Karnataka Stamp Act | Court Has No Discretion To Impose Penalty Below Ten Times Deficit Duty: Supreme Court

The Supreme Court has observed that when courts determine a deficiency in stamp duty under the Karnataka Stamp Act, 1957, they have no discretion to impose a penalty lower than ten times the duty.

“There is no discretion insofar as the quantum of penalty is concerned when the instrument is sought to be admitted in evidence before court without transmitting it to the District Commissioner.”, observed a bench of Justices Sanjay Kumar and K Vinod Chandran, while setting aside that part of the Karnataka High Court's decision, which had exempted the lessee-bank from the payment of penalty (to be ten times the deficient duty), as mandated under first proviso of Section 34 of the Karnataka Stamp Act (Act”).

The ruling arose from a partition suit filed in 2008 among family members of a deceased businessman. During trial proceedings in December 2023, the plaintiffs sought to rely on two lease documents executed in January and February 2008 in favour of Indian Overseas Bank.

The first defendant objected to the admissibility of these documents on the ground that they were insufficiently stamped. The objection was raised promptly, on the very day the documents were produced, and formal applications were filed within days seeking their impounding.

However, the trial court rejected the objection and declined to impound the documents. On challenge, the High Court exercised jurisdiction under Article 227 of the Constitution and directed payment of the deficient stamp duty, but exempted the penalty altogether, while also permitting recovery of stamp duty from the lessee.

Aggrieved, the first defendant approached the Supreme Court, contending that the High Court had acted contrary to the statutory scheme by waiving a penalty that was mandatory under law.

Disagreeing with the High Court's approach, the Court observed that the High Court had erred in exempting the penalty. It held that under the first proviso to Section 34, once a court chooses to admit an insufficiently stamped document in evidence, it must necessarily impose a penalty equal to ten times the deficient duty, leaving no scope for judicial discretion.

Also, the Court clarified that although the non-payment of stamp duty is a curable defect as held by a Constitution Bench in In Re: Interplay Between Arbitration Agreements under Arbitration Act, 1996 & Stamp Act, 1899, the plaintiff has two options for making the insufficiently stamped document to be admissible in an evidence i.e., firstly, to approach the court under the first proviso to Section 34, and secondly to choose to transmit the insufficiently stamped document to the Deputy Commissioner under Section 37(1).

The Court said that if the plaintiff chooses a first option, then the Court has to simply determine the deficient stamp duty, and levy a penalty amounting to ten times the deficient duty, for rendering the documents admissible in evidence. However, the Deputy Commissioner has the discretion to refund the Court imposed penalty, after a copy of the duly stamped instrument, with penalty paid at ten times, is sent to him.

If the plaintiff opts for a second option, then the inadmissible document is sent by the Court to the Deputy Commission, who has discretion to impose the amount of penalty under Section 39 of the Act. Unlike first proviso to Section 34, which mandates the imposition of penalty to be ten times the deficient duty, Section 39 mandates payment of the proper duty plus a penalty of five rupees, or up to ten times the deficient duty, allowing the document to be legally admitted.

“…if the party producing the instrument opts under the first proviso to Section 34, there lies no discretion on the Court in imposing a penalty less than ten times the deficit duty. But when the copy of the duly stamped instrument, with penalty paid at ten times, is sent to the Deputy Commissioner under Section 37(1), the Deputy Commissioner has the discretion to refund the penalty above five rupees fully or partially under Section 38….On the other hand, if the insufficiently stamped instrument is transmitted to the Deputy Commissioner under Section 37(2) then the discretion on the question of penalty kicks in under Section 39.”, the court observed.

In a nutshell, the discretion regarding penalty exists only at the level of the Deputy Commissioner, not with the court.

Resultantly, the appeal was disposed of, granting the plaintiffs the option to choose the procedure, i.e., either pay the deficient stamp duty along with the mandatory ten-times penalty before the trial court, or seek transmission of the documents to the Deputy Commissioner for determination of duty and discretionary penalty.

Cause Title: Krishnavathi Sharma Versus Bhagwandas Sharma and Ors.

Citation : 2026 LiveLaw (SC) 310

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Appearance:

For Appellant(s) Mr. Nachiketa Joshi, Sr. Adv. Mr. Ayush Negi, AOR Ms. Aarushi Gupta, Adv. Mr. Chaitanya Pandey, Adv. Mr. Abhishek Singh Bhandari, Adv. Mr. Rose Verma, Adv.

For Respondent(s) Mr. Balaji Srinivasan, AOR Ms. Kanishka Singh, Adv. Mr. Ravi Prakash, Sr. Adv. Mr. Chandra Prakash, AOR Mr. Vivek Singh, Adv. Mr. C. P. Rajwar, Adv. Mr. Abhinav Kumar, Adv. Mr. Abhishek Chaterjee, Adv. Ms. Aindri Saha, Adv.