Arbitral Award Can't Be Set Aside Over Insufficient Stamping Without Opportunity To Cure Defect: Rajasthan High Court

Brief Facts:

The appellants and respondent entered into an agreement to sell land for Rs. 65 lakh on 21.10.2016. After part payment was made, the respondent failed to execute the sale deed in favor of the appellants, leading to arbitration proceedings as per Clause 7 of the agreement.

The arbitration culminated in an award dated 03.12.2018, granting specific performance in favor of the appellants. The respondent was directed to execute the sale deed within four weeks of the award's publication upon receiving the balance payment.

The respondent filed objection under Section 34 of the Arbitration Act. During pendency of the objections, in view of the judgment of the Supreme Court in In Re: Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899 the appellants filed application on 20.12.2023 for impounding the agreement to sell to adjudicate the stamp duty payable.

Without deciding the application, the award was set aside by order dated 26.04.2024. It was held that the agreement to sell was insufficiently stamped.

Contentions:

The Appellant submitted that the application for referring the matter to the Collector (Stamps) so that the stamp duty due, if any alongwith penalty can be paid was not decided.

Per contra, the Respondent submitted that the scope of interference under Section 34 of the Arbitration Act is limited and it was rightly held that the agreement to sell cannot be impounded. Only the arbitrator could have impounded the agreement to sell.

Observations:

The court at the outset observed that section 17 of the Stamp Act provides for stamp duty to be charged on the instrument as defined under the Act. Section 33 of the Stamp Act empowers the person having authority to receive evidence, either by law or consent of the parties, to impound a document which, in their opinion, is not stamped or sufficiently stamped. The arbitration tribunal falls within the scope of 'consent of the parties'.

The court further observed that section 35 of the Stamp Act mandates that an instrument must be duly stamped to be admissible in evidence, registered, or authenticated. Proviso (a) allows admissibility upon payment of the due stamp duty and penalty.

It further added that under Section 43, the Collector or authorized authority can impound the instrument and determine if duty has been paid; if not, duty and penalty are imposed. Section 42 provides that once the stamp duty and penalty are paid, the Collector endorses the instrument, making it admissible in evidence.

The Calcutta High Court in Gulzari Lal Marwari Vs. Ram Gopal (1936) held that under Section 35 of the Stamp Act, the unstamped or insufficiently stamped instrument is not admissible in evidence and that there is no provision under the Act rendering the document invalid.

The court further noted that in Hindustan Steel Limited v. Dilip Construction Company (1961), it was held that once the due stamp duty and penalty are paid, the instrument can be admitted in evidence and acted upon. The court rejected the argument that payment only allows admission but not enforcement. The Stamp Act aims to secure state revenue from certain instruments and does not empower a party to defeat the opponent's case merely on technical grounds of insufficient or improper stamping.

The court also noted that the Supreme Court in Re: Interplay (supra) held that the non-stamping or insufficient stamping of an agreement does not render it void, void ab initio, or unenforceable. While such instruments are inadmissible in evidence under Section 35 of the Stamp Act unless duly stamped, the defect is curable. The interests of the revenue remain protected since stamp duty must be paid before the instrument is admitted.

Coming to the present case, the court said that an arbitral award was set aside under Section 34(2)(a)(ii) on the ground that the arbitration agreement was invalid. However, the Supreme Court in Re: Interplay held that an unstamped or insufficiently stamped agreement is not invalid but merely inadmissible in evidence until the defect is cured.

Based on the above, it held that the view taken by court under section 34 of the Arbitration Act if taken to the logical end is contrary to settled position of law and shall affect validity of document. The settled position of law is that non stamping or insufficient stamping of the agreement does not affect validity of document but bar is that it cannot be admitted in evidence till due stamp duty is paid.

The court further held that in the present case, the appellants were willing to pay the requisite stamp duty and penalty to make the agreement admissible in evidence, but were denied the opportunity to do so during the Section 34 proceedings where the cause of action for curing the defect arose.

It further observed that a curable defect before the arbitrator became incurable at a later stage, leading to a scenario where, even if the issue of admissibility is reversed, the agreement remains unenforceable. This enables a party to rely on the technical ground of insufficient stamping as a defence under Sections 34 or 37 of the Arbitration Act, despite the arbitrator having earlier ruled in the appellants' favour.

The court further observed that as per Section 36 of the Stamp Act, once an instrument is admitted in evidence, its admissibility cannot be questioned later in the same suit or proceedings on the ground of being unstamped, except under Section 61.

It further added that Section 61(1) allows an appellate or reference court to review such admission on its own or on the Collector's application. Under Section 61(2), if the court finds the instrument was admitted with insufficient duty, it may declare the deficiency, determine the amount payable, and impound the document upon production.

Based on the above, it held that the restriction under Section 36 of the Stamp Act does not apply to arbitration proceedings due to the wording of Section 34 of the Arbitration Act. However, for a harmonious interpretation of both statutes, the forum that first finds the agreement unstamped or insufficiently stamped must provide an opportunity to cure the defect.

The court concluded that unstamped or insufficiently stamped agreement is not an invalid document and becomes admissible in evidence on curing of the defect, relegating of the parties for fresh arbitration after curing of the defect shall be against the spirit for providing alternative dispute resolution.

Accordingly, the present appeal was allowed and the matter was relegated to section 34 court for fresh consideration.

Case Title:Sunil Kumar Bhakoo Versus Smt. Varisha

Case Number: Civil Miscellaneous Appeal No.2157/2024

Citation: 2025 LiveLaw (Raj) 179

Judgment Date: 08/05/2025

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