Supreme Court clarifies penalty for insufficiently stamped agreements: Gangappa vs. Fakkirappa (2018)

Date of the Judgment: 14 December 2018

Citation: Civil Appeal No. 11932 of 2018

Judges: Ashok Bhushan, J. and Ajay Rastogi, J.

Can a trial court reduce the penalty for insufficiently stamped documents? The Supreme Court of India, in this case, examined whether a trial court has the discretion to reduce the penalty for admitting insufficiently stamped agreements as evidence, or if it is bound to impose a penalty of ten times the deficient stamp duty as per the Karnataka Stamp Act, 1957. The Court addressed this issue in a civil appeal concerning a dispute over agreements to sell property. This judgment was authored by Justice Ashok Bhushan, with Justice Ajay Rastogi concurring.

Case Background

The appellants (plaintiffs) entered into agreements to sell with the respondent (defendant) on April 12, 2005, and May 16, 2006, paying an earnest money of Rs. 1,40,000. Subsequently, the appellants filed two suits, Suit No. 863 of 2008 and Suit No. 864 of 2008, seeking specific performance of the contracts. Another related suit, O.S. No. 327 of 2008, filed by the defendant’s sister, was also clubbed with these cases. The Principal Civil Judge impounded the agreements to sell on September 27, 2010, directing the plaintiffs to pay the deficit duty and penalty. The plaintiffs challenged this order in the High Court, which directed the trial court to allow written submissions. Following this, on April 22, 2013, the Principal Civil Judge admitted the agreements into evidence after the payment of deficit duty and a penalty of double the deficit duty.

Timeline:

Course of Proceedings

The respondent (defendant) filed a writ petition in the High Court against the Principal Civil Judge’s order. The High Court, relying on a Division Bench judgment of the Karnataka High Court in Digambar Warty and others vs. District Registrar, Bangalore Urban District and another, ILR 2013 KAR 2099, directed the lower courts to levy a penalty of 10 times the deficit duty. This decision led the appellants to file an appeal before the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Karnataka Stamp Act, 1957. Key provisions include:
✓ Section 33 of the Karnataka Stamp Act, 1957 mandates that any person authorized to receive evidence must impound any instrument that is not duly stamped. The section states:

“33. Examination and impounding of instruments.­ (1) Every person having by law or consent of parties authority to receive evidence, and every person in charge of a public office, except an officer of police, before whom any instrument, chargeable in his opinion, with duty, is produced or comes in the performance of his functions, shall, if it appears to him that such instrument is not duly stamped, impound the same.”

✓ Section 34 of the Karnataka Stamp Act, 1957 states that instruments not duly stamped are inadmissible in evidence. It also specifies that a penalty must be paid to admit such documents in evidence. The relevant part of the section says:

“34. Instruments not duly stamped inadmissible in evidence, etc. ­ No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped: Provided that,­ (a) nothing herein contained shall be deemed to require any magistrate or Judge of a Criminal Court to examine or impound, if he does not think fit so to do, any instrument coming before him in the course of any proceeding other than a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898;”

The proviso to this section allows for the admission of insufficiently stamped documents upon payment of the deficient duty along with a penalty of ten times the deficient amount.

✓ Section 38 of the Karnataka Stamp Act, 1957 empowers the Deputy Commissioner to refund any portion of the penalty exceeding five rupees.

✓ Section 39(1)(b) of the Karnataka Stamp Act, 1957 outlines the Deputy Commissioner’s power to determine the penalty for insufficiently stamped documents, stating that the Deputy Commissioner may impose a penalty of five rupees or, if he thinks fit, an amount not exceeding ten times the deficient duty.

Arguments

Appellants’ Arguments:

• The trial court rightly exercised its discretion in imposing a penalty of two times the deficient duty.
• When the Deputy Commissioner can reduce the penalty to less than 10 times, the trial court should also have similar discretion.
• The trial court’s order was just and proper.

Respondent’s Arguments:

• The trial court had no discretion to reduce the penalty while admitting insufficiently stamped documents.
• Section 34 of the Karnataka Stamp Act, 1957 mandates a penalty of 10 times the deficient duty.
• The Division Bench of the High Court in Digambar Warty and others (supra) correctly interpreted Section 34.

The core of the dispute lies in whether the trial court, when admitting an insufficiently stamped document, has the discretion to impose a penalty less than ten times the deficient duty, or if it is bound by the statute to impose a penalty of ten times the deficient duty. The appellants argued that the trial court should have the discretion to impose a lesser penalty, similar to the discretion given to the Deputy Commissioner under Section 39 of the Karnataka Stamp Act, 1957. In contrast, the respondent contended that Section 34 of the Karnataka Stamp Act, 1957 mandates a penalty of ten times the deficient duty, and the trial court has no discretion to reduce it.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

✓ Whether the trial court, which admitted the agreements to sell in evidence, could have exercised its discretion in imposing a penalty at the rate of 2 times of the deficient amount of stamp duty, or was it obligatory for the trial court to impose the penalty at the rate of 10 times.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

• Digambar Warty and others vs. District Registrar, Bangalore Urban District and another, ILR 2013 KAR 2099, Karnataka High Court: The High Court held that there is no discretion vested with the authority impounding the document in the matter of collecting duty under Section 33 of the Karnataka Stamp Act, 1957.
• Section 33 of the Karnataka Stamp Act, 1957: This section mandates the impounding of any instrument not duly stamped.
• Section 34 of the Karnataka Stamp Act, 1957: This section specifies that instruments not duly stamped are inadmissible in evidence and prescribes the penalty for admitting such documents.
• Section 39 of the Karnataka Stamp Act, 1957: This section outlines the Deputy Commissioner’s power to impose a penalty not exceeding ten times the deficient duty.

Judgment

The Supreme Court held that the trial court was obligated to impose a penalty of 10 times the deficient stamp duty as per Section 34 of the Karnataka Stamp Act, 1957. The Court noted a clear distinction between the powers under Section 33 and Section 39 of the Act. Section 33 applies to all authorities receiving evidence, mandating a uniform penalty of 10 times the deficient duty. In contrast, Section 39 grants discretion to the Deputy Commissioner to impose a penalty of up to 10 times the deficient duty. The Court emphasized that the legislative intent was to maintain uniformity in imposing a fixed penalty without any adjudicatory process at the initial stage of impounding the document. The discretion to reduce the penalty is vested only with the Deputy Commissioner under Section 39.

However, considering the peculiar facts of the case, the Court, instead of directing the appellants to pay 10 times the penalty and then approach the Deputy Commissioner for a refund under Section 38, closed the matter by approving the trial court’s direction for payment of the entire deficit duty and double the penalty. The Court observed that the trial court had considered the appellants’ status as agriculturists and the fact that the agreements were prepared by local villagers, which justified a reduction in the penalty. The Court stated:

“The legislative scheme does not indicate any distinction between a court receiving an insufficiently stamped instrument in evidence and other authorities. All have to impose penalty of 10 times of the duty or deficit portion, if it exceeds rupees five.”

“The statute gives discretion to Deputy Commissioner who is the authority envisaged by the Act in­charge of the revenue administration of a District.”

“In the facts of the present case, we are of the view that ends of justice be served in closing the matter by confirming the payment of deficit duty with the double penalty as imposed by the trial court which shall obviate the proceeding of approaching the Deputy Commissioner for reduction of penalty under Section 38”

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several key factors. The Court emphasized the legislative intent behind Sections 33 and 34 of the Karnataka Stamp Act, 1957, which mandates a uniform penalty of 10 times the deficient duty for all authorities impounding a document. The Court also considered the practical aspects of the case, noting that the appellants were agriculturists and that the agreements were prepared by local villagers. The Court aimed to avoid prolonging the matter by requiring the appellants to first pay the 10 times penalty and then seek a refund from the Deputy Commissioner. The Court’s reasoning reflects a balance between upholding the law and ensuring practical justice.

Key Takeaways

• Trial courts must impose a penalty of 10 times the deficient stamp duty when admitting insufficiently stamped documents as evidence.
• The Deputy Commissioner has the discretion to reduce the penalty, which is not available to the trial court.
• The Supreme Court made an exception in this case, allowing the trial court’s imposition of double penalty to stand, considering the specific facts and circumstances.
• The judgment highlights the importance of adhering to the statutory provisions while also considering practical aspects and avoiding unnecessary delays.

Directions

The Supreme Court upheld the trial court’s direction for payment of the entire deficit duty and double the penalty, thereby closing the proceedings regarding the penalty on the agreements to sell.

Development of Law

The ratio decidendi of this case is that trial courts are obligated to impose a penalty of 10 times the deficient stamp duty as per Section 34 of the Karnataka Stamp Act, 1957, and do not have the discretion to reduce it. However, the Supreme Court can make exceptions based on the specific facts and circumstances of the case, particularly to avoid unnecessary delays and ensure practical justice. This judgment clarifies the interpretation of Sections 33, 34, and 39 of the Karnataka Stamp Act, 1957. Although there is no change in the previous position of law, the Supreme Court made an exception in this case.

Conclusion

In conclusion, the Supreme Court clarified that while trial courts are bound to impose a penalty of 10 times the deficient stamp duty on insufficiently stamped documents, the Deputy Commissioner has the discretion to reduce this penalty. In this particular case, the Supreme Court made an exception by upholding the trial court’s order of double penalty, considering the specific circumstances and to avoid further delays. This decision underscores the importance of adhering to statutory provisions while also allowing for practical considerations in the administration of justice.

Category:

✓ Civil Law

✓ Stamp Duty

✓ Karnataka Stamp Act, 1957

✓ Section 33, Karnataka Stamp Act, 1957

✓ Section 34, Karnataka Stamp Act, 1957

✓ Section 39, Karnataka Stamp Act, 1957

FAQ

Q: What does this judgment mean for people dealing with property agreements in Karnataka?

A: If your property agreement is found to be insufficiently stamped, the court will initially impose a penalty of 10 times the deficient stamp duty.

Q: Can the court reduce the penalty?

A: No, the trial court cannot reduce the penalty. Only the Deputy Commissioner has the power to reduce it.

Q: What should I do if I am asked to pay a 10 times penalty?

A: You will have to pay the penalty and then you can approach the Deputy Commissioner to seek a refund of the excessive penalty.

Q: What was the exception made by the Supreme Court in this case?

A: The Supreme Court allowed the trial court’s order of double penalty to stand, considering the specific facts of the case and to avoid further delays.

Q: Does this judgment change the law?

A: No, the judgment clarifies the existing law. It emphasizes that trial courts must impose a 10 times penalty, but the Supreme Court can make exceptions for practical reasons.