The Risks of Not Stamping Agreements Under Indian Law

Indian law has a peculiar requirement regarding the stamping of agreements. Unstamped or “inadequately” stamped agreements are not admissible as evidence. If you enter into an agreement with an Indian party and disputes arise, and you seek legal recourse, it is likely that the other side will raise objections relating to the non-stamping or inadequate stamping of the agreement or the court may suo motu not entertain your application until it finds that the agreement is “adequately stamped”.

“Adequately stamped” means that the stamp duty due on the agreement has been paid by one or all the parties. Many Indian states have their own stamp laws. These laws prescribe the amount of stamp duty payable on various instruments including agreements, usually on an ad valorem basis. The amount of stamp duty varies depending on the nature of the agreement. For example, the stamp duty payable on a share purchase agreement would be different from that payable on an agreement for the assignment of a copyright. Importantly, this applies regardless of the agreement’s governing law.  Thus, even an agreement governed by English law will need to be adequately stamped to be enforceable in an Indian court or before an arbitral tribunal.

All foreign judgments are not automatically enforceable in India. A fresh lawsuit needs to be filed in an Indian court to enforce a foreign judgment, which can take many years. Thus, it is common practice to submit disputes to arbitration and incorporate an arbitration clause. As India is a signatory to the New York Convention on the recognition and enforcement of foreign arbitral awards, a foreign arbitral award is enforceable in India as a decree of an Indian court, subject to certain exceptions such as non-enforcement on the grounds of public policy.

Arbitration clauses contained in agreements have always been treated as separate agreements, and severable from the main agreement. Until now, the Supreme Court of India had, in certain cases, taken the view that where a party to an arbitration agreement seeks interim relief/urgent reliefs or the relief to appoint an arbitrator (where the parties are unable to mutually agree on an arbitrator),  a court could still refer the parties to arbitration on the basis of the arbitration agreement, leaving the issue of the non-stamping or inadequate stamping for the arbitrator to decide.

However, in a recent judgment in the case of N.N. Global Mercantile Private Limited v Indo Unique Flame Limited and Others, delivered on 25 April 2023, the Supreme Court of India held that where an agreement is unstamped or inadequately stamped, even the arbitration agreement/arbitration clause contained therein (even if treated as a separate agreement) would not be enforceable and it would not refer the parties to arbitration on the basis of such an unstamped or inadequately stamped agreement until the proper stamp duty and penalty had been paid and a certificate to that effect produced before a court.  Thus, not stamping or inadequately stamping an agreement has now become riskier. However, with regard to interim reliefs/urgent reliefs, such as injunctions, the Supreme Court has clarified that their judgment does not cover such a situation and thus this issue is undecided. However, it is always prudent to ensure that any agreement entered into with an Indian party is adequately stamped, especially when substantial assets of the Indian party are located in India.