Arbitration Award And Stamp Duty Paid On It

Statutory Provisions

The Indian Stamp Act, 1899 (hereinafter referred to as ‘the Act of 1899’) was passed as a fiscal measure to replace the earlier statue, The Stamp Act, 1869 and several other Acts passed thereafter for the same purpose. Schedule 1 to the Act prescribes the duties to be charged on such documents enumerated in section 3 of the Act. In order to ensure implementation, section 35 prescribes that ‘instrument not duly stamped’ are inadmissible in evidence. Further if any such instrument is produced before any authority who could receive evidence, the same is made liable to be impounded under section 33. The Act also prescribes the procedure to be followed once an instrument is impounded.

The duty payable on instruments that are chargeable with duty can be found in the Schedule 1 to the Act of 1899 which stands amended by the states for the purpose of implementation in their own jurisdiction. The Schedule 1A of the Indian Stamp (Delhi Amendment) Act of 2001, hereinafter referred to as the Delhi Amendment 2001, applies to Delhi.

The stamp duty payable on an Award is prescribed in Article 12 and 15 of the Schedule 1 of the Act of 1899 & 1A of the Delhi Amendment Act 2001. For the present only the Schedule 1A of the Delhi Amendment Act 2001 is applicable to Delhi. They are as under:

Description of Instrument	Proper Stamp-duty
12. AWARD, that is to say, 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- where the amount or value of the property to which the Award relates as set forth in such Award, does not exceed Rs. 1,000; if it exceeds Rs. 1,000 but does not exceed Rs.5,000 and for every additional Rs. 1,000 or part thereof in excess of Rs. 5,000.	The same duty as a Bond (No.15) for such amount. One rupee for every one thousand rupees or part thereof of the value of the property to which the Award relates.
15. BOND as defined by section 2(5), not being a Debenture (No. 27), and not being otherwise – Provided for by this Act, or by the Court-fees Act,1870- See Administration Bond (No. 2), Bottomry Bond (No. 16), Customs Bond (No. 26), Indemnity Bond (No. 34), Respondentia Bond (No. 56), Security Bond (No. 57). Exemption Bond when executed by any person for the purpose of guaranteeing that the local income derived from the private subscription to a charitable dispensary or hospital or to any other object of public utility, shall not be less than a specified sum per mensem.	2% and 0.5% on bond issued by the local authority

The plain reading of item No. 12 means that the value of the stamp on the Award relates to the value of the property to which the Award relates. Most Arbitrations relate to commercial disputes over dues or compensation for breach of contract. Therefore, item no. 12 should mean that the stamp duty be paid on the amount claimed by the claimant.

How The Issue Cropped Up – Differng Judgements

An unstamped Award of value ‘Nil’ i.e., an Award dismissing a claim, being challenged under section 34 of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as ‘the Act of 1996’) in the case of (Eider PW1 Paging Limited & Anr. Vs. UOI & Ors. 2010)^[1], the High Court of Delhi was called upon to examine whether the Award needed to be impounded. The Court’s attention was drawn to the judgement of the Supreme Court in the case of (M. Anasuya Devi and Anr. Vs. Manik Reddy & Ors. 2003)^[2] in which the Supreme Court of India observed that the question whether Award needed to be stamped was premature at the stage of challenge under section 34 of the Act of 1996 and that question has to be considered at the stage of enforcement of the Award under section 36 of the Act of 1996. The observation of the Supreme Court of India as can be found in paragraph 4 of the judgement M. Anasuya Devi (Supra.)^[3] was as under:

“4. After we heard the matter, we are of the view that in the present case this issue was not required to be gone into at the stage of proceedings under Section 34 of the Act. In fact, this issue was pre-mature at that stage. Section 34 of the Act provides for setting aside of the Award on the ground enumerated therein. It is not in dispute that an application for setting aside the Award would not lie on any other ground, which is not enumerated in Section 34 of the Act. The question as to whether the Award is required to be stamped and registered, would be relevant only when the parties would file the Award for its enforcement under Section 36 of the Act. It is at this stage the parties can raise objections regarding its admissibility on account of non-registration and non-stamping under Section 17 of the Registration Act. In that view of the matter, the exercise undertaken to decide the said issue by the Civil Court as also by the High Court was entirely an exercise in futility. The question whether an Award requires stamping and registration is within the ambit of Section 47 of the Code of Civil Procedure and not covered by Section 34 of the Act.”

The Single Judge of the High Court of Delhi (Justice Valmiki Mehta) found the observations unacceptable in view of several judgements of the Supreme Court of India, holding the provisions of Section 33 of the Act of 1899, directing every authority, before whom any instrument chargeable with duty is produced, to impound the same if it is not duly stamped. In the judgement dated 3^rd February, 2010, the Learned Single Judge cited the earlier judgement of a larger bench in (Ram Rattan (Dead) by L.R's v. Bajrang Lal and Ors. 1978)^[4] and another judgement of 2008 in (Government of A.P. and Ors. Vs. P. Laxmi Devi 2008)^[5]. The Ld. Single Judge expressed the view that the judgement in the case of M. Anasuya Devi (Supra.)^[6] was per incurriam and that if the view in M. Anasuya Devi (Supra.) was accepted, it would negate the legislative intention of enhancing the stamp duty payable, when the duty was enhanced from a fixed nominal to 2% of the value of the claim. It may be recalled that by the Delhi Amendment 2001, the earlier fixed stamp duty for values of bonds below ₹1,000/- has been replaced by 2% of the value of the bond.

The judgement dated 3^rd February 2010 in Eider PW1 Paging Ltd. (Supra.)^[7] does not show that any party before it disputed the requirement of stamp duty on the Award before the Court. In other words it was not contended by the petitioner at all that the question of insufficiency of stamp did not arise at all as the Award being for the value ‘Nil’, no stamp duty was required to be paid.

In view of the aforesaid conflicting Supreme Court judgements on the applicability of Section 33 of the Act of 1899 on presentation of the Award for a challenge under section 34 of the Act of 1996 and the possibility of the exchequer losing revenue, the Single Judge requested the Chief Justice to place the matter before a larger bench. The questions framed for the reference were as under:

“(i) Whether a Court cannot exercise power of impounding an unstamped or an insufficiently stamped document, although, it is so empowered under Section 33 of the Stamp Act, 1899 and also as so held by the Supreme Court in the judgments of Government of A.P. Vs. P. Laxmi Devi, (2008) 4 SCC 720 and Ram Rattan Vs Bajrang Lal, (1978) 3 SCC 236 because such power can only be exercised at the stage of enforcing of the Award under Section 36 of the Arbitration & Conciliation Act, 1996?

(ii) Whether the decision in M. Anasuya Devi and Anr. Vs. M.Manik Reddy and others, (2003) 8 SCC 565 takes away the power of the court to impound insufficient or unstamped documents under Section 33 of the Stamp Act if the court seeks to suo moto exercise the power, and which is, in fact, a duty of the Court as per Section 33 of the Stamp Act and the aforesaid judgments in the cases of Govt. of A.P. v. P Laxmi Devi and Ram Rattan Vs. Bajang Lal (supra)?

(iii) Can the decision in M.Anasuya Devi (supra) apply where a claim petition including one for recovery of a monetary amount is dismissed and there would therefore not arise any question of execution proceedings of such an Award and therefore also the requirement of consideration of this issue of the requirement of stamp duty on the Award at the stage of execution?

(iv) Is the decision of M.Anasuya Devi, which has been rendered without considering the relevant provisions including Section 33, 38 and 40 of the Stamp Act 1899 is per incurriam as per the ratio of the decision of the Supreme Court in N. Bhargavan Pillai Vs. State of Kerala 2004 (13) SCC 217?

(v) Will such interpretation of Section 33 of the Stamp Act that the requirement of impounding of unstamped Award can be taken only at the execution stage, not negate the intention of the legislature in amending Article 12 of the Stamp Act whereby the stamp duty on the Award was enhanced from a fixed lump sum nominal amount to an ad valorem duty of 2% of the value of the claims?”

The Division Bench before whom the reference was listed issued direction to the Collector of stamps for passing appropriate order about the stamp duty payable on the Award. The Collector opined that in view of the Division Bench judgment of the High Court of Delhi in (Rajasthan Builder v. UOI and Ors. 1980)^[8], the Arbitration Award has to bear the stamp duty with reference to the amount Awarded and not to the amount claimed.

The Division Bench its judgment dated 14.09.2011^[9] extracted, what it called the ‘operative part’ of the order in Rajasthan Builders (Supra.)^[10] which is as under:

“8. Another objection raised was that the stamp paper did not bear a proper stamp. Item 12 of Schedule 1 to Stamp Act provides that where the amount of award does not exceed 1,000/- the same duty as Bond (No.15) for such amount is to be paid. Now item 15(bond) provides that where the amount or value does not exceed Rs. 10/-, 2 annas stamp is to be paid. In the present case no amount has been awarded, and a stamp of even 2 annas would have been sufficient. Mr. Aggarwal of course, however, suggests that as the claim of the appellant was over a lakh of rupees the stamp duty should have been calculated on that amount. We find the argument unacceptable.

The award has to bear the stamp duty with reference to the amount awarded and not the claimed amount. Award was therefore properly stamped”

In fact Rajasthan Builders (Supra.)^[11] was dealing with objections to an Arbitration Award of 25.08.1967 under the earlier Arbitration Act, 1940 and the objections regarding inadequacy of the stamp duty was only one of the several objections. There is no discussion in that judgement to show how the Court concluded that the stamp duty was payable on the amount Awarded and not on the amount claimed. Following this ruling the Division Bench said in the matter of Eider PW1 Paging Ltd (Supra.)^[12]:

“The learned Single Judge making Reference did not consider the aforesaid Division Bench judgment of this Court which binds this Bench as well. In view thereof, when the legal position is that stamp duty is to be paid on the amount awarded and not on the amount claimed, the questions framed by the learned Single Judge for Reference become academic and need not be answered. Insofar as the present case is concerned, the matter is remitted back to the learned Single Judge for deciding the OMP on merits.”

The five vital questions thus remained unanswered. Now, this ruling, that the stamp duty is payable on the amount Awarded and not on the amount claimed or the value of the property to which the Award relates, is contrary to glaring simple words of Article 12 which categorically refers to the value of the property involved in the dispute. We can read it again:

“

Description of Instrument

Proper Stamp-duty

12. AWARD, that is to say, 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- where the amount or value of the property to which the Award relates as set forth in such Award, does not exceed Rs. 1,000; if it exceeds Rs. 1,000 but does not exceed Rs.5,000 and for every additional Rs. 1,000 or part thereof in excess of Rs. 5,000.

The same duty as a Bond (No.15) for such amount. One rupee for every one thousand rupees or part thereof of the value of the property to which the Award relates.

(Emphasis added) ”

An in-depth study of the Article 12 and 15 along with the original Schedule I of the Act of 1899and the schedule 1A revised for Delhi by the Delhi Amendment 2001 further shows that the reading “value of the Award” in place of “value of the property to which the award relates” is quite against the intent of the legislature.

Before the 2001 amendment, stamp duty of a fixed value was payable for Awards relating to properties valuing below ₹1,000/-. This was available in Article 15 that deals with bonds. The Delhi Amendment 2001 has enhanced the duty on almost all items and for the bond of any value, duty is payable at the rate of 2% of the value of the bond. The minimum / fixed has been done away with. No Award is exempt from duty. Nor is any bond exempt. Now, there can be no bond for value of zero. But an Award can be. In view of the Division Bench judgement in Rajasthan Builders (Supra.)^[13] and subsequent Division Bench Judgement in Eider PW1 Paging Ltd. (Supra.)^[14], the stamp duty is being assessed at zero for such Awards. This certainly was not the intention of the legislature when Delhi Amendment 2001 was brought in enhancing the duty on all bonds.

The concern of Justice Valmiki Mehta, the Single Judge in Eider PW1 Paging Ltd (Supra.)^[15] about loss of revenue, though in the context of stage of scrutiny, is expressed in the following language:

“14. Finally I may add that whereas till recently the Award was to be stamped only on a fixed nominal amount of stamp duty of Rs.75, however this position has changed inasmuch as Article 12 of the Stamp Act with respect to the state of Delhi was amended w.e.f. from the year 2001 and whereby now the fixed stamp duty has been done away with and now an Award has to be stamped with ad valorem stamp duty of 2% of the value of the disputes. I prima facie feel that if a litigant is deliberately allowed to flout the requirements of payment of the necessary stamp duty as per Articles 12 and 15 of the Stamp Act as applicable to Delhi, then, the intention of the legislature in requiring payment of the higher stamp duty will be set at naught in cases where an Award dismisses the claims of claimants and there is no insistence of payment of stamp duty because it can be claimed on the basis of M. Anasuya Devi's case that such issue should be taken up at the stage of execution, whereas in these cases where the claims are dismissed, there is in fact no issue of execution at all.”

There is absolutely no ambiguity in the language of Article 12 of Schedule I or Schedule 1A quoted above, and hence there is no scope to interpret it the way it has been done in Rajasthan Builders (Supra.)^[16]. In fact the lines from the judgement extracted above are a result of misreading the text, not a case of interpretation or misinterpretation of the text.

The Stage When The Stamp Duty Is Payable

This brings us to the second question about the stage when the Award is required to be stamped and the stage when the sufficiency of stamp duty has to be scrutinized.

Justice Valmiki Mehta has opined that the Supreme Court judgement in M. Anasuya Devis was per incurriam. But even if we take ourselves bound by that judgement, we cannot further dilute the same by confusing two stages. M Anasuya Devi’s case at best lays down that the scrutiny can be done at the stage of execution. But it nowhere says that the Award need not or should not be stamped till the stage of execution.

This brings us to the judgement of High Court of Delhi in (Mohini Electricals Ltd. vs. Delhi Jal Board 2020)^[17]. The issue of stamping of original Award came before the court in proceedings of enforcement. The admitted position was that the Award was on a stamp of ₹100/- which was insufficient. However, the Decree holder subsequently affixed the stamp, beyond the time provided by the Arbitrator. The Judgement debtor submitted that the Award is not enforceable on account of deficiency of stamp. The Decree holder made a twofold submission namely, (i) the Act of 1996 does not set out any time within which the stamp duty must be affixed to the Award, and (ii) the Act of 1996 does not cast any duty on the Tribunal to fix a time for payment of stamp duty and therefore there was no bar in permitting the stamp duty on Award at any later point of time. The High Court of Delhi examined the provisions of Section 31, 35 and 36 of the Act of 1996. After extracting these provisions, the High Court went on to say:

“30. The extracted provisions hereinabove show that the sole duty cast on the arbitral tribunal at the time of passing the award is to ensure that a signed copy of the award is delivered to each party, but there is no obligation on the tribunal to ensure that the requisite stamp duty payable thereon stands paid at the time of passing of the award. Section 36 of the Arbitration Act dealing with enforcement of the award also proceeds to clarify that a domestic arbitral award shall be treated as a decree of the Court and, subject to the outcome of any challenge thereupon under Section 34 of the Arbitration Act, it can be simply enforced as a decree of the Court in accordance with the provisions of the Code of Civil Procedure, 1908 without any statutory requirement of making it a Rule of Court, unlike Section 17 of the Indian Arbitration Act, 1940. A combined reading of these provisions shows that let alone the arbitral Tribunal, there is no need even for the parties to file the award in Court and certainly no duty on their part to do so, unless they intend to initiate proceedings under Sections 34 or 36 of the Act.

31. Interestingly, I find that the Arbitration Act does not even create a legal obligation on the parties in arbitration to pay stamp duty on an award. It is only when they begin taking steps to enforce the award that the parties are obligated to ensure that the instrument has been duly stamped, at which point the Court shall be guided by the provisions of Sections 33, 35 and 38 of the Indian Stamp Act, 1899. This position was reiterated by the Supreme Court in M Anasuya Devi & Anr. Vs. M.Manik Reddy 2003 Supp 4 SCR 853 when it held that the question whether an award is stamped or not is only relevant for enforcement proceedings, and not during the Section 34 proceedings because an arbitral award cannot be set aside on the ground of inadequate stamping. Thus, the Arbitration Act envisages that the payment of requisite stamp duty on an award shall only be required when a party is seeking to get the same enforced under Section 36.”

Unfortunately the High Court did not make any reference to the Act of 1899. The liability to pay stamp duty arises out of the Act of 1899 and not out of the Act of 1996.

Section 10 of the Act of 1899 describes how the duty is paid. Duty is paid by means of stamps. Section 11 & 12 of the Act of 1899 deal with adhesive stamps and their cancellation. Section 13 of the Act of 1899 deals with “instrument stamped with impressed stamps how to be written”. The instrument has to be so written on the face of the stamp paper in such manner that the stamp cannot be used again. In other words the Award has to be written on the face of the stamp, implying that the stamp should be procured before the award is written.

Section 15 of the Act of 1899 says “every instrument written in contravention of section 13 & 14 shall be deemed unstamped”. If the award is not written on the stamp, strictly speaking, it is the Arbitrator who is in default in complying with the provisions quoted above.

Section 17 of the Act of 1899 confirms this position when it says – “All instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution”.

Section 18(2) of the Act of 1899 provides a remedy for a document written without a stamp. It provides that within three months of execution, the document may be taken to the collector who shall stamp the same in such manner as the State Government may by rule prescribe with a stamp of such value as person so taking such instrument may require and pay for.

Impounding an unstamped or insufficiently stamped document takes place under section 33 of the Act of 1899 that requires any authority before whom the unstamped or insufficiently stamped document is produced to impound the same. The section is extracted below:

“33. Examination and impounding of instruments. —

(1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a pubic office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.

(2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in 1 [India] when such instrument was executed or first executed: Provided that—

(a) nothing herein contained shall be deemed to require any Magistrate of Judge of a Criminal Court to examine or impound, if he does not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (V of 1989);

(b) in the case of a Judge of a High Court, the duty of examining and impounding any instrument under this section may be delegated to such officer as the Court appoints in this behalf.

(3) For the purposes of this section, in cases of doubt, —

(a) the State Government may determine what offices shall be deemed to be public offices; and

(b) the State Government may determine who shall be deemed to be persons in charge of public offices.”

The authority before whom the document is produced is empowered and obliged to examine the stamp duty paid and proceed according to law. The document after impounding is dealt with under the sections that follow section 33.

The above shows that the stage when the stamp duty is paid and the stage when the same is scrutinized for impounding are different.

The concluding sentence of paragraph 31 of Mohini Electricals Ltd. (Supra.)^[18] quoted above namely “thus, the Arbitration Act envisages that the payment of requisite stamp duty on an Award shall only be required when the party is seeking to get the same enforced under section 36” is not only against the statutory provisions but is also a misreading of M. Anasuya Devi (Supra). M. Anasuya Devi (Supra.)^[19] at best considered the question when the scrutiny under section 33 of the Act of 1996 is called for. M. Anasuya Devi (Supra.) does not deal with the stage of payment or affixation of stamp duty. Since the Act of 1899 requires the instrument to be written on stamp, the stamp has to be present when the Award is written. In other words, the stage of payment of stamp duty is the time when the Award is written. The judgement in Mohini Electricals Ltd. (Supra.)^[20] having not considered the provisions under section 2 to 16 of the Act of 1899 is per incurriam. The correct position is that whatever be the value of the stamp, the same must be presented to the Arbitrator at the time the Award is being written or within the time as permitted by law.

The paragraphs 32, 33 & 34 of Mohini Electricals (Supra.) extracted below are fall out of the misreading and misinterpreting the ratio of M. Anasuya Devi (Supra.)^[21]

“ 32. Once the question whether proper stamp duty was paid on the award is precluded from being a valid ground to challenge the same under Section 34, it is hard to imagine that the legislature intended to include the power to make substantive directions on the subject fall in the core jurisdiction of an arbitral tribunal. In other words, the issue of stamping of the award is not the concern of the arbitral tribunal at all and has to be examined only when a party approaches the Court for enforcement of the award.

33. That being said, it is not necessarily true that every time a party decides to enforce an award, it needs to ensure that the same is duly stamped. For instance, a situation may arise in which both parties in arbitration mutually decide to accept the award, thereby dispensing with the formality of instituting an enforcement petition. In such cases, there would be absolutely no occasion for any of the parties to pay the stamp duty.

34. That being said, when it comes to the question of paying stamp duty on an arbitral award, I am inclined to accept the legal position advanced by Ms. Salwan on behalf of the DH that the learned arbitrator did not have any statutory power to direct that the stamp duty must be paid within a specific period. Therefore, the direction of the learned arbitrator granting 30 days' time for payment of stamp duty on the award was a direction issued in excess of its powers under the Act. As a result, a direction like this which was void could neither have created an obligation on the part of the DH nor can be used to call into question an act which was perfectly sustainable in the eyes of law, i.e. payment of the stamp duty in February 2020. Thus, I have no hesitation in rejecting the JD's contention that the payment of stamp duty applicable upon the award, on 07.02.2020 was illegal or improper in any manner.”

What is expressed in paragraph 33 extracted above is the same as the apprehension expressed by Justice Valmiki Mehta in Eider PW1 Paging Ltd. (Supra.)^[22] extracted in paragraph 9 and 16 above. It is time the exchequer shakes off the inertia and moves to action.

Paragraph 34 of Mohini Electricals (Supra.)^[23] quoted above drives the death knell to the applicability of the Act of 1899 by further preventing the Arbitrator from making a direction to the litigants to adhere the provisions of the Act of 1899.

WAY FORWARD

In conclusion, one can reiterate that, (without the incorrect view of the Rajasthan Builders standing in the way), as the statutes stand today, the stamp duty payable on an Award is related to the value of the property to which the Award relates & the stamp duty is payable at the time the Award is written (without the incorrect view of Mohini Electricals standing in the way). When the claim is allowed, the award is for the value of the claim and the stamp duty payable, calculated either on the value of the claim or on the value of the award, is the same. The difficulty is when the claim is dismissed and the award is for value ‘nil’. The Rajasthan Builders has reduced the stamp duty payable on such awards to zero. The exchequer was aware of the situation when the Delhi Amendment 2001 was brought in. Since 2001amendment intends to enhance revenue, a corrective step to be taken was to bring the language of Article 12 in line with the view taken in Rajasthan Builders (since the same was not challenged by the state) and to restore a minimum which could cover awards dismissing a claim or awards allowing the claim only in part or awards of smaller values. On the other hand if the Government of Delhi / Legislature intended to overcome the judicial verdict in Rajasthan Builders by legislative power, the same could be done by suitably changing the language of the schedule or by specifically inserting an Article to deal with an award for value ‘nil’. The way forward is to amend the Delhi Amendment 2001 to bring it in conformity with the view of the High Court of Delhi in Rajasthan Builders along with retaining a minimum for awards of smaller value, say Rs. 1 Lac. The other way would be to insist on ad valorem duty on the value of the claim irrespective of the value of the award and for that purpose suitably change the language of Article 12 & 15 of the Schedule 1A of the Delhi Amendment 2001 extracted above, say, by inserting an illustration, so as to do away with any ambiguity that may allow any probability of interpretation in any other manner. In any case, the Government needs to act so as not to lose the revenue which can be utilised for the purpose of much needed development and welfare activities.

The author is a former Judge,  High Court Of Delhi. Views are personal.

[1] In (OMP No. 78/2003) : 2010 SCC OnLine Del 422 : (2010) 115 DRJ 263