Delhi High Court frames rules on procedure to be followed after impounding insufficiently stamped arbitration agreements

The Delhi High Court has formulated the procedure to be followed in cases where arbitration agreements - forming the basis of applications filed in Court to appoint an arbitrator - are either unstamped or insufficiently stamped. [Splendor Landbase Ltd v. Aparna Ashram Society and anr].The High Court ruling was passed keeping in mind the Supreme Court’s April 2023 ruling in NN Global Mercantile Pvt Ltd v. Indo Unique Flame Ltd, wherein a Constitution Bench of the top court held by a 3:2 majority that unstamped arbitration agreements are not valid in law..In the same ruling, the top court had indicated that unstamped or insufficiently stamped arbitration agreements must be impounded, in line with the requirement under the Indian Stamp Act.“As unambiguously held in N.N. Global, the statutory mandate of Section 33 of the Stamp Act, is to impound agreements which are unstamped or insufficiently stamped. This Court is obliged to do so, especially considering that N.N. Global clearly holds that while entertaining a petition under Section 11 of the Act, the function being performed by the Court is akin to “receiving evidence,” the Delhi High Court observed..Justice Sachin Datta, therefore, laid down rules to be followed after such agreements are impounded, including the manner in which such a defect can be cured by paying the requisite stamp duty.The judge also clarified that the original arbitration agreement or instrument has to be filed along with an application to appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 if such instrument or agreement is not sufficiently stamped.In cases where the agreement has been properly stamped, only the true copy of the agreement needs to be filed, the Court said..The ruling was passed in connection with about 20 cases where arbitration agreements were not sufficiently stamped. .Justice Datta held that a court can opt for one of two courses of action while dealing with an application to appoint an arbitrator under Section 11 of the Act, where the arbitration agreement is insufficiently stamped or unstamped.(A) Send the impounded agreement or instrument to the concerned Collector of Stamps who can then take action under Section 40 of the Stamp Act to ensure that the required stamp duty and penalty is paid up. Once the Collector certifies that the stamp duty has been paid, the court can then admit the endorsed agreement as evidence and proceed with the Section 11 application. It would be open to the court to direct the Collector to perform this task in a time-bound manner.Or(B) The court can allow the parties to deposit the required stamp duty and penalty in court itself, in line with Section 35 of the Stamp Act. The Court opined that this course of action can be resorted to when the stamp duty payable is not disputed. Once it is paid, an authenticated copy of the endorsed instrument or agreement has to be sent to the Collector of Stamps, who can refund any portion of the paid amount, if required. If the Collector of Stamps is aggrieved by the amount of stamp duty set by the court, the same can be challenged under Section 61 of the Stamp Act..Exercising its powers under Rule 3, Chapter-II of the Delhi High Court (Original Side) Rules, 2018, the High Court also delegated the task of impounding insufficiently stamped or unstamped arbitration agreements to the Court’s registrar.Related responsibilities such as preparing a report on the amount of stamp duty payable, endorsing instruments on which stamp duty is paid etc. were also assigned to the registrar. The final decision on these aspects would be by the court, Justice Datta clarified..A question also arose as to which stamp duty is payable where the arbitration agreement or instrument is executed in one State (first State) but related to a case in another State (second State).On this issue, the High Court reiterated the Supreme Court’s ruling in New Central Jute Mills Co Ltd v. State of West Bengal. In such cases, the top court had held:The agreement or instrument must be stamped in accordance with the law of the first state and it will not require to be further stamped in accordance with the law of the second State when the rate of that second state is the same or lower.Where the rate of the second state is higher, it will require to be stamped only with the excess amount..Advocates Saket Sikri and Shashank Garg appeared as amicus curiae in these matters..[Read Judgment]