A seven-judge constitution bench of the Supreme Court on Wednesday unanimously ruled that an unstamped or insufficiently stamped arbitration agreement will continue to be legally valid and is enforceable.

Such a defect is curable and does not render the contract invalid, the court said.

The verdict, having significant and far-reaching consequences in corporate and other agreements containing arbitration clauses to resolve disputes between contracting parties, overrules a five-judge bench judgment rendered in April this year.

The court, in the case titled M/s N N Global Mercantile Pvt Ltd vs M/s Indo Unique Flame Ltd. And Ors, had by majority of 3:2 held that unstamped or insufficient agreements, having arbitration clauses, are not enforceable.

Overruling the verdict, the bench headed by Chief Justice D.Y. Chandrachud held that non-stamping or insufficient stamping of an agreement has nothing to do with the validity of the document as it is a curable defect.

The bench passed the verdict while answering the reference made by a constitution bench in the backdrop of the five-judge bench ruling delivered on April 25 that held such arbitration agreements were invalid and void.

In the April judgment, while the majority of three judges had held that such an agreement was invalid, the minority view of two judges took a contrary view.

Hence the matter was referred to the present seven-judge bench.

The bench comprising CJI Chandrachud and Justices Sanjay Kishan Kaul, Sanjiv Khanna, B. R. Gavai, Surya Kant, J.B. Pardiwala and Manoj Misra decided to resolve the issue which arose in the context of three statutes — the Arbitration and Conciliation Act 1996, the Indian Stamp Act 1899, and the Indian Contract Act 1872.

The Stamp Act imposes a duty on “instruments”. An instrument which is unstamped or insufficiently stamped is inadmissible in evidence and cannot be acted upon in terms of its provisions.

Arbitration agreements are often embedded in underlying instruments or substantive contracts.

The primary issue that arises is whether such arbitration agreements would be non-existent, unenforceable, or invalid if the underlying contract is not stamped.

The seven-judge bench after examining threadbare the three legislations, judicial precedents in various foreign countries and judgments of the apex court passed the judgment holding that merely because an arbitration agreement is not stamped or inadequately stamped will continue to be a valid document.

Writing the judgment for himself and five judges, the Chief Justice of India said “insufficiency of stamping” does not make an agreement void (invalid) or unenforceable but makes it inadmissible in evidence.

“Agreements which are not stamped or inadequately stamped are not void ab initio (invalid from beginning) or unenforceable, they are inadmissible in evidence... Non-stamping or inadequate stamping is a curable defect,” the CJI said.

Justice Khanna wrote a separate and concurring judgment.