Consequences Of An Unstamped/Insufficiently Stamped Domestic Award : An Unsettled Law

As a priori, it is imperative to note that an arbitration award is mandated to be stamped as per the Indian Stamp Act, 1899 (hereinafter referred to as the "Stamp Act"). A perusal of Section 3 read with Section 17 and Schedule I (Article 12) of the Stamp Act indicates that the Stamp Act mandates the stamping of domestic arbitration awards.

The Stamp Act is a fiscal legislation, introduced for the purpose of revenue collection, for the government, by way of imposition of stamp duties, which are taxes on transactions, in the shape of stamps on instruments. The Stamp Act, inter-alia, provides for the type of documents that need to be stamped, the procedure involved, consequences of stamping or not stamping a document, impounding documents, etc.

After an award has been made, the two most common steps for contesting parties, is to, either challenge the award under Section 34 of the Arbitration Act, or to enforce the award under Section 36 of the Arbitration Act. Therefore, we proceed with the assumption that the award, is a domestic award, and is unstamped/insufficiently stamped as per the provisions of the Stamp Act.

What are the consequences of presenting an unstamped/insufficiently stamped award, under Section 34 or Section 36 of the Arbitration Act?

1. Can an award be assailed on the ground that it is insufficiently stamped?

The first question that arises for consideration is whether a domestic arbitration award can be assailed and set aside on the ground that the award is not duly stamped or insufficiently stamped. The Supreme Court answered this question in the case of M. Anasuya Devi v. M. Manik Reddy^[1]. The court observed that, "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 the proceedings under Section 34 of the Act. In fact, this issue was premature at that stage. Section 34 of the Act provides for setting aside of the award on the grounds 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.

For the aforesaid reasons, the judgment under challenge deserves to be set aside. Consequently, it is set aside.

The appeals are, accordingly, allowed. Since the High Court has not dealt with other objections raised under Section 34 of the Act, we remit the matter to the High Court to decide the same. We make it clear that the issue with regard to the stamping and registration of the Award or documentation thereof, it would be open to the parties to raise the same before the Court at the stage of proceeding under Section 36 of the Act. The High Court may decide the matter expeditiously and also consider any interim prayer which may be made by the parties in the appeals. There shall be no order as to costs."

(emphasis is ours)

In essence, the Supreme Court has held that the non-registration and non-stamping of an award, is not a ground for challenging an award under Section 34 of the Arbitration Act, but can be taken as a ground to object against the enforceability of the award under Section 36 of the Arbitration Act.

However, the said decision is silent and neither raises nor discusses the issue as to the application of the provisions of the Stamp Act, to an unstamped/insufficiently stamped arbitral award, which has been filed before the Court in a petition under Section 34, challenging such award.

1. The interplay between Section 33 of the Stamp Act, and Section 34 & Section 36 of the Arbitration Act.

In this background, it is pertinent to highlight Section 33 of the Stamp Act, which pertains to the impounding of documents, that are necessarily required to be stamped.

Section 33 of the Stamp Act states as follows:

"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 public 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) 2 [the 3 [State Government]] may determine what offices shall be deemed to be public offices; and (b) 4 [the 3 [State Government]] may determine who shall be deemed to be persons in charge of public offices."

Therefore, Section 33 of the Stamp Act, in expressed terms, casts an obligation on a public officer to impound any document, which has been produced before him, and is unstamped/insufficiently stamped. In fact, in the judgment of N. Bhargavan Pillai v. State of Kerala^[2],  the Supreme Court held in no uncertain terms, that Section 33 of the Stamp Act has to be construed mandatorily and is not merely directory in nature.

Further, it is pertinent to note that any public officer, Court while exercising its power under Section 33 of the Indian Stamp Act, can only impound an 'original' and not a 'copy' of an instrument. It is settled law that the Court in the exercise of his power under section 33 of the Stamp Act cannot compel any person to produce the instrument.

Therefore, in view of the aforementioned, it is clear that the Court while exercising its power under Section 33 of the Stamp Act, would be able to impound only an 'original award' which has been produced before it at the time of the Section 34 or Section 36 petition under the Arbitration Act.

Although, it may appear that on account of the fact that the Arbitration Act, does not require the filing of an 'original' award before the Court along with a petition under Section 34 or Section 36 of the Arbitration Act, no occasion would arise for the Court to examine the original award, and ascertain whether it has been stamped. As per Section 31(5) of the Arbitration Act, after the pronouncement of the award, each party is given a signed copy of the award. Therefore, parties at the stage of Section 34 are required to file copies of the award. In order to remedy this inadvertent consequence of Section 31(5) of the Arbitration Act, the practice directions framed by the various High Courts requires the original award to be transmitted from the Arbitrator to the Registry of the High Court, so that the original award is present before the Court.

For instance, as per the practice directions of the Delhi High Court, once notice has been issued on a petition filed under Section 34 of the Arbitration Act, the Registry is mandated to issue a letter to the concerned Arbitrator to transmit the arbitral record as well as the Award (this would be the Original) to the Court.^[3] As per subsequent practice directions^[4], it was clarified that whilst the arbitral record will be returned after two months, the Original Award and order sheets obtained from the Arbitrator will be retained by the Registry of the Court.

Therefore, although there may not be a statutory uniformity, most High Courts have issued practice directions, whereby the original arbitration Award and the arbitral record is produced before the Court.

1. Can an unstamped domestic award produced in a Section 34 proceeding, be impounded under Section 33 of the Stamp Act?

This question remains unanswered, and has also led to a series of conflicting judgments, by the Delhi High Court.

1. In the case of Eider PW1 Paging Limited & Eider PW1 Communications Ltd. v. Union of India^[5], the Court considered the interplay between Section 33 of the Stamp Act, and Section 34 of the Arbitration Act. Firstly, dealing with judgment of the Supreme Court in Anasuya (supra), the Court observed that, "The aspect of whether the provision of Section 33 is directory or mandatory was not considered by the Supreme Court in the case of M. Anasuya Devi's case (supra), and in fact, Section 33 of the Stamp Act has not even been adverted to in the said judgment. The Supreme Court in the case of N. Bhargavan Pillai v. State of Kerala, (2004) 13 SCC 217 has laid down that when any judgment, even of a Supreme Court, does not advert to a direct provision of law then, the judgment is to be treated as having been rendered per incuriam"

Against the established norms of jurisprudence, the High Court held a Supreme Court judgement to be per incuriam. Although, this practice has been deprecated in recent times, the raison d'etre of the Delhi High Court, in the opinion of the author, is sound. The Court further differentiated the setting aside of the Award under Section 34 of the Arbitration Act, from impounding the Award under Section 33 of the Stamp Act. It observed that, "In the present case, I am not seeking to set aside the Award and hold the same as invalid and without jurisdiction as was done by the High Court in the case of M. Anasuya Devi and therefore, which finding was set aside by the Supreme Court, but, in Section 33 of the Stamp Act."

It held that even though the Court cannot set aside the Award on this basis, it is mandated by law to impound the award as per Section 33 of the Stamp Act. In view thereof, the Court referred certain questions of law to a larger bench, so that the law regarding this issue could be finally decided. The questions referred were "(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. v. P. Laxmi Devi, (2008) 4 SCC 720 and Ram Rattan v. 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 v. M. Manik Reddy, (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 v. Bajrang 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 v. 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?"

(emphasis is ours)

The Single Judge referred the question, as to whether in light of the Supreme Court's decision in the Anasuya (supra), the power of the Court to impound the unstamped Award under Section 33 of the Stamp Act can only be exercised at the stage of enforcing the Award under Section 36 of the Arbitration Act.

1. Subsequently, a co-ordinate bench of the Delhi High Court, in "M. Sons Enterprises Pvt. Ltd. & Anr. Suresh Jagasia & Anr.^[6], took a divergent view vis-à-vis the judgment in Eider (supra), and held that the Supreme Court's decision in Anasuya (supra) cannot be brushed aside as per-incuriam or as sub-silentio on the provisions of the Stamp Act. The relevant portion is extracted below:

"10. The recent judgment of the Apex Court in Anasuya Devi (supra) cannot be brushed aside as per-incuriam or as sub-silentio on the provisions of the Stamp Act. The Apex Court was very much conscious of the said provisions and it is not as if it pronounced the judgment in ignorance of the same or that the provisions of the Stamp Act have been given a go by. What the Supreme Court has held, examining the scheme of the Arbitration Act, 1996, is that the objections on account of deficiency in stamping and registration fall outside the ambit of Section 34 of the Act. It is not as if, the Supreme Court by adopting the said procedure has contravened the mandatory provisions of the Stamp Act; it is not as if benefits have been permitted to be derived under an insufficiently stamped award. The Supreme Court however has held that the said objection has to be taken at the time of enforcement of the award………………….."

Since, there is a prima facie divergence in opinion in both the judgements, the law remains unsettled. Moreover, to this date, a larger bench of the Delhi High Court has not been constituted to adjudicate upon the issues referred to it by the Court in Eider (supra). The larger bench would have answered the questions referred to it, and put to rest the conflicting interpretations of the Supreme Court's decision in Anasuya (supra) by co-ordinate benches of the Delhi High Court.

Hence, at present the law pertaining to impounding of an unstamped domestic arbitration award in a Section 34 proceeding, has not been settled.

1. Author's View

In the view of the authors, Anasuya(supra) cannot be read to mean that an unstamped award cannot be impounded under a Section 34 proceeding, challenging an Award. This would be an incorrect reading/interpretation of the Supreme Court's decision, for primarily three reasons:

1. Supreme Court's decision in Anasuya(supra), is not law that would be binding on the lower court, vis-à-vis impounding of an Arbitral Award under Section 33 of the Stamp Act. The Supreme Court in Anasuya (supra) does not deal with Section 33 of the Stamp Act, and therefore lower courts cannot be bound by an issue which was not raised or decided, and also precluded by the doctrine of sub-silentio.
2. Section 33 is mandatory in nature, as has been held by the Supreme Court and reiterated by the Delhi High Court in Eider (supra).
3. The decision in Anasuya(supra) cannot be read in a manner which could create an exception, in Section 33 of the Stamp Act, specifically when no such exception has been made by the legislature.

Similarly, at the time when the original award is produced before the Court in a petition under Section 36 of the Arbitration Act, the Court is bound to impound it. Further, as per the decision in Anasuya (supra), the objection regarding non-stamping and non-registration of the award can be taken for the purpose of rendering it unenforceable, only at this stage.

1. Can the Court hear a petition under Section 34 and Section 36 of the Arbitration Act, 1996, seeking to challenge or enforce, a non-stamped or insufficiently stamped award?

With regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument. Therefore, unless the stamp duty and penalty due on the Award is duly paid, the Court cannot hear the challenge to set aside the Award under Section 34 of the Arbitration Act, and also cannot enforce the Award under Section 36 of the Arbitration Act.

1. What is the consequence of an award being impounded under Section 33 of the Stamp Act, on further proceedings under the Arbitration Act?

1. It is clear that an insufficiently stamped Award can be impounded by the Court under Section 33 of the Indian Stamp Act and the Court is barred from acting upon the award under Section 35 of the Stamp Act. In effect, further proceedings under the Arbitration Act are deferred until the award has been returned to the Court for further proceedings, and the parties have made good the requisite stamp duty.

The procedure that would be adopted where an insufficiently stamped award is presented before the Court can be summarised as follows:

1. The court shall, before acting on the award, examine whether the award is duly stamped.
2. If the award is found to be not duly stamped, Section 35 of the Stamp Act bars the said award being acted upon.
3. The court should then proceed to impound the award under Section 33 of the Stamp Act.
4. Thereafter, the Court shall as per Section 38(2) of the Stamp Act, send the impounded award in original to the Collector.
5. The Collector shall follow the procedure as specified under Section 40 of the Stamp Act and after he has dealt with the Award, the duly stamped original Award shall be immediately returned to the Court to continue with further proceedings.

vi. Although, the Stamp Act, does not provide for challenging the Collector's power under Section 40 of the Stamp Act, any person aggrieved by the same may challenge the order by way of a writ which may further delay the Court to continue with the proceedings.

As it stands today, this procedure is likely to be time consuming. Moreover, the Stamp Act does not stipulate any fixed time frame within which the proceedings under Section 40 of the Stamp Act have to be completed. The inadvertent consequence is that proceedings under the Arbitration Act, would be indefinitely deferred till the duly stamped award is returned and presented before the Court.

The Arbitration Act, has been enacted with an object to speedily dispose of disputes by way of the arbitrating on a dispute. The proceedings under Section 34 and Section 36 of the Arbitration Act for challenging and enforcing an Award respectively, are governed by strict periods of limitation. However, as discussed, the effect of impounding the award, is that the Court cannot further proceed till the duly stamped award is returned and presented before the Court. This in itself, would in most cases effectively breach these strict periods of limitation under the Arbitration Act.

For instance, Section 34(6) of the Arbitration Act, mandates that a petition under Section 34 of the Act, challenging the award, shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party. On account of the award being impounded, the Court would not be able to act on the petition under Section 34 of the Act, and thereby fail to decide the petition within a period of one year in direct contravention to the mandate of Section 34(6) of the Arbitration Act.

What emerges from the aforementioned discussion is that the interplay between mandatory provisions of the Indian Stamp Act, and Arbitration Act would defer proceedings under the Arbitration Act, for an indefinite period till a duly stamped Award is returned to the Court. This would defeat and put to risk the cardinal objective of the Arbitration Act, which is speedy disposal.

1. The need for harmonious construction of the Stamp Act and the Arbitration Act

The Supreme Court in Garware Ropes Ltd. v. Coastal Marine Constructions &Engineering Ltd.^[7], whilst dealing with an unstamped arbitration agreement, adopted the approach of harmonising the provisions of Section 33 and 34 of the Maharashtra Stamp Act (pari materia to Indian Stamp Act, 1899) with Section 11(13) of the Arbitration Act, 1996 (as prior to the 2019 amendment) pertaining to speedy resolution in the appointment of an arbitrator. The Court held that, "a harmonious construction needs to be given to the provisions of the Maharashtra Stamp Act and Section 11(13) of the 1996 Act by which, if it is possible, both provisions ought to be subserved. We have already seen that under the Maharashtra Stamp Act, the object of impounding an instrument that is unstamped is to ensure that stamp duty and penalty (if any) must be paid on such instrument before it is acted upon by any authority. Likewise, under Section 11(13) of the 1996 Act, an application made under Section 11 for appointment of an arbitrator should be disposed of as expeditiously as possible, and, in any event, an endeavour shall be made to dispose of such application at least within a period of 60 days from the date of service of notice on the opposite party."

(emphasis is ours)

Similarly, even in the situation at hand, the settled principals of harmonious construction would have to be applied, giving effect to the mandate of both the Stamp Act and the Arbitration Act. An endeavour would have to be made, such that Section 33 and 35 of the Stamp Act, and Sections 34 and 36 of the Arbitration Act can be harmoniously applied.

Illustratively, when the Court impounds an Award under Section 33 of the Stamp Act, and sends it to the Collector under Section 38(2) of the Stamp Act, the Court shall direct the Collector to deal with impounded award as per Section 40 of the Stamp Act, within a short and fixed duration of time. Thereafter, the Collector shall return it to the Court for continuing the pending proceedings under Section 34 or Section 36 of the Arbitration Act, 1996.

Conclusion

At present, in the absence of any law or guidelines, it would be imperative for the Supreme Court in exercise its powers under Article 142, declare the law to be followed by the lower Courts with respect to the interplay between Section 33 of the Stamp Act, and Section 34 of the Arbitration Act.

(The authors are Advocates practising in Delhi.)