SUPREME COURT SETS ASIDE LEVY OF EXORBITANT PENALTY BY TRIAL COURT ON INSUFFICIENTLY STAMPED INSTRUMENT
Recently, in the matter of Seetharama Shetty vs Monappa Shetty, Civil Appeal Nos. 10039-40 of 2024 arising from S.L.P. (Civil) Nos. 7249-7250 of 2022, a two Judge Bench of the Hon’ble Supreme Court comprising of Justice Hrishikesh Roy and Justice SVN Bhatti passed a Judgment dated 02-09-2024 and observed that the Appellant would be liable to pay the requisite stamp duty along with penalty on the Agreement to Sell executed between the Appellant and the Respondent, in order for the Agreement to be admissible in evidence before the Trial Court. However, the quantum has to be determined by the District Registrar and not the Trial Court under Section 34 of the Karnataka Stamp Act, 1957 (Act). Accordingly, the Bench set aside the Trial Court’s levy of exorbitant penalty on the insufficiently stamped Agreement.
Facts
(i) In the present case, the Respondent- Monappa Shetty had entered into an Agreement to Sell dated 29-06-1999 with the Appellant- Seetharama Shetty for sale of Property consisting of agricultural land in Kavoor Village, Mangalore Taluk (Suit Property). Based on the Agreement, the Appellant claimed to have been put in possession of the Suit Property, as part performance under the said Agreement.
(ii) But the Respondent allegedly tried to dispossess the Appellant from the Suit Property.
(iii) Thus, the Appellant filed a Civil Suit bearing O.S. No. 295 of 2013 seeking perpetual injunction restraining the Respondent from interfering with the Appellant’s peaceful possession and enjoyment of the Suit Property.
(iv) The Respondent denied execution of the Agreement and filed an Application before the Trial Court under Section 33 of the Karnataka Stamp Act, 1957 (Act) (Examination and impounding of instruments) seeking impounding of the Agreement to Sell, as the same was insufficiently stamped and that the requisite stamp duty along with penalty be collected.
(v) The Trial Court, vide Order dated 10-11-2016, sent the Agreement to the District Registrar for determination of requisite stamp duty and penalty payable on the Agreement to Sell. But the Registrar communicated its inability to determine the deficit stamp duty for want of the name of the village. Hence, he returned the Agreement to the Trial Court.
(vi) The Appellant sought to provide clarifications, vide Memo dated 26-04-2017, but the Trial Court passed an Order dated 12-08-2017 and refused to allow the same as ex-post-facto incorporation of material details into the Agreement to Sell would be to the detriment of the Respondent.
(vii) Aggrieved, the Appellant filed a Writ Petition No. 8506 of 2018 before the High Court of Karnataka. The High Court, vide Order dated 10-08-2018, directed the Trial Court to send the Memo to the District Registrar for appropriate proceedings in accordance with law. But the Bench held that “However, it is made clear that the order and proposition with reference to the name of the village mentioned by the plaintiff/petitioner shall have relevance only for the purpose of calculation of deficit stamp duty and other charges but shall have no bearing on the merit consideration of the submissions of the parties, including the submissions of the defendant/respondent about the genuineness and the validity of the document in question and the corresponding right of the plaintiff/petitioner to contest such objections.”
(viii) Thereafter, the District Registrar determined the stamp duty payable on the Agreement to Sell as Rs. 71,200/- (Rupees Seventy-One Thousand Two Hundred only). Subsequently, the Trial Court, vide Order dated 23-01-2019, directed the Appellant to pay the said stamp duty along with penalty of ten times the amount of stamp duty, that totalled to Rs. 7,83,200/- (Rs. Seven Lakhs Eighty-Three Thousand Two Hundred only).
(ix) Aggrieved, the Appellant challenged the Trial Court Order that directed him to pay the stamp duty along with penalty that was ten times the stamp duty, before the High Court in Writ Petition No. 30734 of 2019. The High Court dismissed the said Writ Petition.
(x) Aggrieved, the Appellant filed a Review Petition before the High Court, which was again dismissed, vide Order dated 14-09-2021.
Supreme Court Observations
Aggrieved by the Trial Court Order dated 23-01-2019 and the High Court Order dated 14-09-2021, the Appellant filed S.L.P. (Civil) Nos. 7249-7250 of 2022 before the Hon’ble Supreme Court that was admitted and registered as Civil Appeal Nos. 10039-40 of 2024. The Apex Court, vide Order dated 02-09-2024, made the following observations:
(1) That the Appellant, with a view to produce in evidence the Agreement to Sell in the Suit in order to claim possession of the Suit Property, has to pay the deficit stamp duty along with penalty.
(2) That under Section 33 of the Act and Section 34 of the Act (Instruments not duly stamped inadmissible in evidence, etc), the Authority would impound an insufficiently stamped instrument and consider it in evidence only upon payment of stamp duty along with penalty. Once the said payment is done, the impounding authority, under Section 37 of the Act (Instruments impounded how dealt with), would send an authenticated copy of the instrument to the Deputy Commissioner for enquiry and decision at his end regarding whether the duty has been paid correctly, under Section 39 of the Act (Deputy Commissioner’s power to stamp instruments impounded).
“The object of the Act is not to exclude evidence or to enable parties to avoid obligations on technical grounds. Rather, the object is to obtain revenue even from such instruments which are at the first instance unstamped or insufficiently stamped. The said objective has the twin elements of recovering the due stamp duty and penalty, and also the public policy of binding parties to the agreed obligations.”
(3) That a seven-Judge Bench of the Supreme Court in the matter of In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, observed that the defect of non-stamping or improper stamping of instruments is a curable defect and the same would not render the instrument void or invalid. In fact, once the requisite stamp duty and penalty is paid, the same may be admitted in evidence under Section 35 of the Indian Stamp Act 1899.
The detailed article on the aforementioned judgment can be viewed at the link below:
(4) That under Section 39 of the Act, the Deputy Commissioner / District Registrar has the power to certify whether requisite duty and penalty have been paid on an instrument, failing which, the said Authority would determine the quantum of duty and penalty to be paid. Hence, the Bench in this case held that “the quantum of penalty is primarily between the authority/court and the opposing party has little role to discharge.”
(5) That though Section 39 of the Act provides that the penalty may extend to ten times the stamp duty payable; however, the Bench held that ten times is the farthest limit which is meant only for very extreme situations. Further, the quantum has to be determined by the District Registrar and not the Trial Court under Section 34 of the Act.
Conclusion
Thus, based on the aforesaid observations, the Bench held that the levy of such high penalty upon the Appellant is illegal. Further, the Appellant would be liable to pay stamp duty along with penalty as fixed by the District Registrar and not the Trial Court. As a result, the Bench set aside the direction of the Trial Court to the Appellant to pay the exorbitant penalty and thereby, directed the Trial Court to send the Agreement to Sell to the District Registrar to determine the deficit stamp duty and penalty payable. Thereafter, upon receipt of the compliance certificate from the District Registrar, the said Agreement be received in evidence by the Trial Court.
Harini Daliparthy
Lead Senior Associate
The Indian Lawyer
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