Insufficiency Of The Stamp Duty On The Arbitration Agreement Is A Jurisdictional Issue Under Section 16 Of The A&C Act: Delhi High Court

The Single Bench of Justice Sanjeev Narula has held that an objection as to the deficiency in the stamp duty shall be decided as a preliminary issue since the inadequately stamped arbitration agreement can neither be taken in evidence nor can be acted upon, therefore, the tribunal should direct the parties to first get the agreement sufficiently stamped before adjudicating rights and obligations under the agreement.

The Court reiterated that when an insufficiently stamped instrument is presented before the arbitrator, he shall impound the same and direct the parties to pay the requisite stamp duty.

Facts

The parties entered into several loan agreements wherein the appellant furnished loans to the respondent. The respondent failed to make the payments and repay the debts, giving rise to a default under the agreement which led to the appellant invoking the arbitration clause. The arbitrator entered into reference.

The respondent filed an application under Section 16 of the A&C Act raising the objection regarding the insufficiency of the stamp duty on the loan agreements in which the arbitration clause is appended. The tribunal accepted the application and adjourned the proceedings with a direction to the appellant to get the requisite stamp duty paid.

Aggrieved by the order of the tribunal, the appellant preferred an appeal under Section 37 of the A&C Act.

Contention Of The Parties

The appellant challenged the order of the tribunal on the following grounds:

• There is no impediment to the enforceability of the arbitration clause contained in an instrument that is inadequately stamped.
• Insufficiency of the stamp duty is not a jurisdictional issue, therefore, the application under Section 16 was not maintainable.
• The judgments relied on by the arbitrator are overruled.
• The substantive law, i.e., Maharashtra Stamps Act (MSA) is not applicable to the loan agreement as the same was executed in New Delhi, therefore, the arbitrator erred in determining the stamp duty in terms of the MSA.
• An agreement is deemed to be executed only when both the parties sign it, merely because the respondent signed it in Mumbai, it would not attract MSA, since the appellant finally signed it in New Delhi, thus, the Indian Stamp Act would apply.

The respondent countered the appellant's contentions on the following grounds:

• The loan agreements are insufficiently stamped, therefore, they can neither be received in evidence nor can be acted upon.
• The loan agreements were to be stamped in accordance with the MSA, however, much lesser stamp duty is paid.
• The insufficiency of the arbitration agreement is a jurisdictional issue that shall be decided as a preliminary issue under Section 16 of the Act.
• The arbitrator cannot determine the rights and obligations arising out of an inadequately stamped arbitration agreement, therefore, the tribunal rightly directed the appellant to get the loan agreements adequately stamped before the tribunal decides on the substantive claims arising out of the loan agreement.

Analysis By The Court

The Court held that the sufficiency of the stamp duty on the arbitration agreement is a jurisdictional issue under Section 16 of the A&C. The Court held that the power of the Court to rule on its own jurisdiction also includes the power to determine the validity of the arbitration agreement which necessarily includes the enforceability of a document deficiently stamped

It held that issue of stamp duty shall be decided as a preliminary issue since the inadequately stamped arbitration agreement cannot be taken in evidence and acted upon, therefore, the tribunal should direct the parties to first get the agreement sufficiently stamped before adjudicating rights and obligations under the agreement.

The Court reiterated that when an insufficiently stamped instrument is presented before the arbitrator, he shall impound the same and direct the parties to pay the requisite stamp duty. Therefore, the arbitrator was correct to decide it as a preliminary issue and direct the appellant to get it properly stamped.

The Court further held that an agreement is deemed to be executed only when both the parties sign it, merely because the respondent signed it in Mumbai, it would not attract MSA, since the appellant finally signed it in New Delhi, therefore, the Indian Stamp Act would apply. The Court remanded back the matter to the tribunal to determine the stamp duty as per the Indian Stamp Act.

Case Title: Religare Finvest Ltd v. Asian Satellite Broadcast Pvt. Ltd.

Citation: 2022 LiveLaw (Del) 368

Date: 10.01.2022

Counsel for the Appellant: Mr. Ashish Dholakia, Senior Advocate with Mr. Sandeep Das, Mr. Sitesh Mukherjee, Ms. Arushi Mishra and Mr. Akash Panwar, Advocates

Counsel for the Respondents: Mr. Nakul Dewan, Senior Advocate with Mr. Aman Raj Gandhi, Mr. Sambit Nanda, Mr. Vardaan Bajaj and Ms. Ridhima Sharma, Advocates.

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