The arbitration clause is an essential element of any agreement that seeks to avoid formal litigation. It is a clause that spells out how disputes will be resolved between two parties outside of the court system. However, it is not uncommon to come across agreements that have an arbitration clause that is unstamped. This brings up the question of the legal validity of the clause in such an instance. In this article, we will explore the implications of having an unstamped arbitration clause in an agreement.
Firstly, it is important to define what an unstamped agreement is. An agreement is said to be unstamped if it lacks a proper revenue stamp. In India, a revenue stamp is a legal requirement for most agreements, and it is a way of ensuring that the government receives its due revenue from the transaction. Therefore, an unstamped agreement is deemed invalid and unenforceable in a court of law.
So, what happens when an agreement with an arbitration clause is unstamped? Does it render the arbitration clause invalid as well? The answer to this is no. An unstamped agreement does not necessarily make the arbitration clause invalid. However, the clause’s enforceability may be impacted by the unstamped agreement.
In cases where the arbitration clause is standalone and not a part of the unstamped agreement, the enforceability of the clause may not be affected. This is because the arbitration clause is a separate entity that can be enforced independently of the agreement. This is particularly true if the parties had entered into an arbitration agreement before signing the unstamped agreement.
On the other hand, if the arbitration clause is part of the unstamped agreement, it becomes a bit tricky to enforce it. The court may take the view that the entire agreement is void as it lacks the appropriate revenue stamp. However, this view is not consistent, and some courts have allowed the arbitration agreement to stand despite the agreement being unstamped.
It is noteworthy that the enforcement of the arbitration clause in an unstamped agreement may be impacted by the intention of the parties. For instance, if it is clear that the parties intended to go through arbitration in case of disputes, the court may view the arbitration clause as valid. The court may also consider the conduct of the parties after the signing of the agreement. If both parties have acted in a manner that suggests they intended to fulfill their obligations under the agreement, the court may allow the arbitration clause to stand.
In conclusion, an arbitration clause in an unstamped agreement may still be valid, but its enforcement may be impacted by a few factors. To avoid any ambiguity, it is advisable to have a proper revenue stamp in place when entering into any agreement. However, it is important to note that the legal validity of an unstamped agreement and its arbitration clause is largely dependent on the specific circumstances of each case. Therefore, it is essential to seek legal advice if you find yourself in such a situation.