SUPREME COURT JUDGEMENT | UNSTAMPED ARBITRATION AGREEMENT IS ENFORCEABLE

The Supreme Court has recently passed a judgment in NN Global case, wherein it has held that the arbitration clause - of an unstamped or deficiently stamped agreement is valid and enforceable.

BACKGROUND

• In 2011, the Supreme Court in the SMS Tea case had held that an arbitration clause contained in an unstamped or deficiently stamped contract, is not valid and hence not enforceable until such deficiency is removed.
  
  
• In 2019, the Hon’ble Supreme Court in Garware Ropes case reiterated the judgment in SMS Tea and held that the non-payment of stamp duty on the commercial contract would invalidate the arbitration agreement contained therein, and render it non-existent in law, and un-enforceable.
  
  
• In the present case, a work order (`Work Order`) was issued by the Indo Unique Flame Limited (`Respondent`) in favour of NN Global Mercantile Private Limited i.e. the Petitioner. The Work Order contained an Arbitration clause.
  
  
• Thereafter, certain disputes arose inter se the parties. The Respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (`Act`) seeking reference of the dispute to arbitration. This application was rejected by the Commercial Court as the Work Order was not stamped.
  
  
• However, in appeal, the Bombay High Court held that the application under Section 8 of the Act was maintainable in view of the admitted position that there was an arbitration agreement between the parties (`Order`).
  
  
• A special leave petition, challenging the said Order was filed before the Hon’ble Supreme Court.
  

The Supreme Court held:

• On the basis of the doctrine of separability, the arbitration agreement is a separate and distinct agreement from the underlying commercial contract.
  
  
• The arbitration agreement would not be rendered invalid, un-enforceable or non-existent, even if the substantive contract is not admissible in evidence, or cannot be acted upon on account of non-payment of Stamp Duty. Thus, there is no legal impediment to the enforceability of the arbitration agreement, pending payment of Stamp Duty on the substantive contract.
  
  
• Further, as per Maharashtra Stamp Act, 1958 and Schedule I appended thereto, an arbitration agreement is not included in the Schedule as an instrument chargeable to Stamp Duty. In light of the above, the Supreme Court overruled the judgment in SMS Tea. However, since Garware Ropes judgment has been cited with approval by another bench of the Supreme Court, the Supreme Court now referred the question to a Constitution Bench.
  
  
• However, the Supreme Court made it clear that:
  
  a)    Where the appointment of an arbitrator takes place by the parties consensually in accordance with the terms of the arbitration agreement, or by a designated arbitral institution, without the intervention of the court, in such a case, the arbitrator / tribunal must impound the instrument, and direct the parties to pay the requisite Stamp Duty;
  
  b)    In case where an application is filed under Section 11 of the Act for appointment of an arbitrator, the High Court, or the Supreme Court, as the case may be, would impound the substantive contract which is either unstamped or inadequately stamped, and direct the parties to cure the defect before the arbitrator / tribunal can adjudicate upon the contract;
  
  c)    In a case where an application under Section 8 of the Act is filed for reference of the dispute to arbitration, the judicial authority will make the reference to arbitration. However, in the meanwhile, the parties would be directed to have the substantive contract stamped;
  
  d)    If an application for urgent interim reliefs is filed under Section 9 of the Act, the Court would grant ad-interim relief to safeguard the subject-matter of the arbitration. However, the substantive contract would then be impounded and the parties would be directed to pay the requisite stamp duty.

MHCO Comment : The judgment of the Supreme Court brings much need clarity on unstamped arbitration agreements and reiterates the doctrine of seprability i.e. the arbitration agreement and the underlying instrument / agreement are separate contracts. However, it would be interesting to see how the Constitution Bench interprets this matter.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.

 INTERMEDIARY GUIDELINES AND DIGITAL MEDIA RULES

 The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 (“Rules”) have been notified by the Government on 25 February 2021. The Rules have been notified under section 87 of Information Technology Act, 2000 (“Act”). The Rules are aimed at bringing films released in theatres, television show content and OTT platforms to a common level playing field. Further, the Rules cover various digital platforms and bring in better regulation by balancing self-regulation and government regulation. This update analyses the said Rules.

The Rules are broadly divided into 2 categories: (i) Regulation of intermediaries; and (ii) Code of ethics for digital platforms. These Rules envisage two different types of entities, over and above the traditional definition of intermediaries viz, social media intermediary and significant social media intermediary.

• Social media intermediary is defined in the Rules as an intermediary which primarily or solely enables online interaction between two or more users and allows them to create, upload, share, disseminate, modify, or access information using its services.
  
• Significant social media intermediary is defined in the Rules as a social media intermediary having a number of registered users in India above the threshold notified by the central government.
  

With regards to the regulation of intermediaries, the Rules mandate that the intermediaries should conduct extensive due diligence while discharging their duties. The Rules mandate that the intermediaries would need to publish on their website and / or mobile based application, the Rules, the regulations, privacy policy and user agreement for access or usage of its computer resource by any person The Rules put a greater degree of care to be taken by intermediaries publishing news and current affairs content in light of the material they publish on their websites and / or mobile applications.

The level of due diligence of the intermediary depends on the hierarchy of the classification of the entities. For example, significant social media intermediaries, in addition to the diligence requirements mentioned above, need to do the following within 3 months of the notification of the Rules:

• Appoint a chief compliance officer resident in India, who shall be responsible for ensuring for compliance with the IT Act and the rules made thereunder;
  
• Appoint a nodal contact person resident in India, to liaise with the law enforcement agencies to ensure compliance of their orders or requisitions;
  
• Appoint a resident grievance officer who is a resident of India;
  
• Publish a periodic compliance report every month, mentioning the details of the complaints received and action taken in respect of those complaints.
  

The Rules empower ordinary users of digital platforms, embodying a mechanism for redressal and timely resolution of their grievance. Every intermediary shall, within 48 hours of receipt of a complaint pertaining to any content on its platform which may be sensitive in nature to the extent of nudity, sexual acts, artificially morphed images, etc, take all reasonable and practical measures to remove or disable access to such content, which is hosted, stored, published or transmitted by it. An officer, being the Grievance Redressal Office, is to be appointed to deal with such complaints.

Code of Ethics : The Rules also establish a soft-touch self-regulatory architecture, Code of Ethics and three tier grievance redressal mechanism for news publishers, OTT Platforms and digital media. Intermediaries will be required to appoint India-based compliance officers to ensure compliance with the provisions set out in the Rules. Further, an intermediary providing services primarily in the nature of messaging shall enable the identification of the first originator of the information.

The 3 - tier regulation system set up, provides for (i) Self - regulation by the publishers of the content in accordance with the Codes of Contents; (ii) Regulation through self - regulatory bodies which will be set up under the Rules; (iii) Oversight mechanism, which is in the process of being finalised and set up by the Electronics and IT Ministry.

A pertinent provision under the Rules is that publishers of news on digital media would be required to observe the Norms of Journalistic Conduct of the Press Council of India and the Programme Code under the Cable Television Networks Regulation Act, thereby being brought to the same level as offline print media.

OTT platforms will be required to self-classify their content based on the age criteria set out under the Schedule of the Rules, in order to restrict access to online curated content. The publisher is also required to prominently disclose the classification rating specific to each content or programme available on the platform, to enable the user to make an informed decision prior to watching any available content.

MHCO Comment : The Rules are extensive in nature, bringing various digital platforms under the purview of the Act with the intent to deal with the problem of fake news, abuse of these platforms, etc. The Rules are currently being challenged on grounds of constitutionality before the Supreme Court of India. Therefore, although these Rules are a step in the right direction to counter above mentioned issues, the concern of the possible violation of the right to freedom of speech and expression is still there and remains to be decided.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.