Supreme Court clarifies the scope of Sections 33, 34, 37, and 39 of the Karnataka Stamp Act, 1957 in property disputes: Seetharama Shetty vs. Monappa Shetty (2024) INSC 650 (02 September 2024)

Date of the Judgment: 02 September 2024
Citation: (2024) INSC 650
Judges: Hrishikesh Roy, J., S.V.N. Bhatti, J.
Can a court impose a penalty on an insufficiently stamped document, or should it always be referred to the District Registrar? The Supreme Court recently addressed this question in a case concerning a property dispute in Karnataka. The core issue revolved around the interpretation of the Karnataka Stamp Act, 1957, specifically regarding the powers of a court versus the District Registrar in dealing with insufficiently stamped documents. The bench comprised Justices Hrishikesh Roy and S.V.N. Bhatti, with the majority opinion authored by Justice S.V.N. Bhatti.

Case Background

The case originated from a suit filed by the appellant, Seetharama Shetty, seeking a permanent injunction against the respondent, Monappa Shetty. The appellant claimed that he had an agreement to purchase agricultural land from the respondent, dated 29 June 1999, and that he had been given possession of the land as part of this agreement. The respondent denied the existence of the agreement and any transfer of possession. The core of the dispute was whether the agreement of sale, which the appellant relied upon, was valid and admissible as evidence, given it was insufficiently stamped under the Karnataka Stamp Act, 1957.

Timeline

Course of Proceedings

The trial court, upon an application by the respondent, impounded the agreement of sale and sent it to the District Registrar to determine the deficit stamp duty and penalty. The District Registrar returned the document, citing a missing village name. The appellant attempted to clarify this, but the trial court rejected this clarification. The High Court of Karnataka, in an earlier writ petition, directed the trial court to send the clarification to the District Registrar for the limited purpose of calculating stamp duty. Subsequently, the trial court ordered the appellant to pay the deficit stamp duty along with a penalty of ten times the deficient amount. This order was challenged in a writ petition, which was dismissed by the High Court. A review petition was also dismissed, leading to the current civil appeals before the Supreme Court.

Legal Framework

The core legal framework for this case is the Karnataka Stamp Act, 1957, specifically:

• Section 2(d) defines “conveyance” to include instruments that transfer ownership.
• Section 33 mandates that every person with the authority to receive evidence, including courts, must impound instruments that are not duly stamped. The section states: “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 states that instruments not duly stamped are inadmissible in evidence unless the deficit stamp duty and penalty are paid. The proviso to the section states: “any such instrument not being an instrument chargeable with a duty not exceeding fifteen naye paise only, or a mortgage of crop [Article 35 (a) of the Schedule] chargeable under clauses (a) and (b) of section 3 with a duty of twenty -five naye paise shall, subject to all just exceptions, be admitted in evidence on payment of the duty with which the same is chargeable, or, in the case of an instrument insufficiently stamped, or 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 37 outlines the procedure for dealing with impounded instruments. It states: “(1) When the person impounding an instrument under section 33 has by law or consent of parties authority to receive evidence and admits such instrument in evidence upon payment of a penalty as provided by section 34 or of duty as provided by section 36, he shall send to the Deputy Commissioner an authenticated copy of such instrument, together with a certificate in writing, stating the amount of duty and penalty levied in respect thereof, and shall send such amount to the Deputy Commissioner or to such person as he may appoint in this behalf. (2) In every other case, the person so impounding an instrument shall send it in original to the Deputy Commissioner.”
• Section 39 empowers the Deputy Commissioner to determine the correct stamp duty and penalty on impounded instruments. It states: “When the Deputy Commissioner impounds any instrument under section 33, or receives any instrument sent to him under sub -section (2) of section 37, not being an instrument chargeable with a duty not exceeding fifteen naye paise only or a mortgage of crop [Article 35 (a) of the Schedule] chargeable under clause (a) or (b) of section 3 with a duty of twenty -five naye paise, he shall adopt the following procedure: — (a) if he is of opinion that such instrument is duly stamped, or is not chargeable with duty, he shall certify by endorsement thereon that it is duly stamped, or that it is not so chargeable, as the case may be; (b) if he is of opinion that such instrument is chargeable with duty and is not duly stamped he shall require the payment of the proper duty or the amount required to make up the same, together with a penalty of five rupees; or if he thinks fit; an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof, whether such amount exceeds or falls short of five rupees”

These provisions, along with Article 20(1) of the Schedule of the Act, which specifies stamp duty on conveyances, form the legal basis for the dispute.

Arguments

Appellant’s Submissions:

• The appellant argued that the suit document, though not correctly stamped, should have been sent to the District Registrar under Section 37(2) of the Karnataka Stamp Act, 1957, for determination of the penalty.
• The appellant contended that the trial court should not have decided the deficit stamp duty and penalty under Section 34 of the Act, especially given the orders dated 12.08.2017 and 10.08.2018.
• The appellant argued that the District Registrar has discretionary jurisdiction under Section 39 of the Act to determine the quantum of penalty, which was denied by the trial court’s order.
• The appellant contended that the suit was for injunction and the document was not being relied upon for transfer of title, hence, the penalty should not be as high as a conveyance.

Respondent’s Submissions:

• The respondent argued that the suit agreement should be treated as a conveyance, as the appellant claimed possession through it.
• The respondent contended that the agreement was insufficiently stamped and therefore inadmissible in evidence unless the requirements of the Act were met.
• The respondent argued that the trial court was correct in impounding the document under Section 33 of the Karnataka Stamp Act, 1957 and levying the penalty under Section 34 of the Act.

Amicus Curiae’s Submissions:

• The Amicus Curiae emphasized the distinction between the powers of a court under Section 34 of the Karnataka Stamp Act, 1957 and the powers of the District Registrar under Section 39 of the Act.
• The Amicus Curiae argued that the trial court had wrongly exercised jurisdiction under Section 34 of the Act instead of referring the matter to the District Registrar under Section 37(2) of the Act.
• The Amicus Curiae submitted that the discretion to reduce penalty is exclusively vested with the District Registrar.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the agreement of sale dated 29.06.1999, with a recital on delivery of possession to the appellant, conforms to the definition of conveyance under Section 2(d) read with Article 20(1) of the Schedule of the Karnataka Stamp Act, 1957.
2. Whether, in the facts and circumstances of the case, the order dated 23.01.2019 of the trial court, as confirmed by the impugned orders dated 23.08.2019 and 14.09.2021, are legal and valid or call for interference by this Court under Article 136 of the Constitution of India.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

• Gangappa and another v. Fakkirappa (2019) 3 SCC 788, Supreme Court of India: This case clarified the distinction between Sections 34 and 39 of the Karnataka Stamp Act, 1957, stating that the court has no discretion to reduce the penalty under Section 34, while the Deputy Commissioner has discretion under Section 39.
• Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh and others (2020) 9 SCC 510, Supreme Court of India: This case held that the Collector cannot automatically impose a ten-times penalty under Section 40(1)(b) of the Indian Stamp Act, 1899 (analogous to Section 39(1)(b) of the Karnataka Stamp Act, 1957).
• Digambar Warty and others v. District Registrar, Bangalore Urban District and another ILR 2013 KAR 2099, High Court of Karnataka: This case was relied upon in Gangappa’s case to highlight that the court has no discretion to reduce the penalty under Section 34.
• K. Amarnath v. Smt. Puttamma ILR 1999 KAR 4634, High Court of Karnataka: This case was cited to support the interpretation of the Stamp Act.
• Suman v. Vinayaka and others (2013) SCC OnLine Kar 10138, High Court of Karnataka: This case was also referred to for interpreting the provisions of the Stamp Act.
• Niyaz Ahmed Siddique v. Sanganeria Company Private Limited (2023) SCC OnLine Cal 1391, High Court of Calcutta: This case was cited for its discussion on the admissibility of insufficiently stamped documents.
• United Precision Engineers Private Limited v. KIOCL Limited (2016) SCC OnLine Kar 1077, High Court of Karnataka: This case discussed the power of the Deputy Commissioner under Section 37(2) of the Act to reduce the penalty.
• Chilakuri Gangulappa v. Revenue Divisional Officer, Madanpalle (2001) 4 SCC 197, Supreme Court of India: This case was distinguished by the Amicus Curiae as not applicable to the present facts.
• Sri. K. Govinde Gowda v. Smt. Akkayamma and others ILR 2011 KAR 4719, High Court of Karnataka: This case was cited for understanding the scope of the Stamp Act.
• Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 (2024) 6 SCC 1, Supreme Court of India: This seven-judge bench decision clarified that an improperly stamped instrument is not void but has a curable defect.
• Hindustan Steel Limited v. Dilip Construction Company (1969) 1 SCC 597, Supreme Court of India: This case stated that the Stamp Act is a fiscal measure and should not be used as a weapon to defeat the case of the opponent.
• District Registrar and Collector v. Canara Bank (2005) 1 SCC 496, Supreme Court of India: This case reiterated that the Stamp Act is a fiscal legislation.
• State of Maharashtra v. National Organic Chemical Industries Limited (2024) SCC OnLine SC 497, Supreme Court of India: This case reiterated that the Stamp Act is a fiscal legislation.
• Chiranji Lal v. Haridas (2005) 10 SCC 746, Supreme Court of India: This case reiterated that the Stamp Act is a fiscal legislation.
• Petiti Subba Rao v. Anumala S. Narendra (2002) 10 SCC 427, Supreme Court of India: This case discussed the discretionary limits of the Collector while imposing a penalty under the Stamp Act.

Judgment

How each authority was viewed by the Court?

• The Court followed the ratio in Gangappa v. Fakkirappa (2019) 3 SCC 788* which held that the court has no discretion to reduce the penalty under Section 34 of the Act, while the Deputy Commissioner has discretion under Section 39.
• The Court followed the ratio in Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh (2020) 9 SCC 510* which held that the Collector cannot automatically impose a ten-times penalty.
• The Court followed the ratio in Digambar Warty v. District Registrar ILR 2013 KAR 2099* which was relied upon in Gangappa’s case to highlight that the court has no discretion to reduce the penalty under Section 34.
• The Court referred to K. Amarnath v. Smt. Puttamma ILR 1999 KAR 4634* for interpreting the Stamp Act.
• The Court referred to Suman v. Vinayaka (2013) SCC OnLine Kar 10138* for interpreting the Stamp Act.
• The Court referred to Niyaz Ahmed Siddique v. Sanganeria Company (2023) SCC OnLine Cal 1391* for its discussion on admissibility of insufficiently stamped documents.
• The Court followed the ratio in United Precision Engineers v. KIOCL (2016) SCC OnLine Kar 1077* which discussed the power of the Deputy Commissioner under Section 37(2) of the Act to reduce the penalty.
• The Court distinguished Chilakuri Gangulappa v. Revenue Divisional Officer (2001) 4 SCC 197* as not applicable to the present facts.
• The Court referred to Sri. K. Govinde Gowda v. Smt. Akkayamma ILR 2011 KAR 4719* for understanding the scope of the Stamp Act.
• The Court followed the ratio in Re: Interplay Between Arbitration Agreements (2024) 6 SCC 1* which clarified that an improperly stamped instrument is not void but has a curable defect.
• The Court followed the ratio in Hindustan Steel Limited v. Dilip Construction Company (1969) 1 SCC 597* which stated that the Stamp Act is a fiscal measure and should not be used as a weapon to defeat the case of the opponent.
• The Court followed the ratio in District Registrar and Collector v. Canara Bank (2005) 1 SCC 496* which reiterated that the Stamp Act is a fiscal legislation.
• The Court followed the ratio in State of Maharashtra v. National Organic Chemical Industries Limited (2024) SCC OnLine SC 497* which reiterated that the Stamp Act is a fiscal legislation.
• The Court followed the ratio in Chiranji Lal v. Haridas (2005) 10 SCC 746* which reiterated that the Stamp Act is a fiscal legislation.
• The Court followed the ratio in Petiti Subba Rao v. Anumala S. Narendra (2002) 10 SCC 427* which discussed the discretionary limits of the Collector while imposing a penalty under the Stamp Act.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to maintain a balance between the fiscal objectives of the Karnataka Stamp Act, 1957, and the principles of fairness and natural justice. The Court emphasized that while the Act aims to secure revenue, it should not be used to deny parties their rights on technical grounds. The Court also considered the specific language of Sections 34 and 39 of the Act, noting that the discretion to impose a reduced penalty is vested solely with the District Registrar under Section 39, not with the court under Section 34. The Court also noted that the object of the act is to obtain revenue even from such instruments which are at the first instance unstamped or insufficiently stamped and also the public policy of binding parties to the agreed obligations.

Logical Reasoning:

The Court rejected the interpretation that the trial court could impose a ten-times penalty under Section 34 of the Act. Instead, the Court emphasized that the District Registrar, under Section 39, has the discretion to determine the appropriate penalty, which may be less than ten times the deficit stamp duty. The Court also clarified that the trial court’s role is to impound the document and refer it to the District Registrar, not to act as the final authority on the penalty.

The Supreme Court, while setting aside the High Court’s order, stated, “The imposition of penalty of ten times at this juncture in the facts and circumstances of this case is illegal and contrary to the steps summed up in paragraph 21. The instrument is 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 Court also observed, “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.”

The Court further stated, “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/Every Person after complying with the requirement of duty and penalty.”

Key Takeaways

• When an insufficiently stamped document is presented in court, the court must impound it under Section 33 of the Karnataka Stamp Act, 1957.
• The court cannot impose a ten-times penalty under Section 34 of the Act if a party requests the document to be sent to the District Registrar under Section 37(2) of the Act.
• The District Registrar has the discretion under Section 39 of the Act to determine the penalty, which may be less than ten times the deficit stamp duty.
• The object of the Act is to secure revenue, but it should not be used to deny parties their rights on technical grounds.
• A party can directly approach the District Registrar for determination of stamp duty and penalty before presenting the document in court.

Directions

The Supreme Court directed the trial court to send the agreement of sale dated 29.06.1999 to the District Registrar to determine the deficit stamp duty and penalty payable. Upon receipt of the compliance certificate from the District Registrar, the suit document is to be received in evidence. All other objections available to the respondents, except those related to the Stamp Act, are left open for consideration.

Development of Law

The ratio decidendi of this case is that when a party requests for an insufficiently stamped document to be sent to the District Registrar under Section 37(2) of the Karnataka Stamp Act, 1957, the court cannot impose a ten-times penalty under Section 34 of the Act. The discretion to determine the penalty lies with the District Registrar under Section 39 of the Act. This judgment clarifies the interplay between Sections 33, 34, 37, and 39 of the Karnataka Stamp Act, 1957, and provides a clear procedure for dealing with insufficiently stamped documents in court proceedings. The judgment reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. This case also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice. The judgment also reinforces the principle that the Stamp Act is a fiscal measure and should not be used to obstruct justice.

This judgment is significant because it clarifies the boundaries of the court’s power versus the District Registrar’s power when dealing with insufficiently stamped documents. It emphasizes the importance of referring such matters to the District Registrar for a comprehensive assessment of stamp duty and penalty, ensuring a fair and just process.

Conclusion

The Supreme Court’s judgment in Seetharama Shetty vs. Monappa Shetty is a significant clarification of the powers of the court and the District Registrar under the Karnataka Stamp Act, 1957. The Court has clearly delineated the process for dealing with insufficiently stamped documents, emphasizing the District Registrar’s discretion in determining the appropriate penalty. The judgment ensures that the Stamp Act is applied fairly and that it does not become an impediment to justice. This case serves as a crucial precedent for future property disputes involving similar issues under the Karnataka Stamp Act, 1957. The court has also reiterated that the Stamp Act is a fiscal legislation and should not be used to defeat the case of the opponent.