Page 22 - BANKING FINANCE APRIL 2024

LEGAL UPDATE

as it is relied upon by investors, rang- and the Indian Contract Act. In a rare Courts or the State would not provide
ing from large institutional investors to instance, the matter witnessed three legal protection to an inadequately
retail investors or individuals, who put rounds of adjudication at SC. stamped or unstamped instrument.
hard earned life time savings or retiral In the first round of adjudication in NN The decision, rightly, came with a lot
funds," he said.
Global Mercantile Pvt Ltd vs Indo of criticism. Without having much guid-
Unique Flame Ltd (NN Global - I), a ance on the practical implications of
SC rejects TDS on prepaid three Judge Bench was faced with the the decision, the references to arbitra-

SIM sales question - whether an arbitration tion almost came to a standstill. While
agreement found within an dealing with referral applications seek-
Telecom companies received a major unstamped or inadequately stamped ing the appointment of an arbitrator,
relief as the Supreme Court ruled
contract would be legally enforceable. many Courts across India witnessed
against the demand of tax deducted at The Bench invoked the doctrine of parties raising objections pertaining to
source (TDS) for selling prepaid SIM separability to hold that an arbitration stamping. Interestingly, instruments
cards to the distributors at discounted clause was deemed to be an indepen- were also impounded in matters for
rates. dent and a separate contract, com- further steps to be taken in compli-
The two-judge bench of Justice Sanjiv pared with the underlying contract. ance with the statutory mandate un-
Khanna and Justice S.V.N. Bhatti passed In addition, the court opined that in der the Stamp Act.
the judgment in response to 40 appeals contemporary jurisprudence, arbitral Eventually, in a curative petition, a
filed by telecom giants such as Bharti tribunals are believed to be competent seven Judge Bench of the Supreme
Airtel and Vodafone Idea regarding the to rule on issues pertaining to their Court settled the issue. The SC held
applicability of TDS on discounts pro- jurisdiction. However, in its examina- that the inadequately or improperly
vided to prepaid distributors for the sale tion of relevant judicial pronounce- stamped instruments were inadmis-
of SIM cards and recharge vouchers. ments on the issue, this Bench was sible as evidence under the Stamp Act.
"The appeals filed by the assessee - cel- unable to concur with the findings of There is a fine distinction between void-
lular mobile service providers, challeng- another three Judge Bench which ap- ness and inadmissibility. The voidness of
ing the judgments of the High Courts of proved the understanding that arbitra- an agreement referred to its enforce-
Delhi and Calcutta are allowed and tion agreements contained in ability, whereas inadmissibility focused
unstamped agreements would be un- on whether a Court could depend on
these judgments are set aside. The ap-
enforceable. the agreement as a piece of evidence
peals filed by the Revenue challenging
the judgments of High Courts of In the second round in NN Global - II, in legal proceedings.
Rajasthan, Karnataka, and Bombay are by a majority verdict, a five Judge The apex court held that the Stamp
dismissed in terms of the reportable Bench rejected these findings - that Act was a fiscal statute, intended to
judgment," the judgment noted. the independent status of an arbitra- raise revenue and not to arm a litigant
tion clause as a distinct agreement with a weapon of technicality. At the
The crux of the matter revolved around
would still leave it eligible to stamp stage of referring a matter to arbitra-
whether telecom service providers are duty. Thus, the five Judge Bench held tion, a referral court need only check
obligated to deduct TDS under section
that the foundational premise in NN for the existence of arbitration agree-
194H of the Income Tax Act.
Global was untenable. ment, it said.
SC solves stamp duty The Supreme Court also emphasised This landmark decision not only sets a
that the Stamp Act served as a fiscal precedent for the harmonious coexist-
puzzle in arbitration measure and was designed to be rig- ence of the Arbitration Act and the

In a recent seven Judge Bench deci- orously enforced. An unstamped instru- Stamp Act but also safeguards the deli-
sion, the Supreme Court crystallised ment is liable to be impounded under cate balance between them. While
the legal position pertaining to a the applicable provisions of law and, as rectifying the perceived imbalance
pressing issue which arose in the con- such, is unenforceable. In essence, from NN Global - II, the SC has rejected
text of three laws - the Arbitration and parties could execute transactions and prioritising the Stamp Act's revenue
Conciliation Act, the Indian Stamp Act goods may exchange hands, but the objective over the Arbitration Act.

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