Improperly Stamped Arbitral Awards: When Can Courts Interfere?

[­Athira Sankar is a 5th year B.A. LL.B student at National Law University, Jodhpur]

Introduction

The effect of non-payment of stamp duty at the time of enforcement of an award has been the subject of varied judicial interpretation. The conflict arises from the fact that an award passed by a tribunal is not always produced before the courts, unlike decrees in civil suits. In civil proceedings, the question of payment of stamp duty arises only when a document is to be admitted into evidence. This has been recognised in various judgments, including K. Santhakumari v. K. Suseela Devi. However, in contrast to section 47 of the Code of Civil Procedure, the Arbitration and Conciliation Act, 1996 [“Arbitration Act”] makes no mention of the stage at which this question of payment of stamp duty for an award would arise. This has resulted in ambiguity as to the applicability of the provisions of the Indian Stamp Act, 1899 [“Stamp Act”] to arbitral awards.

Before considering the judicial approach taken on the issue, it would be advisable to examine section 33 of the Stamp Act. This section directs any person in charge of a public office to impound documents produced before him or her which have not been “duly stamped.” It must be noted here that the duty under section 33 has been held by a catena of judgments to be mandatory for every person holding a public office. Some such judgments may be accessed here and here.

In 2003, the Supreme Court, in M. Anasuya Devi v. Manik Reddy made the rather broad statement: “The question as to whether the Award is required to be stamped and registered, would be relevant only when the parties would file the Award for its enforcement under Section 36 of the Act.” [section 36 of the Arbitration Act allows parties to an award to initiate enforcement proceedings before civil courts.] This statement eventually resulted in a declaration by a single judge of the Delhi High Court in the 2010 case of Eider PWI Paging v. Union of India that the Anasuya case was per incuriam. Later in 2011, a single judge of the same High Court refused to hold the Anasuya case per incuriam (without citing the 2010 judgment). This was in the case of M. Sons Enterprises Pvt. Ltd. vs. Shri Suresh Jagasia.

The following analysis seeks to examine whether there exists a conflict between the decision in the Anasuya case and section 33 of the Stamp Act, which could render this judgment per incuriam. It also seeks to find a balance between the two possible interpretations of the Anasuya case such that any possible conflict with the provisions of the Stamp Act may be avoided.

The Anasuya Case

Anasuya was a judgment given by a two-judge bench of the Supreme Court, where the issue arose from an application filed under section 34 of the Arbitration Act to set aside the award passed by the tribunal, inter alia for want of proper stamp duty. Section 34 of the Stamp Act provides for the rejection of awards on many grounds, none of which explicitly include the improper stamping of awards. The Court hence had to consider only whether the award of a tribunal could be set aside for the want of proper stamp duty when such a ground had not been enumerated under section 34 of the Arbitration Act. To this question, the Court answered in the negative, as the bare provisions of section 34 did not provide such a ground. It was in this context that the Court held that the question of improper stamping could only be considered at a later stage of enforcement of awards, under section 36 of the Arbitration Act.  It is of note that there were no arguments or discussion in relation to the provisions of the Stamp Act, as the question of impounding of the award was not considered in this case. Thus, the judgment in Anasuya was concerned more with the enforcement of or “acting on” awards, and not their admission in evidence. That there is a distinction between the two has been made clear by the Supreme Court in the case of Hindustan Steel Limited v. Dalip Construction Co [In this case, the Supreme Court held that in light of the provisions of the Stamp Act, the admission of a document did not include acting upon it]

Interventions by the Delhi High Court

In 2010, the Delhi High Court declared the Anasuya judgment per incuriam. In doing so, the Court considered the impounding of awards under section 33 of the Stamp Act, and not any provisions of the Arbitration Act. It looked at judgments of the Supreme Court, which dealt with section 33 of the Stamp Act that imposed an obligation on any public authority to impound documents produced before them which were improperly stamped. The reasoning of the court in this case was that since the Supreme Court in Anasuya did not hold that improper stamping would lead to the impounding of a document, it was in conflict with the existing case law on section 33.

The High Court acknowledged that the Anasuya judgment was on setting aside awards under section 34 of the Arbitration Act, while the case before it was in relation to impounding of documents under section 33 of the Stamp Act. Despite this, the Court went on to follow the ratio in N Bharghavan Pillai v. State of Kerala (where it was held that a judgment passed without considering the applicable statutory provision was per incuriam), and held that since the Supreme Court in the Anasuya case did not even refer to the application of section 33 of the Stamp Act, it was per incuriam. It was finally recommended that a larger bench be constituted to consider whether the Anasuya case was good law, although this has not yet been done.

However, as pointed out by the Delhi High Court in this very judgment, the reason for non-consideration of section 33 of the Stamp Act in the Anasuya case was simply that the issues raised before the court in no way called for a discussion of this section. In the Anasuya case, the Supreme Court had to consider a judgment passed by the lower court which set aside an arbitral award for not being duly stamped. The question of impounding the award under section 33 of the Stamp Act was never before the court, which means that the court did not fail to consider any applicable statutory provision in its judgment. Since section 33 was (rightly) never discussed, the question of conflict with existing judgments of the Supreme Court on this provision also does not arise.

In 2011, a coequal bench of the same High Court held that the Anasuya case could not be “brushed aside” as per incuriam. The Court opined that since the Anasuya case examined only the scheme of the Arbitration Act to determine the scope of section 34, it could not have contravened the provisions of the Stamp Act. The High Court seems to be of the opinion that this would in fact make proceedings under section 34 of the Arbitration Act more expedient, and would hence be in keeping with the objectives of this Act. This judgment, unlike the 2010 decision, has not considered how the Anasuya case would impact the application of section 33 of the Stamp Act. It remains to be seen if this judgment would prevent the reconciling of the ratio in Anasuya with section 33 of the Stamp Act, as has been attempted below.

Reconciling Section 33 and the Ratio in Anasuya

 The Anasuya judgment has been cited by parties to various arbitrations before civil courts, to claim complete exemption from the provisions of the Stamp Act where proceedings under section 34 of the Arbitration Act are concerned. However, it is submitted that such a reading of the judgment would indeed make it per incuriam and in conflict with existing case law on section 33. The ratio in the Anasuya case should be read as being restricted to the interpretation of section 34 of the Arbitration Act, without encroaching into the application of the provisions of the Stamp Act. The question of whether an award is to be held as invalid at the stage of proceedings under section 34 of the Arbitration Act is different from the question regarding the impounding of improperly stamped documents under section 33 of the Stamp Act. It must be noted that the Anasuya case was regarding only the former, and not the latter.

It is easy to see that such contentions are based on the broad statement of the Supreme Court that the “question” of stamping and registration would be relevant at the stage of enforcement of an award. As pointed out by the Delhi High Court in its 2010 judgment, interpreting this to mean that the Court is powerless to impound improperly stamped awards which may be produced before it during proceedings under section 34 of the Arbitration Act would bring the Anasuya case in direct conflict with the existing rule laid down with regard to Section 33 of the Stamp Act.

However, the impounding of an improperly stamped award will not automatically render the award invalid, and such an award would be returned to the claimant upon the payment of the remaining stamp duty and penalty as prescribed by section 35 of the Stamp Act. This clearly places actions taken by a Court under section 33 of the Stamp Act outside the scope of the Anasuya case. Where an improperly stamped award is produced before a Court during proceedings under section 34 of the Arbitration Act, the ratio in the Anasuya case will not bar the court from impounding the award under section 33 of the Stamp Act. In fact, the Supreme Court in the Anasuya case has qualified its general statement as follows: “It is at this stage (of proceedings under Section 36 of the Arbitration Act) [that] the parties can raise objections regarding its admissibility on account of non-registration and non-stamping under Section 17 of the Registration Act.”  The duty of a court to impound an award under section 33 of the Stamp Act is independent of any objections regarding admissibility that parties may raise, and is hence not affected by the ruling in the Anasuya case.

This interpretation of the Anasuya case would also prevent false and frivolous claims raised against awards by parties who claim the non-applicability of the provisions of the Stamp Act by virtue of this judgment. As pointed out by the Delhi High Court in the Eider PWI case, there may be instances where the very nature of the award is such that it need not be enforced under section 36 of the Arbitration Act (for instance when the claims of a party are dismissed). If an alternative and broader interpretation of the Anasuya judgment is made, a party could repeatedly raise objections to the award under section 34 of the Arbitration Act, knowing that the stage of enforcement under section 36 of the Act would never arrive and he could never be directed to pay the proper stamp duty.

Conclusion

The result of the above discussion is that the statements made by the Supreme Court in the Anasuya case should be interpreted in the context in which the decision was rendered. Impounding of awards is a duty courts must carry out, without any exercise of discretion. The Anasuya judgment cannot obstruct the performance of this duty in any manner, as its sphere of application is only with regard to sections 34 and 36 of the Arbitration Act. Considering that there exist conflicting judgments of the Delhi High Court on the matter, it is imperative for the Supreme Court to give a definitive answer to the issue and resolve the ambiguity created by the Anasuya judgment.

­Athira Sankar

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