Ruled and Overruled By SC Constitution Bench In 2023: NN Global Judgment

Overruling of Constitution Bench judgments is not a strange thing. To give a popular example, the 13 Judges Bench in Kesavananda Bharati vs State of Kerala AIR 1973 SC 1461  had  overruled 11 Judges bench in I. C. Golaknath & Ors vs State Of Punjab 1967 SCR (2) 762. But it used to take at least a few years for these overrulings.

But, this year (2023) saw a ruling by a bench of five Judges and overruling of it by another bench of seven judges. The former judgment was delivered on 25th April 2023 and the latter on 13 December 2023. This means the overruling happened within eight months. We are talking about the overruling of the judgment of five Judges bench in N.N. Global Mercantile Private Limited Vs Indo Unique Flame Ltd. 2023 INSC 423 by seven judges bench In Re: Interplay Between Arbitration Agreements Under The Arbitration And Conciliation Act 1996 And The Indian Stamp Act 1899  2023 INSC 1066.

On 11 January 2023, a three judges bench of Justices DY Chandrachud, Indu Malhotra and Indira Banerjee doubted two earlier judgments (SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd (2011) 14 SCC 66 and Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd (2019) 9 SCC 209) which had held that the non-payment of stamp duty on the commercial contract would invalidate even the arbitration agreement, and render it non-existent in law, and un-enforceable. The bench unanimously opined that this is not the correct position in law and therefore referred the following issue to a Five Judges Bench: Whether the statutory bar contained in Section 35 of the Indian Stamp Act, 1899 applicable to instruments chargeable to Stamp Duty under Section 3 read with the Schedule to the Act, would also render the arbitration agreement contained in such an instrument, which is not chargeable to payment of stamp duty, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract / instrument ?

Later, a five judges bench was constituted to hear this reference. On 25th April 2023, the majority (Justices KM Joseph, Aniruddha Bose and CT Ravikumar) held that an unstamped instrument, when it is required to be stamped, is not a contract and not enforceable in law, cannot, therefore, exist in law.  As a corollary, it was held an arbitration Agreement, within the meaning of Section 7 of the Arbitration and Conciliation 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. Justices Ajay Rastogi and Hrishikesh Roy noticed that the purpose of the Act, 1899 is not to declare an instrument as completely invalid if it is unstamped or insufficiently stamped, but to collect the stamp duty on each instrument. Therefore, they dissented and held that the two judgments were wrongly decided.

On 26 September 2023, a five-Judge Bench, while considering curative petitions against this judgment, doubted the correctness of majority judgment in NN Global and referred the matter to seven judges Bench. The hearing before the larger bench comprising CJI DY Chandrachud, Justices Sanjay Kishan Kaul, BR Gavai, Sanjay Khanna , Surya Kant and JB Pardiwala started shortly thereafter. The cause title of the case was  and a judgment was delivered on 13 December 2023. 

Overruling NN Global, the Court unanimously held as follows: (1) Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. Such agreements are not rendered void or void ab initio or unenforceable; (2) Non-stamping or inadequate stamping is a curable defect;  (3) An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists;(4) Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal.

To put it in other words, the dissenting opinions in NN Global became a unanimous judgment of the seven judges bench that overruled the majority judgment. That is, it took less than eight months for a dissent to become a judgment.

1 thought on “Ruled and Overruled By SC Constitution Bench In 2023: NN Global Judgment”

Leave a Comment

Your email address will not be published. Required fields are marked *