Stamp Duty On Arbitral Award To Be Paid As Per The Rate Applicable When The Award Was Signed : Karnataka High Court

The Single Bench of Justice S. Vishwajith Shetty held that since the amendment to Article 11(b) of the Schedule to the Karnataka Stamp Act was already in force on the date of passing of the award, the proper stamp duty required to be paid on the arbitral award was 0.75% of the value of the arbitral award.

The petitioner company Shriram City Union Finance Ltd. initiated arbitration proceedings against the respondent Donald Dayanand Donald for recovery of the overdue loan amount borrowed by the respondent. An arbitral award was passed in favour of the petitioner, holding that the petitioner was entitled to recover a specific sum of money along with interest from the date of the award till its realization. The petitioner filed an execution petition before the District Judge. The District Court passed an order holding that the petitioner was required to pay the stamp duty at 6% on the valuation of the award amount and hence, the petitioner was directed to pay the deficit stamp duty. Since the deficit stamp duty was not paid by the petitioner, the execution petition was dismissed.

Against this, the petitioner filed a writ petition before the Karnataka High Court.

The petitioner Shriram City Union Finance submitted before the Karnataka High Court that pursuant to the amendment made to the Karnataka Stamp Act, 1957, the petitioner was required to pay the stamp duty as provided under Article 11 (b) of the Schedule to the Karnataka Stamp Act. Thus, the petitioner averred that the executing Court had erred in directing the petitioner to pay the stamp duty at 6% on the valuation of the award amount.

The High Court Government Pleader, assisting the Court, averred that the applicable rate of stamp duty to be paid on the arbitral award would be the rate as applicable on the date of drawing up of the award and not the rate that was applicable on the date of initiating the proceedings to execute the said award.

The Court ruled that the procedure for enforcement and execution of the decrees in India is governed by the Code of Civil Procedure, 1908, while enforcement and execution of the arbitral award in India is primarily governed by the Arbitration and Conciliation Act, 1996 (A&C Act) as well as the Code of Civil Procedure.

The Court noted that Section 36(1) of the A&C Act provides for execution of the arbitral award and that the said Act does not expressly lay down any legal requirement that mandates the parties to an arbitration agreement to pay stamp duties on an arbitral award.

The Court observed that the Supreme Court in the case of M. Anasuya Devi versus M. Manik Reddy (2003) had held that the objection as to non-stamping of the arbitral award is required to be dealt with at the stage of enforcement of the arbitral award and not at the stage of objections under Section 34 of the A&C Act.

The Court noted that Section 17 of the Karnataka Stamp Act provides that all instruments chargeable with duty and executed by any person in the State of Karnataka shall be stamped before or at the time of execution.

Hence, the Court held that an option has been given to the parties in whose favour the arbitral award has been passed to pay the applicable stamp duty either before or at the time of execution.

The Court observed that Section 2(f) of the Karnataka Stamp Act provides that the term 'executed' and 'execution', when used with reference to instruments, means 'signed' and 'signature'.

Thus, the Court held that it was clear that the date for the purpose of quantifying the stamp duty payable on the instrument is the date on which the instrument was signed.

The Court observed that the Supreme Court in M. Anasuya Devi (2003) had held that at the time of enforcement of the award under Section 36 of the A&C Act, the parties can raise objections regarding the award's admissibility on account of non-registration and non-stamping of the arbitral award under Section 17 of the Registration Act, 1908.

Hence, the Court held that with regard to the deficiency of the stamp duty paid, an objection could always be raised at the stage of execution of the said award.

The Court noted that since the amendment to Article 11(b) of the Schedule to the Karnataka Stamp Act was already in force on the date of passing of the award as well as on the date of filing of the execution petition, the stamp duty as provided under Article 11(b) was required to be paid on the arbitral award sought to be executed.

The Court observed that as per the amendment to Article 11(b) of the Schedule to the Karnataka Stamp Act, the proper stamp duty required to be paid on the arbitral award is 0.75% of the value of the arbitral award.

The Court noted that since no stamp duty was paid on the arbitral award, the executing Court had directed the petitioner to pay the deficit stamp duty at 6% on the valuation of the award amount.

The Court held that the executing Court had failed to take into consideration the amendment to Article 11(b) of the Schedule to the Karnataka Stamp Act.

The Court ruled that the executing Court had erred in directing the petitioner to pay the stamp duty at 6% on the valuation of the award amount and that it had further erred in dismissing the execution petition for non-payment of stamp duty.

The Court thus allowed the writ petition and directed the executing Court to collect the stamp duty from the petitioner as per the observations made by the High Court.

Case Title: Shriram City Union Finance Ltd. versus Mr. Donald Dayanand Donald

Dated: 27.06.2022 (Karnataka High Court)

Citation: 2022 LiveLaw (Kar) 252

Counsel for the Petitioner: Mr. R.S. Sidhapurkar

Counsel for the Respondent: Mr. Sharanabasappa M. Patil

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