Case BriefsHigh Courts

Andhra Pradesh High Court: M. Satyanarayana Murthy, J., expressed that,

“If a party to the document wants to annul the document, he has to file a suit under Section 31 of the Specific Relief Act before the competent Civil Court and if, third party wants to annul the document, he has to approach the competent Civil Court and seek relief under Section 34 of the Specific Relief Act.”

Murthy and Sodemma were husband and wife with no children. Murthy was the absolute owner of agricultural land and a house, he had alienated his entire property to his wife during his lifetime.

Sodemma who was the maternal aunt of the petitioner, bequeathed the said property to him as he had taken care of their welfare at the old age. Therefore, petitioner became the absolute owner and possessor of the said property as per the registered Will deed executed by Sodemma.

Respondent 15, son of younger brother of Murthy with a mala fide intention to become the owner of Murthy’s property hatched a plan and fabricated an adoption deed to claim that Murthy and Sodemma adopted respondent 14 and got the signature of Murthy and Sodemma on the said fabricated deed by fraud and misrepresentation.

Later, in the year 2002, respondent 15 fabricated unregistered agreement of sale on the blank stamp papers signed by Murthy having believed him.

Respondent 14 filed for partition of the above-mentioned property by claiming that he is adopted son of Murthy and Sodemma.

Respondent 15 also filed for specific performance of unregistered sale agreement alleged to have been executed by Murthy after lapse of more than 17 years from the date of alleged execution of the said unregistered agreement. Murthy and Sodemma contested both the suits and denied the execution of both the fabricated adoption deed dated 24.05.1993 and alleged unregistered agreement of sale.

Further, it was submitted that during the pendency of both the said suits, respondent 17, the then Minister for Animal Husbandry alleged to have purchased the property, which is the subject matter of those two suits, and started construction of palatial building in the subject property and he by abusing his power as the Minister for Animal Husbandry made the authorities concerned to issue antedated permissions in contravention of Rules.

This Court had directed that there shall not be any construction on the subject property.

Crux of the Matter

Alleged playing of fraud on Sub-Registrar in mutating the name of respondents 14 and 15,  registration of property in the name of respondent 16 allegedly at the instance of respondent 17.

Petitioners claim was that when the decree was passed, appeal were pending against both the decrees and common judgment, execution of sale deed by respondents 14 and 15 in favour of respondent 16 allegedly at the instance of respondent 17 deviating the decree was serious illegality and it amounted to ‘fraud’.

Tahsildar, respondent 8 was not supposed to mutate the names of respondents 14 and 15 and only due to influence of respondent 17.

Petitioner claimed that the very mutation of the name of respondents 14 and 15 in the revenue record, now mutated the name of respondent 16 after completion of sale transaction, registered document was tainted by ‘fraud’.

Analysis, Law and decision

To constitute fraud, there must be a suggestion, as a fact, of that which is not true, by one who does not believe it to be true; the active concealment of a fact by one having knowledge or belief of the fact; a promise made without any intention of performing it; any other act fitted to deceive; any such act or omission as the law specially declares to be fraudulent. 

In the present matter, Court stated that,

In the absence of any interim direction, registration of a document when presented for registration satisfying the requirements under the Stamp Act and Registration Act is justified.

 Court added that Registrar is bound to register the document presented for registration unless there is prohibition from registration of such document pertaining to the land covered by Section 22A, 35 (3) and Section 71 of the Registration Act. But no such ground was raised in the present matter.

In Court’s opinion, execution of registered sale deed by respondent 14 and 15 in favour of respondent 16 by playing fraud was purely a mixed question of fact and law, such a question cannot be decided in writ petition while exercising power under Article 226 of the Constitution of India.

Supreme Court in Satya Pal Anand v. State of M.P., AIR 2016 SC 4995, held that “a party aggrieved by registration of a document is free to challenge its validity before a competent Civil Court.”

High Court held that while exercising jurisdiction under Article 226, this Court cannot annul document on the ground of ‘fraud’ and ‘misrepresentation’ since they are both mixed questions of fact and law, such roving enquiry cannot be conducted by the Constitutional Court to issue a writ of Mandamus as it is an extraordinary and discretionary relief.

When the documents are presented for registration before the Sub-Registrar, his duty is to register the same subject to any bar contained in any law and satisfying the requirements under the provisions of the Stamps and Registration laws. Such registration of document is nothing but discharging public duty.

Therefore, registration of document while discharging public duty by public officer cannot be said to be fraudulent act and such act will not attract the definition of fraud under Section 17 of the Indian Contract Act.

When can a document be cancelled?

It is settled law that the document can be cancelled only by filing suit before the Civil Court under Section 31 of the Specific Relief Act by a person, who is a party to the document.

If a third party intended to annul the document, he has to file a suit to declare the suit document as illegal and not binding on the plaintiff.

Due to lack of merits, no relief was granted and petition was dismissed.[Mangipudi Nagaraju v. State of Andhra Pradesh, 2021 SCC OnLine AP 3148, decided on 8-10-2021]

Op EdsOP. ED.

I. Introduction

Recently a three-Judge Bench of the Supreme Court in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.[1] decided on the effect of an arbitration clause contained in a contract which requires to be stamped and clarified the law grounding on doctrine of separability of arbitration agreements from the underlying contract and also decided upon arbitrability of disputes involving fraud. The Supreme Court held:

 “the allegations of fraudulent invocation of bank guarantee furnished under a substantive contract would be an arbitrable dispute, irrespective of whether the underlying contract regarding the arbitration was stamped or not.”

In addition to this, the Court further observed that any allegations of fraud being on non-arbitrable grounds is an entirely archaic view and has grown obsolete, and must be discarded.

Therefore, in this article the authors endeavour to examine the implication on arbitration agreement embedded in an unstamped contract as propounded in the present case and will also analyse the paradigm shift in the judicial pronouncements over the years making its way towards pro-arbitration proceedings.

II. Factual matrix

Indo Unique Flame Ltd. (hereinafter referred as “the respondent”) was awarded a work order dated 18-9-2015 by Karnataka Power Corporation Ltd. (hereinafter referred as “KPCL”) and in pursuance to the same a bank guarantee was furnished for Rs 29.29 crores in favour of KPCL through State Bank of India. Subsequently, the respondent entered into a sub-contract with N.N. Global Mercantile Pvt. Ltd. (hereinafter referred as “the appellant”) which contained an arbitration clause in respect of transportation of coal from its washery to the stockyard, siding, coal handling and loading into the wagons. As per Clause 9 of the sub-contract, the appellant furnished a bank guarantee in favour of the respondent.

Under the principal contract, certain dispute arose between the respondent and KPCL which led to the invocation of bank guarantee by KPCL and as a result, the bank guarantee furnished by the appellant was also invoked. Being aggrieved by such invocation, the appellant filed a suit against the respondent and State Bank of India before the Commercial Court at Nagpur praying for a pronouncement that the respondent was not entitled to encash the bank guarantee furnished under the sub-contract as it was a conditional guarantee. The Commercial Court hereinafter directed status quo to be maintained with respect to the enforcement of the bank guarantee.

The respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996[2] (hereinafter referred as the “the Act, 1996”) seeking reference of disputes to arbitration.  The Commercial Court rejected the application holding that the bank guarantee was an independent contract. The order of the Commercial Court was challenged by the respondent by filing a writ petition in the Bombay High Court. The High Court held that it was the admitted position that there was an arbitration agreement between the parties and therefore the application under Section 8 of the Act, 1996 was maintainable.

The decision of the High Court allowing the application for seeking arbitration was appealed against before the Supreme Court. The issue dealt by the Supreme Court was:

a) Whether an arbitration agreement would be enforceable and acted upon, even if the work order is unstamped and unenforceable under the Stamp Act?

b) Whether allegation of the fraudulent invocation of the bank guarantee is an arbitrable dispute?

c) Whether a writ petition under Articles 226 and 227 of the Constitution would be maintainable to challenge an order rejecting an application for reference to arbitration under Section 8 of the Act, 1996.

III. Law prior to N. Global

The Stamp Act, 1899[3] (hereinafter referred as “the Stamp Act”) requires stamp duty to be collected on the execution of specific documents. Section 33 of the Stamp Act imposes a duty on the courts to examine an instrument on whether it is duly stamped or not.

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 value and description required by the law in force in India when such instrument was executed or first executed.

Further Section 35 of the Stamp Act envisages that any contract not duly stamped is not admissible as evidence in the court of law. The relevant portion of Section 35 is mentioned herein below:

  1. 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;

Therefore, in view of the provisions of 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 said instrument.

The issue whether a contract containing an arbitration clause which is not duly stamped as per the provisions of Sections 33 and 35 of the Stamp Act be enforceable and can be acted upon by the parties has been widely debated in recent years. The Supreme Court in its various judicial pronouncements over the years have discussed the concept of non-stamping of an agreement containing an arbitration clause and thereby its effect on the validity of the said arbitration clause.

The  Supreme Court in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.[4] inter alia addressed the applicability of the provisions of the Stamp Act and considered the issue whether an arbitration agreement in  an unregistered and unstamped lease deed, which required compulsory registration under Sections 17 and 19 of the Registration Act, 1908[5], was valid and enforceable. While considering the issue the Court held that:

  1. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the performance of the contract. It is as if two contracts—one in regard to the substantive terms of the main contract and the other relating to resolution of disputes—had been rolled into one, for purposes of convenience….

***

  1. Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement which is part of the instrument.[6]

Thereafter, in Garware Wall Ropes Ltd v. Coastal Marine Constructions and Engg. Ltd.[7] the Supreme Court dealt with the question whether the courts can appoint an arbitrator under Section 11 of the Act, 1996[8] when the underlying agreement containing the arbitration clause is insufficiently stamped. While reiterating the ruling of SMS Tea Estates[9], the Court in Garware Wall Ropes Ltd.[10], rejected the argument that an arbitration clause in an agreement ought to be considered an agreement independent of the agreement of which such arbitration clause is a part and held that:

  1. … It is important to remember that the Stamp Act applies to the agreement or conveyance as a whole. Therefore, it is not possible to bifurcate the arbitration clause contained in such agreement or conveyance so as to give it an independent existence, as has been contended by the respondent.

The  Court further held that a harmonious reading of the provisions of the Stamp Act and the Contract Act, 1872 would suggest that in the event an agreement is not duly stamped, then it cannot be said to be a valid agreement.

Recently, the Supreme Court in Dharmaratnakara Rai Bahadur Arcot Narainswamy Mudaliar Chattram and other Charities v. Bhaskar Raju and Bros.[11] again reiterated the settled law of SMS Tea Estates[12] and held:

  1. … if the court comes to a 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. Further, the Court stated that the court cannot act upon such a document or the arbitration clause therein.[13]

Therefore, the Supreme Court in the aforesaid precedents laid down the principle that if a contract containing an arbitration clause is not duly stamped as per the provisions of Sections 33 and 35 of the Stamp Act, then such contract shall be unenforceable till the payment of the requisite stamp duty and the arbitration clause contained in the said contract cannot be invoked by the parties.

However, the Supreme Court in the present case revisited the law on the issue of validity, existence and enforceability of an arbitration agreement in an unstamped document and overruled two major judgments i.e. SMS Tea Estates (P) Ltd.[14] and Garware Wall Ropes Ltd.[15]

IV. The paradigm shift in the judicial pronouncements

The Supreme Court in the earlier two judgments erred while deciding the implication of arbitration agreements in unstamped documents by positioning the law that an arbitration clause contained in a contract would exist as a matter of law only if the underlying contract is duly stamped. However, in the present case, the Court had gone a step further and delved into the shift of the approach of the Court from increased judicial intervention to pro-arbitration. The Court primarily focused in the following issues:

A. Arbitration agreement as an independent agreement

The Supreme Court in the present case held that it is well settled in arbitration jurisprudence that an arbitration agreement is a separate and distinct agreement, which is independent from the substantive commercial contract in which it is imbedded. This is based on the premise that when parties enter into a commercial contract containing arbitration clause, they are entering into two separate agreements viz. the substantive contract which contains the rights and obligations of the parties arising from the commercial transaction and secondly, the arbitration agreement which contains the binding obligation of the parties to resolve their disputes through mode of arbitration.

The Supreme Court further held that the autonomy of arbitration agreement is based on the twin concept of separability and kompetenz-kompetenz.

(i) The doctrine of separability

The doctrine of separability of the arbitration agreement connotes that the invalidity, ineffectiveness or termination of the substantive commercial contract would not affect the validity of the arbitration agreement, except if the arbitration agreement itself is directly impeached on the ground that the arbitration agreement is void ab initio. It embraces that the arbitration clause is separable from the rest of the contract and an assertion that the latter is invalid does not prevent the arbitrators from ruling on the validity of the former. Article 16(1)[16] of the UNCITRAL Model Law on International Commercial Arbitration incorporates the doctrine of separability which positions that:

…an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

Similarly, the Act, 1996 is based on the Model Law and also recognises the principle of separability of arbitration clause and consequently, allows parties to elect the substantive law of the entire contract as different from the law governing the arbitration agreement. The Bombay High Court in Mulheim Pipecoatings GmbH v. Welspun Fintrade Ltd.[17] formulated the principles of the doctrine of separability and held that “for an arbitration agreement to be null and void, requires a direct impeachment of the arbitration agreement and not simply a parasitical impeachment based on a challenge to the validity or enforceability of the main agreement”.

The Supreme Court in National Agriculture Coop. Mktg. Federation (India) Ltd. v. Gains Trading Ltd.[18], while observing the doctrine of separability held:

“the validity of contract and the arbitration clause should be treated independently from the main contract. Moreover, if a contract becomes null and void, the arbitration clause shall not be understood in the same context as void.”

(ii) The doctrine of kompetenz-kompetenz

This principle states that the Arbitral Tribunal has the competence to determine and rule on its own jurisdiction, including issues of existence, validity and scope of arbitration agreement in the first instance which is subject to judicial scrutiny by the courts at a larger stage of the proceedings. The principle of kompetenz-kompetenz has two aspects i.e. firstly an authentication to the arbitrators to decide the jurisdiction without the help of the court and secondly, the Arbitral Tribunal gets an upper hand to decide the issue first before the Court interferes.[19] It has been noted over the years that the doctrine of kompetenz-kompetenz has evolved to minimise judicial intervention at the pre-reference stage and reduce challenges raised on the issue of jurisdiction of the Arbitral Tribunal. The said doctrine has also been recognised under Section 16(1)(a) of the Act, 1996[20] which categorically states that an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.

In Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan[21], it was observed that under the Act, 1996 the Arbitral Tribunal is vested with powers under Section 16(1) to rule on its own jurisdiction including ruling on any objection with respect to its existence or validity of arbitration agreement and for that purpose the arbitration clause which forms part of the contract shall be treated as an agreement independent of any terms of the contract and any decision of the Arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

The  Supreme Court while continuing to accept the principle of kompetenz-kompetenz, in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.[22], held that the scope of jurisdiction under Section 11(6-A) was confined to the examination of the existence of the arbitration agreement at the preference stage. In view of the legislative mandate contained in Section 11(6-A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16 which enshrines the kompetenz-kompetenz principle.

B. Non-payment of stamp duty does not invalidate the main contract

Analysing the statutory scheme of the Stamp Act, the court emphasised that the Stamp Act is a fiscal measure enacted to secure the revenue of the State on certain classes of instruments. It observed that under the Stamp Act, the substantive contract would not be admissible in evidence, and could not be acted upon, for any purpose, in the event of non-payment of stamp duty. However, the Supreme Court in the present case held that the non-payment or deficiency of stamp duty on the work order does not invalidate the main contract. It further held that Section 34 provides that an unstamped instrument would not be admissible in evidence, or be acted upon till the requisite stamp duty is paid. This would amount only to a deficiency curable on the payment of the requisite stamp duty and would not invalidate the main contract. Accordingly, the Court held that there would be no legal impediment to the enforceability of the arbitration agreement, pending payment of stamp duty on the substantive contract.

The Court clarified that where an application is filed under Section 8 of the Act, 1996 before judicial authority for reference of disputes to arbitration, the judicial authority would make the reference to arbitration. However, in the meanwhile, the parties would be directed to have the substantive contract stamped in accordance with the provisions of the relevant Stamp Act, so that the rights and obligations emanating from the substantive contract can be adjudicated upon.

V. Analysis

The Court in the present judgment has thus clarified the prerequisites for referring a case to arbitration on disputes involving unstamped contracts. The Court while expanding the scope of doctrine of separability emphasises that the arbitration agreement is an independent contract and non-compliance of the provisions of Sections 33 and 35 of the Stamp Act does not invalidate arbitration agreement and the non-stamping of the same will amount only to a deficiency curable on the payment of the requisite stamp duty at a later stage. The Court also pointed out that an arbitration agreement is not included in the Schedule as an instrument chargeable to stamp duty under the Maharashtra Stamp Act, 1958[23]. It can be inferred from the judgment that the intention of the Court to expand the scope of the utilisation of the principle of separability was to minimise judicial intervention at the pre-reference stage and reduce challenges raised on the issue of invocation of arbitration agreement. Hence, it can be concluded that the Court have taken a pro-arbitration stance to not impede the arbitral process and benefit parties who intent to settle the matter through arbitration.


* Principal Associate, Hammurabi and Solomon Partners.

** Associate, Hammurabi and Solomon Partners. 

[1] 2021 SCC OnLine SC 13.

[2] Arbitration and Conciliation Act, 1996.

[3] Stamp Act, 1899.

[4] (2011)14 SCC 66.

[5] Registration Act, 1908 

[6] Supra Note 4, pp. 72-73.

[7] (2019) 9 SCC 209.

[8] Section 11 of the Act, 1996.

[9] Supra Note 4.

[10]Supra Note 7, p. 232.

[11] (2020) 4 SCC 612

[12] Supra Note 4.

[13] Supra Note 4, p. 74.

[14] Supra Note 4.

[15] Supra Note 7.

[16] United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration. http://www.scconline.com/DocumentLink/q0V16q1A, <https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf>, 1985.

[17] 2013 SCC OnLine Bom 1048. 

[18] (2007) 5 SCC 692 

[19]Dr Mukesh Kumar Malviya, Jurisdictional Issues in International Arbitration with Special Reference to India, Bharati Law Review, Jan-March 2017, <http://docs.manupatra.in/newsline/articles/Upload/03D471A1-CEC8-46DC-8E27-A42DC5D09E7C.pdf>.

[20] Section 16(1)(a) of the Act, 1996.

[21] (1999) 5 SCC 651 

[22] (2020) 2 SCC 455.

[23] Maharashtra Stamp Act, 1958.

Case BriefsHigh Courts

Kerala High Court: R. Narayana Pisharadi, J., while observing the instant matter asked the trial court to reconsider the question whether the suit document is a bond or an agreement.

The instant suit was filed for the realisation of money and certain other reliefs. The claim for money was based on the document allegedly executed by the first defendant in favour of the plaintiff.

When the said document was tendered in evidence, the defendants raised an objection to the marking of the document on the ground that it is a bond and it is an insufficiently stamped document.

Trial Court in its decision had found that the suit document was only an agreement and not a bond.

Defendants had also raised an objection contending that the document was a mortgage deed and it should be compulsorily registrable.

Analysis

Section 2(a) of the Kerala Stamp Act, 1959 defined a bond as follows:

“(a) ‘bond’ includes —
(i) any instrument whereby a person

obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;

(ii) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and

(iii) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another;”

It was observed that the above-stated definition is identical to the definition of bond in Section 2(5) of the Indian Stamp Act, 1899. The said definition includes all types of instruments.

Petitioner’s Senior Counsel submitted that the suit document comes under Clause (ii) mentioned above. But, learned counsel for the first respondent would contend that in order to attract Clause (ii) of Section 2(a) of the Act, the obligation created by the document shall be to pay a definite or specified amount and not something to be determined by the Court.

Further, it was submitted that in the instant case the document does not create an obligation to pay a definite or specified amount and therefore, it is not a bond but only agreement.

Suit document is styled as an agreement. But, for finding out the true character of the instrument, one has to read the instrument as a whole and then find out the dominant purpose. The test is not what the document calls itself or what form it adopts but what is the true meaning and effect of the terms contained therein.

Delhi High Court’s decision in Hamdard Dawakhana (Wakf),1967 SCC OnLine Del 36, the full bench of the court considered the distinction between the bond and an agreement. In this decision, it was observed that it is trite to say that every bond is an agreement and so is the case with a mortgage or sale or exchange but what the court has to see is whether that agreement has acquired the character of a “bond”.

Distinguishing Feature of a Bond

Bond has an obligation to pay money created by the instrument itself.

A document which evidences acknowledgement of an antecedent obligation or a pre-existing liability would not normally become a bond.

The real test to decide whether a particular document is a bond or not is to find out, after reading the document as a whole, whether an obligation is created by the document itself or whether it is merely an acknowledgment of a pre-existing liability.

Where the obligation is a pre-existing one, the subsequent document or the document executed subsequently, giving the nature of the obligation or the terms and conditions of the contract, shall be a mere agreement.

Trial Court failed to take into consideration the fact that, as per the terms of the document, a liability is created for a fixed amount, that is, the amount borrowed and 10% of that amount. Adding to this, it also did not consider whether the stipulation in the document is sufficient to treat it as a bond. Principles mentioned in the Supreme Court cases have also not been referred by the trial court.

High Court allowed the original petition and further stated that the trial court shall consider the question of whether the suit document is a bond or an agreement. [A.V. Ravi v. M.M. Abdulkhadar,  2020 SCC OnLine Ker 8185, decided on 01-12-2020]

Case BriefsHigh Courts

Allahabad High Court: Dr Kaushal Jayendra Thaker, J., addressed a matter with regard to stamp duty.

Respondents invited a tender to repair different roads in District Mathura. Petitioner’s tender was accepted.

Stamp Act

Further, the respondent issued a letter of acceptance with a clause that total security along with stamp duty should be deposited within 10 days. Petitioner wrote to the respondents that he is supposed to pay stamp duty as per Article 57(b) Schedule 1 B of the Stamp Act and for a period of 8 months, no work order was passed.

Bench on perusal of the facts and circumstances of the present matter stated that it is covered by the decision of this Court and further waste of time would cause loss to the public and Exchequer.

Despite the previous decisions in Strong Construction v. State of U.P., Civil Misc. WP No. 35096 of 2004 and Kishan Traders v. State of U.P., Writ C No. 52385 of 2015, authorities have demanded from petitioner what is known as stamp duty.

Further, the Court added that though the petition is belated, this Court has not been made aware whether the contract has already been executed or not.

With regard to the stamp duty, Court stated that it has been covered by the Division Bench of this Court in Kishan Traders v. State of U.P., Writ C No. 52385 of 2015, wherein Writ of Mandamus was issued which read as follows:

“We also issue a Writ of Mandamus commanding the respondents not to compel the Petitioners and similarly situate persons, whether they have filed writ petition or not, to pay Stamp Duty on security deposit in question treating as ‘mortgage deed’ and further to charge Stamp Duty on such ‘securities’ as provided under Article 57 (b) Schedule 1 B of the Stamp Act.”

Hence in view of the above, bench held that the petitioner would be liable to pay stamp duty as per Article 57(b) Schedule 1 B of the Stamp Act.

In view of the above, the petition was allowed. [Yogendra Kumar v. State of U.P., 2020 SCC OnLine All 1024, decided on 07-09-2020]

Case BriefsSupreme Court

Supreme Court: Dealing with the questions relating to interpretation of Section 47-A of the Indian Stamp Act, 1899 and the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968 as amended from time to time, the bench of UU Lait and Indu Malhotra, JJ has held,

“There is nothing in the scheme of the Act which purports to restrict the exercise of suo motu power under Section 47-A, and confines it to cases where knowledge of any illegality or infirmity in the proceedings undertaken by the subordinate officers must be gathered from sources other than through a pending appeal.”

Under sub-section (1) of Section 47-A of the Act, if there is reason to believe that the market value has not been truly set forth in the Instrument tendered for registration, a reference can be made to the Collector, who (i) after giving the parties reasonable opportunity of being heard; and (ii) after holding an enquiry in such manner as may be prescribed by Rules, has to determine the correct value of the concerned property.

As per Rule 7 of the Rules, after considering the representations in writing and those urged at the time of hearing as well as all the relevant factors and evidence, the Collector must pass an order determining the market value of the concerned property and assess the element of duty payable on the instrument of transfer. Such order is required to be passed “within three months from the date of first notice”.

Here are the issues decided by the Court:

Whether Rule 7 of the Rules prescribing 3 months’ time for the Collector to pass an order determining the market value of the properties and duty payable on the instrument from the first notice, is directory or mandatory?

Explaining why requirement of the passing of order within 3 months from the date of first notice cannot be mandatory, the Court said,

“Form I notice itself must give twenty-one days to the concerned persons to respond. Depending upon their response, their statements would be recorded and/or certain information may be required to be called for, whereafter the Order in Form II is to be issued provisionally determining the market value. The concerned persons are entitled to raise objections in writing and must be afforded hearing. After fulfilling these requirements, the order in terms of Rule 7 can be passed. All these stages may not be completed in three months.”

The Court further explained that Section 47-A by itself does not prescribe any timeline. If the stipulation or fixation of period of three months from the first notice in terms of Rule 6 or from notice in Form II is taken to be mandatory it would lead to a situation of incongruity. The fact that Form II notice had been issued, would mean that on a prima facie view of the record and material, the value stated in the instrument was not the correct value; which in turn would mean that prima facie the Government Coffers were being denied the rightful dues.

“If for any reason the proceedings are not completed within three months and, therefore, must be held to be vitiated, the public interest would suffer, and the persons who were prime facie responsible for suppressing the real value, would stand to gain.”

The Court, hence, held that the amendment of Rule 7 incorporating the period of three months was essentially to guide the public officials to complete the process as early as possible but was not intended to create a right in favour of those who had prime facie conducted themselves prejudicing public interest.

Whether the appellate authority has power under Section 47A of the Act to enhance the market value of the property while deciding the appeal filed by the registrants?

Explaining the scope of appellate authority’s power under Section 47-A, the Court held that while entertaining an appeal, if an obvious illegality is noticed by the revisional authority, it can certainly exercise suo motu power to undo the mistake, or rectify an error committed by the subordinate officer authority, subject to such restrictions as are imposed on the exercise of the power by the statute.

Stating that nothing in the scheme of the Act purports to restrict the exercise of suo motu power under Section 47-A, and confines it to cases where knowledge of any illegality or infirmity in the proceedings undertaken by the subordinate officers must be gathered from sources other than through a pending appeal, the Court said,

“Unless the statute expressly or even by necessary implication restricts the exercise of power, there would be no occasion to read into the power, any other limitations.”

The Court, further, said that it makes no difference as to what was the source of the information or knowledge, so long as the power is exercised within the confines of the limitations or restrictions imposed by the statute, and is in accordance with law. Apart from the restrictions imposed by the statute, none can be read into the exercise of power on the ground as to the nature or source of information.

[Inspector General of Registration, Tamil Nadu v. K. Baskaran, 2020 SCC OnLine SC 509 , decided on 15.06.2020]

Case BriefsSupreme Court

Supreme Court: Interpreting Section 33(2) proviso (b) of the Karnataka Stamp Act, 1957 as to the power of the delegated authority to determine the nature of the document, the Court held that what is delegated under the said provision is only the examination of the instrument for the purpose of determining as to whether the instrument is duly stamped or not and for impounding the same. The delegation by a Judge of the High Court will not clothe the officer the jurisdiction of determining the nature and character of the instrument inasmuch as such fact needs to be determined by the Judge while exercising judicial function. Such judicial function is not to be delegated to an officer of the Court by the Judge of the High Court.

The Court said that a judicial functioning has to be done in a judicial manner. The duty of determination of an instrument or, to explicate, to determine when there is a contest a particular document to be of specific nature, the adjudication has to be done by the Judge after hearing the counsel for the parties. It is a part of judicial function and hence, the same cannot be delegated. Considering the fact that under the High Court Rules, in certain High Courts, the computation is done by the authorities in the Registry with regard to the court fees, the Court said that such computation is also is subject to challenge before the Court when the applicability of a particular provision of the Court-fees Act, 1870 is concerned. Hence, in case of determination of the nature of the document under the 1957 Act, the authority is not empowered to determine the nature and character of the document. He may, however, at the best send a report to the Court expressing his views on a document which is subject to final determination by the Court.

Explaining further, the 3-judge bench of Dipak Misra, R. Banumathi and M.M. Shantanagoudar, JJ said that the word “examination” used in proviso (b) to Section 33(2) of the 1957 Act cannot be allowed to have such wide amplitude as the context does not so envisage. It has to be conferred restricted meaning which is in consonance with the provision and the scheme of the 1957 Act. The delegated power has to be restricted to cover the area, that is, whether the instrument bears the proper stamp and thus complies with the requirement of being “duly stamped”, and the stamp duty payable on the same must be determined only with reference to the terms of the instrument. [Black Pearl Hotels (Pvt) Ltd v. Planet M Retail Ltd, 2017 SCC OnLine SC 185, decided on 17.02.2017]