LI Network
Published on: 25 August 2023 at 11:00 IST
The Delhi HC has devised a procedural framework to manage situations where arbitration agreements, forming the basis of applications submitted to the court for the appointment of arbitrators, are either lacking proper stamping or insufficiently stamped [Splendor Landbase Ltd V. Aparna Ashram Society and anr].
The verdict was delivered in light of the Supreme Court’s decision in April 2023, in NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd, wherein a Constitution Bench of the apex court held with a 3:2 majority that unstamped arbitration agreements are legally invalid.
In that same ruling, the Supreme Court indicated that unstamped or inadequately stamped arbitration agreements must be impounded, adhering to the requirements of the Indian Stamp Act.
“Aligned with the unequivocal declaration in N.N. Global, Section 33 of the Stamp Act mandates the impoundment of agreements lacking proper stamping or insufficiently stamped. This Court is bound to do so, particularly recognizing that, according to N.N. Global, when considering a petition under Section 11 of the Act, the Court’s role is akin to ‘receiving evidence,'” observed the Delhi High Court.
Justice Sachin Datta, consequently, established a set of regulations for the course of action after such agreements are impounded, including the manner in which this deficiency can be rectified by paying the requisite stamp duty.
The judge further clarified that if the original arbitration agreement or document lacks sufficient stamping, it must be submitted alongside an application to appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.
In instances where the agreement is properly stamped, only a certified copy of the agreement needs to be submitted, the court stated.
This ruling was made in relation to approximately 20 cases involving insufficiently stamped arbitration agreements.
Justice Datta presented two options for the court’s approach when addressing an application to appoint an arbitrator under Section 11 of the Act in cases where the arbitration agreement is either inadequately stamped or unstamped:
(A) Forward the impounded agreement or document to the relevant Collector of Stamps, who can then invoke Section 40 of the Stamp Act to ensure the payment of the necessary stamp duty and penalties. Upon certification of payment by the Collector, the court can accept the endorsed agreement as evidence and proceed with the Section 11 application. The court may direct the Collector to expedite this process.
Or
(B) Permit the parties to deposit the required stamp duty and penalties directly with the court, in line with Section 35 of the Stamp Act. This option can be exercised when the payable stamp duty is not contested. Once paid, an authorized copy of the endorsed instrument or agreement must be submitted to the Collector of Stamps, who can refund any excess paid amount, if applicable. If the Collector disputes the assessed stamp duty, it can be challenged under Section 61 of the Stamp Act.
Invoking Rule 3, Chapter-II of the Delhi High Court (Original Side) Rules, 2018, the High Court has delegated the task of impounding inadequately stamped or unstamped arbitration agreements to the Court’s registrar.
Associated duties, such as determining the amount of stamp duty payable, endorsing documents with paid stamp duty, etc., have also been assigned to the registrar. The ultimate decisions on these matters will rest with the court, as clarified by Justice Datta.
A query also arose regarding the applicable stamp duty when the arbitration agreement or document is executed in one state (first state) but pertains to a case in another state (second state).
On this issue, the High Court reiterated the Supreme Court’s stance in New Central Jute Mills Co Ltd v. State of West Bengal. In such situations, the apex court had determined:
The agreement or document must be stamped in accordance with the laws of the first state, and no further stamping is required according to the second state’s laws if the rate is the same or lower.
If the second state’s rate is higher, stamping is required only for the excess amount.
