Stamp Duty on Arbitration Agreements in India

Procedure | Compounding | Timing Impact | Section 9 Applications | Key Case Law

Part I: Stamp Duty On Arbitration Agreements Overview

Stamp duty in India is governed primarily by the Indian Stamp Act, 1899 (central legislation) and various state-specific stamp Acts (e.g., the Maharashtra Stamp Act, 1958; the Rajasthan Stamp Act, 1998). The levy of stamp duty is a fiscal measure to generate State revenue on the execution of designated instruments.

Statutory Framework

The key provisions are as follows:

• Section 3, Indian Stamp Act, 1899- Instruments chargeable with duty.
• Section 33- Duty of every court/authority to examine instruments and impound those not duly stamped.
• Section 35- Inadmissibility of unstamped/insufficiently stamped instruments in evidence.
• Section 38- Procedure after impounding: forwarding to Collector of Stamps.
• Section 40/42- Collector’s power to assess deficient duty + penalty; endorsement upon payment.
• Schedule I- List of instruments and applicable stamp duty rates (as amended by States).

Is an Arbitration Agreement Separately Chargeable?

‘Arbitration agreements’ are not independently listed in Schedule I of the Indian Stamp Act as a separately chargeable instrument. However, where an arbitration clause is embedded in a substantive commercial contract (e.g., a works contract, lease deed, shareholders’ agreement), the entire instrument including the arbitration clause must be appropriately stamped.

Practical Note

Where an arbitration agreement exists as a standalone document (separate from the main contract), some authorities have taken the position that it constitutes a distinct instrument chargeable under the residuary provisions of the Stamp Act. Post the 7-judge bench ruling in In Re: Interplay (2023), this question has been left partially open.

Part II: Procedure For Payment Of Stamp Duty

Payment at the Time of Execution (Standard Procedure)

The correct and recommended approach is to pay stamp duty before or at the time of execution of the instrument. The procedure is:

1. Identify the correct instrument type and applicable state/central stamp duty rate under Schedule I.
2. Procure stamp paper of the requisite value (franking, e-stamping, or physical stamp paper as permitted by the relevant State).
3. Execute the agreement on the stamped paper or affix adhesive stamps, as permitted.
4. Where e-stamping is available (as in Delhi, Maharashtra, Karnataka, etc.), generate a Stamp Certificate from the Stock Holding Corporation of India (SHCIL) or designated banks and attach to the instrument.

Payment for Instruments Executed Outside India

For instruments executed outside the territory of India, stamp duty must be paid within three (3) months of the instrument’s receipt within India (Section 18, Indian Stamp Act, 1899).

Part III: Compounding- Procedure For Curing Deficient Stamp Duty

Where stamp duty has not been paid, or has been insufficiently paid, on an arbitration agreement (or the underlying contract containing it), the deficiency can be ‘compounded’ or ‘cured’ through the following

1. Step-by-Step Compounding Procedure

2. Self-Assessment Route (Minor Deficiency)

Where the deficiency in stamp duty is nominal and the parties are able to self-assess the correct duty, they may directly pay the deficit duty and penalty to the appropriate authority without formal impounding. This route is faster and avoids the time-consuming referral to the Collector. The Bombay High Court in John Cockerill India Ltd. v. Sanjay Navare (2023 SCC OnLine Bom 2066) directed this process to be completed within 10 days in an appropriate case.

Part IV: Typical Time Duration For Compounding

There is no statutorily prescribed time limit within which the Collector of Stamps must complete the adjudication and endorsement process. This is a significant practical concern.

Practical Note

The absence of a statutory deadline for Collector adjudication means that stamp duty objections can be  weaponised by the respondent/defendant to cause delays. Courts have criticised this use of the Stamp Act as a ‘weapon’ rather than a ‘fiscal measure’. (In Re: Interplay, 7-Judge Bench, 2023)

Part V: Impact On Arbitration Applications – Including Section 9

1. Impact on Section 11 Applications (Appointment of Arbitrator)

Under the pre-December 2023 legal position (especially after NN Global – 5-Judge Bench, April 2023), courts hearing Section 11 applications were required to first examine whether the underlying agreement was duly stamped. If not, the court was obligated to impound it and could not proceed to appoint an arbitrator until the stamp duty process was completed. This caused significant delays, sometimes months or years in arbitrator appointments.

The 7-judge bench in In Re: Interplay (December 13, 2023) fundamentally changed this position: the question of stamping is now no longer to be decided at the Section 8 or 11 stage. Courts must confine themselves to examining the prima facie existence of the arbitration agreement. Stamping issues are deferred to the arbitral tribunal once constituted.

2. Impact on Section 9 Applications (Interim Relief)

Section 9 of the Arbitration and Conciliation Act, 1996 empowers parties to approach courts for interim measures of protection before, during, or after arbitral proceedings (but before enforcement of the award). The key question has been: can a Section 9 application be entertained on the basis of an unstamped or insufficiently stamped agreement?

The Settled Legal Position on Section 9 and Stamp Duty

Multiple courts have distinguished Section 9 from Section 11 and held that stamp duty insufficiency is NOT a bar to granting interim relief under Section 9. The rationale is threefold:

• Section 9 proceedings are non-evidentiary in nature i.e. the court grants protective relief, not a final adjudication on the merits of the contract.
• Section 35 of the Stamp Act bars admissibility ‘in evidence’ at the Section 9 stage, the instrument is not being admitted as evidence but merely used to establish the existence of an arbitration agreement.
• The purpose of Section 9 is urgent protection. Requiring stamp duty compounding (which can take months) before granting interim relief would defeat the very object of Section 9 and cause irreparable harm to the petitioner.

Courts have held that in Section 9 matters, where the instrument is unstamped, the court may:

• Grant ad-interim/interim relief to protect the subject matter of arbitration.
• Direct the parties to take steps for payment of requisite stamp duty within a time-bound manner while the interim relief subsists.
• Proceed to hear the matter without waiting for the compounding process to conclude.

Practical Note

This means: YES, a Section 9 application CAN be filed and entertained even without payment of stamp duty on the arbitration agreement. The court will not refuse to hear it on that ground, though it may require the defect to be cured within a specified time.

3. Residual Timing Concerns

Even under the current law, stamp duty issues can cause delay in the following ways:

• Raising stamp duty as a preliminary objection: Respondents continue to raise it as a delaying tactic at Section 11, Section 9, and even before the tribunal. While courts post-December 2023 are less sympathetic to such objections, they still consume hearing time.
• Tribunal-stage impounding: Once the tribunal is constituted, it must examine stamping and impound if deficient. This may briefly delay proceedings until the Collector’s process is complete.
• Enforcement stage: At the stage of enforcing a domestic arbitral award under Section 36, stamp duty on the Award itself becomes relevant and can delay execution.

Part VI: Key Case Law – Supreme Court & High Courts

A. Supreme Court Decisions

In Re: Interplay Between Arbitration Agreements Under the A&C Act, 1996 and the Indian Stamp Act, 1899  |  2023 INSC 1066 | 7-Judge Constitutional Bench | December 13, 2023

LANDMARK RULING: The 7-judge bench unanimously held that an unstamped/insufficiently stamped arbitration agreement is NOT void, void ab initio, or unenforceable. Non-payment of stamp duty only renders the instrument inadmissible in evidence (a curable defect). It does not affect the validity or enforceability of the arbitration agreement. Courts under Section 8 and 11 should not examine stamping issues, these are to be determined by the arbitral tribunal. Stamping issues do not arise at the stage of arbitrator appointment. Overruled NN Global (5-Judge, April 2023), SMS Tea Estates (2011), and partly overruled Garware Wall Ropes (2019).

M/s N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. & Ors. (NN Global 2)  |  2023 SCC OnLine SC 495 | 5-Judge Constitution Bench | April 25, 2023

OVERRULED (by 7-Judge Bench above): The 3:2 majority held that an arbitration agreement in an unstamped/insufficiently stamped instrument has no legal existence, is unenforceable, and cannot be acted upon by courts under Section 11. The court is duty-bound to impound such instrument. Expressly stated the ruling did NOT comment on Section 9. Overruled by In Re: Interplay.

M/s N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. (NN Global 1)  |  (2021) 4 SCC 379 | 3-Judge Bench

Held that non-payment of stamp duty on the main contract, being a curable defect, would not render the arbitration agreement invalid (applying the separability doctrine). Referred the issue to a 5-Judge Constitution Bench.

Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd.  |  9 SCC 209 (2019)

Held that an arbitration clause in an unstamped agreement would not ‘exist’ until requisite stamp duty was paid. Partly overruled by In Re: Interplay (2023). The Supreme Court remained silent on the Bombay  HC’s concurrent ruling on Section 9.

SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.  | 14 SCC 66 (2011)

First Supreme Court decision holding that courts must impound an unstamped instrument before appointing an arbitrator. Overruled by In Re: Interplay (2023).

B. High Court Decisions

L&T Finance Ltd. v. Diamond Projects Ltd.  |  Bombay High Court | 2023

Held that the NN Global (5-Judge Bench) ruling does not affect the court’s power to grant interim relief under Section 9 of the A&C Act. An inadequately stamped instrument does not bar parties from seeking or obtaining interim measures. Obligations under Sections 33 and 35 of the Stamp Act do not arise until the instrument is admitted as evidence in arbitral proceedings. Section 9 is a non-evidentiary proceeding. Implicitly affirmed by In Re: Interplay (7-Judge Bench, 2023).

John Cockerill India Ltd. v. Sanjay Kamalakar Navare  |  2023 SCC OnLine Bom 2066 | Bombay High Court | September 12, 2023

Held that under a Section 11 application, the court itself can determine the stamp duty payable and direct payment (without necessarily sending it to the Collector). The court calculated the stamp duty at INR 100 and a penalty of 2% per month (for 22 months = INR 44), totalling INR 144, and directed completion of the process within 10 days. This is an important precedent for the ‘self-assessment/court-assessed’ route to compounding.

Vijay Sharma v. Vivek Makhija and Anr.  |  Bombay High Court Full Bench | April 4, 2019

Full Bench held that the court under Section 9 is ‘acting upon’ the arbitration agreement and NOT upon the main contract requiring stamping. Therefore, the court can, in an appropriate case, pass interim/ad-interim orders under Section 9 even where the underlying contract is unstamped, treating the arbitration clause as a severable/separate agreement.

Saifee Developers v. Shanklesha Constructions  |  Bombay High Court

Distinguished Garware Wall Ropes in the context of Section 9, observing that no specific ruling had been given on Section 9 applications vis-à-vis unstamped agreements. Held that a Section 9 petition could continue even where the main agreement was questioned on stamp duty grounds.

Splendor Landbase Ltd. v. Aparna Ashram Society & Anr.  | Arbitration Petition No. 366 of 2021 | Delhi High Court

Held that a court hearing a Section 11 application can undertake the exercise of determination of requisite stamp duty and enable deposit of the same with the Collector of Stamps, so that the curable defect is cured and the application for appointment of arbitrator can proceed.

Part VII: Summary: Current Legal Position (Post December 2023)