Arbitral Award Can't Be Set Aside Over Insufficient Stamping Without Opportunity To Cure Defect: Rajasthan High Court

The Rajasthan High Court bench of Justices Avneesh Jhingan and Bhuwan Goyal has held that when a court, in proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) finds that the agreement to sell, on which the arbitration was initiated, is insufficiently stamped, it must provide the party an opportunity to cure the defect by impounding the instrument. The court cannot set aside the arbitral award on the ground that the agreement was invalid due to insufficient stamping. Brief Facts: The appellants and respondent entered into an agreement to sell land for Rs. 65 lakh on 21.10.2016. After part payment was made, the respondent failed to execute the sale deed in favor of the appellants, leading to arbitration proceedings as per Clause 7 of the agreement. The arbitration culminated in an award dated 03.12.2018, granting specific performance in favor of the appellants. The respondent was directed to execute the sale deed within four weeks of the award's publication upon receiving the balance payment. The respondent filed objection under Section 34 of the Arbitration Act. During pendency of the objections, in view of the judgment of the Supreme Court in In Re: Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899 the appellants filed application on 20.12.2023 for impounding the agreement to sell to adjudicate the stamp duty payable. Without deciding the application, the award was set aside by order dated 26.04.2024. It was held that the agreement to sell was insufficiently stamped. Contentions: The Appellant submitted that the application for referring the matter to the Collector (Stamps) so that the stamp duty due, if any alongwith penalty can be paid was not decided. Per contra, the Respondent submitted that the scope of interference under Section 34 of the Arbitration Act is limited and it was rightly held that the agreement to sell cannot be impounded. Only the arbitrator could have impounded the agreement to sell. Observations: The court at the outset observed that section 17 of the Stamp Act provides for stamp duty to be charged on the instrument as defined under the Act. Section 33 of the Stamp Act empowers the person having authority to receive evidence, either by law or consent of the parties, to impound a document which, in their opinion, is not stamped or sufficiently stamped. The arbitration tribunal falls within the scope of 'consent of the parties'. The court further observed that section 35 of the Stamp Act mandates that an instrument must be duly stamped to be admissible in evidence, registered, or authenticated. Proviso (a) allows admissibility upon payment of the due stamp duty and penalty. It further added that under Section 43, the Collector or authorized authority can impound the instrument and determine if duty has been paid; if not, duty and penalty are imposed. Section 42 provides that once the stamp duty and penalty are paid, the Collector endorses the instrument, making it admissible in evidence. The Calcutta High Court in Gulzari Lal Marwari Vs. Ram Gopal (1936) held that under Section 35 of the Stamp Act, the unstamped or insufficiently stamped instrument is not admissible in evidence and that there is no provision under the Act rendering the document invalid. The court further noted that in Hindustan Steel Limited v. Dilip Construction Company (1961), it was held that once the due stamp duty and penalty are paid, the instrument can be admitted in evidence and acted upon. The court rejected the argument that payment only allows admission but not enforcement. The Stamp Act aims to secure state revenue from certain instruments and does not empower a party to defeat the opponent's case merely on technical grounds of insufficient or improper stamping. The court also noted that the Supreme Court in Re: Interplay (supra) held that the non-stamping or insufficient stamping of an agreement does not render it void, void ab initio, or unenforceable. While such instruments are inadmissible in evidence under Section 35 of the Stamp Act unless duly stamped, the defect is curable. The interests of the revenue remain protected since stamp duty must be paid before the instrument is admitted. Coming to the present case, the court said that an arbitral award was set aside under Section 34(2)(a)(ii) on the ground that the arbitration agreement was invalid. However, the Supreme Court in Re: Interplay held that an unstamped or insufficiently stamped agreement is not invalid but merely inadmissible in evidence until the defect is cured. Based on the above, it held that the view taken by court under section 34 of the Arbitration Act if taken to the logical end is contrary to settled position of law and shall affect validity of document. The settled position of law is that non stamping or insufficient stamping of the...

Arbitral Award Can't Be Set Aside Over Insufficient Stamping Without Opportunity To Cure Defect: Rajasthan High Court

Mohd Malik Chauhan

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