The theory of the sparability of arbitration agreements has been developed over time. It is recognized in India and other jurisdictions that an arbitration clause in a contract is an agreement independent of the contract between the parties. This theory of the severability of an arbitration agreement was taken up by the Indian Supreme Court in the case of M/S Sms Tea Estates P.Ltd v.M/S Chandmari Tea Co. P.Ltd well explained, which summarized this theory of sparability as follows: 1. With regard to the lack of stamps in the Stamps Act S.35, the court requests the seizure of the misamped document and the question of the appointment of the arbitrator must be decided after the deficiency in the document has healed, in accordance with page 38. The Supreme Court of India (Supreme Court) in its recent decision in Garware Walls Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd. in Civil Appeal No. 3631/2019, pursuant to SLP (C) 9213/2018, delivered on 10 April 2019, set aside a judgment of the High Court of Bombay, Coastal Marine Constructions & Engineering Ltd. v. Garware Walls Ropes Ltd., in arbitration Petition No.24/2017 (HC judgment) and found that an arbitration clause cannot enter into force in an agreement that is not stamped by law if and until the agreement is properly stamped, i.e. the entire stamp duty in respect of such an agreement as provided for by law.
The Supreme Court has also ruled that when a court is asked to rule on an application for the appointment of an arbitrator, in accordance with section 11 of the Arbitration and Conciliation Act, 1996 on the basis of an arbitration clause in an agreement that is not or is misstamped, the court must first refer the matter to the agreement.