Karnataka High Court
M/S Kanyakumari Builders vs M/S Spring Borewell Company Ltd on 23 November, 2024
Author: R Devdas
Bench: R Devdas
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
R
DATED THIS THE 23RD DAY OF NOVEMBER, 2024
BEFORE
THE HON'BLE MR. JUSTICE R. DEVDAS
WRIT PETITION NO. 45699 OF 2019 (GM-CPC)
BETWEEN
M/S KANYAKUMARI BUILDERS
PRIVATE LIMITED
A COMPANY INCORPORATED UNDER
THE PROVISIONS OF THE COMPANIES 1956
HAVING ITS REGISTERED OFFICE AT
RAHEJA CHAMBERS LINKING ROAD,
AND MAIN AVENUE SANTACRUZ (W)
MUMBAI - 400054
REPRESENTED BY ITS AUTHORIZED
REPRESENTATIVE & DIRECTOR
MR ADITYA RAHEJA
...PETITIONER
(BY SRI. AJESH KUMAR S., ADVOCATE)
AND
1 . M/S SPRING BOREWELL COMPANY LTD
NO 41 CUBBON ROAD
BANGALORE - 560001
REPRESENTED BY ITS DIRECTOR
MR K L RMACHANDRA
MR K L SRIHARI
SRI K L A PADMANABHSA
MR K L SWAMY
2 . M/S L K TRUST
NO 101 INFANTRY ROAD
BANGALORE - 560001
REP. BY ITS MANAGING DIRECTOR
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MR K L SWAMY
MR K L RAMACHANDRA
MR K L SRIHARI
SRI K L A PADMANABHSA
3 . DEPUTY COMMISSIONER /
REGISTRAR OF STAMPS
DISTRICT REGISTRAR OF STAMPS
AND REGISTRATION OF SOCIETIES
SHIVAJINAGAR NO 48, 3RD FLOOR
TRIUMPH TOWER CHURCH STREET
CLOSE TO HOTEL EMPIRE
SHANTALANAGAR ASHOKNAGAR
BENGALURU - 560001
......RESPONDENTS
(BY SRI. ABHINAV RAMANAND., ADVOCATE FOR R1 & R2
SMT. H.R. AMARAVATHI., AGA FOR R3)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 & 227
OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
ORDER IMPUGNED HEREIN DATED 23rd AUGUST 2019 PASSED
BY THE LXXXII ADDL. CITY CIVIL & SESSIONS JUDGE,
BANGALORE CITY, (CCH NO.83) IMPOSING ON THE PETITIONER
PENALY OF RS.56,00,800/- ON DEFICIT STAMP DUTY OF
RS.5,60,080/- AS PER ANNX-A IN EX.PET.NO.1223/17.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
ON 21.08.2024 AND COMING ON FOR PRONOUNCEMENT OF
ORDERS, THIS DAY, THIS COURT MADE THE FOLLOWING:
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CORAM: HON'BLE MR JUSTICE R DEVDAS
CAV ORDER
(PER: HON'BLE MR JUSTICE R DEVDAS)
An interesting question arises in this writ petition filed
under Article 227 of the Constitution of India. Question is
whether an award passed by the Arbitral Tribunal, under the
provisions of the Arbitration and Conciliation Act, 1996, can
be impounded by the Executing Court, on the ground that it
is insufficiently stamped and whether penalty as
contemplated in clause (a) of Section 35 of the Indian
Stamp Act, 1899 is leviable on the award?
2. Brief facts, shorn of unnecessary details, are that an
Arbitral award was passed on 05.02.2016, awarding a sum
of Rs.25 crores as damages along with interest at the rate
of 18% p.a. from the date of the award till date of
realization. In addition the claimant was also entitled to
refund of Rs.17.50 crores along with interest at the rate of
12% p.a. from the date of receipt of the amount till date of
realization. Expenses in a sum of Rs.23,09,755/- was
directed to be paid by the respondents, along with interest
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at the rate of 12% from the date of award till date of
realization. Claimant was also entitled for costs of the
arbitration proceedings. Execution Petition was filed on
31.05.2017 and at the first instance, the office of the
Executing Court calculated stamp duty in terms of Article 11
of the Karnataka Stamp Act, 1957 and called upon the
decree holder to pay Rs.12 lakhs towards stamp duty.
Accordingly, a Demand Draft for a sum of Rs.12 lakhs was
tendered by the petitioner on 07.06.2017 and thereafter
notice was directed against the judgment debtors on
07.06.2017. However, the judgment debtors filed an
application on 02.08.2017 under Section 151 of Code of
Civil Procedure (for short, 'the CPC'), seeking directions to
the office to calculate proper stamp duty and thereafter
direct the decree holder to pay the deficit stamp duty and
penalty on the arbitral award. Objections were filed by the
decree holder and memo of calculation was filed by the
judgment debtors on 14.02.2019 stating that the deficit
stamp duty payable is Rs.5,60,080/- and ten times the
penalty would be Rs.56,00,800 in all Rs.61,60,880/- would
be payable. The Executing Court passed the impugned
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dated 23.08.2019, directing the decree holder to pay in all
Rs.61,60,880/- towards deficit stamp duty and penalty.
3. Learned Counsel for the petitioner brings to the
notice of this Court a decision of a co-ordinate Bench in the
case of Mr.Shakeel Pasha and Others Vs. M/s. City Max
Hotels (India) Pvt. Ltd. in W.P.No.8352/2022,
clubbed with W.P.12935/2022 dated 28.07.2023. It is
submitted that having considered a judgment of the Hon'ble
Supreme Court in the case of M.Anasuya Devi & Ors. Vs.
M Manik Reddy & Ors. (2003) 8 SCC 565 and several
other judgment of this Court including Sri Dilli Babu Vs.
The State of Karnataka, reported in ILR 2015 KAR.
4336, the co-ordinate bench held that after completion of
the arbitration process the merits are given finality by
issuing an arbitral award. By way of a legal fiction, the
award is to be treated as decree. Such legal fiction is
created for the limited purpose of enforcement of an award
as a decree. Arbitral award is tendered in execution
proceedings for enforcement of an award. Further, having
regard to Sections 33 and 34 of the Karnataka Stamp Act, it
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was held that the award stemming from arbitration is
possibly misconstrued by executing court to be an
instrument. It was therefore held that the executing court
erred in impounding the arbitral award in executing
proceedings under Section 36 of the 1996 Act. It was also
held that it is agonizing to see that a decree holder who has
voluntarily deposited the requisite stamp duty is saddled
with 10 times penalty. It was also directed that unless rules
are framed and mechanism is brought into force indicating
as to how arbitral award needs stamping and at what point
of time it needs stamping, the executing courts should not
impose penalty under Sections 33 and 34 of the Karnataka
Stamp Act on arbitral awards.
4. It is further submitted that the aggrieved
respondents/judgment debtors therein took up the matter
to the Hon'ble Supreme Court and in Civil Appeal Nos.2139-
2140/2024, which arose out of SLP (Civil) Nos.26063-
26064/2023, by order dated 12.02.2024, the Apex Court
clarified that the stamp duty payable on the award will be in
terms of Article 11 of the Schedule to the Karnataka Stamp
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Act, 1957, which was brought into force w.e.f. 01.03.2014
and the award therein was made before the said date. It
was also held that the executing court, in purported exercise
of powers under Sections 33 and 34 of the Karnataka Stamp
Act, directed penalty to be paid on account of non-payment
of stamp duty, while it was found that under Karnataka
Stamp Act there is no power conferred on the courts to
direct payment of penalty. It was therefore held that the
observations made by the coordinate bench of this Court will
have to be understood in the context in which the same
have been made.
5. Per contra, learned Counsel for the contesting
respondents submitted that in M.Anasuya Devi & Ors.
(supra) the Apex Court has held that the question as to
whether the award is required to be stamped and registered
would be relevant only when the parties would file the
award for its enforcement under Section 36 of the Act. It
was held that the parties can raise objections regarding its
admissibility on account of non-registration and non-
stamping at that stage, when the award is presented for
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execution. It is therefore submitted that the objections
raised by the respondents before the executing court was
rightly considered and therefore, no fault can be found in
the impugned order.
6. On hearing the learned Counsels and on perusing
the petition papers, this Court finds that there are several
loose ends in the provisions of the Act, 1996, insofar as
payment of stamp duty on arbitral awards is concerned. In
this regard, it would be relevant to notice the 194th Report
of Law Commission on "Verification of Stamp Duties and
Registration of Arbitral Awards". The issues discussed
in the Law Commission were regarding stamp duties and
registration in respect of arbitral awards. The Law
Commission found that so far as stamp duties are
concerned, the Indian Stamp Act, 1899 applies in respect to
arbitral awards throughout India, but some States have
passed separate Stamp Acts to govern the stamp duties in
their States. So far as registration of award is concerned,
the Registration Act 1908, deals with registration of
documents. It was noticed that Section 35 of the Indian
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Stamp Act, 1899, (and corresponding provision in the State
Act) says that documents which are required to be stamped,
if they are not stamped or are inadequately stamped, will
not be admissible in evidence 'for any purpose'. Section
33 deals with impounding of documents presented before
the public authority who is entitled to record evidence. The
Schedule to the Indian Stamp Act, 1899 contain a specific
provision in Article 12 mentioning the stamp duty payable
on the 'arbitration awards'. Section 33 and 35 of the Stamp
Act are thus attracted if the award is not stamped or is
insufficiently stamped. The Law Commission noticed that in
a judgment of the Madras High Court a question arose as to
whether the Registry of the High Court would be justified in
impounding a copy of the arbitral award where it was filed
along with application under Section 34(1) of the Act, 1996,
and it is also possible that such question may arise in an
application filed under Section 36 of the Act, for
enforcement of the award. It was noticed that the Madras
High Court, in the case of M/s.Wilson and Co. Pvt. Ltd.,
Vs. K. S.Lokavinayagam, AIR 1992 Mad. 100, had held
that the award could not be admitted in evidence and it
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gave direction for impounding the award in terms of Section
33 of the Stamp Act. Subsequently, a different view was
taken by the Madras High Court in cases decided under the
new Act, 1966 inasmuch as, the new Act, 1996 does not
compel the parties to file the original award into court, while
observing that the principles laid down in M/s.Wilson and
Co., which arose under the 1940 Act does not apply.
(emphasis supplied)
7. In the report of the Law Commission, various
problems regarding payment of stamp duty and registration
or the arbitral awards were discussed. The Law Commission
noticed conflicting judgments and observations of the Courts
that a signed copy of the award was not the same thing as
the original award. It was noticed that in Rikhabdass Vs.
Ballabhadas, AIR 1962 SC 551, the Hon'ble Supreme
Court held that the remittal of defective award (passed
under the 1940 Act), to the Arbitrators for reiterating the
award on stamp paper was not correct and the proper
remedy was to direct parties to take steps to cure the defect
by paying the stamp duty along with such penalties as may
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be levied. The Andhra Pradesh High Court, in Indurthi
Srinivasa Rao Vs. Indurthi V.Narasimha Rao, AIR
1963 AP 193, held that the Arbitrators become functus
officio as soon as the award is signed and hence they cannot
rewrite the award on stamp paper. A Full Bench of the
Andhra Pradesh High Court, in M.Venkataratnam Vs.
M.Chelamayya, AIR 1967 AP 257 (FB) held that if the
original award was unstamped and a copy of the award
written on stamp papers was filed along with the original
award, though the original award could not be regarded as
duly stamped, the stamps on the copy of the award might
be treated as intended to serve as payment of stamp duty
so as to enable the original award to be submitted in
evidence under Section 35 of the Stamp Act. It treated the
original award and copy thereof as a single document.
When the said matter was taken up before the Hon'ble
Supreme Court, in M.Chelamayya Vs. M.Venkataratnam,
AIR 1972 SC 1121, the Hon'ble Supreme Court accepted
the view taken by the Full Bench of the Andhra Pradesh
High Court. In Jupudi V. Pulavarthi, 1970 SC 1070, the
Hon'ble Supreme Court held that Section 35 of the Stamp
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Act imposes a bar on the reception of any document except
the original and forbids the reception of secondary evidence
and Section 36 of the Stamp Act, lifts the bar imposed
under Section 35 only in a case where the original
unstamped or insufficiently stamped document was
admitted into evidence without objection. Further, the
Madras High Court, subsequently pointed out in many cases
that there may be a situation where a party feels it
necessary to file an urgent application for stay of
enforcement of award and if the Court insists on production
of the original award which may not be available with the
applicant, it can cause serious and grave hardship which
sometimes cannot even be compensated in restitution
proceedings if the award is later set aside. The Law
Commission noticed that though Section 36 of the 1996 Act,
states that enforcement of the award is not to be permitted
if an application for setting aside the award is pending, it is
possible that the opposite party may well nigh contend that
there is no valid application under Section 34 as the signed
copy of the award does not disclose that the original award
bears the required stamp or that it is duly registered. The
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Law Commission also found that when an application is filed
under Section 36 of the Act, the losing party may contend
that the award is inexecutable because only a signed copy
of the award is filed and that either the original award be
filed or there must be a proof that the original award is
properly stamped and duly registered.
8. The Madras High Court therefore gave an interim
workable solution that the applicant will have to deposit the
requisite stamp papers or equivalent value in cash in the
Court, with a right to refund after the original award is
called for and produced. The Law Commission has also
discussed the problems arising under the registration laws,
concerning the arbitral awards. The Law Commission
concluded that in view of the provisions of Section 35 of the
Stamp Act, 1899, the award which requires to be stamped
is not stamped or is inadequately stamped, is inadmissible
for 'all purposes' and an award which requires to be
registered, if it falls within Section 17(1)(b) of the
Registration Act, 1908, and if it is not registered, is not a
valid document and cannot be treated as affecting
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immovable property. It was noticed that whenever such
problems arise in applications under Section 34(1) or
application under Section 36 of the Act, 1996, initially the
Court has no material before it to verify whether the original
award has been duly stamped. Hence, it cannot issue
notice on the applications. It was therefore concluded that
this problem has arisen in the 1996 Act, in view of the fact
that Section 31(5) requires the Arbitrators to send only
signed copies of the award to the parties. These problems
did not arise under the 1940 Act, because Section 14(2) of
that Act required the filing of the original award in the Court
and the parties could also apply to the Court to direct the
Arbitrators to file the original award into Court. The Law
Commission opined that the Madras High Court felt that this
is a matter for legislative amendment and referred the
matter to the Law Commission.
9. In Chapter III of the report of the 194th Report of
the Law Commission, the interim workable solution
suggested by the Madras High Court was discussed. It was
suggested by the Madras High Court that the difficulty faced
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to find out whether stamp duty has been collected or not
can be resolved by a simple amendment to Section 31(1) of
the 1996 Act. It was proposed that Section 31(1) should be
substituted as, 'an arbitral award shall be made in writing,
duly stamped and shall be signed by the members of the
Arbitral Tribunal.' Subsequently, by other orders, the
Madras High Court directed that it is open to the party
either to pay necessary stamp duty or to deposit the sum of
money equivalent to the value of the stamp duty, in the
Registry and it is also open to the Registry to recover the
amount in cash.
10. After discussing the different solutions, the Law
Commission recommended as a first alternative that Section
31(1) should be modified in terms of Section 14(2) of the
Arbitration Act, 1940. As a second alternative, it was
suggested that Sections 31(1) and 31(5) could be amended
to state that the Arbitral Tribunal shall have to get the
award duly stamped and in addition provide that if the
award requires compulsory registration under Section
17(1)(b) of the Arbitration Act, 1908, to have it duly
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registered. A provision is necessary that the photocopies of
the award shall be sent to the parties with an endorsement
that the award is duly stamped and wherever it requires
compulsory registration, that it has been so registered. It
was also noticed that the word 'duly stamped' can create
some doubts and it will be difficult for the Court in which the
copy is filed by the parties with such an endorsement, to
find out if the stamp papers on which the original is
engrossed are sufficient in value according to the law
applicable. It was therefore recommended that the new
provision must further require that the Arbitral Tribunal
should specify in that endorsement, the value of the stamp
duty paid on the original award.
11. Despite the recommendations made by the Law
Commission, the provisions of the Act, 1996, have not been
amended suitably. It is therefore not surprising that the
problem persists and there is no proper guidance to the
court, the lawyers and the litigant public. This court also
finds that unlike other instruments/documents which require
payment of stamp duty and registration, there is certainty,
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but, an award passed by the arbitrator, under the
Arbitration and Conciliation Act, remain uncertain, till it
attains finality. The successful party has to await and
anticipate an appeal being filed by the aggrieved party,
under Section 34 of the Act. The chances of the award
being modified or varied, is also not ruled out. If stamp
duty is paid by a party and thereafter, the award is
modified, either reducing or increasing the value, then again
the problem of payment of additional stamp duty or seeking
refund of the stamp duty would arise. Moreover, question
of levy of penalty would arise when there is certainty and
yet stamp duty is not paid. Having regard to the
uncertainty prevailing regarding payment of stamp duty on
arbitral awards, Courts should not issue directions for
payment of penalty. Rules in this regard, is therefore
required at the earliest.
12. In the light of the discussion hereinabove, this
Court is of the considered opinion that the executing courts
dealing with an application under Section 36 of the Act, shall
not direct payment of penalty in terms of Section 35 of the
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Indian Stamp Act, 1899 or under the Karnataka Stamp Act.
This Court deems it necessary to reiterate that the Hon'ble
Apex Court, in the case of Shakeel Pasha and others Vs.
M/s. City Max Hotels, in Civil Appeal Nos.2139-
2140/2024 (supra) has recently held that under the
Karnataka Stamp Act (more particularly Section 33) there is
no power conferred on the courts to direct payment of
penalty and such powers are conferred only on the
appropriate authorities under the Karnataka Stamp Act to
impose penalty.
13. It is also noticeable that the petitioner herein paid
Rs.12 Lakhs, towards stamp duty, in terms of the
calculation made by the office. A Demand Draft for the said
sum of Rs.12 Lakhs was tendered by the petitioner on
07.06.2017. This Court would therefore hold, unhesitating
that no fault can be found with the petitioner for payment of
stamp duty, as directed by the office/registry.
14. Consequently, this Court proceeds to pass the
following:
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ORDER
i. The writ petition is allowed in part.
ii. The impugned order on I.A.No.1 in Com.Ex.
case No.1223/2017 is modified while directing
the writ petitioner to pay deficit stamp duty of
Rs.5,60,080/- only.
iii. After receipt of stamp duty, a copy of the
award along with certificate shall be
forwarded to concerned Deputy
Commissioner/District Registrar, as the case
may be, for stamping. No action shall be
taken by the said authority for payment of
penalty.
Ordered accordingly.
Sd/-
(R DEVDAS)
JUDGE
JT/DL
CT: JL
