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Inadequately Stamped Arbitral Awards- Validity and Legal Consequences

August 6, 2020

By Priya Adlakha and Nihit Nagpal

ARBITRATION AND DOMESTIC ARBITRAL AWARD

Arbitration is a legal procedure to solve disputes, precisely commercial matters, outside court of law. Its functioning is analogous to judicial courts and arbitral awards are equally binding on contesting parties. Arbitration is gaining recognition and emerging businesses, companies are opting arbitration as a mode to resolve disputes. An arbitral award can be described as a formal and legal declaration and recognition of the merits of matter in dispute, by an arbitration tribunal which is equivalent to the judgment of judicial courts.

Is stamping of domestic arbitral award obligatory for enforcement?

For an arbitral award to be enforceable, there are a number of obligatory and non-obligatory requirements that ought to be fulfilled, for proper execution or setting aside of arbitral award. One of those requirements is stamping and registration of domestic arbitral awards. Insufficiency or any inadequacy in stamping of documents have certain consequences over its validity and enforceability. Some of the major legislations and provisions governing such issues are, Section 34 and Section 36 (setting aside of arbitral award and enforcement/execution of arbitral award respectively) of Arbitration and Conciliation Act 1996[1], Section 17 and Section 3 of Indian Stamps Act, 1899[2].

ISSUES PERTAINING TO UNSTAMPED DOMESTIC ARBITRAL AWARDS

After completion of the process of arbitration, finality to the merits is given by pronouncing an arbitral award. Consequent to the passage of award, there are two possible outcomes namely, setting aside of arbitral award and enforcement of such award by execution under Sections 34 and 36 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) respectively. Some case laws are briefed below, about unstamped or inadequately stamped arbitral awards, their validity and status with regard to Sections 34 and 36 of the Act.

According to Section 33 of the Stamps Act, a public officer is obligated to impound any document which is inadequately stamped or unstamped. It is a mandatory clause and not merely directory. The Supreme Court in the case of N. Bhargavan Pillai v. State of Kerala[4] while referring to the said provision opined that such public officer while exercising his/her power under Section 33 of the Stamps Act, 1899 cannot force the parties to produce documents and also, has the power to impound only original instruments and not copy of it. As per Section 31(5) of the Act, after pronouncement of arbitral award each party is to be delivered copy of the award, in case of contesting such award under Section 34 of the Act, i.e. challenging the award passed on the grounds as enumerated under Section 34. Therefore, to rectify the conflict between Section 33 of Stamps Act, 1899 and Section 34 of the Arbitration Act of 1996, the Delhi High Court practice directions are to be followed, according to which, on notice from Registry of High Court, Arbitrator is mandated to forward the original arbitral award along with the respective arbitral record to the Registry of High Court.

In the case of Eider PW1 Paging Limited and Eider PW1 Communications Ltd. vs. Union of India (2010)[5] the issue in question was the validity of judgment passed in the case of M Anasuya Devi vs. M Manik Reddy[6] 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. The Delhi High Court in this case considered the judgment given in Anasuya’s case by the Apex court to be per incuriam and further pronounced that the provision under Section 33 of Stamps Act, 1899 is mandatory and thereby, an unstamped arbitral award under Section 34 for setting aside arbitral award is liable to be impounded as per Section 33 of the Stamps Act, 1899.

Meanwhile, the Delhi High Court in the case of M. Sons Enterprises Pvt. Ltd. and Anr vs. Suresh Jagasia and Anr[7].took another path while considering the interplay between Section 34 of Arbitration Act and Section 33 of Stamps Act. It held in contrast to the judgment given in Eider’s case, stating that, the verdict passed by Supreme Court in Anasuya’s case cannot be invalidated as per incuriam as it was  silent over the provisions under Stamps Act.

CONCLUSION

Considering the contentions and contradictory judgments delivered by the Supreme Court and High Courts, the question of the interplay between Section 33 of the Stamps Act, 1899 and Section 34 of the Arbitration and Conciliation is still vague and ambiguous. Keeping in view the verdict passed in the M. Sons’s case, the question of enforceability over non-stamping of award can be questioned under Section 36 of the Act (execution of award).

[1] https://www.indiacode.nic.in/bitstream/123456789/1978/1/A1996-26.pdf

[2] http://legislative.gov.in/sites/default/files/A1899-2.pdf

[3] (2003) 8 SCC 565

[4] (2004)13 SCC 217

[5] 2010 SCC Del 422

[6] (2003) 8 SCC 565

[7] (2011) SCC Del 82

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