Stamp Authorities Not Restrained From Initiating Proceedings When Matter Is Pending Before Arbitrator In Case Of Deficient Stamp Duty: Allahabad High Court

The Petition before the High Court was filed seeking issuance of a writ in the nature of mandamus directing the respondents to sine die adjourn the stamp recovery proceedings pending before the Court of Collector / District Magistrate, Gautam Budh Nagar in light of the fact that arbitration was going on.

Referring to the judgment in Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (2023), the Single Bench of Justice Piyush Agrawal said, “This Court also could not find any observation or direction of the Apex Court restraining the stamp authorities to initiate the proceedings, if the agreement found to be deficit of stamp duty. It is not in dispute between the parties that the Arbitrator has been appointed and matter is pending before the Arbitrator and it is not the stage of appointment of an Arbitrator. Once the said fact is not disputed, the judgement relied upon by the learned Senior counsel for the petitioner in the case of Interplay (supra) is of no aid to him.”

Senior Advocate Pinaki Mishra represented the Petitioner while AAG Manish Goel represented the Respondent. 

Arguments

It was the case of the petitioners that the notices are without jurisdiction as the stamp authorities have no jurisdiction to adjudicate the issue at the stage when the parties have consented to appear before the Arbitrator, who can take the evidences. It was also submitted that the proceeding for deficiency of stamp will prejudice the right of the petitioner as the Arbitration is going on.

On the contrary, the Respondent contended that the arbitration proceeding had been stayed by the orders of the Delhi High Court. It was submitted that once the proceeding has been stayed, no arbitration proceeding can be undertaken before the Arbitrator.

Reasoning

The Bench noted that in Interplay (Supra), the Apex Court had held that the proceedings of arbitration cannot be stopped due to insufficient stamp duty on the instrument. It was also observed that the proceedings cannot be stopped at the stage of appointment of the Arbitrator due to unstamped or insufficient stamp duty. Further, the Arbitrator is competent to take evidence, and in the event, it is found insufficiently stamped, the same can be impounded and the matter can be referred to the competent authority.

The Bench could not find any observation or direction of the Apex Court restraining the stamp authorities from initiating the proceedings, if the agreement is found to be deficient in stamp duty. In the present matter, the Arbitrator had been appointed, and the matter was pending before the Arbitrator. “Therefore, it cannot be said that the proceedings initiated by the stamp authority against the petitioner is without jurisdiction”, the Bench said.

Coming to the form and content of a show cause notice that is required to be served before deciding as to whether the notice is to be imposed deficiency of stamp duty or not, the Bench explained that the notice should specify the particular grounds on which an action is proposed to be taken to enable the noticee to answer the case against him and in the absence of the same a person cannot be said to be granted a reasonable opportunity of being heard.

“A fair hearing to the party before imposition of stamp duty thus becomes an essential pre-condition for a proper exercise of the power and a valid order be made pursuant thereto”, it said while also adding, “It is legally well settled that mere issuance of show cause notice does not amount to an adverse order, which may be held to affect the rights of the parties. The necessity for issuing a show cause notice and the requirement of specifying the grounds on which the action is proposed is in fact a necessary prerequisite, so as to ensure that the noticee is aware of the grounds on which action is proposed and has an adequate opportunity to rebut the same.”

Thus, finding that the challenge raised to the show cause notices, at this stage, was premature, the Bench dismissed the Petition

Cause Title: M/S Dlf Home Developers Pvt Ltd v. State Of U.P. And 6 Others (Neutral Citation: 2025:AHC:75707)

Appearance:

Petitioner: Senior Advocates Pinaki Mishra, Shashi Nandan, Naveen Sinha, Advocate Rohan Gupta

Respondent: CSC, AAG Manish Goel, Senior Advocates Jagat Bhushan, Anurag Khanna

Click here to read/download Order