Stamp Duty Requirements Of Domestic Arbitral Awards: Analysis And Suggestions

( This is authored by Ashok Pandey of ILS Law College, Pune)

The Arbitration and Conciliation Act, 1996 ("ACA") turned a new leaf in the arena of alternate dispute resolution in our country. The spirit of arbitration got its true recognition after, among other things, it was no longer mandatory to register an arbitral award in court to enable its enforcement. However, the ACA is not free of flaws either. While a number of its flaws have been eliminated by the 2015 and the 2019 amendments, a major lacuna which still exists is the requirement of stamping of domestic arbitral awards.

While under Section 31(5) of the ACA, the arbitrator is only required to give a signed copy of the award to both the parties and the parties can use these signed copies to proceed with their applications under Section 34 or 36, it does not mention the requirement on part of the tribunal to ensure that the stamp duty requirements have been complied with. This is different from the position of the Arbitration Act, 1940 (Act of 1940) because under the Act of 1940, it was mandatory for the tribunal to register the award in court, which was later converted into an executable decree after the court gave its suggestions on the award. And for the purpose of registration, the stamp duty requirements had to be fulfilled. This legislative lacuna in the ACA, coupled with some questionable precedents laid down by the courts has created a confusing landscape with regard to stamp duty requirements of domestic arbitral awards.

Now, while the Supreme Court has highlighted that the legislations on Arbitration as well as the Stamp Act have never provided for the inclusion of foreign awards under the definition of “award” which required stamping, it also mentioned that the legislature is free to incorporate any such requirements in future. In the present article, the author shall explore the legislative and judicial ambiguity surrounding domestic arbitral awards and shall give suggestions to remedy the same.

Legislative Ambiguity And Judicial Backgroud

The Indian Stamp Act, 1899 ("Stamp Act") is a fiscal legislation enacted for the purpose of securing the state’s revenue. Under Article 12 of Schedule I of the Stamp Act, “Award”, other than one which leads to the “partition of property” needs to be stamped. If it is not stamped or is inadequately stamped, it is liable to be impounded by the appropriate authority under Section 33 of the Stamp Act. It would not be out of place to mention that different states have varying stamp duties on arbitral awards as per the state amendments to the Stamp Act.

Pursuant to Section 35 of the Stamp Act, an insufficiently stamped document can be admitted as evidence only after the requisite stamp duty and penalty is paid. Since the legislative requirement is only to provide ‘signed’ copies of the arbitral award, it is difficult for the court to ascertain whether the requisite stamp duty has been paid, unless a dispute is raised by the other party. Courts could call for the original award and the arbitral records under Sections 14 and 17 of the Act of 1940. However, the ACA gives no such power to the court and the original award may be produced in court only if the party contesting a defect in stamp duty requirements could get the original award from the tribunal.

In M. Anasuya Devi and Anr v. M. Manik Reddy and Ors ("Anasuya Devi"), the Supreme Court was dealing with the question of whether an arbitral award can be set aside under Section 34 of ACA, if it is inadequately stamped. The lower court had responded in the affirmative. However, the Supreme Court held that inadequacy of stamping cannot be a ground for setting aside an arbitral award since an award can only be challenged under the limited grounds available under Section 34 of the ACA and that the question of inadequate stamping can only be raised at the time of enforcement under Section 36 of the ACA.

However, in Eider PW1 Paging Ltd. and Ors. v. Union Of India and Ors, the Delhi High Court was deliberating upon the question as to whether the court can impound the award under Section 33 before hearing the objections to the award on merits. Here, the court declared Anasuya Devi to be per incuriam because the Supreme Court did not consider the provisions relating to the inadequacy of stamping under Section 33 of the Stamp Act. It held that the court was empowered to impound the award in a Section 34 application by virtue of Section 33 of the Stamp Act and referred Anasuya Devi to a larger bench for determining whether it is a good law. This ruling created a grey area, considering Section 31(5) of ACA because the Supreme Court has categorically clarified that only original documents can be impounded and not copies of it. Further ambiguity arises in regard to the applicability of the limited grounds available under Section 34 in challenging an award and whether the same can be set aside for want of stamp duty.

A year after Eider PW1 Paging, in the case of M. Sons Enterprises Pvt. Ltd. and Anr vs. Suresh Jagasia and Anr ("M. Sons Enterprises"), the senior counsel appearing for the Petitioners contended that an award worth crores of rupees made on a stamp paper of Rs. 100/- could not be taken cognizance of due to ambiguity regarding payment of stamp duty. He stated that Anasuya Devi was per incuriam so the award ought to be impounded. The court held that Anasuya Devi was not per incuriam because the question of impounding of the award under Section 33 of the Stamp Act was never raised in Anasuya Devi and hence, it could not be said that the Supreme Court did not consider the relevant statutory provisions. However, the question of impounding copies of the award still remains unaddressed.

Since the Stamp Act is a fiscal legislation, intended to safeguard the revenue of the state, courts will usually give a strict interpretation to its provisions. The Madras High Court took up the issue of the legislative ambiguity with regard to the stamping of domestic arbitral awards in the case of The Commissioner Corporation of Chennai v. K. Ramdass & Co. (O.P.D. No.27597/02) and it suggested an amendment to Section 31(1) of the ACA to read the following:

“An arbitral award shall be made in writing, duly stamped and shall be signed by the members of the arbitral tribunal.”

The High Court also suggested an interim working solution where the Applicant could be required by the Registry to either deposit the stamp duty with the registry of the court while filing the Section 34 or Section 36 Application or furnish fresh stamp papers in the court of the required value. If it was found that the stamp duty was already paid, the Applicant could get a refund.

The Law Commission, in its 194th Report on Verification of Stamp Duties and Registration of Arbitral Awards upon reference from the Madras High Court in the abovementioned judgement, took up this issue. However, it refused to accept the court’s suggestion of pre-deposit of stamp duty amount stating that it could cause serious hardships to the applicant, especially when the stamp duty was a significant amount. Among all the suggestions it put forth, preference was given to two possible solutions to remedy the ambiguity. First, either the requirement of registering the arbitral award in court, as under the Act of 1940, be revived or, an endorsement be given by the arbitrator at the end of the award that the stamp duty, as well as registration requirements (if required), were duly complied with. To the effect of incorporating the first solution, the Law Commission suggested amendments to Sections 31(1) and 31(5) of the ACA. While Section 31(1) only says that the arbitral award should be in writing and should be signed by the members of the tribunal, the Law Commission suggested that the section be amended to ensure that the tribunal signs the award only after the stamp duty and registration (if required) formalities are completed. Furthermore, it suggested that Section 31(5) should be amended such that an endorsement is made on the copy of the award given to the parties that the stamp duty and registration requirements have been met.

Analysis And Suggestions

As far as the ambiguity laid down in the Anasuya Devi case is concerned, the author is of the opinion that the ruling of the Delhi High Court in M. Sons Enterprises is correct because the Supreme Court rightly refrained from interfering with the provisions of the Stamp Act since it was beyond the scope of the contentions raised by the parties. However, Section 34 of the ACA deals with “setting aside” the arbitral award and “impounding” of the award cannot be given the same meaning as setting aside the award because an impounded award can still be admitted as evidence after the relevant stamp duty and penalty is paid. Therefore, the author is of the opinion that the impounding of the award should be independent of the question as to whether the contention is raised under a Section 34 or 36 application. It should be impounded whenever the contention raised is found correct.

As far as the question of impounding original documents under the Stamp Act is concerned, the Supreme Court has made it clear that only original documents which are insufficiently stamped can be impounded. Therefore, the author is also of the opinion that the tribunal should provide the original award to the party contesting the claim of stamp duty inadequacies, which should be impounded in case the claim is found true. However, with the effectuation of the amendments suggested by the Law Commission to Section 31(1) and Section 31(5), this requirement would become redundant.

Although the ACA gives an arbitral award the same status as that of a decree of the court when it comes to its enforcement, it ought to be remembered that court decrees don’t attract stamp duty but court fees apply to them for execution. In fact, the Supreme Court has held that unless specifically required by the court, there is no need to file a copy of the decree during execution. Therefore, an arbitral award is a special decree which not only requires stamp duty, but also that a copy of the same be filed while enforcing it. Therefore, a legislative clarity on stamp duty requirements should be given. Moreover, the purpose of arbitration is to minimize court interference in the resolution of disputes. Confusion over the question of stamp duty both legislatively and judicially might act contrary to the said objective.

Therefore, in the light of the analysis put forth, it is the author’s opinion that the amendments to Section 31(1) and Section 31(5) of the ACA in the manner as prescribed by the Law Commission would play a significant role in eliminating the legislative as well as judicial ambiguity surrounding the stamp duty requirements of domestic arbitral awards.