Rajasthan High Court Revives Arbitration Award | Holds Unstamped Agreement Not Invalid But A Curable Defect And Remands Case For Fresh Consideration
Isabella Mariam
The High Court of Rajasthan Division Bench of Justice Avneesh Jhingan and Justice Bhuwan Goyal delivered a significant judgment on 8th May 2025, setting aside the order of the Commercial Court, Alwar. The court directed the matter to be remitted for fresh consideration after complying with the provisions of the Indian Stamp Act, 1899. The Bench held that "the agreement is not rendered invalid merely for insufficient stamping" and stated that the defect of insufficient stamping is curable under the law. The matter was directed to be reconsidered under Section 34 of the Arbitration and Conciliation Act, 1996, after compliance with the stamping requirements.
The appellants and the respondent had entered into an agreement to sell a parcel of land on 21st October 2016 for a consideration of Rs. 65 lakhs. A part payment was made, but the respondent failed to execute the sale deed. As a result, the appellants-initiated arbitration proceedings as per Clause 7 of the agreement. These proceedings culminated in an award dated 3rd December 2018, directing the respondent to execute the sale deed within four weeks from the publication of the award and upon receipt of the balance consideration. Additionally, damages of Rs. 40,000 per month from 22nd April 2017 until compliance were awarded, along with costs in favor of the claimants.
The respondent filed objections under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the agreement was insufficiently stamped and hence inadmissible. During the pendency of these objections, the appellants filed an application on 20th December 2023, seeking impounding of the agreement to adjudicate the stamp duty payable, relying on the Supreme Court’s decision in In Re: Interplay Between Arbitration Agreements under Arbitration, 1996 & Stamp Act, 1899 [(2024) 6 SCC 1].
However, without deciding this application, the Commercial Court set aside the arbitral award on 26th April 2024, holding that the agreement was insufficiently stamped and no notice under Section 21 of the Arbitration Act had been issued. The appellants challenged this decision under Section 37 of the Arbitration Act.
The appellants contended that their application for referring the matter to the Collector of Stamps remained undecided and that the court erred by holding that the agreement could not be impounded under Section 34 of the Act. They argued that the defect in stamping was curable and the court failed to provide them with an opportunity to pay the requisite stamp duty and penalty.
In contrast, the respondent submitted that under the limited scope of Section 34, the Commercial Court rightly held that the agreement could not be impounded and that such an action could only be taken by the arbitrator. The respondent further argued that no valid notice under Section 21 of the Arbitration Act had been issued for initiating arbitration proceedings.
The High Court extensively reviewed the Supreme Court’s decision in In Re: Interplay, which clarified that an unstamped or insufficiently stamped agreement is inadmissible in evidence but not invalid. The Bench also considered relevant provisions of the Indian Stamp Act, including Sections 17, 33, 35, and 61, which deal with the requirements of stamping, impounding instruments, and the consequences of non-stamping.
The court noted that the Supreme Court had held that non-stamping or inadequate stamping is a curable defect and does not render the document void or unenforceable. Further, the court observed that the arbitration tribunal has the authority to impound documents under the phrase "consent of the parties" as provided under Section 33 of the Indian Stamp Act.
The Bench recorded in its judgment that "the settled position of law is that non-stamping or insufficient stamping of the agreement does not affect the validity of the document but bar is that it cannot be admitted in evidence till due stamp duty is paid." It was further observed that "the defect can be cured at the stage of the arbitral tribunal or even at the stage when the court comes to the conclusion that the agreement was not duly or sufficiently stamped."
The court held that denying the appellants the opportunity to cure the defect would lead to an anomalous situation where a defect that is curable becomes incurable at a subsequent stage, thereby defeating the very purpose of providing an alternative dispute resolution mechanism.
The court recorded that "in the present case, the appellants, despite being ready to pay the stamp duty due along with the penalty, got no opportunity to do the needful. This is despite the fact that the cause of action for curing the defect arose in the Section 34 proceedings." The court further stated that "relegating the parties for fresh arbitration after curing of the defect shall be against the spirit for providing alternative dispute resolution."
On the issue of non-compliance with Section 21 of the Arbitration Act, the court declined to examine the matter, stating that "once the court came to the conclusion that the agreement to sell, the basis for resorting to arbitration was not admissible in evidence and the issue goes to the root of jurisdiction for initiating the arbitration, there was no occasion to decide the other issues."
The Bench concluded that the court below should have followed the procedure of impounding as prescribed under the Indian Stamp Act and provided an opportunity to the appellants to pay the stamp duty along with the penalty.
The High Court set aside the impugned order and allowed the appeal. It directed that the matter be remitted back to the Commercial Court, Alwar, to decide the objections under Section 34 afresh after complying with the provisions of the Indian Stamp Act, 1899. The court stated:
"The impugned order is set aside. The appeal is allowed and the matter is remitted back to the court to decide the objection under Section 34 afresh after complying with the provisions of the 1899 Act."
It was clarified that the High Court had not expressed any opinion on the merits of the issue concerning non-compliance with Section 21 of the Arbitration Act. The Bench recorded:
"After payment of stamp duty and penalty, if levied, the court shall decide this issue afresh in accordance with law without being influenced by the findings recorded on this matter in the impugned order."
The pending miscellaneous application was disposed of accordingly.
Advocates Representing the Parties
For the Appellants: Mr. Kamlakar Sharma, Senior Advocate, assisted by Mr. Vaibhav Bhargava, Advocate
For the Respondent: Mr. Anurag Kalavatiya, Advocate
Case Title: Sunil Kumar Bhakoo & Anr. vs. Smt. Varisha W/o Aslam Khan
Neutral Citation: 2025: RJ-JP:19739-DB
Case Number: D.B. Civil Miscellaneous Appeal No. 2157/2024
Bench: Justice Avneesh Jhingan, Justice Bhuwan Goyal
[Read/Download order]
