Consequences Of An Insufficiently Stamped Agreement

Hon’ble High Court of Delhi in a recent judgment in “ARG Outlier Media Private Limited v. HT Media Limited” has interpreted the outcome of admission of insufficiently stamped agreement in evidence. Hon’ble Court in its judgment has discussed observations made by Hon’ble Apex in various related cases.

While there are other aspects to the petition that have been addressed by the Hon’ble Court, we are going to discuss only the relevance of an unstamped Arbitration agreement.

Facts

Petitioner i.e., ARG Outlier Media Private Limited had moved a petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Arbitral Award passed by the learned Sole Arbitrator wherein the Learned Arbitrator has admitted the Agreement executed between the parties in evidence.

Issue Involved

The Petitioner in the present case has challenged an arbitration award passed by the Learned Sole Arbitrator in an Agreement containing Arbitration Clause contending that the Agreement was improperly stamped hence it should have been impounded by the learned Arbitrator until it was properly stamped, and penalty was paid by the Respondent. Further stating that the said fact was wrongly interpreted by the learned Arbitrator hence the award is liable to be set aside.

Court’s Observation

The Respondent in its submission has said that the Petitioner did not dispute the existence of the Arbitration Agreement even at the time of exchange of notices between both the parties and at the time of cross examination, the witnesses of the Petitioner did not dispute the fact that no such objection was raised by the Petitioner prior to commencement of the Arbitration Proceedings.

The Petitioner contends that since the Agreement was finally executed by the Petitioner in Maharashtra it should have been stamped in accordance with the Maharashtra Stamp Act and as such should have been impounded by the learned Arbitrator.

The Learned Sole Arbitrator had observed that the final agreement was executed on a non-judicial stamp paper purchased in Delhi and the Agreement was typed in Delhi itself. In short, both the parties had agreed that the place of Agreement would be Delhi. Hence, the Agreement is adequately stamped.

Hon’ble High Court observed that the Court exercising jurisdiction under Section 34 of the Act is not a Court of Appeal. Referring to the recent judgment of Hon’ble Apex Court in Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited, (2022) 1 SCC 131, Hon’ble Court observed that the Court has a limited jurisdiction and is not acting as an Appellate Court while adjudicating a Petition filed under section 34 of the Arbitration and Conciliation Act, hence the reappreciation of evidence cannot be permitted.

The Petitioner failed to challenge the admission of the Agreement at the initial stage and no objection was taken in admissibility of same in evidence.

Section 36 of the Indian Stamp Act states that-

Where an instrument has been admitted in evidence, such admission shall not, except as provided in section 61, be called in question at any stage of the same suit or proceeding on the ground that the instrument has not been duly stamped.

Section 61 of the Indian Stamp Act states that-

(1) When any Court in the exercise of its civil or revenue jurisdiction or any Criminal Court in any proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (V of 1898), makes any order admitting any instrument in evidence as duly stamped or as not requiring a stamp, or upon payment of duty and a penalty under section 35, the Court to which appeals lie from, or references are made by, such first-mentioned Court may, of its own motion or on the application of the Collector, take such order into consideration.

(2) If such Court, after such consideration, is of opinion that such instrument should not have been admitted in evidence without the payment of duty and penalty under section 35, or without the payment of a higher duty and penalty than those paid, it may record a declaration to that effect, and determine the amount of duty with which such instrument is chargeable, and may require any person in whose possession or power such instrument then is, to produce the same, and may impound the same when produced.

(3) When any declaration has been recorded under sub-section (2), the Court recording the same shall send a copy thereof to the Collector, and, where the instrument to which it relates has been impounded or is otherwise in the possession of such Court, shall also send him such instrument.

(4) The Collector may thereupon, notwithstanding anything contained in the order admitting such instrument in evidence, or in any certificate granted under section 42, or in section 43, prosecute any person for any offence against the Stamp-law which the Collector considers him to have committed in respect of such instrument

Hon’ble Apex Court in Javer Chand and Others v. Pukhraj Surana, (1962) 2 SCR 333, held that “the only exception recognized by Section 36 is the class of cases contemplated under section 61.” Once an instrument is admitted in evidence, such an order is liable to be reviewed or revised by the same Court or even by a Court of Superior Jurisdiction.

Hon’ble Court thus, referring to the catena of judgments passed by Hon’ble Apex Court held that the Agreement that was not properly stamped and that has been admitted in evidence, the Award passed relying thereon cannot be faulted on this ground.

This Court does not have the power vested under Section 61 of the Indian Stamp Act. Even assuming that Section 61 applies, in view of the provision (b) to Section 61 of the Indian Stamp Act, the Court would only impound the document and refer it to the collector of the Stamps for adjudication on the proper stamp duty and penalty, however the same shall not in any manner affect the enforcement of the validity of the Arbitral Award. The Impugned Arbitral Award therefore cannot be faulted on this ground.

Conclusion

An arbitral award cannot be challenged if an insufficiently stamped arbitration agreement has been already admitted in evidence. Even if it is found at an early stage that the agreement was not properly stamped. In that event, it can only be impounded for proper stamping as per the relevant Stamp Act. Thus, not affecting the outcome of the arbitration Award passed in such case.

In N.N. Global Mercantile Pvt. Ltd. vs. Indo Unique Flame Ltd. and Ors. (11.01.2021 – SC): MANU/SC/0014/2021 Hon’ble Supreme Court has observed as under:

“In our view, there is no legal impediment to the enforceability of the arbitration agreement, pending payment of Stamp Duty on the substantiative contract. The adjudication of the rights and obligations under the Work Order or the substantive commercial contract would however not proceed before complying with the mandatory provisions of the Stamp Act.”

It also held that an Arbitral Tribunal is obligated to examine whether an instrument before it is adequately stamped or not. The relevant portion reads as under:

“Section 33 casts a statutory obligation on every person empowered by law, or holding a public office, or a person who by consent of parties (which would include an arbitrator) is empowered to receive evidence, to examine the instrument presented before him, and ascertain whether the instrument is duly stamped. This would include the court being an authority empowered to receive an instrument in evidence. In view of the statutory interdict, the bar against the admissibility of an unstamped instrument, is absolute in nature, including for a collateral purpose.”

Thus, any party who is challenging an arbitration award can only challenge it if there is a “patent illegality”. The Arbitration award thus passed cannot be held bad in law.

King Stubb & Kasiva,
Advocates & Attorneys

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