Read Time: 13 minutes

Synopsis

The Supreme Court has said that under the Karnataka Stamp Act, being a regulatory and remedial statute, a party who follows the regulation, and pays the stamp duty and penalty, as per Sections 34 or 39 of the Act, the legal objection emanating from Section 33 of the Act alone is effaced and the document is admitted in evidence. In other words, the objection under the Stamp Act is no more available to a contesting party, it clarified.

A bench of Justices Hrishikesh Roy and S V N Bhatti said as per Section 39(1)(b) of Act, the penalty may extend to ten times the stamp duty payable; however, ten times is the farthest limit which is meant only for very extreme situations. 

Therefore, the Deputy Commissioner/District Registrar has discretion to levy and collect commensurate penalty, it pointed out.

"By paying/depositing the deficit duty and penalty would result in the instrument becoming compliant with the checklist of the Act. The finality is subject to the just exceptions envisaged by the Act addressing different contingencies," the bench said.

Court also noted that the scheme does not prohibit a party to a document to first invoke directly the jurisdiction of the District Registrar and present the instrument before court after complying with the requirement of duty and penalty. In such an event, the available objection under Sections 33 or 34 of the Act is erased beforehand. 

"The quantum of penalty is primarily between the authority/court and the opposing party has little role to discharge," the court held.

For the benefit of practice and procedure, the court, in its judgment, summed up the steps by setting aside an order directing a plaintiff to pay ten times penalty due to deficient stamp duty under the Karnataka Stamp Act with regard to sale agreement of a plaint schedule property.

Court held that the imposition of penalty of ten times in the facts and circumstances of the case at hand was illegal and contrary to the steps delineated under the Act.

The court allowed an appeal filed by one Seetharama Shetty against the Karnataka High Court's order of 2021. 

The appellant filed a suit for perpetual injunction for restraining the respondent from peaceful possession and enjoyment of plaint schedule property consisting of agricultural land in Kavoor village of Mangalore taluk.

The appellant claimed that the respondent entered into the agreement of sale on June 29, 1999 with the appellant. The appellant claimed to have been put in possession of the property as part performance under the agreement of sale.

The respondent denied the execution of the agreement of sale. He also claimed that the suit agreement was insufficiently stamped. Therefore, the document was inadmissible in evidence unless the document was made compliant with the requirements of the Act, he argued.

He filed an application before the trial court under Section 33 of the Act to impound the suit agreement to collect the deficit stamp duty and penalty in accordance with the Act.

As the District Registrar expressed inability to determine the deficit stamp duty and penalty payable on the suit agreement for want of the name of the village, the appellant filed a memo purporting to clarify the name of the village. This was rejected by the trial court in view of objection by the respondent.

On a writ petition, the Karnataka High Court directed the trial court to send the agreement to the District Registrar who determined the deficit stamp duty payable on the instrument at Rs 71,200. The trial court, by order on January 23, 2019, directed the appellant to pay the deficit stamp duty and ten times penalty on the agreement of sale. Thus, the total levy of stamp duty and penalty was Rs 7,83,200.

The appellant assailed the order before the high court which dismissed the writ petition and review petition, making him to file the civil appeals before the top court.

After hearing the parties including amicus curiae Liz Mathews, the bench confirmed the high court's findings that the appellant, with a view to produce in evidence the agreement of sale in the suit, must pay the deficit stamp duty and penalty. 

Court then examined whether in the facts and the circumstances of the case, the penalty determined by the court on the instrument instead of sending the instrument to the District Registrar for determination and collection of penalty as may be applicable was legal.

The bench pointed out that the object of the Act is not to exclude evidence or to enable parties to avoid obligations on technical grounds. Rather, the object is to obtain revenue even from such instruments which are at the first instance unstamped or insufficiently stamped. The said objective has the twin elements of recovering the due stamp duty and penalty, and also the public policy of binding parties to the agreed obligations. 

It also referred seven-judge bench’s 2024 judgement of the top court on the object of the Indian Stamp Act, 1899- 'In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899'.

In the case, the court noted the instrument is to be sent to the District Registrar, thereafter the District Registrar in exercise of his jurisdiction under Section 39 of the Act, decides the quantum of stamp duty and penalty payable on the instrument. 

"The appellant is denied this option by the impugned orders. It is trite law that the appellant must pay what is due, but as is decided by the District Registrar and not the court under Section 34 of the Act. Hence, the direction to pay ten times the penalty of the deficit stamp duty merits interference and accordingly is set aside," the bench said.

Court directed the trial court to send the agreement of sale of June 29, 1999 to the District Registrar to determine the deficit stamp duty and penalty payable. Upon receipt of the compliance certificate from the District Registrar, without reference to an objection under the Act, the suit document be received in evidence. All objections available to the respondents except the one determined by this court are left open for consideration, the bench ordered.

Case Title: Seetharama Shetty Vs Monappa Shetty