Supreme Court Clarifies Stamp Act Applicability on Agreements to Sell: Vijay vs. Union of India (29 November 2023)

Introduction

Date of the Judgment: 29th November 2023

Citation: 2023 INSC 1030

Judges: Abhay S. Oka J., Sanjay Karol J.

Can an agreement to sell, executed before the 1989 amendment to the Indian Stamp Act, be considered invalid if it was not stamped at the time of execution? The Supreme Court of India recently addressed this crucial question in a case concerning the admissibility of secondary evidence for such agreements. This judgment clarifies the legal position on stamp duty for agreements to sell executed before the amendments and the conditions under which secondary evidence can be admitted in court. The bench comprised of Justice Abhay S. Oka and Justice Sanjay Karol. The judgment was authored by Justice Sanjay Karol.

Case Background

The case revolves around an agreement to sell dated 04.02.1988, between the Plaintiff (Vijay) and the Defendant. The Plaintiff claimed that they were put in possession of the property as per the agreement. The Defendant later denied the existence of this agreement. Consequently, the Plaintiff filed a suit for specific performance of the contract and sought to introduce a copy of the agreement as secondary evidence.

Timeline:

Course of Proceedings

Initially, the 4th Additional District Judge allowed the Plaintiff’s application to submit a copy of the agreement as secondary evidence on 17.07.2001. However, upon review sought by the Defendant, the court reversed its decision on 16.12.2003. The court held that the secondary evidence of the agreement to sell could not be allowed because it was not executed on a proper stamp, relying on the Supreme Court’s decision in Jupadi Kesava Rao v. Pulavarthi Venkata Subha Rao. The Plaintiff then challenged this review order in the High Court of Madhya Pradesh, which upheld the validity of Section 35 of the Stamp Act and the review order on 30.11.2009.

Legal Framework

The primary legal provision in question is Section 35 of the Indian Stamp Act, 1899, which states:

“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 instruments are duly stamped: Provided that – (a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, of a sum equal to ten times such duty or portion.”

Section 2(11) of the Stamp Act defines “duly stamped” as an instrument bearing a stamp that has been affixed or used in accordance with the law in force in India. Section 2(6) of the Stamp Act defines “chargeable” as chargeable under the Act in force at the date of the execution of the instrument. The court noted that the relevant date for stamp duty is the date of execution, not the date of adjudication or presentation.

The Court also discussed Entry 44 of List III of the Constitution of India, which grants concurrent power to levy stamp duty, and Entry 63 of List II, which allows State Legislatures to prescribe rates of duty.

Arguments

Appellant’s Arguments:

• The Appellant argued that Section 35 of the Stamp Act does not apply because there was no requirement to pay stamp duty on agreements to sell at the time of execution (04.02.1988), prior to the 1989 amendment.
• The Appellant contended that the Plaintiff should be allowed to present a copy of the agreement as secondary evidence under Section 65 of the Evidence Act.

Respondent’s Arguments:

• The Respondent argued that a copy of an unstamped or deficiently stamped document cannot be admitted as secondary evidence.
• The Respondent submitted that if the original document is inadmissible under the Stamp Act, then a photocopy or any other copy is also inadmissible as secondary evidence.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the bar of admissibility created by Section 35 of the Indian Stamp Act, 1899 applies to the agreement to sell dated 04.02.1988.
2. Can a copy of a document be adduced as secondary evidence when the original instrument is not in the possession of the party?
3. Whether, in the facts of the present case, would the decision of this Court in Jupadi Kesava Rao v. Pulavarthi Venkata Subha Rao be binding as held by both the Courts below?

Treatment of the Issue by the Court

Authorities

Cases:

Legal Provisions:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court distinguished the case of Jupadi Kesava Rao v. Pulavarthi Venkata Subha Rao [CITATION], stating that it was not applicable to the facts of the present case as the document in the present case was not chargeable with duty at the time of its execution.
• The Court relied on Suraj Lamp and Industries Pvt. Ltd. v. State of Haryana [CITATION], G.T. Girish v. Y. Subba Raju [CITATION], Ghanshyam Sarda v. J.K. Jute Mills Co. Ltd [CITATION] and Munishamappa v M.Rama Reddy & Ors. [CITATION] to reiterate that an agreement to sell is not a conveyance.
• The Court relied on Virtual Soft Systems Ltd. vs. Commissioner of Income Tax, Delhi [CITATION], Govind Das v. ITO [CITATION], and CIT v. Vatika Township (P) Ltd. [CITATION] to reiterate the principles regarding retrospective application of amendments.
• The Court relied on Cement Corpn. of India Ltd. v. Purya [CITATION], Neeraj Dutta v. State (NCT of Delhi) [CITATION], Yashoda v. K. Shobha Rani [CITATION], M. Chandra v. M. Thangamuthu [CITATION], Surendra Krishna Roy v. Muhammad Syed Ali Matwali Mirza [CITATION] and H. Siddiqui v. A. Ramalingam [CITATION] to explain the concepts of primary and secondary evidence and their admissibility.
• The Court relied on Hariom Agrawal v. Prakash Chand Malviya [CITATION] to reiterate that a copy of an instrument cannot be validated by impounding.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the agreement to sell was executed before the 1989 amendment to the Stamp Act, when such agreements were not subject to stamp duty. The Court emphasized that the law in force at the time of execution is crucial in determining stamp duty obligations. The Court also highlighted the distinction between primary and secondary evidence, and the circumstances under which secondary evidence can be admitted. The Court also emphasized that a clarification or explanation must not have the effect of imposing an unanticipated duty or depriving a party of an anticipated benefit.

The Court’s reasoning was primarily based on legal principles and statutory interpretation, with a lesser emphasis on the factual aspects of the case.

Logical Reasoning

Issue 1: Applicability of Section 35 of the Stamp Act

Issue 2: Admissibility of Secondary Evidence

Issue 3: Binding Nature of Jupadi Kesava Rao

Key Takeaways

• Agreements to sell executed before the 1989 amendment to the Indian Stamp Act are not subject to stamp duty if they were not chargeable at the time of execution.
• Secondary evidence of such agreements can be admitted if the original is not available and other legal requirements are met.
• The decision in Jupadi Kesava Rao is not applicable to cases where the document was not chargeable with duty at the time of its execution.
• The relevant date for determining stamp duty obligations is the date of execution of the instrument.
• Amendments to statutes that create new obligations are generally prospective and not retrospective.

Directions

The Supreme Court allowed the appeal and quashed the orders of the 19th Additional District Judge and the High Court. The order of the 4th Additional District Judge was restored, allowing the Plaintiff to lead secondary evidence. The admissibility of the documents will be decided independently in accordance with the law under the Evidence Act.

Specific Amendments Analysis

The Court analyzed the amendments brought in by the Madhya Pradesh Amendment Act No. 19 of 1989 and the Madhya Pradesh Second Amendment Act No. 22 of 1990, which introduced changes to Article 23 of Schedule 1A of the Stamp Act. The court held that the Explanation inserted in Article 23 vide Madhya Pradesh Act 22 of 1990, which deemed agreements to sell with possession as conveyances, created a new obligation and therefore could not be applied retrospectively.

Development of Law

The ratio decidendi of this case is that the applicability of stamp duty on an instrument is determined by the law in force at the time of its execution. The Court clarified that agreements to sell executed before the 1989 amendment to the Stamp Act are not subject to stamp duty if they were not chargeable at the time of execution. This judgment also clarifies the conditions under which secondary evidence can be admitted, and distinguishes the facts from the decision in Jupadi Kesava Rao. This is a clarification of the existing law.

Conclusion

In summary, the Supreme Court held that the agreement to sell executed on 04.02.1988 was not subject to stamp duty as it was executed before the 1989 amendment. The Court allowed the Plaintiff to present secondary evidence, setting aside the previous orders of the lower courts. The judgment clarifies the importance of the date of execution for determining stamp duty obligations and the conditions under which secondary evidence can be admitted, providing significant guidance for similar cases.