Built Suit Agreement That Does Not Create Rights Over Property Will be Stamped Under Article 5(j) of Indian Stamp Act 1899: Madras High Court

Justice Abdul Quddhose relied upon the Apex Court decision in Food Corporation of India and others vs. Babulal Agrawal and observed that when no possession, right or title had been passed at the time of execution of the contract, the contract was only an executory agreement and not an agreement creating rights in the immovable property.

“It is clear from the Hon'ble Supreme Court's decision relied upon by the learned counsel for the petitioner in the case of Food Corporation of India and others vs. Babulal Agrawal reported in 2004 2 SCC 712, that when no possession, right or title has passed on to the petitioner in praesenti at the time of the execution of the agreement, such an agreement is only an executory agreement and not an agreement creating rights in the immovable property,” the court observed.

The court was hearing a plea for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act 1996. According to the petitioner, they had entered into a Built Suit Facility Agreement with the respondent wherein the Respondent had agreed to construct a building and upon completion to hand over the possession and grant sublease of the property to the petitioner for a specific period.

The petitioner also claimed that the respondents had breached the contract by adhering to the terms and conditions of the Built Suit Facility Agreement. Thus, they sent a termination notice to the respondent and initiated arbitration. After the respondents sent a reply denying the contentions, the petitioner filed a Section 9 application followed by an application under Section 11 of the Act.

The respondent, however, contended that the arbitration clause upon which the petitioners were relying was contained in an insufficiently stamped document and thus could not be given effect. It was contended that the agreement, being one that related to construction and lease, would fall under Article 5(i) of the Act and not under Article 5(j) which deals with an agreement not specifically provided for under Article 5.

To this, the petitioner submitted that the agreement was only to enter into a future lease as the petitioner had not been put in possession of the property. Thus, it was submitted that the stamp duty payable would be Rs. 20 which had been sufficiently paid as per Article 5(j).

The court agreed with this submission. The court noted that as per the clauses in the agreement would show that it is not a final agreement but an agreement to enter into future lease.

“Article 5(j) of the Indian Stamp Act, 1899 which deals with agreements which are not otherwise provided will get attracted in view of the fact that the nature of the Built Suit Facility Agreement dated 29.04.2021 is only in the nature of an agreement to enter into a lease and is not the final agreement which the parties have agreed to enter into in the near future on completion of the construction by the respondent,” the court said.

The court thus allowed the application and appointed an arbitrator to decide the dispute between the parties.

Counsel for the Petitioner: Mr.C. Suraj

Counsel for the Respondent: Mr.Anish Gopi for M/s.P.B. Ramanujam Associates

Citation: 2023 LiveLaw (Mad) 351

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