The Supreme Court’s Pronouncement : A Bump in the Road of Interaction between Indian Arbitration Act and the Stamp Act?

By: Ramit Singh and Sakshi Lulla (Institute of Law, Nirma University)


INTRODUCTION

The Supreme Court of India’s (“SC”) decision in M. Anasuya Devi And Anr v. M. Manik Reddy And Ors, (“Anasuya”) inadvertently laid down the foundation of a serious legal quagmire when it opined that non stamping of an arbitral award shall not be a ground to challenge it under Section 34 of the Arbitration and Conciliation Act, 1966 (“A&C Act”). This judgment evidently overlooked the effect of mandatory provision of the Indian Stamp Act, 1899 (“Stamp Act”). The effect of Anusuya has resulted in denuding the application of relevant provisions of the Stamp Act while acting upon a unstamped or a insufficiently stamped award at the stage of a setting aside proceedings, under Section 34 of the A&C Act. 

To comprehend the issue involved, this blog examines (a) the inter-relatedness of Section 34 and 36 the A&C Act and the relevant provisions of the Stamp Act; (b) an analysis of the Anusuya judgment and how it creates an anomaly; and (c) suggestive measures that an arbitrator could take to adopt in the status quo within the existing problematic framework of Anusuya. 

INTERLINKING THE RELEVANT PROVISIONS OF THE A&C ACT AND THE  STAMP ACT

The Stamp Act is a fiscal statue which has been enacted to secure revenue for the State on certain classes of instruments as mentioned therein. An equally important fact is that the Stamp Act does not arm a litigant with a weapon of technicality to meet the case of his opponent rather the provisions are stringent only to secure, the interest of the revenue. The Stamp Act being a fiscal legislation has to be construed strictly and does not permit liberal interpretation

An award passed by an arbitrator fits the description of the term instrument as defined under Section 2(14) of the Stamp Act, coupled with the fact, that Article 12 of Schedule 1- B appended to the Stamp Act specifically incorporates the applicable stamp duty on an award.  Particularly, Section 33 of the Stamp Act places a duty on the courts to examine whether the instrument placed before it is duly stamped. If a court finds that the instrument is unstamped or is insufficiently stamped, the court has to impound the instrument in accordance with Sections 33 and 38 of the Stamp Act. Additionally, Section 35 of the Stamp Act places an embargo on the court from looking into any instrument unless it is duly stamped. The necessary upshot of this is that an award in the context of the Stamp Act must be compulsorily stamped so that the court can act upon it. 

In this backdrop, an award, whether it comes before a court in a setting aside proceeding under Section 34 or for its execution under Section 36 of the A&C Act, shall have an interplay with Sections 33 and 35 of the Stamp Act. This implies that according to the strict mandate of the Stamp Act, a Court can exercise its jurisdiction under Sections 34 and 36 the A&C Act, only if it is duly stamped. 

ANALYSING THE EFFECT OF THE ANUSUYA JUDGMENT

Taking note of the interplay of both the acts, it is evident that an award cannot be acted upon by the court unless it is duly stamped. However, the SC in Anasuya opined that the question of stamping the award is uncalled for at the stage of setting aside proceedings under Section 34 of the A&C Act. Further, the SC held that non stamping of the arbitral award is not a ground for challenge under Section 34 of the A&C Act, but can be considered as a ground to object at the stage of enforcing the award under Section 36 of the A&C Act.. Conspicuously, this judgement failed to consider, Sections 33 and 35 of the Stamp Act, which imposes an obligation on a public officer including a Court to impound any document that is unstamped or insufficiently stamped.

Interestingly, the Delhi High Court (“HC”) in Eider PW1 Paging Limited & Eider PW1 Communications Ltd. v. Union of India (“Eider”) took a divergent view from that of Anasuya. Essentially, the HC in Eider appropriately held that even though the court cannot set aside the Award on the basis of it being unstamped or insufficiently stamped, it is a mandate of law to impound the award. Further, the HC in Eider formulated an issue to be considered by a larger bench :- whether Anusuya judgement is per incurriam as it did not consider the provision of section 33 of the Stamp Act. 

Later on the HC in the case of M. Sons Enterprises Pvt. Ltd. & Anr. v. Suresh Jagasia & Anr, (“M. Sons”) held that the Anusuya cannot be considered per incurriam in context of the relevant provisions of the Stamp Act. This demonstrates that M. Sons took a divergent view from Eider and it is now for the larger bench to decide and settle this issue by an authoritative pronouncement.

It is worthy to note, in 2019 the SC in Garware Wall Ropes Ltd v. Coastal Marine Construction & Engineering Ltd (“Garware”) held that a document cannot be acted upon if it is not duly stamped. The question before the SC in Garware was regarding the stamp duty of an arbitration clause while hearing an application under Section 11 of the A&C Act which was not the question in Anasuya, therefore the Garware judgment does not affect the Anasuya judgment. Still, it is relevant to note that the court in Garware drawing strength from Section 35 of the Stamp Act, held that an inadequately stamped or unstamped document is inadmissible as evidence and cannot be acted upon for any purpose. By the same token, an award which is an instrument under the Stamp Act cannot be acted upon by the court until the it is duly stamped. Therefore, an unstamped/insufficiently award must be impounded under Section 33 of the Stamp Act before deciding a matter under Section 34 of the A&C Act. Hence, given the concerns arising from the Anasuya judgment, the law regarding the impounding the unstamped/insufficiently stamped award while hearing a petition under Section 34 of the A&C Act is unsettled.

THE WAY FORWARD

In the above backdrop, the anomaly with respect to the application of section 33 of the Stamp Act while hearing a petition for setting aside an award under section 34 of the A&C Act still continues to subsist. A plausible solution to this could that an arbitrator may call upon the party to pay the stamp duty and only then render the award. This practice is crucial because even under Section 31-A of the A&C Act, the arbitrator must ensure that the award is duly stamped and if not then the arbitrator can be penalized under Section 62 of the Stamp Act. If such a practice is followed then the issue of whether a court can act upon an unstamped award under Section 34 of the A&C Act bearing in mind the provisions of the Stamp Act shall not remain of concern anymore. 

Additionally, arbitration is a preferred mode of dispute resolution for parties because of the element of expeditiousness. To fulfil the objective of speedy redressal of a dispute, there is a strict regime of limitation for Section 34 of the A&C Act. However, impounding the award and waiting for it to return to the court after being duly stamped is a time-consuming process. This in essence denudes the aspect of speedy dispute resolution by means of arbitration, since enforcement of the award is an integral part of the scheme. The SC in Garware adopted the doctrine of harmonious construction to devise a path to ensure speedy dispute resolution and adherence of the provisions of Stamp Act. Similarly, it needs to be emulated in context with arbitration law and the effect of stamp duty to foster speedy dispute resolution and at the same time not compromise the revenue for the State.


(Ramit and Sakshi are currently 3rd year students at Institute of Law, Nirma University.)

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