No Stamp Duty Leviable On Award Of Compensation Passed By An Arbitrator Under Section 3G(5) Of The National Highways Act: Karnataka High Court

The Single Bench of Justice Suraj Govindaraj held that an award of compensation passed by the Land Acquisition Officer under the Land Acquisition Act or under any other similarly situated enactment, including the National Highways Act (NHA), is not amenable to payment of any stamp duty. The Court added that merely because the said award of compensation is passed by an Arbitrator under Section 3G(5) of NHA, the same would not attract stamp duty.

The Court ruled that payment of stamp duty on the arbitral award rendered under NHA is an additional burden on the land owner to obtain compensation in lieu of the land acquired under NHA, which is highly unconscionable and not permissible.

The petitioners' land was acquired by the National Highways Authority of India (NHAI) and the competent Authority passed an award awarding compensation with respect to the land acquired.

Dissatisfied with the compensation awarded, the petitioners Shalini and Nitin Vijay Latthe referred the matter for arbitration under Section 3G(5) of the National Highway Act, 1956 (NHA). Thereafter, an award of compensation was passed by the Arbitrator.

The respondent NHAI made part payment of the compensation awarded by the Arbitrator and failed to pay the balance amount to the petitioners. The petitioners filed an Execution Petition before the District Judge for enforcement of the arbitral award.

The respondent NHAI raised an objection before the District Judge that the award passed by the Arbitrator was not stamped in terms of Article 11 of the Karnataka Stamp Act, 1957 and hence, no execution proceedings could be initiated with respect to the said arbitral award.

The District Judge opined that the award passed by the Arbitrator was required to be stamped. The District Judge passed an order calling upon the petitioners/ award holders to pay the requisite stamp duty on the arbitral award within a specified period. Against this order, the petitioners filed a writ petition before the Karnataka High Court.

Article 11 of the Karnataka Stamp Act, 1957 provides for levy of stamp duty on an 'Award'. The term 'Award' has been described therein to mean any decision in writing by an arbitrator or umpire, not being an award directing a partition, on a reference made otherwise than by an order of the Court in the course of a suit.

The petitioners contended before the High Court that since a lower compensation was awarded by the competent authority to the petitioners in lieu of the land acquired under NHA, the petitioners made a reference to the statutory Arbitrator in terms of Section 3G (5) of NHA. The petitioners added that the statutory arbitration contemplated under NHA is not a private arbitration and, therefore, though the provisions of the Arbitration and Conciliation Act, 1996 (A&C Act) are applicable to the arbitral proceedings contemplated under Section 3G of NHA, the compensation awarded is not an award that falls within the ambit of Article 11 of the Karnataka Stamp Act.

Therefore, the petitioners averred that since the arbitral award was in essence an award of compensation, no stamp duty was required to be paid on the said arbitral award which was rendered in discharge of the sovereign powers of the State.

The NHAI submitted that since the arbitral award was sought to be enforced without being stamped, the said arbitral award was inchoate and it could not be brought in for execution without being stamped.

The High Court observed that as per the provisions of Section 3G of NHA, the authorized competent authority is required to determine the compensation to be paid to the land owners in lieu of the land acquired under NHA. The Court noted that Section 3G(5) of NHA provides that in the event the amount of compensation so determined is not acceptable by NHAI or the land owner(s), either of the said parties could refer the matter for determination by an Arbitrator to be appointed by the Central Government.

The Court ruled that the existence of an arbitration agreement is a pre-condition for conducting arbitral proceedings. The Court noted that as per the provisions of Section 7 of the A&C Act, an arbitration agreement is an agreement entered into between the parties to submit certain disputes to arbitration, which have arisen or which may arise between them, in respect of a defined legal relationship, whether contractual or not.

The Court held that there was no legal relationship between the NHAI and the land owners, except that the land of the land owners was sought to be acquired under NHA. The Court added that there was no arbitration agreement existing between the land owners and the NHAI under Section 7(1) of the A&C Act to submit any dispute to arbitration and that only a statutory arbitration was conducted under Section 3G of NHA. The Court ruled that there was no contract existing between the land owners and the NHAI wherein any reference to an arbitration clause could be made.

The Court ruled that NHA is a special enactment and the provisions of Section 3G of NHA provide for a special procedure for determination of compensation. The Court observed that an Arbitrator is required to be appointed by the Central Government in terms of Section 3G(5) for undertaking statutory arbitration under NHA, and that the petitioners/land owners have no choice or role to play in the appointment of the Arbitrator.

Thus, the Court held that the said Arbitrator, who was appointed by the Central Government, was discharging a duty of determination of compensation with respect to a land which was acquired in exercise of the sovereign powers under NHA.

The Court ruled that payment of stamp duty on the arbitral award rendered under NHA is an additional burden on the land owners to obtain compensation in lieu of the land acquired under NHA. The Court added that payment of stamp duty on the arbitral award would amount to reduction of the compensation awarded to the land owner, which is not permissible. The Court held that levy of stamp duty on an award of compensation would be highly unconscionable. The Court added that a land owner cannot be made to pay premium in the form of a stamp duty on the arbitral award that is statutorily rendered in lieu of the land acquired by the State.

"The state cannot take away the compensation awarded to the land-loser by imposing a duty to make payment of stamp duty on the said award, which is an additional burden on the land-loser to obtain just compensation on account of loss of his land. It is also clear from the fact that, while calculating the compensation payable, there is no calculation of the value of the stamp duty payable on the award made. The requirement to make payment of stamp duty on the award would amount to reduction of just compensation, which is not permissible."

The Court held that an award of compensation passed by the Land Acquisition Officer under the Land Acquisition Act or under any other similarly situated enactment is not amenable to payment of any stamp duty. The Court added that merely because the said award was passed by an Arbitrator under Section 3G(5) of NHA, the same would not attract stamp duty.

The Court added that a State or the Union is bound to pass an award of compensation in lieu of the land acquired by it in exercise of its sovereign powers. The Court ruled that such an award rendered by an Arbitrator in terms of Section 3G (5) of NHA cannot be treated as an 'Award' under Article 11 of the Karnataka Stamp Act so as to be amenable for payment of stamp duty by the land owner.

Thus, the Court held that an award of compensation rendered by the Arbitrator under Section 3G(5) of NHA is not an arbitral award that is rendered in terms of Article 11 of the Karnataka Stamp Act, 1957, and thus no stamp duty is required to be paid on the said arbitral award.

The High Court, therefore, ruled that the District Court had mechanically applied the provisions of Article 11 of the Karnataka Stamp Act. The High Court thus dismissed the order of the District Court directing the land owners/award holders to pay the requisite stamp duty on the award passed by the Arbitrator under Section 3G (5) of NHA.

The Court thus allowed the writ petition and directed that the said arbitral award of compensation was required to be acted upon and enforced without imposing the requirement of payment of any stamp duty on the land owners.

Case Title: Shalini and Anr. versus National Highways Authority of India and Ors.

Citation : 2022 LiveLaw (Kar) 172

Dated: 28.02.2022 (Karnataka High Court)

Counsel for the Petitioners: Mr. S.C. JAINAR

Counsel for the Respondents: Mr. Sagar Laddamath, Mr. B. P. Mathapati and Mr. M. B. Kanavi

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