Bom HC | Stamp duty cannot be avoided on arbitration agreement, even if the rest of the contract is executed outside state

Bombay High Court: G.S.Patel, J., held that an arbitration agreement must be stamped in the state where the arbitration is to take place, even if the only “thing to be done” in the state is the arbitration of the dispute. In this particular case, the contract was executed outside the state and was concerned with work that was to be carried out in Visakhapatnam, however the arbitration clause specified that in case of any dispute, arbitration would take place in Mumbai. The main agreement had been stamped as per relevant laws in Visakhapatnam. When a dispute arose and the parties couldn’t decide upon an arbitrator by themselves, the matter was referred to the Bombay High Court under Section 11 of the Arbitration and Conciliation Act, 1996. Upon doing so, a further dispute arose as to whether the arbitration agreement would be recognised in Maharashtra as it was not stamped there.

The Court took into account the case of Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd., (2019) 9 SCC 209 where the Supreme Court had ruled that an arbitration agreement cannot be acted upon unless it is duly stamped. The Court relied upon the combined reading of Sections 3(b) and 19 of the Maharashtra Stamp Act, 1958 which specify that stamp duty has to be paid for instruments (1) executed out of State and (2) relating to any matter of “thing done or to be done” in the State and (3) is received in the State. In this backdrop, the Court proceeded to deal with whether arbitration would be a “thing to be done” under the abovementioned sections. In this regard, the judge observed that to insist that arbitration clauses alone are exempt from stamp duty under the Act would entail severing it from the rest of the agreement, which is not possible. It was clarified that arbitration is founded in the contract and Garware Wall Ropes Case also specifies that such a contract is one and indivisible at least to the extent of its arbitration agreement. 

The Court further stated that even on a literal appreciation of the provisions of the Maharashtra Stamp Act, 1958 they could not rule in favour of the applicant. The Court finally clarified that if any stamp duty has been paid in the other state then an adjustment will be done but the applicant will not be exempted from paying stamp duty in Maharashtra. [S. Satyanarayana Co. v. West Quay Multiport (P) Ltd., 2019 SCC OnLine Bom 4595, decided on 22-11-2019]

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