Effect of insufficient
stamp duty on Arbitration agreement
Of late, the issue of insufficient stamp duty paid
on the arbitration agreement and its implication on the arbitrability of the
dispute arising out of such arbitration agreement and validity of award,
despite the stamp duty on arbitration agreement being insufficient, has been a
cause of deliberation in courts. The Delhi High Court has dealt with the issue
in a very recent judgment bearing no. O.M.P. (COMM) 161/2023 and captioned as ARG
Outer Media Pvt Ltd Vs HT Media Ltd. The arbitral award was challenged
u/s 34 of the Arbitration & Conciliation Act 1996 or A & Act 1996 (as
amended and up to date) inter alia on
the premise of insufficient stamp duty paid on the arbitration agreement and
thus it was averred that award published taking note of such arbitration
agreement is liable to be set aside.
It may be worthwhile to add that arbitral award
was challenged in ARG Outer Media (Supra) on merit also, however, for the present
write up, the same is confined into the aspect of insufficient stamp duty on
arbitration agreement. The petitioner had raised the plea that the Agreement containing the Arbitration
Clause, being improperly stamped, should have been impounded by the learned
Arbitrator and, until it was properly stamped and penalty was paid thereon, as
determined by the Collector of Stamps, should not have been acted upon.
On the issue of the Agreement not being properly
stamped, it was stated that though it was not in dispute that the respondent
had appended its signatures on the Agreement at New Delhi and thereafter
transmitted the same to Mumbai for the signatures of the petitioner. The petitioner
appended its signatures on the Agreement at Mumbai and, therefore, in terms of
Section 3 (a) of the Maharashtra Stamp Act, 1958 (hereinafter referred to as
the ‘Maharashtra Stamp Act’), the Agreement was chargeable to the Stamp Duty in
accordance with the Maharashtra Stamp Act only. The Maharashtra Stamp Act
requires the document to be stamped on an ad
valorem basis. Reliance was placed on the judgment reported as Religare
Finvest Limited v. Asian Satellite Broadcast Private Limited and Others, 2022 SCC OnLine Del 221.
PETITIONER’s PLEA
It was contended that mere mention that the
document ( Barter Agreement) having been executed at New Delhi or being stamped
in accordance with the provisions of Indian Stamp Act, 1899 as applicable to
the State of NCT of Delhi, would not make the Agreement sufficiently stamped.
The Agreement was insufficiently stamped and should have been impounded by the
learned Sole Arbitrator, during the course of the Arbitral Proceedings.
It was further contended that in view of the
judgment of the Supreme Court in M/s N.N. Global Mercantile Private Limited
v. M/s Indo Unique Flame Ltd. & Ors., 2023 SCC OnLine SC 495, the
Agreement being insufficiently/improperly stamped, could not have been acted
upon by the learned Sole Arbitrator.
It was also submitted that the objection to that
effect was raised before the ld Arbitrator and it is wrongly stated in award that
no submissions on this aspect was made at the stage of the final arguments. In
any case, the said objection was part of the written argument.
RESPONDENT’S
PLEA
(i)
The Agreement was executed at New
Delhi as is evident from the various terms of the Agreement itself, including
its recital,
(ii)
The learned Sole Arbitrator has
considered the exchange of the e-mails between the parties to reach at the
conclusion that, with the consent of the parties, the Agreement has been
executed at New Delhi.
(iii)
The order dated 13.02.2020 passed by
the learned Sole Arbitrator on the application filed by the petitioner under
Section 16 of the Act also contained the said fact.
(iv)
The petitioner, during the course of
its oral Submissions, did not raise this issue again, and it has been
accordingly & rightly recorded by the learned Sole Arbitrator, in the
Impugned Award.
(v)
Mere clandestine insertion of the
ground in the written submissions cannot, at this stage be used as a ground to
challenge the Impugned Award.
(vi)
No such objection was taken by the
petitioner prior to the filing of the application under Section 16 of the Act. It
was pleaded that the exchange of notices between the parties, specifically, in
the reply(s) dated 18.03.2019, 09.05.2019, and 17.05.2019, or even in answer to
the petition filed by the respondent under Section 11 of the Act, seeking the
appointment of the learned Sole Arbitrator, being ARB.P. 392/2019, there has
been no whisper about it.
(vii)
The petitioner never raised a plea
that the Agreement was executed at Mumbai or that the Agreement is
insufficiently stamped and should be stamped as per the Maharashtra Stamp Act.
(viii)
Even the witness of the petitioner in
his cross-examination did not dispute the fact that no such objection had been
taken by the petitioner before the commencement of the Arbitration Proceedings.
(ix) The
plea was later taken, only with a mala fide intent of somehow denying the bona
fide claims of the respondent.
THE FINDINGS OF COURT
1. It
was observed that the Agreement itself records that the same has been executed
at New Delhi. It is not in dispute that the Agreement has been stamped in
accordance with the rates as applicable to the NCT of Delhi. The gravamen of
dispute is that the said Agreement was signed by the respondent at New Delhi
and thereafter sent to the petitioner for its signatures at Mumbai and
therefore, the Agreement should have been stamped in accordance with the
Maharashtra Stamp Act, and having not been done so, was to be impounded by the
learned Sole Arbitrator.
2. It
is a matter of record that the learned Sole Arbitrator in the Impugned Award
has rejected the above submission of the petitioner, relying upon his earlier
order dated 13.02.2020 passed on an application filed by the petitioner under
Section 16 of the Act. What shall be of significance is the place of execution
of agreement for attracting the stamp duty.
3. In
view the provisions of Section 3(a) of the Stamp Act makes an instrument
chargeable with duty under the Stamp Act, if it is executed in the State of
Maharashtra and is not previously executed by ‘any person’. No doubt, since the
document was signed by the Respondent in Mumbai and that was the last act, the
place where the document is executed is Mumbai. If that principle is applied,
then, document would attract the duty as per the Maharashtra Stamp Act as well.
However, one cannot be oblivious to the fact that there are certain very peculiar
features in this case which shall lead to inescapable inference that the
document should not have been stamped in accordance with Maharashtra Stamp Act.
In the instant case, the document was prepared in Delhi, the document was
prepared on the stamp papers purchased as per the Stamp Act applicable in
Delhi. Admittedly, stamp duty as per applicable in Delhi has been affixed on
the instrument i.e., the Barter Agreement. It is also signed in Delhi by one of
the party i.e claimant. Thus, the admitted facts are that Claimant is based in
Delhi, whereas, office of the Respondent is located in Mumbai. It is also an
admitted fact that prior to the execution of the Barter Agreement, terms and
conditions of the Agreement were negotiated between the parties which were
revised from time to time. It appears that a draft Agreement was prepared,
ultimately some changes were made by the Respondent, which was sent to the
Claimant. The mails were exchanged. The Respondent gave its nod to the Claimant
for going ahead. Thereafter, stamp paper was purchased by the Claimant in Delhi
and the Agreement was typed in Delhi at the level of the Claimant. This
Agreement is on non-judicial stamp paper of the value of INR 100/-. Opening
paragraph of the Agreement states that it is "entered into at New Delhi,
India on 19th day of April 2017". Pertinently, therefore, the
parties have agreed that the place of entering into this Agreement is Delhi.
For this reason, and as per the agreed understanding between the parties, the
stamp papers were purchased in Delhi.
4.
There is thus, no dispute that as per
duty applicable in Delhi, it is adequately stamped. The Para 9.7 of the
Agreement pertains to settlement of disputes and stipulates that arbitration
proceedings shall be held under the provisions of the Arbitration &
Conciliation Act and that the venue of
arbitration proceedings is agreed to be New Delhi only. It is also agreed that
the courts/tribunals at New Delhi shall have the exclusive jurisdiction over
any dispute relating to the subject matter of this Agreement. Therefore, it is
held that insofar as this Arbitration Agreement is concerned, the seat of
Arbitration is Delhi and it bears proper stamp duty as per law applicable in
Delhi.
5. What
is of importance is that, after conclusion of the Contract in Delhi and on the
understanding that the Agreement was executed in Delhi, it was prepared in
Delhi for which non-judicial stamp papers as per the prevailing law in Delhi
were purchased. More importantly, even the place of contract, for which it is
executed is Delhi, which has been specifically agreed to by the parties. Above
all, as per para 9.7, the sole jurisdiction of Court/Tribunals is rested at New
Delhi to the exclusion of jurisdiction of any other place. Seat of arbitration
is also Delhi. Therefore, for all practical purposes, the Agreement is to be
worked out in Delhi. In a situation like this, it would be difficult to accept
the position that stamp duty as applicable under the Maharashtra Stamp Act
should also have been affixed. After all, one needs to give purposive
interpretation to the provisions of the Maharashtra Stamp Act. In a situation
when everything happens in Delhi and the document is even signed in Delhi by
one of the parties, and insofar as Arbitration Agreement is concerned, it is
subject to jurisdiction in Delhi, affixing the stamp duty as per Maharashtra
Stamp Act appears to be somewhat incongruous.
Analysis
What bears emphasis is that the
learned Sole Arbitrator has found the Agreement to be properly stamped,
observing that under the Agreement it was agreed that the same has been
executed in New Delhi; everything under the Agreement was to happen in New
Delhi; and the document is even signed in New Delhi by one of the parties. It
is settled law that the Court exercising jurisdiction under Section 34 of the
Act does not sit as a Court of Appeal against the findings of the learned
Arbitral Tribunal. Its jurisdiction under Section 34 of the Act is rather
limited and even a contravention of a statute, that is not linked to a public
policy or public interest, cannot be a ground for setting aside an Arbitral
Award under Section 34 of the Act.
In Ssangyong Engineering and
Construction Company Limited v. National Highways Authority of India (NHAI),
(2019) 15 SCC 131, the Supreme Court has held as under:-
“37.
Insofar as domestic awards made in India are concerned, an additional ground is
now available under sub-section (2A), added by the Amendment Act, 2015, to
Section 34. Here, there must be patent illegality appearing on the face of the
award, which refers to such illegality as goes to the root of the matter but
which does not amount to mere erroneous application of the law. In short, what
is not subsumed within “the fundamental policy of Indian law”, namely, the
contravention of a statute not linked to public policy or public interest,
cannot be brought in by the backdoor when it comes to setting aside an award on
the ground of patent illegality.
“38. Secondly, it is also made
clear that reappreciation of evidence, which is what an appellate court is
permitted to do, cannot be permitted under the ground of patent illegality
appearing on the face of the award.
39. To elucidate, para 42.1 of
Associate Builders, namely, a mere contravention of the substantive law of
India, by itself, is no longer a ground available to set aside an arbitral
award. Para 42.2 of Associate Builders, however, would remain, for if an
arbitrator gives no reasons for an award and contravenes Section 31(3) of the
1996 Act, that would certainly amount to a patent illegality on the face of the
award.” (Emphasis supplied)
What are patent illegalitIES in the award?
The patent illegality in an award may render it unenforceable
and the award may on that premise could be set aside u/s 34 of the A & C Act
1996.
In Delhi Airport Metro Express Private Limited
v. Delhi Metro Rail Corporation Limited, (2022) 1 SCC 131, the Supreme
Court again emphasized as under:
“29. Patent
illegality should be illegality which goes to the root of the matter. In other
words, every error of law committed by the Arbitral Tribunal would not fall
within the expression “patent illegality”. Likewise, erroneous application of
law cannot be categorized as patent illegality. In addition, contravention of
law not linked to public policy or public interest is beyond the scope of the
expression “patent illegality….”.
Therefore, even assuming that the
learned Sole Arbitrator made a mistake in the interpretation of the Maharashtra
Stamp Act, the court held that in the view of the court it cannot be a ground
to interfere with the Arbitral Award in the exercise of the limited
jurisdiction under Section 34 of the Act. Moreover, no such challenge on the
ground of the Agreement not being properly stamped was apparently raised by the
petitioner herein in its reply to the legal notices or in the reply to the
petition filed by the respondent under Section 11 of the Act. Even in the
affidavit of admission/denial of the documents of the respondent, filed by the
petitioner herein on 12.10.2019 in the Arbitration Proceedings, the Agreement
was admitted and no such objection to its admissibility in evidence was taken
by the petitioner. The petitioner also filed an application under Section 16 of
the Act before the learned Sole Arbitrator, challenging the admissibility of
the Agreement on the ground of it not being properly stamped. The said
challenge was rejected by the learned Sole Arbitrator in his order dated
13.02.2020, though, later issue was framed on that aspect and on the
admissibility of the said document.
Stamp duty is only a fiscal requirement
It is borne out from record that the
learned Sole Arbitrator has rejected the objection of the petitioner on the
admissibility of the Agreement for being not properly stamped, and admitted the
Agreement in evidence. Section 36 of the Indian Stamp Act states that where an
instrument has been admitted in evidence, such admission shall not, except as
provided in Section 61 of the Indian Stamp Act, be called in question at any
stage of the same suit or proceeding or on the ground that the instrument has
not been duly stamped. The Section 61 of the Indian Stamp Act provides that
when any Court, in the exercise of its civil or revenue jurisdiction or any
Criminal Court in any proceeding under Chapter XII or Chapter XXXVI of the Code
of Criminal Procedure, 1898, makes any order admitting any instrument in
evidence as duly stamped, the Court to which appeals lie from, or references
are made by such a Court, of its own motion or on the application of the
Collector, take such order into consideration. If the court is of the opinion
that such an instrument should not have been admitted in evidence without the
payment of duty and penalty under Section 35 of the Indian Stamp Act, it may
record a declaration to that effect and determine the amount of duty with which
such an instrument is chargeable and may impound such instrument. Proviso (b)
to sub-Section 4 of Section 61 of the Indian Stamp Act further provides that
except for the purposes of such prosecution by the Collector, any declaration
made under Section 61 of the Indian Stamp Act, shall not affect the validity of
any order admitting any instrument in evidence.
PROVISIONS OF STAMP ACT
Sections 36 and 61 of the Indian
Stamp Act are reproduced hereinbelow:-
36. Admission of instrument
where not to be questioned. —Where an instrument has been admitted in evidence,
such admission shall not, except as provided in section 61, be called in
question at any stage of the same suit or proceeding on the ground that the
instrument has not duly stamped. xxxxx
61. Revision of certain
decisions of Courts regarding the sufficiency of stamps. —(1) When any Court in
the exercise of its civil or revenue jurisdiction of any Criminal Court in any
proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal
Procedure, 1898 (V of 1898), makes any order admitting any instrument in
evidence as duly stamped or as not requiring a stamp, or upon payment of duty
and a penalty under section 35, the Court to which appeals lie form, or
references are made by, such first mentioned Court may, of its own motion or on
the application of the Collector, take such order into consideration.
(2) If such Court, after such consideration,
is of opinion that such instrument should not have been admitted in evidence
without the payment of duty and penalty under section 35, or without the
payment of a higher duty and penalty than those paid, it may record a
declaration to that effect, and determine the amount of duty with which such
instrument is chargeable, and may require any person in whose possession or
power such instrument then is, to produce the same, and may impound the same
when produced.
(3) When any declaration has
been recorded under sub-section (2), the Court recording the same shall send a
copy thereof to the Collector, and, where the instrument to which it relates
has been impounded or is otherwise in the possession of such Court, shall also
send him such instrument.
(4) The Collector may
thereupon, notwithstanding anything contained in the order admitting such
instrument in evidence, or in any certificate granted under section 42, or in
section 43, prosecute any person for any offence against the Stamp-law which
the Collector considers him to have committed in respect of such instrument:
Provided that—
(a) no such
prosecution shall be instituted where the amount (including duty and penalty)
which, according to the determination of such Court, was payable in respect of
the instrument under section 35, is paid to the Collector, unless he thinks
that the offence was committed with an intention of evading payment of the
proper duty;
(b) except for the purposes of such prosecution,
no declaration made under this section shall affect the validity of any order
admitting any instrument in evidence, or of any certificate granted under
section 42.”
LAW
ON INADEQUATE STAMP DUTY
In Javer Chand and Others v. Pukhraj Surana,
(1962) 2 SCR 333, the Supreme Court, relying upon Section 36 of the
Indian Stamp Act, held that when a document has once been admitted in evidence,
such admission cannot be called into question at any stage of the suit or the
proceedings on the ground that the instrument had not been duly stamped. The
only exception recognized by the Section 36 is the class of cases contemplated
by Section 61. Section 36 does not admit of any other exceptions. Once the
Court, rightly or wrongly, decides to admit the document in evidence, so far as
the parties are concerned, the matter is closed; it is not open either to the
Trial Court itself or a Court of Appeal or Revision Court to go behind the
order admitting such an instrument in evidence; such an order is not one of
those judicial orders which are liable to be reviewed or revised by the same
Court or even by a Court of superior jurisdiction.
The above view has been followed by the Supreme
Court in its judgment in Shyamal Kumar Roy v. Sushil Kumar Agarwal,
(2006) 11 SCC 331; In Sirikonda Madhava Rao v. N. Hemalatha, SLP
(C) No. 14882 and 14883/2022, the above proposition has been
specifically applied to reject a challenge to an Arbitral Award on account of a
document not being properly stamped.
Section 36-provides:
"where an instrument has
been admitted in evidence, such admission shall not, except as provided in sec.
61, be called in question at any stage of the same suit or proceeding on the
ground that the instrument has not been duly stamped.”
As evidence was considered and admitted by the
Arbitrator, it was not open to either of the parties to call in question such
admission in the arbitration proceedings on the ground that the submission had
not been duly stamped. The award, therefore, which was made upon the
submission, was held to be a valid award. It was filed in accordance with the
provisions of the Arbitration Act. It has to be remembered that the provisions
in the Stamp Act were passed for the purpose of protecting the revenue under
the circumstances of this case and having regard to the proviso of sec. 35 and
the terms of sec. 36 of the Stamp Act, have not the effect of rendering the
award invalid.”
Recently, a Coordinate Bench of Delhi High Court also
rejected a similar challenge to an Arbitral Award in SNG Developers Limited v.
Vardhman Buildtech Private Limited, 2021:DHC:4100, observing as under:-
“20.
Section 36 of the Indian Stamp Act, 1899, clearly prohibits calling into
question the admission of any document in any suit or proceeding once the
document has been admitted in evidence, on the ground that it has not been duly
stamped. In arbitral proceedings, it is well-settled that strict rules of the
Code of Civil Procedure, 1908, would not apply and that the learned Arbitral
Tribunal is entitled to chalk out its own procedure. In doing so, the governing
consideration has to be an expeditious resolution of the disputes between the
parties, without subjecting the arbitration to the lengthy and cumbersome
rigours of procedure as otherwise contained in the CPC, 1908. Once the parties
agree to the procedure as formulated by the learned Arbitral Tribunal, the
parties are bound by such procedure. The Court sitting in judicial review over
the decision of the learned Arbitral Tribunal, cannot, therefore, ordinarily
interfere with the order on the ground that it does not follow, strictly the
procedure envisaged by the CPC. xxxxxx
CONCLUSION
From the aforesaid what shall be
evident that the rigour of procedure which attach to civil proceedings under
the Code of Civil Procedure and the Evidence Act, would not apply, proprio vigore, to arbitral proceedings.
The proceeding before the learned Arbitral Tribunal, once accepted by both
parties shall have the binding force. Thus, if the Arbitral Tribunal, takes the
view that the petitioner, having admitted the copy of the Agreement as filed by
the respondent at the stage of admission and denial of documents, without
reservation, later on, petitioner could not be allowed to raise the ground of
insufficient stamping, and interference by the Court in exercise of its
jurisdiction under Section 34 of the 1996 Act shall not be warranted.
Even assuming that Section 61 of
the Indian Stamp Act applies, in view of the Proviso (b) to Section 61 of the
Indian Stamp Act, the Court would only impound the document and refer it to the
Collector of Stamps for adjudication on the proper stamp duty and penalty,
however, the same shall not, in any manner, effect the enforcement or the
validity of the Arbitral Award.
--------
Anil
K Khaware
Founder & Senior
Associate
Societylawandjustice.com
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