THE COMPLEXITIES OF N.
N GLOBAL JUDGMENT IN
CONTRADICTION TO INTERNATIONAL PRACTICES
International Commercial Arbitration
RESEARCH PAPER
SUBMITTED BY: SUBMITTED TO:
ANUJAYA EKKA Dr. Mausam
ROLL NO. 1094
ASSISTANT PROFESSOR
SEMESTER: VII ‘A’
NUSRL, RANCHI
NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW RANCHI,
JHARKHAND
Table of Contents
INTRODUCTION ........................................................................................................................... 3
THE CASE ...................................................................................................................................... 4
Background.................................................................................................................................. 5
Issue ............................................................................................................................................. 5
Decision ........................................................................................................................................ 5
ANALYSIS ...................................................................................................................................... 6
Complexities ................................................................................................................................ 6
Contrary To International Practices ........................................................................................... 6
Dilution of Kompetenz-Kompetenz principle ....................................................................... 7
CONCLUSION................................................................................................................................ 8
References......................................................................................................................................... 9
INTRODUCTION
In the realm of international commercial arbitration, the ruling in the N.N Global case has
ignited a contentious debate, challenging longstanding principles and practices that have
traditionally guided this field. The focal point of this controversy revolves around the
seemingly incongruent position taken by the Supreme Court of India, which appears to deviate
from established international norms governing arbitration agreements.
The crux of the judgment centers on the query of whether the mandatory stamping requirement
under the Indian Stamp Act is applicable to arbitration agreements, potentially rendering them
invalid if not adhered to. This decision has raised concerns among arbitration experts as it
appears to undermine the Kompetenz-Kompetenz principle, a fundamental tenet of
international arbitration granting arbitral tribunals the exclusive authority to determine the
validity of arbitration agreements.
The ramifications of the N.N Global judgment extend beyond the boundaries of the Indian legal
system. Its potential to disrupt the stability and predictability of international arbitration has
sent shockwaves through the global arbitration community. If upheld, this decision could
dissuade parties from selecting India as a venue for arbitration, potentially diminishing the
country's standing as a preferred arbitration hub.
To grasp the intricacies of the N.N Global judgment fully, it is imperative to delve into the
complex framework of international arbitration practices and the underlying principles
governing this field. Examining the historical context and rationale behind the Kompetenz-
Kompetenz principle allows for a better understanding of the significance of the Supreme
Court's decision and its potential impact on the international arbitration landscape.
Furthermore, a comparative analysis of the N.N Global judgment with analogous cases from
other jurisdictions can provide valuable insights into the nuances of international arbitration
law and potential divergences in approaches. Understanding different perspectives and
interpretations of relevant legal provisions contributes to a more comprehensive understanding
of the complexities surrounding this issue.
The judgment undeniably has shaken the foundations of international commercial arbitration,
prompting concerns about the potential erosion of established principles and practices. By
exploring the intricacies of this case and its broader implications, a deeper understanding of
the challenges and opportunities that lie ahead for the future of international arbitration can be
gained.
THE CASE
The decision rendered by the Supreme Court of India in the matter involving M/s NN Global
Mercantile Private Limited ("NN Global") v. M/s Indo Unique Flame Limited ("Indo Unique")
& Ors1. carries significant implications for the validity of arbitration agreements found in
unstamped instruments within India. This comprehensive examination delves into the
complexities of the case, its historical context, and the repercussions stemming from the court's
judgment.
The matter of the validity of an arbitration clause within an unstamped agreement has been a
topic under consideration in diverse judicial precedents. The conflicting opinions among
various High Courts and the Supreme Court have contributed to the lack of a clear resolution
on the matter. Recently, the Supreme Court, through a five-judge bench, provided a decisive
resolution to this issue in the case of N.N. Global Mercantile Private Limited v. Indo Unique
Flame Limited2 (“NN Global”).
In a 3:2 majority decision, the Supreme Court concluded that an arbitration agreement
mentioned in Section 7 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) would
not be enforceable if it is unstamped, in accordance with Section 35 of the Indian Stamp Act,
1899 (“Stamp Act”). Such an agreement would be deemed nonexistent in law unless
appropriately stamped as per the Stamp Act.[2] The court also emphasized that the examination
of the arbitration agreement should occur during the Section 11 stage, and if it is found to be
unstamped, the court has the authority to impound the agreement.
This ruling has definitively addressed a longstanding legal issue, bringing clarity to the matter.
However, it is anticipated to significantly impact the expeditious resolution of arbitration
disputes, thereby influencing India's pro-arbitration framework that has been reinforced over
the past decade. In light of these implications, the authors intend to critically analyze and assess
this judgment.
1
2023 SCC Online SC 495
2
Ibid
Background
The case originated from a disagreement between Indo Unique and NN Global, primarily
centered around the cashing of a bank guarantee. In response to this dispute, NN Global took
legal action against Indo Unique. In a strategic move, Indo Unique invoked Section 8 of the
Arbitration and Conciliation Act, 1996, to propose arbitration for the resolution of the conflict.
However, this application was rejected on the grounds that the work order, housing the
arbitration clause, lacked the necessary stamp and was thus considered unenforceable under
the Indian Stamp Act of 1899.
Undeterred by this setback, Indo Unique contested the decision by filing a writ petition. Their
persistence yielded positive results when the Bombay High Court ruled in their favor.
Subsequently, NN Global appealed the case to the Supreme Court, where the primary issue
under consideration was the enforceability of an arbitration agreement contained within an
instrument lacking the required stamp.
Issue
Due to conflicting precedents on the issue, the Supreme Court referred the critical question to
a prominent five-judge constitutional bench for a conclusive determination. The central
question was whether the lack of proper stamping on an agreement, as required by the Indian
Stamp Act, rendered the arbitration agreement included within it nonexistent, unenforceable,
or invalid until the necessary stamp duty was paid.
Decision
The majority's conclusive judgment emphasized that an instrument incorporating an arbitration
clause, if subjected to stamp duty, must undergo proper stamping before it attains recognition
and enforceability. According to Sections 33 and 35 of the Stamp Act, an unstamped instrument
is stripped of its contractual status, rendering it legally unenforceable. It was clarified that this
ruling does not extend to proceedings governed by Section 9 of the Arbitration Act, which
deals with interim protection in support of arbitration.
ANALYSIS
Complexities
The doctrine of separability is embedded in Article 16(1) of the UNCITRAL Model Law on
International Commercial Arbitration (“Model Law”), signifying that an arbitration clause
operates independently of other contractual provisions3. Consequently, a determination that the
contract is null and void does not automatically render the arbitration clause invalid. In India,
the Arbitration Act was enacted with the objective of incorporating the Model Law and
implementing a consistent legal framework for the efficient and fair resolution of disputes.
Notably, Section 16(1) of the Arbitration Act 4 closely mirrors Article 16(1) of the Model Law.
However, in delivering its verdict in NN Global, the Court overlooked the fundamental nature
of this doctrine within India's codified law.
Contrary To International Practices
In accordance with international law, the invalidity of an arbitration agreement is contingent
upon it becoming "inoperable and incapable" of execution or being deemed "null and void."
Similar language is incorporated in Section 45 of the Arbitration Act 5, which is derived from
Article II(3) of the New York Convention6
The term "inoperative" pertains to situations where the arbitration clause loses its effectiveness,
such as when parties fail to adhere to timelines or expressly or implicitly revoke the arbitration
agreement7. The phrase "incapable of being performed" seems to encompass aspects of the
arbitration process where the arbitral tribunal cannot be established for some reason 8.
On the other hand, the expression "null and void" is indicative of circumstances wherein the
arbitration agreement is inherently invalid from the outset, such as due to a lack of consent
3
UNCITRAL Model Law on International Commercial Arbitration 1985, art 16(1)
4
Arbitration and Conciliation Act, s 16(1)
5
Arbitration and Conciliation Act, s 45
6
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, art II (3)
7
Nigel Blackaby KC, Constantine Partasides and Alan Redfern, Redfern and Hunter on International Arbitration (7th
ed, OUP, 2022
8
Ibid
resulting from misrepresentation, coercion, fraud, or undue influence 9. Consequently, the issue
concerning the non-stamping of an arbitration agreement does not fall within the scope of any
of these grounds. Therefore, through this judgment, the Court has introduced a novel ground
for invalidating an arbitration agreement, deviating from established international norms.
Additionally, this introduction of a new ground contradicts Article 5 of the Model Law 10, which
prohibits courts from adopting any additional grounds for invalidating the arbitration
agreement that is not explicitly stated in the Model Law.
Dilution of Kompetenz-Kompetenz principle
The concept of kompetenz-kompetenz pertains to the authority of an arbitral tribunal to
independently determine its jurisdiction without court intervention 11. The 2015 amendment to
Section 11 of the Arbitration Act reflects the legislative intent of promoting arbitration by
minimizing judicial interference. In the case of Duro Felguera v. Gangavaram Port Ltd.12, the
Court interpreted this amendment to mean that, at the pre-reference stage, courts should
minimize involvement and focus solely on establishing the existence of an arbitration
agreement. Additionally, in Sanjiv Prakash v. Seema Kukreja13, the Court noted that under the
amended Section 11(6A) and in line with the kompetenz-kompetenz principle outlined in
Section 16(1) of the Arbitration Act, the court's role is limited to identifying the presence of
the arbitration agreement, with all other preliminary issues falling within the purview of the
arbitral tribunal. Therefore, once the court establishes the existence of an arbitration agreement,
issues like validity due to non-stamping should be referred to an arbitral tribunal as per the
arbitration agreement.
In the NN Global Case, the majority ruling dismissed the argument favoring the arbitrator as
the competent authority to address stamping sufficiency. Consequently, the court's decision in
this instance undermines the kompetenz-kompetenz concept, detrimentally affecting India's
reputation as a favored seat for arbitration proceedings.
9
Albert Jan Van Den Berg, ‘The New York Convention, 1958—An Overview’ (ICCA) < https://cdn.arbitration-
icca.org/s3fs-public/document/media document/media012125884227980 New York convention of 1958
overview.pdf>
10
UNCITRAL Model Law on International Commercial Arbitration 1985, art 5
11
Ashley Cook, ‘Kompetenz-Kompetenz: Varying Approaches and a Proposal for a Limited Form of Negative
Kompetenz-Kompetenz’ (2014) 1 Pepp. L. Rev. 17, 19
12
(2017) 9 SCC 729
13
(2021) 9 SCC 732
Opting for the arbitral tribunal to address the matter of stamping is the sole means of reconciling
Sections 11 and 16, thereby preventing the thwarting of the intent behind Section 16. Such an
interpretation would solidify India's stance as a pro-arbitration jurisdiction and guarantee that
international entities do not shy away from selecting India as their arbitration venue. The NN
Global judgment weakens the Kompetenz-Kompetenz principle, thereby impeding India's
attractiveness as a preferred arbitration venue for disputes involving Indian parties or those
encompassing both Indian and international parties (given that Section 11, as a component of
Part I of the Arbitration and Conciliation Act, applies to international arbitrations conducted in
India).
CONCLUSION
In delivering the judgment in NN Global, the Supreme Court has affirmed the paramount status
of the Stamp Act over the Arbitration Act. This current position adopted by the Court
contradicts its prior decision, which aimed to promote the practice of arbitration in India. The
majority view in this case introduces the possibility of heightened judicial intervention, a
departure from the core principles of the arbitration act that seek to curtail such intervention.
From the outset, it introduces delays in resolving Section 11 applications as the party relying
on the agreement must first address the issue of unpaid stamp duty before seeking redress from
the Court.
This ruling is poised to undermine India's globally recognized pro-arbitration reputation,
painstakingly built over the years through enactments like the Arbitration Act (Amendment)
Acts of 2015 and 2019. With an expanded scope for judicial intervention, the judiciary may
face challenges in promoting a swifter and more efficient arbitration process. Furthermore,
obtaining urgent interim relief and enforcing emergency awards may become more
challenging. Consequently, an interpretation of the Stamp Act geared toward expediting the
arbitration process would have been more fitting and advantageous, potentially solidifying
India's status as a prominent hub for international arbitration.
References
NN Global Mercantile Private Limited v. Indo Unique Flame Limited & Ors., Civil Appeal
No. 4184 of 2020, Supreme Court of India (April 2023).
UNCITRAL Model Law on International Commercial Arbitration (1985), Article 16(1).
Arbitration and Conciliation Act, 1996 (India), Section 7, 9, 11, 16.
Indian Stamp Act, 1899 (India), Section 35.
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(1958), Article II(3).
Duro Felguera v. Gangavaram Port Ltd., (2017) 9 SCC 729, Supreme Court of India.
Sanjiv Prakash v. Seema Kukreja, (2020) SCC OnLine SC 1016, Supreme Court of India.
Kompetenz-Kompetenz principle, Black's Law Dictionary (11th ed. 2019).
Arbitration Act (Amendment), Act 2015 (India).
Arbitration Act (Amendment), Act 2019 (India).
Model Law on International Commercial Arbitration, Article 5.
