Introduction
Due to non-payment of stamp duty, several litigants have had difficulty enforcing awards in India. Stamp duty on domestic and foreign awards has long been a source of debate and misunderstanding.
The provisions of the Arbitration and Conciliation Act. 1996 (Act) do not fully address the issue of stamping. Furthermore, the Act is silent as to when the stamp duty on the arbitral award is due. However, Section 35 of the Indian Stamp Act of 1899 ( 'the Stamp Act') mandates the stamping of arbitral awards providing that an unstamped or insufficiently award is inadmissible.
In this context, it is usually seen that a decree holder who, despite receiving a favorable award, is denied the benefits of the award due to technical objections raised by the judgement debtor, such as the fact that levying stamp duty on awards has an impact on India's economy, and thus non-payment of stamp duty would be a violation of Indian law's fundamental policy.
Is stamping of domestic award mandatory for enforcement?
There are a variety of mandatory and non-obligatory elements that must be met for an arbitral award to be enforceable. Stamping and registration of domestic awards is one of these obligations. Section 35 of the Stamp Act unambiguously mandates that that if an instrument is inadequately stamped, then the same is neither admissible as evidence nor can it be acted upon before the courts. Therefore, if any award is inadequately stamped at the time of enforcement, it is incumbent upon the court to impound the same and send it to the collector for a proper assessment of the stamp duty and penalty thereon. Therefore, before seeking enforcement of an award, the decree holder has to ensure that the same is sufficiently stamped.
When can the domestic award be stamped?
In the case of domestic awards, it is the Court's responsibility to determine whether any instrument requires payment of stamp duty. In Deep Industries Limited v. Oil and Natural Gas Corporation Limited and Ors., the Supreme Court of India held that the Stamp Act is a fiscal instrument established to assure revenue for the government. It was not enacted to provide a litigant with a technical weapon with which to counter an opponent's case.
After the arbitration process is completed, the merits are given finality by issuing an arbitral award. Following the passage of the award, there are two possible outcomes: either the arbitral award being set aside or the award being enforced by execution. For proper execution of award, it is necessary for it to be stamped. There have been instances, where arbitrators had asked the parties to provide stamp paper of sufficient stamp duty for printing and pronouncing the award. This issue was settled by the Hon'ble High Court of Delhi in in 'Mohini Electricals Limited vs. Delhi Jal Board' wherein, it was held that an arbitrator becomes functus officio after writing the award, and any directions by the arbitrator in relation to payment of stamp duty upon pronouncement of the award can be regarded as 're-writing of the award'. Therefore, it is for the Court to see at the stage of enforcement whether the award is adequately stamped or not. In view of this, a domestic award can be stamped just before its execution.
Whether an unstamped arbitral award challenged under Section 34 of Arbitration and Conciliation Act can be impounded on the basis of Section 33 of Stamps Act, 1899?
A public officer is required by Section 33 of the Stamps Act to confiscate any document that is insufficiently stamped or unstamped. It is a must, not merely a suggestion. In the case of N. Bhargavan Pillai v. State of Kerala, the Supreme Court held that a public officer exercising his or her powers under Section 33 of the Stamps Act, 1899, cannot force parties to submit papers and can only impound original instruments, not copies.
According to Section 31(5) of the Act, each party must get a copy of the arbitral award after it is rendered in the event that the award is challenged under Section 34 of the Act, i.e. the award is challenged on the grounds mentioned in Section 34.
To resolve the conflict between Section 33 of the Stamps Act of 1899 and Section 34 of the Arbitration Act of 1996, the Delhi High Court practice directions must be followed, according to which an arbitrator must forward the original arbitral award along with the respective arbitral record to the Registry of the High Court upon receiving notice from the Registry of the High Court.
In the case of Eider PW1 Paging Limited and Eider PW1 Communications Ltd. vs. Union of India (2010) the issue in question was the validity of judgment passed in the case of M Anasuya Devi vs. M Manik Reddy i.e. whether an unstamped arbitral award challenged under Section 34 of Arbitration and Conciliation Act can be impounded on the basis of Section 33 of Stamps Act, 1899. In this case, the Delhi High Court ruled that the Supreme Court's decision in Anasuya's case was per incuriam, and that the provision under Section 33 of the Stamps Act, 1899 is mandatory, and that an unstamped arbitral award challenged under Section 34 is liable to be impounded under Section 33 of the Stamps Act, 1899.
What is the quantum of stamp duty on arbitral award?
The quantum of stamp duty to be paid would vary from state to state depending on where the award is made. Currently, as per the Maharashtra Stamp Act, the stamp duty for arbitral awards stands at five hundred rupees in Maharashtra; and in case of Delhi, as per Schedule 1A to the Stamp (Delhi Amendment) Act 2001, the stamp duty is calculated at roughly 0.1% of the value of the property to which the award relates. Under Section 17 of the Registration Act, 1908 an award has to be compulsorily registered if it affects immovable property, failing which, it shall be rendered invalid.
Is stamping of a foreign award necessary?
The Supreme Court of India has decided in M/S Shriram EPC Limited v/s Rioglass Solar Sa that a foreign arbitral award does not need to be stamped. This decision has resolved a dispute over which various Indian High Courts had differing viewpoints.
The central issue in the current appeal was whether the term "award" includes a foreign award under the Indian Stamp Act, and whether an unstamped foreign award can be enforced under Sections 48 and 49 of the Arbitration Act.
The Supreme Court looked at the history of the Stamp Act, previous provisions of the Civil Procedure Code, 1882, previous acts relating to arbitration in India, principles set forth in the New York Convention, and various decisions and concluded that the definition of award has not been amended to include the term foreign award.
The Supreme Court cited the Madhya Pradesh High Court's decision in Narayan Trading Co. vs. Abcom Trading Pvt. Ltd., which held that when the Arbitration and Conciliation Act 1996 was amended, no changes were made to the definition of the term "award" under the Stamp Act, and that the Stamp Act's Schedule, which sets out the stamp duty payable, was not amended to include a foreign award.
Therefore, the Supreme Court concluded that the lack of stamp duty on a foreign award does not render it unenforceable.