The Delhi High Court has delivered a significant judgment in M/s URC Construction (P) Ltd. v. Airports Authority of India, addressing the long-debated issue of stamp duty on arbitral awards and the stage at which such duty becomes payable.
The Court examined the interaction between the Indian Stamp Act, 1899 and the Arbitration and Conciliation Act, 1996. It observed that while objections regarding insufficient stamping cannot be raised during proceedings under Section 34 for setting aside an arbitral award, stamp duty compliance becomes relevant when the award is sought to be enforced under Section 36. However, the Court clarified that this does not mean enforcement is the chargeable event for stamp duty.
According to the judgment, an arbitral award is an “instrument” under the Stamp Act. Consequently, the chargeable event occurs upon execution or signing of the award. Stamp duty is therefore required to be paid before execution, at the time of execution, or within the statutory period prescribed under the Stamp Act.
The Court rejected the argument that stamp duty becomes payable only when enforcement proceedings are initiated. It held that the Stamp Act operates independently of the Arbitration Act and that the statutory obligation to pay stamp duty arises upon execution of the award itself.
The judgment further states that where an arbitral award is inadequately stamped and is presented for enforcement, the award may be impounded under the Stamp Act. The competent authority or Collector may require payment of the deficit duty along with any applicable penalty before the award can be acted upon.
The Court also emphasized that there is no provision allowing a decree holder to unilaterally deposit deficient stamp duty after the prescribed statutory period without following the mechanism contemplated under the Stamp Act.
To strengthen compliance, the Court referred to the Delhi High Court Practice Directions requiring parties filing enforcement petitions under Section 36 to expressly declare that the requisite stamp duty has been paid on the arbitral award. The ruling is expected to have significant implications for arbitration enforcement proceedings and stamp duty compliance across commercial disputes.