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Unstamped Agreements Face Scrutiny: Bombay HC Asserts Authority under Section 11 of A&C Act

In a recent landmark ruling, the High Court of Bombay has solidified its position regarding the treatment of unstamped or insufficiently stamped agreements. The court, while exercising its powers under Section 11 of the A&C Act, emphasized its authority to ascertain and collect unpaid or deficit stamp duty linked to such agreements. This significant step was propelled by a noteworthy judgement from the Delhi High Court in the case of Splendor Landbase v. Aparna Ashram Society.

The Bombay High Court stressed that this action could be taken, especially when the quantum of stamp duty is not under serious dispute. The court highlighted its ability to either impound the agreement and send it to the Collector of Stamps, directing the parties to pay the necessary stamp duty and penalties or undertake the task itself through an authorized officer.

In the case under consideration, the involved parties had executed an agreement titled 'Employee Non-Disclosure and Non-Solicitation Agreement' on November 15, 2021. However, the agreement lacked the required stamping. Subsequently, a dispute emerged between the parties, prompting the petitioner to invoke the arbitration clause. The petitioner, facing challenges in mutually appointing an arbitrator, filed an application under Section 11 of the A&C Act. The respondent objected to the maintainability of the petition, arguing that the arbitration agreement embedded within the unstamped agreement couldn't be enforced based on a recent Constitution Bench judgement of the Hon’ble Supreme Court.

The petitioner contended that the agreement in question was a non-disclosure and non-solicitation agreement with no monetary value assigned to it. In light of the Maharashtra Stamp Act, the stamp duty payable on such an unstamped agreement could be easily determined. The petitioner proposed a process where the court could grant an opportunity to pay the stamp duty before an officer, who would endorse the payment and transfer it to the Collector of Stamps, allowing the petition under Section 11 of the Arbitration Act to proceed.

Drawing upon the precedent set by the High Court of Delhi in Splendor Landbase, the petitioner urged the court to adopt a similar approach to expedite the arbitration proceedings while ensuring compliance with the Stamps Act.

The court thoroughly analyzed the submissions and upheld its authority to determine and collect the unpaid or deficit stamp duty associated with unstamped or insufficiently stamped agreements. The court referenced the Delhi High Court judgement in Splendor Landbase, reinforcing that this action is justified when the stamp duty amount is not significantly contested. Given the simplicity of the agreement in question, a non-disclosure and non-solicitation agreement with no assigned monetary value, the applicable stamp duty was determined to be Rs. 100 as per Section 5(h)(B) of the Maharashtra Stamps Act.

Consequently, the court directed the Prothonotary and Senior Master to impound the original agreement and collect the determined stamp duty amount, forwarding it to the collector of stamps. Upon payment of the stamp duty, the Prothonotary and Senior Master would endorse the agreement as duly stamped, issue a written certificate, and forward the stipulated amount to the collector of stamps. The court set a timeline of 10 days for completing this entire process.

This recent ruling by the Bombay High Court reiterates the importance of proper stamping and the court's authority to ensure compliance. Unstamped or insufficiently stamped agreements are now subject to thorough scrutiny, emphasizing the significance of adhering to the stipulated stamp duty regulations. The court's proactive approach aligns with the intention of harmonizing the Stamps Act with Section 11(13) of the A&C Act, expediting the arbitration process while upholding legal standards.

This ruling serves as a crucial precedent, providing clarity on the treatment of unstamped agreements within the framework of the A&C Act. It underlines the court's dedication to enforcing stamp duty regulations, ensuring fairness and adherence to legal requirements in arbitration cases.

Case Title: John Cockerill India Limited v. Sanjay Kamlakar Navare, Commercial Arbitration Application (L) No. 10282 of 2023