The Chief Justice of India, Dr D.Y. Chandrachud, in his keynote address at the Delhi Arbitration Weekend (DAW) on February 16, 2023, remarked that the judiciary must step in to ensure an effective arbitration ecosystem. He noted that some judgements in the past have led to the Indian jurisdiction being seen as anti-arbitration, but the judiciary has come out of the shadows of those judgments. Ironically, it only took just about two months for the Constitution Bench to render another haunting anti-arbitration decision.
On April 25, 2023, a five-judge Constitution Bench of the Supreme Court rendered its decision in NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd & Ors., holding by a majority of 3:2 that unstamped agreements are invalid in law. The majority comprised Justices KM Joseph, Aniruddha Bose, and CT Ravikumar, while Justices Ajay Rastogi and Hrishikesh Roy dissented. Interestingly, the majority did not agree with its own amicus, appointed to assist in the matter. Gourab Banerji, Senior Advocate, had submitted that the issue of an unstamped agreement is a curable defect and the failure to stamp a document under the provisions of the 1899 Indian Stamp Act will not affect the validity of the transaction embodied in the document. Any arbitration practitioner would have arrived at the same conclusion. The idea of a curable defect is to uncomplicate cases and not to tie things down in a spiral, which this judgement will certainly do. The submission of the amicus and the conclusion of the minority decision that the Stamp Act should not act as a weapon of technicality in the hands of a litigant to meet his opponent is the only logical way to perceive and deal with a curable defect.
The majority finding will be seen as an implication of the supremacy of other domestic acts over the 1996 Arbitration and Conciliation Act. The principle of kompetenz-kompetenz, incorporated in Section 16 of the 1996 Act, which empowers an arbitral tribunal to decide its jurisdiction, has also been trumped by the court. Asking courts to interfere at the jurisdictional stage will make the provision and the idea of arbitration redundant.
The NN Global decision is only going to complicate the arbitration process even further. The Indian regime, judicial and political, is in growing tension with each other. The latter aspires to become an international arbitration hub, whereas the former keeps intervening in the process. This is not the first time the Indian courts have needlessly intervened in an international arbitration process. In Amazon v Future Retail, a single-judge bench of the Delhi High Court had admitted and heard full arguments against an (International) Emergency Arbitration award under Article 226 of the Constitution. Although subsequently, the Supreme Court upheld the validity of an Emergency Award, the entire process of litigation resulted in an immense loss of time and money for the parties.
More than law, just one too many interventions from the court in arbitration proceedings would spook investors and persuade them to keep the dispute mechanism in dealings with their Indian counterparts outside India. Arbitration enthusiasts will recall the Centrotrade Minerals v Hindustan Copper Ltd. saga commenced in early 2000, which saw two full rounds of litigation before the Supreme Court on separate points of law before the award was finally enforced in the year 2020. In this case, an ICC award rendered in 1999 by Sir Jeremy Cooke QC, was resisted enforcement in the Indian courts on the grounds of the arbitration agreement (a double-layered arbitration clause) being invalid. The judgement debtor’s second ground of contention was that its submissions were not considered by the arbitrator as they did not reach him on time due to the disturbance in courier routes following the 9/11 terror attack. It took the Indian courts about twenty years to decide both issues and order HCL to pay the awarded compensation to Centrotrade.
For now, the courts do not seem to be in tandem with the steps needed to become an arbitration hub. There is a major gap in the speeches given at seminars and the decisions rendered in court. Opening the market for foreign law firms will not enhance India’s reputation as a lucrative arbitration seat if the ultimate result is going to be innumerable rounds of intervention by the domestic courts even before arbitration is kicked on.
The author is an Indian lawyer based in London. He specialises in international commercial arbitration, investment arbitration, and white-collar crimes. He can be reached at [email protected]. Views expressed are personal.
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