Stamp Duty payable on an Arbitral Award under Article 12 of the Maharashtra Stamp Act, 1958.

I am part of a WhatsApp group which exclusively consists of alumni of Government Law College, Mumbai. Some of the members of this group are senior advocates, solicitors, retired Chief Justices of various High Courts and retired judges of the Supreme Court of India. It was during Diwali that a discussion took place with regard to the recent Maharashtra Stamp (Amendment) Ordinance, 2024 issued by the State Government. The Ordinance has made several amendments to the Maharashtra Stamp Act, 1958 (“Act”). One such amendment is to Article 12 of the Act which pertains to stamp duty payable on an arbitral award. Immediately, there followed a discussion on the amendment between advocates and retired judges. I will readily confess that although I was aware of the amendment made to Article 12, I had not considered its implications for an arbitrator or for the parties. Although I was tempted to act like a participant of “fastest finger first” from the preliminary round of “Kaun Banega Crorepati”, I considered it best not to join the discussion as there was a real possibility of shooting myself in the foot!

But now that Diwali has come and gone and the itch to get back to work has well and truly set in, I felt that now is as good a time as any to look at amended Article 12 of the Act. Also as an arbitrator I am in the midst of hearing final arguments in a few arbitrations and shortly thereafter I would be required to issue a final award.

Discussion

Unamended Article 12 of the Act reads as follows:

“Article 12 : AWARD, that is to say, any decision in writing by an arbitrator or umpire, on a reference made otherwise than by an order of the Court in the course of a suit, being an award made as a result of a written agreement to submit present or future differences to Arbitration but not being an award directing partition.”

Amended Article 12 of the Act reads as follows:

“12. AWARD, that is to say, any decision in writing by an arbitrator or umpire, on a reference made otherwise than by an order of the Court in the course of a suit, being an award made as a result of a written agreement to submit present or future differences to Arbitration but not being an award directing partition,

(a) relating to immovable property;

The same duty as is leviable on a conveyance under clause (b) of article 25.

(b) relating to movable property,—

(i) where the amount granted in the award, does not exceed rupees fifty lakhs;

0.75 per cent. of the granted in the award.

(ii) where the amount granted in the award, plus exceeds rupees fifty lakhs but does not exceed rupees five crores;

Rupees thirty seven thousand five hundred 0.5 per cent. of the amount granted in the award.

(iii) where the amount granted in the award, exceeds rupees five crores;

Two lakhs sixty two thousand five hundred rupees plus 0.25 per cent. of the amount granted in the award."

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On a plain reading of amended Article 12 it is seen that an exception is made for the following types of arbitral awards:

1.??? The court may in a pending suit refer parties to arbitration. An award issued in such an arbitration is excluded. This was also the position under unamended Article 12 of the Act.

2.??? An award for partition of property.

Article 12 ?makes a specific provision for payment of stamp duty on an arbitral award pertaining to immovable and movable property. The General Clauses Act, 1897 provides a definition of immovable and movable property which is:

“Section 3 (26) “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;

?Section 3 (36) “movable property” shall mean property of every description, except immovable property;”

Bearing in mind the aforementioned definitions, one could argue that Article 12 does not cover within its ambit an arbitral award for compensation in lieu of damages and refund of monies / payment of money.

Prior to amendment of Article 12 of the Act, I used to either purchase stamp paper of Rs.500/- or call for the same from the advocates for the respective parties and thereafter issue an arbitral award on stamp paper. However, post amendment, it is not possible to continue with this modus operandi. Post the amendment, an award for immovable property is required to be stamped as a conveyance specified under Article 25 clause (b). Further on an award for movable property, ad valorem stamp duty is required to be paid. Faced with this unique situation, it would appear that an arbitral tribunal will have to ascertain and make payment of stamp duty on the arbitral award.

Section 17 of the Act stipulates the time at which instruments executed in the State of Maharashtra are required to be stamped. Section 17 reads as under:

?“17. All instruments chargeable with duty and executed by any person in this State shall be stamped before or at the time of execution 1[or immediately thereafter] 2[on the next working day following the day of execution] :

3[Provided that the clearance list described in Article 19, 20, 21, 22 or 23 of Schedule I may be stamped by an officer authorised by the State Government by rules made under this Act, if such clearance list is submitted for stamping by the clearing house of an Association in accordance with its rules and bye-laws with the requisite amount of stamp duty, within two months from the date of its execution.]”

Section 2 (l) of the Act defines an instrument as:

"(l) “ instrument ” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt ;

3[Explanation.—The term “ document ” also includes any electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 ; ]"

?On a combined reading of Section 2(l) and Section 17 of the Act, it is evident that the arbitral award being an instrument is chargeable with stamp duty before or at the time of execution. Therefore once the arbitral award is made final and is ready for execution, it is necessary for an arbitral tribunal to ascertain the stamp duty chargeable on the award and thereafter make arrangements to have the stamp duty paid at the time of execution of the arbitral award. From conversations with advocates who regularly undertake property related transactions and also having personally entered into transactions for purchase and sale of immovable property, I found that the work of ascertainment of stamp duty is undertaken by registration agents who get the job done in consultation with an officer working at the Sub-Registrar’s Office. In my opinion, the ascertainment of stamp duty on an award pertaining to immovable property ought not to pose any problem. Further, the stamp duty payable on an award pertaining to movable property will be calculated on the rates provided in Article 12 itself.

In my view, the challenge lies not in ascertainment but in payment of stamp duty. The arbitral tribunal will not have funds at its disposal for payment of stamp duty unless the same are deposited by the parties to the arbitration. The arbitral tribunal will have to consider whether it is prudent to take into confidence the advocates for the respective parties and disclose the contents of the draft arbitral award so that parties may make arrangement for payment of stamp duty on execution of the arbitral award. This may be necessary in light of the strict timeline provided under Section 17 of the Act. Of course, there is a possibility that the losing party may be unwilling to incur the additional cost of stamp duty and the entire burden may fall on the successful party.

As per Section 32 (1) and (3) of the Arbitration and Conciliation Act, 1996, post execution / issuance of the award, the mandate of the arbitral tribunal and the arbitral proceedings stand terminated and the arbitral tribunal will no longer be able to issue any directions for payment of stamp duty. Since it is the arbitral tribunal which is executing the award and not the parties to the arbitral proceedings, as per the Act it is the sole burden of the arbitral tribunal to ensure payment of stamp duty on the award before or immediately on the execution of the award.

Sometime in the near future a court will hear arguments on Article 12 of the Act and consider its ramifications. But the matter may not rest there. In a large number of cases, a challenge is filed to an arbitral award. It is possible that a court may interfere and set aside the award. In such a situation, a party may well want a refund of the stamp duty paid on the award. What then?

This amendment has caused quite a stir amongst arbitrators and advocates who represent parties in arbitral proceedings. In this article, I have attempted to make a small contribution to the ongoing discussion. Dear reader, I welcome your thoughts on the article and encourage you to share them in the comments.

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-?????? Advocate Sandeep H. Parikh

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