Stamp Duty Not Necessary For Enforcement Of Foreign Arbitration Awards In India: SC Settles The Law [Read Judgment]

The Supreme Court bench of Justice RF Nariman and Justice Indu Malhotra has held that payment of stamp duty under the Indian Stamp Act is not necessary for the enforcement of foreign arbitration awards in India. Thus, the apex court has settled once and for all a contentious issue on which high courts have taken contrary views.

The main reasoning of the court was that a foreign award is not covered by the term “award” mentioned in Item 12 of Schedule I of the Indian Stamp Act, 1889.

“It will thus be seen that “award” under Item 12 of Schedule I of the Indian Stamp Act, 1899 has remained unchanged till date. As has been held by us hereinabove, in 1899, this “award” would refer only to a decision in writing by an arbitrator or umpire in a reference not made by an order of the Court in the course of a suit. This would apply only to such award made at the time in British India, and today, after the amendment of Section 1(2) of the Indian Stamp Act, 1899 by Act 43 of 1955, to awards made in the whole of India, except the State of Jammu and Kashmir. This being the case, we are of the view that the expression “award” has never included a foreign award from the very inception to date. Consequently, a foreign award, not being includible in Schedule I of the Indian Stamp Act, 1899, is not liable for stamp duty,” the court said.

The issue arose out of a Madras High Court judgment, which overruled objections to an ICC award delivered in London dated February 12, 2015. Sri KV Vishwanathan, counsel for the appellant, argued that award cannot be enforced as per Section 47 of the Arbitration and Conciliation Act 1996 unless it is stamped in accordance with the Indian Stamp Act. He relied on the decision of the Punjab and Haryana High Court in Gujrals M.A. Morris, AIR 1962 P&H 167.

The counsel for the respondent relied on the judgments of  Delhi High Court reported in Naval Gent Maritime Ltd. v. Shivanath Rai Harnarain (I) Ltd., (2009) 163 DLT 391, and the Madhya Pradesh High Court reported in Narayan Trading Co. v. Abcom Trading Pvt. Ltd., (2013) 2 MP LJ 2.

Tracing the history of the Indian Stamp Act 1889, and the erstwhile provisions of the Code of Civil Procedure which dealt with arbitration, the apex court concluded that the 1889 Act originally dealt with awards made in British India. The awards made in princely states would have fallen outside the 1889 Act, as they were treated as foreign awards. The position continued even after Independence, as only domestic awards are covered by the Stamp Act.

The reliance placed by the appellant in the decision in Senior Electric Inspector and Ors. v. Laxminarayan Chopra and Anr., (1962) 3 SCR 146, that an Act must be construed as on date, and not as per its original outdated definition, did not weigh with the bench. The decision was distinguished, holding that it was rendered in the context of applying the Telegraph Act to a modern telecommunication system, which was unknown at the time of the enactment of the Telegraph Act. However, foreign awards were a known concept at the time of the 1889 Act. Also, it, being a fiscal statute, demanded strict interpretation.

The court overruled the judgment of the Punjab and Haryana High Court on the ground that it did not take into account the definition of ‘award’ in Schedule 1 of the Stamp Act.

The court approved the judgment of Delhi High Court, but on a different reasoning. The court held that the Delhi High Court misconstrued certain observations made by Supreme Court decisions which were in the context of domestic awards. But the judgment of the Madhya Pradesh High Court was approved both in terms of its reasoning and conclusion.

The court also rejected the argument of the respondent that Section 47 of the Act required three things to be produced before the court for the enforcement of a foreign award, and stamp duty, not being one of the three things required, cannot ever be levied. It was held that Section 47 in no manner interdicted the payment of stamp duty if it is otherwise payable in law. The argument of the respondent that subjecting foreign award to stamp duty will be against public policy did not cut the ice with the Court. The bench said that though existing law does not make foreign award subject to stamp duty, there is no impediment in making it so.