SC summarises sequence of application of Karnataka Stamp Act provisions on insufficiently stamped instruments

Supreme Court: While deliberating over the instant appeals revolving around the scope of Sections 33, 34, 37, and 39 of the Karnataka Stamp Act, 1957, the Division Bench of Hrishikesh Roy and SVN Bhatti*, JJ., took note that there are still certain misgivings vis-a-vis in the sequence of application of Ss. 33, 34, 35, 37, and 39 of Karnataka Stamp Act and summed up the steps for the benefit of practice and procedure.

Background and Legal Trajectory:

The dispute revolves around an agricultural land in Kavoor Village, Mangalore Taluk. The appellant filed a suit in 2013 for perpetual injunction restraining the respondent from interfering with his peaceful possession and enjoyment of the plaint schedule property. The prayer for injunction rested on the plea that the respondent entered into the agreement of sale dated 29-6-1999 with the appellant. The appellant claimed to have been put in possession of the plaint schedule property as part performance under the agreement of sale and the respondent, contrary to the possession given as part performance under the suit agreement, tried to dispossess the appellant.

The respondent denied the execution of the agreement of sale. The suit agreement was insufficiently stamped. Therefore, the document was inadmissible in evidence unless the document is made compliant with the requirements of the Karnataka Stamp Act.

Thereafter, the appellant filed a memo purporting to clarify the village’s name in the sale agreement schedule. The said effort was opposed by the respondent. The Trial Court, agreeing with the respondent’s objection, rejected the memo via order dt. 12-8-2017. The appellant approached the Karnataka High Court, wherein the Court modified the Trial Court’s order dt. 12-8-2017.

The District Registrar determined the deficit stamp duty payable on the instrument at Rs. 71,200. The Trial Court, by order dated 23-1-2019, directed the appellant to pay the deficit stamp duty of Rs.71,200 and ten times the penalty on the agreement of sale dated 29-6-1999. Thus, the total levy of stamp duty and penalty came to be Rs. 7,83,200.

Aggrieved, the appellant filed a writ petition and then a review petition but did not get the desired relief. Hence instant appeals were filed.

Issue:

The Court had to consider whether the agreement of sale dated 29-6-1999, with a recital on delivery of possession to the appellant, conforms to the definition of conveyance under Section 2(d) read with Article 20(1) of the Schedule of Karnataka Stamp Act; and whether the Trial Court’s order dt. 23-1-2019 and the impugned orders of Karnataka High Court required Court’s interference under Art. 136 of the Constitution?

Court’s Assessment:

Perusing the facts of the case, the Court noted that the High Court in great detail, referred to all the attending circumstances, appreciated their implication vis-à-vis the statutory obligation under the Karnataka Stamp Act to pay ad valorem stamp duty on an agreement of sale satisfying the definition of a conveyance under the 1957 Act and dismissed the Review Petition.

The Court stated that Chapter IV of Karnataka Stamp Act is both mandatory and regulatory. “Section 33 mandates every person having by law or consent of parties authority to receive evidence and every person in charge of public office (Every Person/Court) when an instrument insufficiently stamped is produced, the person is mandated to impound the insufficiently stamped instrument”.

The Court further stated that having taken legal custody of the insufficiently stamped document, the inter-play available between Sections 33, 34, 37, 38 and 39 of Karnataka Stamp Act, 1957, would start operating.

The Court further pointed out that the object of the 1957 Act is not to exclude evidence or to enable parties to avoid obligations on technical grounds. Rather, the object is to obtain revenue even from such instruments which are at the first instance unstamped or insufficiently stamped. “The said objective has the twin elements of recovering the due stamp duty and penalty, and also the public policy of binding parties to the agreed obligations”.

The Bench relied on Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, (2024) 6 SCC 1, wherein the Supreme Court had noted that Section 35 of the Stamp Act, 1899 (analogous to S. 34 of the 1957 Act) unambiguously requires an instrument chargeable with stamp duty to only be “admitted in evidence” if it is properly stamped. The Court further noted that improperly stamping the instrument does not render that instrument void or invalid. On the contrary, it is a defect which is curable upon payment of requisite stamp duty and penalty.

The Court thus opined that as per the steps taken under Sections 33, 34, 35, 37, and 39 under Chapter IV of the 1957 Act, the position in law is well-established and axiomatic by the letter of law and precedents of the Supreme Court. However, the Court took note of misgivings in the sequence the provisions’’ application and thereby summed up the following steps:

1. The object of Section 33 of Karnataka Stamp Act is to disable persons from withdrawing the instruments produced by them on being told that proper stamp duty and penalties should be paid.

   1. The person who intends to rely on an insufficiently stamped instrument can submit to the scope of S. 34 and pay duty and penalty. The party also can directly move an application under S. 39 before the District Registrar and have the deficit stamp duty and the penalty as may be imposed collected.

   2. After the deficit stamp duty and the penalty are paid, the impounding effected under S. 35 is released and the instrument is available to the party for relying on as evidence.

   3. In case a party prefers to have the document sent to the Deputy Commissioner for collecting the deficit stamp duty and penalty, the Court/Every Person have no other option except to send the document to the District Registrar. The caveat to this is that, before the Court/Every Person exercises the jurisdiction under S. 34, the option must be exercised by a party.

2. Section 34 bars the admission of an instrument in evidence unless adequate stamp duty and the penalty are paid. Every person so authorised to collect deficit stamp duty and penalty has no discretion except to levy and collect ten times the penalty of deficit stamp duty.

3. Section 35 prohibits questioning the admission of an insufficiently stamped instrument in evidence.

4. Section 37 arises when the party pays the deficit duty and penalty, the Court is to impound the instrument under Section 33 of the Act and must forward the instrument to the Deputy Commissioner/District Registrar. Section 37(2) of the Act deals with cases not falling under Section 34 and 36, and the person impounding an instrument shall send it in original to the Deputy Commissioner. This also applies to the exigencies set out in 1(a)¹

5. Being a regulatory and remedial statute, a party who follows the regulation, and pays the stamp duty and penalty, as per Sections 34 or 39, the objection under the Stamp Act is no longer available to a contesting party.

6. Section 39 provides the procedure to be followed by the Deputy Commissioner/District Registrar while stamping the instruments impounded under Section 33. The Deputy Commissioner/District Registrar has discretion to levy and collect commensurate penalty.

7. The afore-said steps, when followed and completed by paying/depositing the deficit duty and penalty, would result in the instrument becoming compliant with the checklist in the 1957 Act. The finality will be subject to the just exceptions envisaged by the 1957 Act addressing different contingencies.

8. The Court clarified that the scheme does not prohibit a party to a document to first invoke directly the jurisdiction of District Registrar and present the instrument before Court/Every Person after complying with the requirement of duty and penalty. “In such an event, the available objection under Sections 33 or 34 of the 1957 Act is erased beforehand. The quantum of penalty is primarily between the authority/court and the opposing party has little role to discharge”.

Conclusion and Decision: In the backdrop of the afore-stated assessment and the steps enumerated, the Court noted that though the suit instrument is insufficiently stamped, still the penalty of ten times under Section 34 was imposed through the impugned orders. The imposition of penalty of ten times at this juncture in the facts and circumstances of this case was illegal and contrary to the steps summed up.

The instrument was to be sent to the District Registrar, thereafter the District Registrar in exercise of his jurisdiction under Section 39 was to decide the quantum of stamp duty and penalty payable on the instrument. The appellant was denied this option by the impugned orders. “It is trite law that the appellant must pay what is due, but as is decided by the District Registrar and not the Court under Section 34”.

Therefore, allowing the appeals in part, the Court set aside the Trial Court’s direction to pay ten times the penalty on the agreement of sale dated 29-6-1999.