DELHI HIGH COURT PROVIDES CLARITY ON APPOINTMENT OF ARBITRATOR IN CASE OF INSUFFICIENTLY STAMPED AGREEMENTS
In a recent landmark judgment titled “Splendor Landbase Limited & Ors. vs. Aparna Ashram Society & Ors.[1]”, the Delhi High Court while hearing a batch of similar petitions, has provided important clarifications on the treatment of unstamped arbitration agreements in petitions filed under Section 11 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) for appointment of arbitrator.
The judgment came in light of the recent Supreme Court’s Constitutional Bench judgment in N.N. Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd[2], wherein the Supreme Court held that an arbitration agreement, within the meaning of Section 7 of the A&C Act which attracts stamp duty and which is not stamped or insufficiently stamped, cannot be acted upon in view of Section 35 of the Stamp Act,1899 (“Stamp Act”) unless following impounding and payment of the requisite duty and necessary certificate is provided under Section 42 of the Stamp Act.
The said judgment led to culmination of several issues identified by the Delhi High Court viz. with regard to a mandatory requirement of filing the original of the duly stamped arbitration agreement, whether it is mandatory to send the concerned agreement to the collector for adjudication as to the proper stamp and penalty payable, whether such adjudication under section 40 of the Stamp Act can be made time bound and whether the stamping of the arbitration agreement must conform to the local laws of the place where the arbitration agreement was executed or where the Section 11 petition was filed.
The said issues were clarified by the Delhi High Court whilst defining the procedure of impounding and release of the Arbitration Agreement as under:
Issue – whether unstamped/insufficiently stamped arbitration agreement is mandatorily required to be impounded in proceedings under section 11 of the A&C Act–
Response- The Court held that whether an instrument/agreement is duly stamped or not, has to be examined in the backdrop of Section 17 of the Stamp Act which contemplates that all instruments chargeable with duty and executed by a person in India, shall be stamped before or at the time of execution. Under proviso (b) to Section 33 (2) of the Stamp Act, it is permissible for the High Court to delegate the task of examining and impounding any unstamped/insufficiently stamped instrument to an officer as may be appointed by the Court.
Issue – whether it is mandatory to file the original agreement with the petition under section 11–
Response- The Court held that under the Stamp Act, and also reiterated in N.N. Global judgment, what is liable to be impounded under Section 33 of the Stamp Act, is the original of the concerned agreement, which alone is to be treated as an instrument under Section 2(14) of the Stamp Act.
As such, it is incumbent for a petitioner who files a petition under Section 11 of the Act, on the basis of an unstamped/insufficiently stamped arbitration agreement, to file the original instrument as executed. However, where the arbitration agreement is duly stamped, filing of the original instrument can be obviated provided the true copy or certified copy thereof clearly indicates that it has been duly and properly stamped and it is also accompanied by a clear and cogent statement to that effect in the petition filed under Section 11 of the Act.
The requirement to file the original of the concerned agreement/ instrument can also be obviated when on the face of it, the same is duly stamped and a statement to this effect is made in the petition under Section 11 of the A&C Act, and the same is not controverted by the opposite party. Of course, at any stage, when an issue arises as to sufficiency of stamping, it would be open for the Court to require the concerned party who has possession of the original agreement to file the same in Court.
Issue – what is the procedure to be followed after impounding of insufficient or unstamped agreement–
Response- The Court held that from the scheme of the Stamp Act, as also noticed in N.N. Global, it is open for the Court to either:
(i) Send the impounded agreement/instrument to the concerned Collector of Stamps, who shall then adopt the procedure under Section 40 of the Stamp Act and require the payment of proper stamp duty together with a penalty as contemplated therein. Once such duty or penalty has been paid, the Collector shall certify by endorsement thereon that the proper duty (together with penalty, if any) has been levied in respect thereof. Under Section 42 of the Stamp Act, every instrument/agreement so endorsed shall be admissible in evidence, and it would be open for this Court to act on the basis thereof in proceedings under Section 11 of the Act.
Alternatively:
(ii) It is also open for the High Court to take recourse to Section 35 of the Stamp Act and enable deposit of the requisite stamp duty alongwith penalty as contemplated under proviso (a) to Section 35 of the Stamp Act and thereafter, take further steps, eventually culminating in the concerned instrument being admitted in evidence/acted upon for the purpose of proceedings under Section 11 of the A&C Act.
The High Court held that in appropriate cases, particularly where the quantum of stamp duty payable is not in dispute, it may be apposite for this Court to take recourse to the option no.(ii) hereinabove, to enable deposit of the requisite stamp duty in Court and thereafter to act on the basis of the instrument containing the arbitration agreement. It would thus, be consistent for High Court to itself collect the requisite stamp duty with which the agreement/instrument is chargeable, together with ten times the amount of proper duty or deficient portion thereof, in terms of proviso (a) to Section 35. After payment of stamp duty together with penalty, an authenticated copy of such duly endorsed instrument (endorsed under Section 42 of the Stamp Act), together with the certificate in writing, stating the amount of duty levied in respect thereof, and such amount shall be sent to the Collector or to any person authorized by the Collector in this behalf as per Section 38(1) of the Stamp Act.
The Court clarified that where the Court exercises the option of enabling the party to deposit of stamp duty and penalty with the Court, the Court can delegate following tasks, or any of them depending on facts and circumstances of the case, to its officer or the Registrar in terms of Delhi High Court (Original Sides) Rules, 2018
- The duty of examining and impounding of any instrument which is unstamped or insufficiently stamped
- Preparation of a ‘report’ on the nature and character of the document and the amount of duty and penalty payable thereon;
- Endorsement on the original instrument in terms of Section 42(1) that the instrument is now duly stamped and the proper duty and penalty (stating the amount of each) have been levied in respect thereof, and the name and residence of the person paying them;
- Preparation of a copy of the original instrument (after endorsement) thereby ensuring the genuineness and exactness of the contents thereof, at the expense of the party paying the stamp duty (alongwith penalty)/clearing the stamp defect, and expressly marking the copy thus prepared as an “authenticated copy” of the original instrument;
- Preparation of a ‘certificate’ as provided in Section 38(1) stating the amount of stamp duty and penalty levied in respect of the original instrument; and
- Transmission of the a) Authenticated copy; b) Certificate; and c) the total amount of the stamp duty and penalty collected to the concerned Collector at the place where the instrument was executed.
Further, the Court can tailor/limit the delegation to the extent warranted depending upon the facts and circumstances of any individual case.
Issue – Whether time bound directions can be given to the concerned Collector of Stamps-
Response- The Court held that in cases where the Court deems it expedient to not take recourse to Section 35 of the Stamp Act and instead send the original of the impounded instrument to the concerned Collector, it shall be open for the Court to issue time bound directions to the concerned Collector to perform the adjudicatory functions in terms of the relevant provisions of the Stamp Act. The Court referred to its judgment in case of “Uno Minda Ltd. v. Revenue Department[3]”, wherein the Court had directed that the Collector of Stamps shall usually adjudicate the stamp duty payable and communicate the same to parties within 30 days. However, if the same involves any complexity/extraordinary circumstances, the adjudication of stamp duty can be extended for a maximum period of three months from the date of application.
Issue – Instruments executed in one state but sought to be relied/ acted upon in another State-
Response- The Court held that if an instrument after becoming liable to duty in one State on execution there becomes liable to duty also in another State on receipt there, it must first be stamped in accordance with the law of the first State and it will not require to be further stamped in accordance with the law of the second State when the rate of that second State is the same or lower; and where the rate of the second State is higher, it will require to be stamped only with the excess amount and that in accordance with the law and the rules in force in the second State.
Anhad Law’s Perspective
The judgment is significant as through this judgment, the Delhi High Court has provided the much-needed clarity in relation to the insufficiently stamped agreements and impounding of the same in terms of the Stamp Act, 1899.
Even though the judgment of the Hon’ble Supreme Court of India in N.N. Global Mercantile judgment had laid down the obligation imposed to act in tune with the statutory mandate of the Stamp Act, there were certain issues that needed to be clarified.
Therefore, the issue wise clarifications provided by Delhi High Court will bring in clarity to the litigants and the lawyers in the matter of petition concerning appointment of arbitrator by the Court henceforth.
-Ranjan Jha, Partner, Anhad Law
Disclaimer: The contents of the above publication are based on interpretation, analysis and understanding of applicable laws and updates in law, within the knowledge of authors. Readers should take steps to ascertain the current developments given the everyday changes that may be occurring in India on internationally on the subject covered hereinabove. These are personal views of authors and do not constitute a legal opinion, analysis or interpretation. This is an initiative to share developments in the world of law or as may be relevant for a reader. No reader should act on the basis of any statement made above without seeking professional and up-to-date legal advice.
