Madhya Pradesh High Court Directs Executing Court To Verify Compliance With Indian Stamp Act For Arbitral Award

Madhya Pradesh High Court Directs Executing Court To Verify Compliance With Indian Stamp Act For Arbitral Award

The Madhya Pradesh High Court Justice, Duppala Venkata Ramana, ruled that the executing court cannot disregard objections concerning the sufficiency of the arbitral award without first ascertaining whether the award complies with the stamping prerequisites specified in the Indian Stamp Act.

The case revolved around a disagreement instigated by the respondent bank against the petitioner concerning the retrieval of a loan sum that the petitioner acquired and later defaulted on. The respondent-bank pursued arbitration procedures, culminating in an award favoring its stance.

Following this, the respondent bank filed an execution petition aiming to execute the arbitration award with the Court of the Principal District Judge. The petitioner raised objections against this petition under different sections of the Civil Procedure Code (CPC) and the Indian Stamp Act. It argued that the arbitration award was procured invalidly, thus rendering the execution proceedings unsustainable.

The petitioner's objections centered on the conditions surrounding the loan agreement and the arbitration procedure. It contended that the managing director of the respondent bank didn't possess the authority to appoint an arbitrator unilaterally without the petitioner's agreement. Furthermore, it was alleged that the award didn't meet the requirements under the amended Arbitration and Conciliation Act and wasn't appropriately stamped in accordance with the Indian Stamp Act.

The High Court observed that the Arbitration Act doesn't expressly require parties to an arbitration agreement to pay stamp duties on an arbitral award. It cited the Supreme Court's ruling in M. Anasuya Devi v. M. Manik Reddy, stating that concerns about the non-stamping of the arbitral award should be raised during the enforcement phase rather than during objections under Section 34 of the Arbitration Act.

Analyzing the applicability of Section 17 of the Indian Stamp Act 1989, which regulates the timing for stamping instruments, the High Court noted that instruments, including awards, should be stamped before or at the time of execution. This provision allows parties the flexibility to fulfill the necessary stamp duty either prior to or during the execution process.

The High Court emphasized that objections concerning stamp duty deficiencies can be raised during the execution of the award. Given that the arbitral award was issued on March 31, 2017, and the execution petition was submitted on December 11, 2018, a stamp duty of two percent of the awarded amount was required under Article 12 of Schedule 1-A. The High Court criticized the Executing Court for failing to examine whether the award was properly stamped according to the Indian Stamp Act Schedule-I-A, Article 12.

Additionally, the High Court tackled the matter of the unilateral appointment of an arbitrator, stating that if an arbitrator is appointed unilaterally, the award can be contested under Section 34 of the Arbitration Act. It affirmed that such awards can be deemed null and void.

Hence, the High Court overturned the challenged order and instructed the Executing Court to verify whether the stamp duty was levied for enforcing the arbitral award as per Schedule 1-A Article 12 of the Indian Stamp (Madhya Pradesh) Amendment Act, 2014.