Many investors have faced issues in getting foreign awards enforced in India on account of non-payment of stamp duty. Payment of stamp duty on both domestic and foreign arbitral awards has been a matter of controversy and confusion over the years. The legal framework around this domain is still an evolving one. The provisions in the Arbitration and Conciliation Act, 1996 ('the Act')...
Many investors have faced issues in getting foreign awards enforced in India on account of non-payment of stamp duty. Payment of stamp duty on both domestic and foreign arbitral awards has been a matter of controversy and confusion over the years. The legal framework around this domain is still an evolving one. The provisions in the Arbitration and Conciliation Act, 1996 ('the Act') do not comprehensively deal with the aspect of stamping. More so, the Act is silent on the stage at which the stamp duty is payable on the arbitral award. However, Section 35 of the Indian Stamp Act 1899 ('the Stamp Act') provides for stamping of arbitral awards and stipulates that an award which is unstamped/insufficiently stamped is inadmissible.
In this background, it is not uncommon to see a decree holder, despite getting a favourable award, is deprived of the fruits of the award on account of technical objections raised by the judgment debtor e.g., levying stamp duty on awards has a bearing on economy of India, and hence, non-payment of stamp duty would violate the fundamental policy of Indian law. Often, we have seen cases where the arbitrator/arbitral tribunal insists that the award be made on a stamp paper, of the requisite amount, upon pronouncement of the same even in the absence of any specific statutory power for it under the Act.
There have also been instances wherein, while dealing with an award which was not adequately stamped, the Court directed the decree holder to approach the arbitrator and get the award issued on the requisite stamp paper. When the decree holder approached the arbitrator to procure a copy of the same, his request was turned down because the arbitrator had become functus officio. Therefore, the stamping of the award itself became a challenge and as a result, the judgment debtor was successful in resisting the enforcement petition on the ground that the original award was not adequately stamped at the time of pronouncement.
Since, there is not much clarity on the issue pertaining to stamping of arbitral awards, we intend to delve into the questions of why, when and what being attributed to the stamping of arbitral awards which goes on to reflect a change in Indian arbitral jurisprudence, now moving to a pro-enforcement approach.
- The Why?
The Stamp Act is a fiscal statute and levying stamp duty generates revenue hence, it has a bearing on the economy of India. For the said reason, stamping of an instrument comes under the umbrella of 'fundamental policy of India'. So far as the domestic awards are concerned, it is the duty of the Court to identify whether any instrument invites payment of stamp duty or not. The Supreme Court of India, in Deep Industries Limited v. Oil and Natural Gas Corporation Limited and Ors, has opined that the Stamp Act is a fiscal measure enacted to secure revenue for the State. It is not enacted to arm a litigant with a weapon of technicality to meet the case of his opponent.
The When?
- Stamping of Domestic Awards
The impact of non-payment of stamp duty on an arbitral award has been the subject of varied judicial interpretation. It is noteworthy, that the limitation period for enforcement of domestic awards is twelve years. However, there are various instances wherein parties are directed by the arbitrator to provide a stamp paper of the adequate value at the time of pronouncement of award. In our view, such a direction has no basis in law as arbitrator has nothing to do with full payment of stamp duty on the award, since a party is at liberty to pay the adequate stamp duty at the time of enforcement and hence, must not be compelled by the arbitrator to do so.
The courts in India made an attempt to settle this issue pioneering with an important judgment delivered by the High Court of Delhi in in Mohini Electricals Limited vs. Delhi Jal Board ('Mohini Electricals') wherein the Court held that an arbitrator becomes functus officio after writing the award, and any directions by the arbitrator in relation to payment of stamp duty upon pronouncement of the award can be regarded as 're-writing of the award'.
In furtherance to the above, the Supreme Court of India in the case of M. Anasuyu Devi and Ors. v. M. Manik Reddy and Ors., ('Anasuyu Devi Case') held that the issues relating to the stamping of a domestic award or documentation thereof, may be raised at the stage of enforcement under the Act since, it is usually at that stage the parties raise objections regarding the admissibility of an unstamped instrument.
The ultimate decision with regard to non-payment of stamp duty on an arbitral award can only be decided by the court. Section 35 of the Stamp Act is unambiguous and succinctly points out that if an instrument is inadequately stamped, then the same is neither admissible as evidence nor can it be acted upon before the courts. Therefore, if any instrument is inadequately stamped at the time of enforcement, it is incumbent upon the court to impound the same and send it to the collector for a proper assessment of the stamp duty and penalty thereon.
The Supreme Court of India in the Anasuyu Devi Case also shed light on the issue that requirement of stamping an arbitral award is also within the ambit of Section 47 of the Civil Procedure Court ('CPC') which deals with questions to be determined by the Court in relation to execution of a decree and not covered by Section 34 of the Arbitration Act.
- Stamping of Foreign Awards
The Courts in India have taken a view that a foreign award is already stamped and enforceable as a decree under the Arbitration Act. In 1999, the Supreme Court of India in the case of Thyssen Stahlunion GMBH v. Steel Authority of India delivered an iconic judgement holding that 'a foreign award is already stamped means that the foreign award is to be regarded as a decree and the expression 'stamped' means 'regarded'.
Furthermore, a similar approach was adopted by the Bombay High Court in the case of Vitol S.A v. Bhatia International Limited and followed by the High Court of Madhya Pradesh and the Delhi High Court in Narayan Trading Co. v. Abcom Trading Pvt. Ltd and Naval Gent Maritime Ltd v Shivnath Rai Harnarain (I) Ltd. respectively, both of which observed that a foreign award would not require stamping and can be enforced as a decree. The judgements further settled the dust on the issue that inadequate payment of stamp duty cannot stand in the way of deciding whether the award is enforceable or not.
Reconciling the above High Courts' rulings, the Supreme Court in Shriram EPC Limited v. Rioglass Solar SA ('Rioglass'), settled the position that a foreign award in India not requires any stamping, but can be enforced as a decree of a civil court in India and such enforcement would not be contrary to the fundamental policy of India.
The Supreme Court in the case of N. Bhargavan Pillai v. State of Kerala and more recently in the case of Mohini Electricals clarified that a photocopy of the award is not an "instrument" under the Stamp Act, and therefore the instrument cannot be impounded for non-payment of stamp duty.
The What?
The quantum of stamp duty payable varies from state to state depending on where the award is made. Some states have a separate Stamp Act, while others follow the Indian Stamp Act which is a central enactment. It is noteworthy that when stamp duty payable on certain transactions is not covered in the respective state stamp act, the state authorities refer to the stamp duty rates provided in the Indian Stamp Act, 1899 for similar transactions.
The enforcement of any arbitral award in India is founded on the fundamental principle of minimal judicial intervention with a vision to strengthen India's pro-arbitration stance and consequently, create an investment friendly climate. In order to achieve this goal, the Judiciary has passed judgments like Rioglass, that further cleared the road for execution of foreign awards in India without any impediments. This has also increased the confidence of global investor community that India will not interfere with foreign awards on these technical grounds and the extent of interference with foreign awards will be lesser as compared to the domestic awards. We hope that more such steps will be taken by the legislature and the judiciary to make India a hub of arbitration.
Views are personal