Pendency Of Arbitration Does Not Bar Stamp Authorities From Initiating Proceedings Under Stamp Act: Allahabad High Court

The Allahabad High Court has held that pendency of arbitral proceedings does not bar the of jurisdiction of Stamp Authorities from initiating proceedings under Indian Stamp Act, 1899.In Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, the Supreme Court while dealing with an unstamped agreement, held that insufficiency of stamp duty would not result in stopping arbitration proceedings. It was held that the Arbitrator was competent to decide on sufficiency of stamp duty, and if he concluded that there was insufficiency in stamp duty paid, then the same could be impounded and referred to competent authority. Rejecting the argument of the petitioner, the Court held that the Apex Court in the aforesaid judgment did not bar the Stamp Authorities from initiating proceedings while arbitration is pending. It held that the judgment was inapplicable in the present case and that the proceedings by Stamp Authorities were not without jurisdiction. Justice Piyush Agrawal held “This Court also could not find any observation or direction of the Apex Court restraining the stamp authorities to initiate the proceedings, if the agreement found to be deficit of stamp duty. It is not in dispute between the parties that the Arbitrator has been appointed and matter is pending before the Arbitrator and it is not the stage of appointment of an Arbitrator.”Case BackgroundPetitioner approached the High Court seeking stay of stamp proceedings initiated by the respondents in light of the cases pending before the Delhi High Court and arbitral tribunal regarding the same issue. Prayer was also made to quash the stamp recovery proceedings. Counsel for state raised a preliminary objection regarding maintainability of the writ petition on grounds that the prayers made could not be granted at this stage. It was argued that the show cause notices were not challenged by the petitioner and that it had submitted replies to the same. Further, it was pointed out that once the order was passed, petitioner had an efficacious alternate remedy under the Stamp Act. To this, counsel for private respondent added that there was delay in approaching the Court as the notices were issued in 2023 and the writ petition was filed in 2025. Per contra, counsel for petitioner argued that once the parties had agreed to appear before the arbitrator, there was no need for initiating proceedings under the Stamp Act. Relying on the judgment of the Supreme Court in Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, it was argued that the issue of sufficiency of stamp duty was already before the arbitrator who was competent to decide on the said issue. It was also argued that the show cause notice was premeditated.In response, counsel for state argued that the arbitral proceedings had been stayed by the Delhi High Court and once the liability was fastened on the petitioner by the agreement, petitioner could not be aggrieved in the present proceedings. High Court VerdictThe Court relied on Siemens Ltd Vs. State of Maharastra and others where the Apex Court held that though High Court ordinarily must not entertain a writ petition against a show cause notice, however, the same is maintainable if it is without jurisdiction or premeditated. In Union of India and another Vs. Vicco Laboratories, the Supreme Court had held that for interference with show cause notice in writ jurisdiction, it should prima facie be established that there is lack of jurisdiction and/or abuse of process of law. “The form and content of a show cause notice that is required to be served before deciding as to whether the notice is to be imposed deficiency of stamp duty or not. A show cause notice to mention that action of imposing deficiency of stamp duty is proposed so as to provide adequate and meaningful opportunity to show cause against the same. Accordingly, it would require the statement of imputations detailing out the alleged breaches and defaults so that the noticee gets an opportunity to rebut the same,” held Justice Agrawal. The Court held that in order to comply with the principles of natural justice it is imperative to detail the consequences if the noticee fails to adequately respond to the grounds on which such action is purported to be taken. The Court rejected the argument of the petitioner that the show cause notice was premeditated as it was open to the petitioner to respond to the specific allegations made in the show cause notice. Accordingly, the writ petition against the stamp proceedings was dismissed.Case Title: M/S Dlf Home Developers Pvt Ltd v. State Of U.P. And 6 Others [WRIT - C No. - 13451 of 2025]Click Here To Read/Download Order

Pendency Of Arbitration Does Not Bar Stamp Authorities From Initiating Proceedings Under Stamp Act: Allahabad High Court

Upasna Agrawal

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