Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram v. Bhaskar Raju & Bros., (2020) 4 SCC 612.
Judgment Link: https://main.sci.gov.in/supremecourt/2018/12561/12561_2018_Judgement_10-Apr-2019.pdf
Paragraph 16. Admittedly, both the lease deeds are neither registered nor sufficiently stamped as required under the Karnataka Stamp Act, 1957. Admittedly, the Registrar (Judicial) of the High Court of Karnataka had submitted a report to the High Court pointing out, that the document of 1997 executed/entered into between the parties was a lease deed and not an agreement to lease and passed an order directing Respondents 1 and 2 to pay deficit stamp duty and penalty of Rs 1,01,56,388 (Rupees one crore one lakh fifty-six thousand three hundred and eighty-eight only). It is also an admitted fact, that Respondents 1 and 2 have not complied with the said directions and have not paid the deficit stamp duty and penalty. In this background, a question that would arise for consideration is, as to whether Clause 36 in the lease deed dated 12-3-1997 could be acted upon to enforce the arbitration clause contained therein.
17. The issue is no longer res integra. This Court in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.3 had occasion to consider the provisions which are in pari materia with the provisions of the Karnataka Stamp Act, 1957. The relevant paragraphs are as under: (SCC pp. 73-74, paras 17-21)
“17. What if an arbitration agreement is contained in an unregistered (but compulsorily registerable) instrument which is not duly stamped? To find an answer, it may be necessary to refer to the provisions of the Stamp Act, 1899 (“the Stamp Act”, for short). Section 33 of the Stamp Act relates to examination and impounding of instruments. The relevant portion thereof is extracted below:
‘33. Examination and impounding of instruments.—(1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a public office, except an officer of police, before whom any instrument, chargeable, in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.
(2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him, in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed:’
18. Section 35 of the Stamp Act provides that instruments not duly stamped are inadmissible in evidence and cannot be acted upon. The relevant portion of the said section is extracted below:
‘35. Instruments not duly stamped inadmissible in evidence, etc.—No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped:
Provided that—
(a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion;’
19. Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of the Stamp Act is distinct and different from Section 49 of the Registration Act in regard to an unregistered document. Section 35 of the Stamp Act, does not contain a proviso like Section 49 of the Registration Act enabling the instrument to be used to establish a collateral transaction.
20. The Scheme for Appointment of Arbitrators by the Chief Justice of Gauhati High Court, 1996 requires an application under Section 11 of the Act to be accompanied by the original arbitration agreement or a duly certified copy thereof. In fact, such a requirement is found in the scheme/rules of almost all the High Courts. If what is produced is a certified copy of the agreement/contract/instrument containing the arbitration clause, it should disclose the stamp duty that has been paid on the original. Section 33 casts a duty upon every court, that is, a person having by law authority to receive evidence (as also every arbitrator who is a person having by consent of parties, authority to receive evidence) before whom an unregistered instrument chargeable with duty is produced, to examine the instrument in order to ascertain whether it is duly stamped. If the court comes to the conclusion that the instrument is not duly stamped, it has to impound the document and deal with it as per Section 38 of the Stamp Act.
21. Therefore, when a lease deed or any other instrument is relied upon as contending the arbitration agreement, the court should consider at the outset, whether an objection in that behalf is raised or not, whether the document is properly stamped. If it comes to the conclusion that it is not properly stamped, it should be impounded and dealt with in the manner specified in Section 38 of the Stamp Act. The court cannot act upon such a document or the arbitration clause therein. But if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, the document can be acted upon or admitted in evidence.”
18. It can thus clearly be seen, that this Court has in unequivocal terms held, that when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the court is required to consider at the outset, whether the document is properly stamped or not. It has been held, that even when an objection in that behalf is not raised, it is the duty of the court to consider the issue. It has further been held, that if the court comes to the conclusion, that the instrument is not properly stamped, it should be impounded and dealt with, in the manner specified in Section 38 of the Stamp Act, 1899. It has also been held, that the court cannot act upon such a document or the arbitration clause therein. However, if the deficit duty and penalty is paid in the manner set out in Section 35 or Section 40 of the Stamp Act, 1899, the document can be acted upon or admitted in evidence. It is needless to state, that the provisions that fell for consideration before this Court are analogous with the provisions of Sections 33 and 34 of the Karnataka Stamp Act, 1957. In this view of the matter, we are of the considered view, that in view of the law laid down in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd., (2011) 14 SCC 66, that the lease deed containing the arbitration clause which is required to be duly stamped, was not sufficiently stamped and though the Registrar (Judicial) had directed Respondents 1 and 2 to pay deficit stamp duty and penalty of Rs 1,01,56,388 (Rupees one crore one lakh fifty-six thousand three hundred and eighty-eight only), the respondents failed to do so, the High Court has erred in relying on the said lease dated 12-3-1997.
Compiled by S. Basavaraj, Daksha Legal.
Daksha Legal 