Conclusions of the Five Judge Bench in NN Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd.

 Finally, the decision of the Five Judge Bench in NN Global Mercantile Pvt. Ltd. v. Indo Unique Flame Ltd. (25.04.2023: SCI) is out and can be accessed from here. This post provides a quick read of the summary of the decision as encapsulated in the conclusion of Justice KM Joseph's judgment (p. 1 to 140 of the pdf), quoted below. Justice KM Joseph on his behalf and on behalf of Justice Aniruddha Bose, penned the majority opinion. The dissenting views were expressed by Ajay Rastogi, J. (p. 141- 201 of the pdf file) and Hrishikesh Roy, J. (p. 202-279 of the pdf file). Justice CT Ravikumar gave an opinion concurring with Justice KM Joseph (p. 280- 298 of the pdf file). 

Justice Joseph's conclusions are reproduced below:

"109. The view taken in SMS Tea Estates (supra) as followed in Garware (supra) and by the Bench in Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram and other Charities v. Bhaskar Raju and Brothers and others36 as to the effect of an unstamped contract containing an Arbitration Agreement and the steps to be taken by the Court, represent the correct position in law as explained by us hereinbefore. N.N. Global (supra) was wrongly decided, when it held to the contrary and overruled SMS Tea Estates (supra) and Garware (supra). 

110. An instrument, which is exigible to stamp duty, may contain an Arbitration Clause and which is not stamped, cannot be said to be a contract, which is enforceable in law within the meaning of Section 2(h) of the Contract Act and is not enforceable under Section 2(g) of the Contract Act. An unstamped instrument, when it is required to be stamped, being not a contract and not enforceable in law, cannot, therefore, exist in law. Therefore, we approve of paragraphs-22 and 29 of Garware (supra). To this extent, we also approve of Vidya Drolia (supra), insofar as the reasoning in paragraphs-22 and 29 of Garware (supra) is approved. 

111. The true intention behind the insertion of Section 11(6A) in the Act was to confine the Court, acting under Section 11, to examine and ascertain about the existence of an Arbitration Agreement. 

112. The Scheme permits the Court, under Section 11 of the Act, acting on the basis of the original agreement or on a certified copy. The certified copy must, however, clearly indicate the stamp duty paid as held in SMS Tea Estates (supra). If it does not do so, the Court should not act on such a certified copy. 

113. If the original of the instrument is produced and it is unstamped, the Court, acting under Section 11, is duty-bound to act under Section 33 of the Stamp Act as explained hereinbefore. When it does so, needless to say, the other provisions, which, in the case of the payment of the duty and penalty would culminate in the certificate under Section 42(2) of the Stamp Act, would also apply. When such a stage arises, the Court will be free to process the Application as per law. 

114. An Arbitration Agreement, within the meaning of Section 7 of the Act, which attracts stamp duty and which is not stamped or insufficiently stamped, cannot be acted upon, in view of Section 35 of the Stamp Act, unless following impounding and payment of the requisite duty, necessary certificate is provided under Section 42 of the Stamp Act. 

115. We further hold that the provisions of Sections 33 and the bar under Section 35 of the Stamp Act, applicable to instruments chargeable to stamp duty under Section 3 read with the Schedule to the Stamp Act, would render the Arbitration Agreement contained in such instrument as being non-existent in law unless the instrument is validated under the Stamp Act.

116. In a given case, the Court has power under paragraph-5 of the Scheme, to seek information from a party, even in regard to stamp duty. 117. We make it clear that we have not pronounced on the matter with reference to Section 9 of the Act. The reference to the Constitution Bench shall stand answered accordingly..."

Happy reading!