The Rajasthan High Court, in a significant decision, held that courts cannot set aside an arbitral award merely because the agreement was insufficiently stamped, without first giving the party a chance to correct the stamp duty issue.
The Division Bench of Justices Avneesh Jhingan and Bhuwan Goyal made it clear that under Section 34 of the Arbitration and Conciliation Act, 1996, if an agreement involved in arbitration is found insufficiently stamped, courts must offer a chance to impound the document and cure the defect.
“An unstamped or insufficiently stamped agreement is not invalid. It becomes admissible once the proper stamp duty and penalty are paid,” the court stressed.
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Case Background
In this case, the appellant and the respondent entered into a land sale agreement worth ₹65 lakhs on 21.10.2016. After part of the payment was made, the respondent failed to execute the sale deed, leading to arbitration under Clause 7 of the agreement.
An arbitral award dated 03.12.2018 directed the respondent to execute the sale deed within four weeks after receiving the remaining amount. However, the respondent challenged the award under Section 34 of the Arbitration Act.
While the objections were pending, the appellant filed an application on 20.12.2023 for impounding the agreement so that the appropriate stamp duty could be adjudicated.
Despite this, on 26.04.2024, the court set aside the arbitral award solely on the ground that the agreement was insufficiently stamped, without deciding the pending application.
Court Observations:
The High Court referred to several key provisions of the Indian Stamp Act:
Section 33 allows the authority to impound a document that is not properly stamped.
Section 35 bars the admission of such documents in evidence unless duty and penalty are paid.
Section 42 & 43 provide for endorsement and recovery of stamp duty by the Collector, making the document admissible.
Section 36 prevents further challenge once the document is admitted, except as per Section 61.
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The court cited the Supreme Court’s judgment in Re: Interplay Between Arbitration Agreements & Stamp Act to clarify that insufficient stamping is a curable defect. It also cited Hindustan Steel Ltd. v. Dilip Construction Co. (1961), reiterating that such a document can still be enforced after curing the defect.
"The Stamp Act is meant to protect revenue, not to let one party escape liability on technical grounds,” the bench noted.
The Rajasthan High Court ruled that the arbitral award was wrongly set aside. The appellant had expressed willingness to pay the due stamp duty and penalty but was not given the chance to do so.
"Denying this opportunity defeats the objective of alternative dispute resolution,” the court said.
Accordingly, the court allowed the appeal and sent the matter back to the lower court for fresh consideration under Section 34.
Case Title: Sunil Kumar Bhakoo Versus Smt. Varisha
Case Number: Civil Miscellaneous Appeal No.2157/2024
