NO STAMP – NO AGREEMENT
1.A recent pronouncement of Supreme Court of India, (N.N. Global vs Indo Unique) has led to a strange situation. An agreement or any instrument for that matter, which attracts stamp duty under Indian Stamp Act, and which is not stamped or insufficiently stamped, cannot be acted upon, unless following impounding and payment of the requisite duty, penalty and necessary certificate of payment is provided. No new legislation has led to this situation and nothing wrong with the pronouncement either. The situation which we are in, still defies logical sense.
2.The Stamp Act 1866 is a fiscal law. A fiscal statute would normally be to levy taxes, duties and not to render the underlying contract non enforceable. This contrasts with non – payment of other revenue streams. For instance, non- payment of Income Tax doesn’t invalidate underlying contract. Similarly, no such damaging consequence follows , on the validity of transaction , upon failure /neglect of a commercial entity to pay G.S.T. Similiar are the principles under various other revenue laws. The proceedings for recovery of revenue , penalty, attachment, conviction all options may follow but the underlying transaction remains valid and enforceable. In fiscal laws, the State is primarily concerned with the levy and recovery of the revenue. The underlying transactions are not only not invalidated but presumed as lawful and subject to levy.
3.If stamp duty is not paid on document liable to duty, the State can seek recovery of the duty, levy penalty or initiate prosecution and may in a given situation cause prosecution and conviction. This adequately protects the interest of revenue and deters the defaulters . The object of such fiscal statute is to raise revenue by the taxation of certain instruments of transactions. However, the non-payment of proper stamp duty, as a consequence of above pronouncment , is jeopardizing the underlying transaction itself which is not an object of the Statute. Invalidation of the underlying document itself appears to be a rigour which is also not connected to the object sought to be achieved by the statue.
4.While nothing new came in Statue books, the provision which invalidates a document for non- payment of Stamp duty existed all along. Practical aspect is that the Stamp Duty on such an agreement has been miniscule and resultantly was largely ignored or looked upon in a relaxed way. A receipt for payment , for instance , currently requires stamping of a mere “One Rupee”. If there is no stamp duty paid on receipt (which is so much common practice). The receipt , under the current law, gets invalidated. Such consequences can have adverse impact on commercial transactions .
5.Moreover, another way to look at it is , if underlying contract is not enforceable , can a stamp duty be claimed at all. The right to stamp duty can only arises if the underlying contract is lawful and enforceable.
6.The fiscal statutes which came into operation post-1950 and the fiscal statute like Stamp Act which is operative since 1899 clearly demonstrates a distinction. Section 35 of the Stamp Act, which invalidates the underlying transactions, is clearly archaic and out of place.
7.Full impact of this current development in law has not yet been felt . It is a serious anomaly in law which is required to be corrected. The remedy of recoveries, penalties, attachments, prosecution would be adequate to safeguard the interest of the revenue.
Surely, issue appears to be under consideration and the larger Bench of Supreme Court will analyse this aspect and may struck down the old fossil provisions the law.
Rajiv Talwar
If an Agreement’s validity is questioned to the extent that it is not stamped or insufficiently stamped, it is the root argument. The Law has not created any distinction between an agreement put forth for purposes of arbitration or put forth before a regular civil court. However, having said so, such agreement should have same fate and the filing party must mandatorily comply with applicable law and then come before the Court under the A&C Act. Even otherwise, if such party feels that there exists no illegality in said instrument, the NN Global has not rendered such party remediless. We must also bear in our minds that Arbitration is an expensive affair in comparison to regular civil court and if proceedings are continued on a non-compliant instrument, it will aid illegality, which is never the intent of legislature. So say, it is merely ‘fiscal violation’ will not remove the illegality and make the instrument legal and valid. The doctrine of separability should not be taken as aid in this case.