Executing Court to Determine Stamping on Arbitral Award Meets Requirements Under Indian Stamp Act: Madhya Pradesh High Court

The Madhya Pradesh High Court bench of Justice Duppala Venkata Ramana held that the executing court cannot dismiss the objections regarding the adequacy of the arbitral award without determining whether the award meets the stamping requirements outlined in the Indian Stamp Act.

Brief Facts:

The matter pertained to a dispute initiated by the Respondent-Bank against the Petitioner for the recovery of a loan amount that the Petitioner borrowed and subsequently defaulted on. The Respondent-Bank pursued arbitration proceedings, resulting in an award in its favor.

Subsequently, the Respondent-Bank filed an execution petition seeking to enforce the arbitration award before the Court of Principal District Judge. The Petitioner objected to this petition under various sections of the Civil Procedure Code (CPC) and the Indian Stamp Act. It contended that the arbitration award was not validly obtained and that the execution proceedings were therefore not maintainable.

The Petitioner's objections revolved around the circumstances of the loan agreement and the arbitration process. It argued that the Managing Director of the Respondent-Bank lacked the authority to unilaterally appoint an arbitrator without the Petitioner's consent. Additionally, it claimed that the award itself was ineligible under the amended Arbitration and Conciliation Act and was not adequately stamped as per the Indian Stamp Act.

Observations by the High Court:

The High Court noted that the Arbitration Act doesn't explicitly mandate parties to an arbitration agreement to pay stamp duties on an arbitral award. The High Court referred to the decision of the Supreme Court in M. Anasuya Devi v. M. Manik Reddy and held that objections regarding the non-stamping of the arbitral award should be addressed during the enforcement stage, not during objections under Section 34 of the Arbitration Act.

Examining the applicability of Section 17 of the Indian Stamp Act 1989, which governs the time for stamping instruments, the High Court observed that instruments, including awards, must be stamped before or at the time of execution. This provision grants parties the flexibility to pay the requisite stamp duty either before or at the moment of execution.

The High Court held that objections related to stamp duty deficiency can be raised during the execution of the award. Considering that the arbitral award was passed on 31.03.2017, and the execution petition was filed on 11.12.2018, a two percent stamp duty of the awarded amount was mandated by Article 12 of Schedule 1-A. The High Court criticized the Executing Court for not deliberating on whether the award was adequately stamped as per the Indian Stamp Act Schedule-I-A, Article 12.

Furthermore, the High Court addressed the issue of the unilateral appointment of an arbitrator and held that if an arbitrator is unilaterally appointed, the award can be challenged under Section 34 of the Arbitration Act. It held that such awards can be declared null and void.

Therefore, the High Court set aside the impugned order and directed the Executing Court to ascertain whether stamp duty was collected for enforcing the arbitral award in accordance with Schedule 1-A Article 12 of the Indian Stamp (Madhya Pradesh) Amendment Act, 2014.

Case Title: Brajesh Kumar Pannalal vs Indusind Bank Limited

Case Number: Misc. Petition No. 5538 of 2023

Citation: 2024 LiveLaw (MP) 104

Advocate for the Petitioner: Rahul Pathak

Advocate for the Respondent: Manhar Dixit

Click Here To Read/Download Order or Judgment