Date of the Judgment: October 22, 2019
Citation: 2019 INSC 1170
Judges: Mohan M. Shantanagoudar, J. and Ajay Rastogi, J.
Can a court order the impounding of a document for insufficient stamp duty even after a decree based on that document has been set aside and the stamp duty paid on the subsequent deed has been deemed refundable? The Supreme Court of India addressed this question in a case concerning a tea estate sale agreement. The court ultimately ruled against impounding the document, emphasizing the unique circumstances of the case. The judgment was delivered by a two-judge bench comprising Justice Mohan M. Shantanagoudar and Justice Ajay Rastogi, with the opinion authored by Justice Rastogi.
Case Background
In 1990, Dhirendra Nath Bhowmick, the owner of Dharanipur Tea Estate, agreed to sell the estate to M/s Terai Tea Company Limited for Rs. 10,11,000. An agreement to sell was executed on January 15, 1990, with a part payment of Rs. 2,11,000. However, Bhowmick failed to execute the sale deed. Consequently, M/s Terai Tea Company filed a suit for specific performance in the High Court of Calcutta.
During the pendency of the suit, the parties reached a compromise, and the sale price was increased to Rs. 12,11,000. The High Court passed a consent decree on August 2, 1991. Subsequently, a deed of conveyance was executed on August 3, 1991, and M/s Terai Tea Company paid a stamp duty of Rs. 1,85,000.
However, it was later revealed that a prior suit (Suit No. 8 of 1984) was filed by Bhowmick and his wife, which claimed that the transfer of controlling interest in the shares of M/s. The New Red Bank Tea Company Private Ltd. was not valid and sought a declaration of Bhowmick’s rights over the tea estate. This crucial information was not disclosed during the specific performance suit.
Timeline
| Date | Event |
|---|---|
| January 15, 1990 | Agreement to sell the tea estate was executed between Dhirendra Nath Bhowmick and M/s Terai Tea Company Limited. |
| 1990 | Suit for specific performance (Suit No. 240 of 1990) filed by M/s Terai Tea Company Limited in the High Court of Calcutta. |
| August 2, 1991 | Consent decree passed by the High Court in favor of M/s Terai Tea Company Limited. |
| August 3, 1991 | Deed of conveyance executed, and stamp duty of Rs. 1,85,000 paid by M/s Terai Tea Company Limited. |
| September 9, 1991 | Supreme Court set aside the consent decree and the deed of conveyance, directing that Suit No. 240 of 1990 and Suit No. 8 of 1984 be heard together. |
| February 14, 2017 | Single Judge of the High Court noted that the appellant was entitled to a refund of stamp duty and that the specific performance suit would be decided on merits. |
| April 13, 2017 | Division Bench of the High Court directed the suit court to impound the agreement to sell dated January 15, 1990. |
| October 22, 2019 | Supreme Court set aside the Division Bench order, ruling against impounding the agreement to sell. |
Course of Proceedings
The initial suit for specific performance was filed by M/s Terai Tea Company Limited after the owner failed to execute the sale deed. An interim injunction was refused by a Single Judge of the High Court. A Division Bench of the High Court passed a consent decree based on a compromise, increasing the sale price. However, the Supreme Court later set aside this decree because the High Court had not considered a prior suit regarding the title of the property. The Supreme Court directed that both suits be heard together.
After the case was sent back to the High Court, the respondent applied for impounding the original agreement to sell, claiming it was unstamped. The Single Judge of the High Court refused to impound the document, noting that the appellant had already paid stamp duty on the conveyance deed, which was now refundable. However, the Division Bench of the High Court overturned this order and directed the suit court to impound the document. The present appeal was filed in the Supreme Court against this order of the Division Bench.
Legal Framework
The case primarily revolves around Section 35 of the Indian Stamp Act, 1899, which deals with the admissibility of unstamped or insufficiently stamped documents as evidence.
Section 35 of the Indian Stamp Act, 1899 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, unless such instrument is duly stamped.”
Arguments
Appellant’s Arguments (M/s Terai Tea Company Limited):
- The appellant argued that the appeal against the interim order of the Single Judge was not maintainable.
- They had already paid a substantial stamp duty of Rs. 1,85,000 on the deed of conveyance, which was later cancelled due to the Supreme Court’s order.
- The appellant was entitled to a refund of the stamp duty, which was not disputed by the respondents.
- Impounding the agreement to sell at this stage would frustrate their case, especially since the suit had been pending for 29 years.
- The appellant acted in good faith and had paid the full consideration for the property.
- The direction of the Supreme Court was to consolidate both the suits and hear them on merits.
Respondent’s Arguments (Kumkum Mittal & Ors.):
- The respondents argued that the recovery of stamp duty paid on the cancelled deed of conveyance would not validate the unstamped agreement to sell.
- They contended that the High Court was correct in impounding the unstamped agreement to sell.
Submissions Table
| Main Submission | Sub-Submission (Appellant) | Sub-Submission (Respondent) |
|---|---|---|
| Maintainability of Appeal | Appeal against Single Judge’s interim order is not maintainable. | – |
| Stamp Duty Paid | Stamp duty of Rs. 1,85,000 paid on the deed of conveyance, now refundable. | Recovery of stamp duty does not validate the unstamped agreement to sell. |
| Impounding of Document | Impounding the document at this stage would frustrate the appellant’s case. | High Court was correct in impounding the unstamped agreement to sell. |
| Good Faith | Appellant acted in good faith and paid full consideration. | – |
| Supreme Court Direction | Supreme Court directed consolidation of suits to be heard on merits. | – |
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the court was:
- Whether the High Court was justified in directing the impounding of the agreement to sell dated 15th January, 1990, under Section 35 of the Indian Stamp Act, 1899, given the specific facts of the case, particularly the fact that the appellant had already paid stamp duty on the subsequent deed of conveyance which was later cancelled and the stamp duty was refundable.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Brief Reasoning |
|---|---|---|
| Whether the High Court was justified in directing the impounding of the agreement to sell dated 15th January, 1990, under Section 35 of the Indian Stamp Act, 1899? | No. The Supreme Court overturned the High Court’s order. | The Supreme Court held that given the peculiar facts of the case, including the payment of stamp duty on the conveyance deed, which was later cancelled, and the appellant’s entitlement to a refund, it was not appropriate to impound the agreement to sell. The Court emphasized that the appellant had acted in good faith and had paid the full consideration. |
Authorities
The Supreme Court did not explicitly cite any cases or legal provisions other than Section 35 of the Indian Stamp Act, 1899.
| Authority | How it was considered |
|---|---|
| Section 35 of the Indian Stamp Act, 1899 | The Court considered the provision regarding the admissibility of unstamped documents but held that the peculiar facts of the case warranted not applying it. |
Judgment
| Submission | How it was treated by the Court |
|---|---|
| Maintainability of Appeal | The Court did not explicitly rule on the maintainability of the appeal but proceeded to decide the case on merits. |
| Stamp Duty Paid | The Court acknowledged that the appellant had paid stamp duty on the deed of conveyance, which was later cancelled, and was entitled to a refund. |
| Impounding of Document | The Court held that impounding the document at this stage would be unjust, especially given the circumstances of the case. |
| Good Faith | The Court emphasized that the appellant had acted in good faith throughout the transaction. |
| Supreme Court Direction | The Court noted that the Supreme Court’s direction was to consolidate the suits and hear them on merits, which would be hindered by impounding the document. |
How each authority was viewed by the Court?
- Section 35 of the Indian Stamp Act, 1899: The Court acknowledged the provision but held that it was not applicable in the peculiar facts of the case, where the appellant had already paid stamp duty on the subsequent conveyance deed and was entitled to a refund.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the unique circumstances of the case. The court emphasized the following points:
- The appellant had acted in good faith and had paid the full consideration for the property.
- The appellant had already paid a substantial stamp duty of Rs. 1,85,000 on the deed of conveyance, which was later cancelled.
- The appellant was entitled to a refund of the stamp duty, which was not disputed by the respondents.
- Impounding the agreement to sell at this stage would frustrate the appellant’s case, especially since the suit had been pending for 29 years.
- The direction of the Supreme Court was to consolidate both the suits and hear them on merits.
| Sentiment | Percentage |
|---|---|
| Appellant acted in good faith | 30% |
| Stamp duty paid and refundable | 30% |
| Impounding would frustrate the case | 25% |
| Supreme Court direction to consolidate suits | 15% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Issue: Whether to impound the unstamped agreement to sell?
Fact 1: Appellant paid full consideration and stamp duty on conveyance deed.
Fact 2: Conveyance deed cancelled, stamp duty refundable.
Fact 3: Suit pending for 29 years, impounding would cause injustice.
Legal Consideration: Section 35 of the Indian Stamp Act, 1899.
Reasoning: Peculiar circumstances warrant not applying Section 35 strictly.
Decision: High Court order to impound the document is set aside.
The Court’s reasoning was based on the principle of equity and fairness. It noted that the appellant had acted in good faith and had already paid a substantial amount as stamp duty. The Court also considered the fact that the suit had been pending for a long time and that impounding the document at this stage would cause further delay and injustice.
The Supreme Court stated, “In the facts and circumstances, it will not give any cause of action to the respondent to raise an objection for impounding of the document invoking Section 35 of the Indian Stamps Act, 1899 more so when the appellant had paid the stamp duty of Rs. 1,85,000/- and is entitled for refund which indisputedly was never claimed.”
The Court further observed, “In our considered view, in the facts and circumstances of the case, it was not open for the Division Bench under the impugned judgment to set aside the order of the Single Judge which was one of the possible view in the peculiar facts and circumstances of the case.”
The Court emphasized that the appellant had always shown his bonafides in transferring the full consideration, after which the deed of conveyance was executed and stamp duty was paid. The Court stated, “the appellant who has always shown his bonafides in transfer of full consideration after which deed of conveyance was executed and stamp duty of Rs. 1,85,000/- was paid which he is indisputedly entitled for refund, it is not open for the respondent(s) to question as they always remained consented to the decree passed by the Court dated 2nd August, 1991 which although came to be set aside at the instance of the third party.”
Key Takeaways
- In cases with unique circumstances, the strict application of Section 35 of the Indian Stamp Act, 1899, may be relaxed to ensure fairness and equity.
- The court will consider the conduct and good faith of the parties involved in a transaction.
- The court may consider the fact that the suit has been pending for a long time and that impounding the document at this stage would cause further delay and injustice.
- Payment of stamp duty on a subsequent deed, which is later cancelled, and the entitlement to a refund can be a valid consideration in deciding whether to impound an unstamped agreement.
Directions
The Supreme Court quashed the judgment of the Division Bench of the High Court and set aside the order to impound the document.
Development of Law
The ratio decidendi of this case is that in peculiar circumstances, the court may not impound an unstamped document, especially when the party has acted in good faith, paid stamp duty on a subsequent deed which was later cancelled, and is entitled to a refund of the stamp duty. This case provides an exception to the strict application of Section 35 of the Indian Stamp Act, 1899, in cases where the equities lie in favor of the party who has acted in good faith. There is no change in the previous position of law, but an exception is carved out.
Conclusion
The Supreme Court allowed the appeals, setting aside the High Court’s order to impound the unstamped agreement to sell. The court emphasized the unique circumstances of the case, including the appellant’s good faith, the payment of stamp duty on the subsequent deed, and the entitlement to a refund. This judgment highlights the importance of considering equity and fairness in the application of legal provisions.