

1. Stamp commercial agreements correctly at execution, applying the law of the State where they are executed and checking whether additional duty is payable where they are brought into another State.

2. For e-signed contracts, use e-stamping through the authorised channel rather than assuming no duty is payable on digital instruments.

3. Where an existing agreement is under-stamped, consider regularising it before a dispute arises, since adjudication and payment are usually cheaper than penalty imposed during proceedings.

4. As a respondent, raise any stamping objection before the tribunal at the first opportunity so that it is preserved, rather than at the referral stage where it will no longer succeed.

Conclusion

In re Interplay removed one of the most common sources of delay in Indian arbitration. A party can no longer prevent the constitution of a tribunal by pointing to the stamp paper. But the judgment shifts the question rather than eliminating it. Stamping discipline at the drafting stage remains the cheapest way to avoid penalty, evidentiary difficulty and enforcement risk later.