In a recent judgment, the Bombay High Court dealt with the issue of stamp duty on non-disclosure agreements containing an arbitration clause. The court made its order under the provisions of section 11 of the Arbitration and Conciliation Act, 1996. In doing so, it provided fundamental guidance on rectifying deficiencies in stamp duty and penalties.
The case of John Cockerill India Limited v Sanjay Kamalakar Navare arose out of an employee non-disclosure and non-solicitation agreement executed in 2021. Following disputes, the applicant invoked the arbitration clause and applied to the court for the appointment of an arbitrator. The agreement, which had no monetary value assigned to it, required stamping under the Maharashtra Stamp Act, 1958, but was not stamped.
The court analysed the agreement, accepting it as a mere non-disclosure and non-solicitation document with no assignable monetary value. Following the majority opinion in N.N. Global Mercantile Private Limited v Indo Unique Flame Limited, the court reaffirmed that unstamped or insufficiently stamped agreements were not actionable.
Two alternatives were available to rectify the deficiency in stamp duty and penalty. The first involved impounding the document and referring it to the Collector of Stamps for assessment of the payable amount. The court also cited the procedure mandated under section 33 of the Stamp Act, 1899, to be followed subsequent to the impounding of an unstamped instrument or agreement. The second was for the court to make the calculations itself.
After considering the relevant provisions of the Maharashtra Stamp Act, the court held that the agreement fell under section 5(h)(B), under which no duty was chargeable. Consequently, the proper stamp duty was INR100 (USD1.12). A monthly penalty of 2% on the amount due, that is INR2, was incurred. Given the 22 months that had elapsed since the agreement’s execution, the total sum due was determined to be INR144.
Directions were given to the prothonotary, senior master of the court, and the applicant, for the collection of this amount and for the endorsement of the agreement to certify the deposit of the stamp duty and penalty. The court directed that this process should be completed within 10 days.
This is a sensible, practical and progressive decision. The arbitration-friendly framework being established in India should not be obstructed by an excessive concentration on extraneous procedures.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
