Karnataka Stamp Act | Stamp Duty Not Attracted On Arbitral Awards For Damages If Unrelated To Movable/Immovable Property: High Court

The Karnataka High Court has held that an arbitral award which does not deal with either movable property or immovable property, but awards damages payable to the award holder, does not attract stamp duty under the Karnataka Stamp Act, 1957.

Justice R Nataraj thus dismissed a petition challenging an order of the trial court rejecting its application seeking to impound the award of the arbitrator for non-payment of stamp duty by the respondent.

"When the award of the arbitrator deals with a movable property or immovable property, by virtue of the charging clause contained in Article 11 of the Karnataka Stamp Act, 1957, such awards are bound to suffer stamp duty before it is brought for execution. In the case on hand, as rightly contended by the learned counsel for the respondent, the award does not deal with either movable property or immovable property, but it awarded liquidated damages payable to the respondent, arising out of a construction contract. Therefore, the award does not attract stamp duty." 

An arbitral award was passed at the instance of respondent against the petitioner. The petitioner was directed to pay the amount along with interest @ 9% per annum from the date of initiation of arbitration proceedings till the date of realisation. The award consisted of various components, including overhead expenses, loss of profit, unpaid work, and withheld interim payments, totalling a significant amount.

The petitioner had previously filed a Section 34 petition under the Arbitration and Conciliation Act which was pending consideration. Meanwhile, the respondent sought to enforce the award in an execution case. The petitioner contested this by filing an application to impound the award, alleging that the respondent had not paid the required stamp duty.

The executing court rejected the petitioner's application, reasoning that the liability to pay stamp duty arises only at the time of executing the award, making impoundment unnecessary under Section 33 of the Karnataka Stamp Act. Dissatisfied with this decision, the petitioner filed the writ petition.

The petitioner argued that the arbitral award should be considered an instrument under the Karnataka Stamp Act, and thus subject to stamp duty as prescribed in Article 11 of the Act.

In contrast, the respondent contended that stamp duty is payable on an arbitral award only at the time of execution, referencing a judgment from a Co-ordinate Bench. They also argued that the award pertained to damages, which are an actionable claim not attracting stamp duty under Article 11 of the Karnataka Stamp Act, 1957. Additionally, the respondent had already paid the stamp duty.

The bench noted that when the award of the arbitrator deals with a movable property or immovable property, by virtue of the charging clause contained in Article 11 of the Karnataka Stamp Act, such awards are bound to suffer stamp duty before it is brought for execution.

“the award does not attract stamp duty as no provision is made in the Karnataka Stamp Act, 1957 to collect stamp duty on an award which deals with award of damages and this court cannot supplement the omission in the legislation by including an award which deals with grant of damages.”

The petitioner's contention that the award represented money as movable property was dismissed, as Article 11 of the Act specifically covered tangible properties.

“Article 11 of the Karnataka Stamp Act, 1957 dealt with only tangible properties and not something which is not tangible.”

The Court upheld the executing court's decision to reject the petitioner's application, stating that there was no error in its reasoning that warranted interference under Article 227 of the Constitution.

Therefore, the writ petition was dismissed.

Appearance: Advocate P.K.Shrikara, for Advocate George Joseph for Petitioner.

Senior Advocate Pramod Nair, for Advocate Disha Surpuriya, for Respondent.

Case Title: Karnataka State Highways Improvement Project AND M/s. KMC - VDB (JV)

Citation No: 2023 LiveLaw (Kar) 457

Case No: WRIT PETITION NO. 29440 OF 2019

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