Arbitration Agreements In Unstamped Contracts Valid | 19 Dec 2023

Source: TH

Why in News?

Recently, a seven-judge Constitution Bench of the Supreme Court (SC) held that arbitration agreements embedded in unstamped or insufficiently-stamped substantive commercial contracts or instruments are not invalid, unenforceable or even non-existent.

• “Arbitration aims to provide speedy, efficient, and binding resolution of disputes that have arisen between the parties.

What are the Key Highlights of the SC Decision?

• Delivering the lead opinion in a curative petition overruling an earlier five-judge Bench verdict of the Supreme Court in the N.N. Global case, Chief Justice of India held that “non-stamping or inadequate stamping is a curable defect”.
• Non-payment or insufficient stamping of contracts under the Indian Stamp Act, 1899. would not affect arbitration proceedings under the Arbitration And Conciliation Act, 1996.
• The Arbitration Act is a self-contained code. Matters governed by the Arbitration Act such as the arbitration agreement, appointment of arbitrators and competence of the arbitral tribunal to rule on its jurisdiction have to be assessed in the manner specified under the law.
  • Therefore, provisions of other statutes cannot interfere with the working of the Arbitration Act.
• The judgment gives a significant shot in the arm for India’s ambition to become an international arbitration hub to quickly resolve commercial disputes.
  • Earlier, arbitrations on such disputes had struck a roadblock owing to non-payment of the required stamp duty for or insufficient stamping of contracts by the parties.

What is Alternative Dispute Resolution (ADR) Mechanism in India?

• Arbitration:
  • The dispute is submitted to an arbitral tribunal which makes a decision (an "award") on the dispute that is mostly binding on the parties.
  • It is less formal than a trial, and the rules of evidence are often relaxed.
  • Generally, there is no right to appeal an arbitrator's decision.
  • Except for some interim measures, there is very little scope for judicial intervention in the arbitration process.
  • The Indian arbitration is governed and regulated by the Arbitration and Conciliation Act 1996 (which is amended in 2015, 2019 and 2021),
    • The Arbitration and Conciliation (Amendment) Act, 2019 seeks to establish an independent body called the Arbitration Council of India (ACI).
• Conciliation:
  • A non-binding procedure in which an impartial third party, the conciliator, assists the parties to a dispute in reaching a mutually satisfactory agreed settlement of the dispute.
  • Conciliation is a less formal form of arbitration.
  • The parties are free to accept or reject the recommendations of the conciliator.
  • However, if both parties accept the settlement document drawn by the conciliator, it shall be final and binding on both.
• Mediation:
  • In mediation, an impartial person called a "mediator" helps the parties try to reach a mutually acceptable resolution of the dispute.
  • The mediator does not decide the dispute but helps the parties communicate so they can try to settle the dispute themselves.
    • Any person who undergoes the required 40 hours training stipulated by the Mediation and Conciliation Project Committee of the Supreme Court (SC) can be a mediator.
    • He also needs to have at least 10 mediations resulting in a settlement and at least 20 mediations in all to be eligible to be accredited as a qualified mediator.
  • Mediation leaves control of the outcome with the parties.
  • Mediation Act, 2023 seeks to promote mediation, particularly institutional mediation, and provide a mechanism for enforcing mediated settlement agreements.
• Negotiation:
  • A non-binding procedure in which discussions between the parties are initiated without the intervention of any third party with the object of arriving at a negotiated settlement to the dispute.
  • It is the most common method of alternative dispute resolution.
  • Negotiation occurs in business, non-profit organizations, government branches, legal proceedings, among nations and in personal situations such as marriage, divorce, parenting, and everyday life.

What is the Arbitration Council of India (ACI)?

• Constitutional Background: The Constitution of India, Article 51, India is obliged to endeavor to:
  • Foster respect for international law and treaty obligations in the dealings of organized peoples with one country.
  • Encourage settlement of international disputes by arbitration. ACI is a step in realization of this constitutional obligation.
• Objective:
  • ACI aims to promote arbitration, mediation, conciliation and other alternative dispute redressal mechanisms.
• Composition of the ACI:
  • The ACI will consist of a Chairperson who is either:
    • A Judge of the Supreme Court/ A Judge of a High Court/ Chief Justice of a High Court.
    • An eminent person with expert knowledge in conduct of arbitration.
    • Other members will include an eminent arbitration practitioner, an academician with experience in arbitration, and government appointees.