Karnataka High Court
M/S City Max Hotels (India )Pvt Ltd vs Mr. Shakeel Pasha on 28 July, 2023
1 R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 28TH DAY OF JULY, 2023
BEFORE
THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
WRIT PETITION NO.8352 OF 2022 (GM-CPC)
C/W
WRIT PETITION NO. 12935 OF 2022 (GM-CPC)
IN WP NO.8352/2022:
BETWEEN:
1 . MR. SHAKEEL PASHA
S/O KHALAQ SHERIFF
AGED ABOUT 62 YEARS,
R/AT NO 11, LEONARD LANE
RICHMOND TOWN, BENGALURU-560025
(SENIOR BENEFIT NOT CLAIMED)
2 . MRS. NASREEN SHAKEEL
AGED ABOUT 66 YEARS,
W/O SHAKEEL PASHA
R/AT NO 11, LEONARD LANE
RICHMOND TOWN, BENGALURU-560025
(SENIOR BENEFIT NOT CLAIMED)
3 . M/S WINDSOR GARDENS PVT LTD
NO 81, 36TH CROSS, 6TH MAIN
5TH BLOCK, JAYANAGARA, BENGALURU-560041
REP BY ITS MANAGING DIRECTOR
MR SRINIVAS RAO
...PETITIONERS
(BY SRI.MANU K, ADVOCATE)
2
AND:
M/S CITY MAX HOTELS
(INDIA ) PVT LTD
VIII FLOOR, DELTA BLOCK
SIGMASOFT TECH PARK
NO 7, VARTHUR MAIN ROAD
WHITE FILED
BENGALURU-560066
...RESPONDENT
(BY SRI.MANU KULKARNI, ADVOCATE FOR C/R1)
THIS WP IS FILED UNDER ARTICLE 227 OF THE
CONSTITUTION OF INDIA PRAYING TO QUASHING THE IMPUGNED
PORTION OF THE ORDER DATED 11/02/2022 PASSED BY THE
HONBLE LXXXVII ADDL. CITY CIVIL AND SESSIONS JUDGE
(EXCLUSIVE DEDICATED COMMERCIAL COURT) (CCH-88) AT
BENGALURU IN COM EX.PET.NO.224/2021 PRODUCED AS
ANNEXURE-A AND CONSEQUENTLY DIRECT THE DECREE HOLDER
TO PAY THE STAMP DUTY AT THE RATE OF 6% OF THE ACCRUED
AWARD AMOUNT AS PER ARTICLE 11 OF THE KARNATAKA STAMP
ACT, 1957 WHICH WAS APPLICABLE IN THE YEAR 2011 WHEN THE
ARBITAL AWARD DATED 01/12/2011 WAS EXECUTED AND
PENALTY AS PER SECTION 34 OF THE KARNATAKA STAMP ACT
1957.
IN WP NO.12935/2022:
BETWEEN:
M/S CITY MAX HOTELS (INDIA) PVT LTD
(COMPANY INCORPORATED UNDER
COMPANIES ACT, 1956)
3RD FLOOR, 77 TOWN CENTRE
BUILDING NO.3, WEST WING,
OFF HAL OLD AIRPORT ROAD,
YEMLUR P.O,
3
BENGALURU-560 037
REP BY ITS AUTHORIZED REPRESENTATIVE
MR. SHANKAR R ROA,
AGED ABOUT 47 YEARS
...PETITIONER
(BY SRI.MANU PRABHAKAR KULKARNI, ADVOCATE)
AND:
1. MR. SHAKEEL PASHA
S/O KHALAQ SHERIFF,
AGED ABOUT 62 YEARS
2. NASREEN SHAKEEL
W/O SHAKEEL PASHA
AGED ABOUT 66 YEARS
BOTH ARE R/O NO.11
LEONARD LANE, RICHMOND TOWN,
BENGALURU-560025
3. M/S WINDSOR GARDENS PVT LTD
(COMPANY INCORPORATED UNDER COMPANIES ACT, 1956)
AT NO. 81, 36TH CORSS,
6TH MAIN, 5TH BLOCK,
JAYANAGAR, BENGALURU-560041
...RESPONDENTS
(BY SRI.MANU.K, ADVOCATE)
THIS W.P. IS FILED UNDER 227 OF THE CONSTITUTION OF
INDIA PRAYING TO SET ASIDE THE ORDER DTD.11.2.2022 PASSED
BY THE HONBLE ADDL CITY CIVIL JUDGE COMMERCIAL COURT
BANGALORE (CCH-88) IN COM EX PET NO.224/2021 AT
ANNEXURE-A AND ETC.,
4
THESE PETITIONS HAVING BEEN HEARD AND RESERVED FOR
ORDERS ON 25.07.2023, COMING ON FOR PRONOUNCEMENT OF
ORDER THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
These two captioned petitions are filed by the decree holder as well as judgment debtors assailing the order passed by the Executing Court having determined the stamp duty payable at Rs.72,500/- on the arbitral award of Rs.1,20,000/- with interest at the rate of 18% p.a. as also penalty imposed at Rs.7,25,000/-.
The decree holder has filed W.P.No.12935/2022 questioning the impugned order dated 11.02.2022 passed in Com.Ex.Pet.No.224/2021 with a further direction to the Registrar, City Civil Court, Bengaluru to refund Rs.7,25,000/- which is imposed by way of penalty. In the alternative, the decree holder has also sought direction against the judgment debtors to pay stamp duty or penalty that is determined by the Executing Court.
5
The judgment debtors have filed W.P.No.8352/2022 questioning the stamp duty payable on the arbitral award and also consequent penalty imposed by the Executing Court. The judgment debtors claim that decree holder has to pay duty and penalty to an extent of Rs.3,01,16,904/-. The said contention of judgment debtors is negatived by the Executing Court and therefore, the judgment debtors are also before this Court assailing the order dated 11.02.2022.
2. For the sake of convenience, the parties are referred to as per their rank before the Executing Court.
3. The facts leading to the case are as under:
An agreement to lease was executed between the judgment debtors and decree holder with respect to their premises to be developed on subject property. The dispute arose between the decree holder and judgment debtors and since the agreement contemplated arbitration clause, the dispute was referred to arbitration in terms of the agreement. 6 An award is passed by the Arbitrator in the said arbitration proceedings and the judgment debtors are directed to pay a sum of Rs.1,20,00,000/- along with 18% interest p.a. from 26.02.2008 till the date of actual payment. The judgment debtors filed arbitration suit in Com.A.S.No.26/2012 challenging the arbitral award. The said suit was dismissed on 05.10.2020. Feeling aggrieved by the order dated 05.10.2020, the judgment debtors have filed a commercial appeal in C.A.No.4/2021 before this Court which is admitted on 01.07.2021.
The decree holder after dismissal of arbitral suit initiated execution proceedings against the judgment debtors in Com.Ex. No.224/2021 seeking enforcement of the award dated 01.12.2011. On registration of execution petition, the Executing Court collected stamp duty payable on the award dated 01.12.2011 and directed the decree holder to pay Rs.72,500/- as the stamp duty on the said award. In compliance of order dated 23.07.2021, decree holder paid 7 stamp duty on 31.07.2021. The judgment debtors filed an application before the Executing Court seeking impounding of the award dated 01.12.2011. The said application was contested by the decree holder. The Executing Court allowed the application and directed the decree holder to pay penalty of ten times on the stamp duty determined. The decree holder has paid penalty of Rs.7,25,000/- under protest. The judgment debtors filed a review petition challenging the order dated 11.02.2022 which is rejected by the Executing Court.
4. Learned counsel appearing for the decree holder reiterating the grounds urged in the petition would vehemently argue and contend that decree holder is entitled to stamp the arbitral award only at the time of execution of award. To buttress his arguments, he has placed reliance on the judgment rendered by the Hon'ble Apex Court in the case of M.Anasuya Devi vs. M.Manik Reddy1. He has also placed reliance on the judgment rendered by the coordinate Bench of 1 (2003) 8 SCC 565 8 this Court in the case of Dilli Babu vs. State of Karnataka2. Referring to the principles laid down by the Hon'ble Apex Court and coordinate Bench, he would point out that the decree holder has an option to take benefit of the instrument to pay stamp duty either before or at the time of execution. Therefore, he would contend that the decree holder is entitled to exercise this option of paying the stamp duty at the time of enforcement/execution of the arbitral award. Therefore, he would contend that the decree holder is only liable to pay stamp duty as prevailing at the time of enforcement/execution of the arbitral award.
5. Learned counsel appearing for the decree holder would contend that the decree holder in terms of amended Act paid stamp duty of Rs.72,500/- and under protest, he has deposited Rs.7,25,000/- which was imposed by way of penalty. Referring to Section 17 of the Karnataka Stamp Act, 1957, he would contend that the said section clearly provides 2 ILR 2105 Kar 4336 9 that liability to pay stamp duty arises before or at the time of execution. Referring to Section 17, he would contend that strict interpretation of Section 17 which mandates that award has to be stamped within two months of pronouncement cannot be extended to an arbitral award in the light of law laid down by the Apex Court in the case of Anasuya Devi (supra). Therefore, referring to these judgments, he would point out that Executing Court would not have erred in imposing penalty as question of imposition of penalty does not arise and the coordinate Bench in the case of Dilli Babu (supra) did not levy any penalty.
6. Learned counsel would further submit that a combined reading of the judgment rendered by the Hon'ble Apex Court in the case of Anasuya Devi (supra) followed by coordinate Bench in Dilli Babu's case (supra) clearly gives an inference that liability to pay stamp duty on the arbitral award arises when the same is sought to be enforced. Therefore, he would contend that stamp duty has to be determined in terms 10 of duty payable when the instrument is sought to be enforced and not when it is signed by the Arbitrator as contended by the judgment debtors. Therefore, he would contend that the decree holder has paid applicable stamp duty in terms of amended Act. He would also point out that decree holder has paid stamp duty as applicable in terms of Amended Act and therefore, he would contend that nothing more due is payable by the decree holder.
7. In support of his contention, learned counsel for the decree holder has placed reliance on the judgment rendered in the case of Sri P.Govindaraj vs. Sri N.Nanjundaswamy3. Taking assistance of the principles laid down in the above said judgment, he would contend that judgment debtors have no locus standi to question payment of stamp duty. He has also placed reliance on the judgment rendered by the Hon'ble Apex Court in the case of Sri Rathnavarmaraja vs. Vimla4 and has contended that defendants/judgment debtors who have 3 W.P.No.9653 of 2020 Dt: 05.10.2020 4 AIR 1961 SC 1299 11 suffered a decree/arbitral award cannot give license to the aggrieved party to obstruct a suit or other proceedings questioning the determination of court fee payable. Referring to the principles laid down by this Court in M.B.Krishnappa vs. M.B.Muniyappa5, he would contend that Apex Court has held that defendant is not a aggrieved person and has no locus standi to challenge the determination of court fee in a revision. He has also placed reliance on the judgment rendered by this Court in the case of Manicklal Verma vs. Jamunadevi6.
8. To buttress his arguments on Doctrine of Merger, he has also placed reliance on the judgment rendered by the Hon'ble Apex Court in the case of Kunhayammed vs. State of Kerala7.
9. Per contra, learned counsel for the judgment debtors reiterating the grounds urged in W.P.No.8352/2022 5 ILR 1980 Kar 738 6 ILR 2002 Kar 2347 7 (2000) 6 SCC 359 12 would vehemently argue and contend that the impugned portion of the order is patently erroneous and the same is passed in complete contravention of well settled principle of law. Referring to Section 33 and 2(f) of Karnataka Stamp Act, he would point out that relevant date for the purpose of quantifying the stamp duty payable on the instrument is the date on which the instrument was signed, while commercial court has instead erroneously calculated penalty payable as per the provisions of the Act as it stood at the time of passing the impugned portion of the order. Referring to Section 33 and 2(f) of the Karnataka Stamp Act, he would vehemently argue and contend that amount of stamp duty payable on an arbitral award has to be computed with reference to the provisions of the Act as it was applicable on the date on which said arbitral award was executed.
10. Referring to Article 11 of the Stamp Act, he would contend that commercial court ought to have computed the stamp duty on the basis of Article 11 of the Act as it prevailed 13 on 01.12.2011 when the award was executed and therefore, the stamp duty payable is at the rate of 6% of the accrued award amount and not in terms of amended Article 11.
11. Learned counsel appearing for the judgment debtors while countering the contentions of decree holder would contend that the law laid down by the Hon'ble Apex Court in the case of Anasuya Devi (supra) is distinguishable. Placing reliance on Section 10-A(3)(ii), he would contend that if award is not stamped, the same would attract penalty. Referring to Section 37 of the Stamp Act, he would contend that there is no discretion vested with the Court and therefore, having impounded the document is bound to impose ten times penalty. Learned counsel for the judgment debtors would further point out that the total amount recoverable is Rs.4,18,29,032/- and therefore, decree holder has to pay penalty at ten times on the said amount. According to the judgment debtors, the penalty payable is Rs.2,30,05,972/- and therefore, the total amount payable with duty works out 14 to Rs.2,50,97,424/- and unless the said stamp duty and penalty is paid, the decree holder cannot proceed with the execution proceedings.
12. To buttress his arguments, he has placed reliance on the following judgments:
1) Digambar Warty and Others vs. District Registrar, Bangalore Urban District and Another - ILR 2013 Kar 2099;
2) Gangappa and Another vs. Fakkirappa - (2019) 3 SCC 788;
3) Sri Dilli Babu vs. The State of Karnataka - ILR 2015 Kar 4336;
4) Shankar Ramchandra Abhyankar vs. Krishnaji Dattatreya Bapat - 1969 (2) SCC 74;
5) Kunhayammed and Others vs. State of Kerala and Another - (2000) 6 SCC 359;
6) Project Director, National Highways of India vs. M.Hakeem and Another - (2021) 9 SCC 1;
7) Hindustan Steel Ltd. vs. Messrs Dilip Construction Company - 1969 (1) SCC 597;
8) Ningappa Bharamappa Sogi vs. State of Karnataka - ILR 2011 Kar 2484.15
13. Heard learned counsel for the respective parties.
Perused the order under challenge.
14. In the light of rival contentions canvassed by the learned counsel on record, the following points would arise for consideration:
1) Whether the impugned order under challenge in determining the stamp duty in terms of amended Article 11(b)(ii) of the Karnataka Stamp Act suffers from infirmities and is contrary to law laid down by the Hon'ble Apex Court in the case of Anasuya Devi (supra) followed by this Court in the case of Dilli Babu (supra)?
2) Whether an arbitral award though falls within the definition of 'instrument' as stipulated under the Stamp Act can be really treated as an instrument in true sense and therefore, would warrant penalty while enforcing the arbitral award under Section 36 of the Arbitration and Conciliation Act, 1996 (for short 'the Act of 1996')?
3) Whether the Court below was justified in levying penalty on the arbitral award by entertaining an application filed by the judgment debtors in execution proceedings under Section 36 of the Act of 1996? 16
Re: Point No.1:
15. The commercial Court while determining stamp duty has applied the amended provisions of Article 11(b)(ii) of the Karnataka Stamp Act and has determined the stamp duty by applying Doctrine of Merger. The Executing Court held that since the arbitral award was questioned under Section 34 by the judgment debtors and it was dismissed on 05.10.2020, the amended provisions of Article 11(b)(ii) is applicable and therefore, the stamp duty is determined in terms of Article 11(b)(ii). The reasons assigned by the Executing Court would not detain this Court for long. The said issue is given a quietus by the Hon'ble Apex Court in the case of Anasuya Devi (supra) and the principles laid down by the Apex Court in the case of Anasuya Devi (supra) is followed by this Court in the case of Dilli Babu (supra). Therefore, to ascertain as to whether stamp duty is to be determined in terms of unamended Article 11(b) or in terms of amended Article 17 11(b)(ii), the date of arbitral award would be relevant and not when it is sought to be enforced.
16. The Hon'ble Apex Court and this Court has held that amount of stamp duty payable would have to be computed with reference to the date on which the instrument was signed. Therefore, the Executing Court erred in applying Doctrine of Merger. The undisputed facts in the present case on hand is that arbitral award is dated 01.12.2011 directing the judgment debtors to refund amount of Rs.1,20,000/- along with 18% interest. The execution petition is filed on 23.07.2021. The amendment made to Article 11(b) on substitution by Act 19 of 2014 is with effect from 01.03.2014. Therefore, the order under challenge in determining stamp duty in terms of amended Article 11(b)(ii) is not sustainable. The said order warrants interference at the hands of this Court. Accordingly, point No.1 is answered in the affirmative. 18 Re: Point Nos.2 and 3:
17. Interestingly, the Act of 1996 does not mandate parties to pay any stamp duty on arbitral awards. It is the Karnataka Stamp Act which expressly requires stamp duty to be paid on arbitral awards, failing which the unstamped or inadequately stamped awards can be impounded and will be inadmissible in courts. The Stamp Act is a fiscal statute that levies a charge on execution of instruments. An 'instrument' is defined as a document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished, or recorded. The logic behind an award being subject to stamp duty is that an award falls under this definition of 'instrument'. There appears to be no available literature which explains the basis for subjecting an arbitral award to stamp duty. While the Courts have had several occasions to delve into the question of whether an unstamped or inadequately stamped award is inadmissible, can be impounded, or can be used as a valid ground to set aside the 19 award, however, the question of whether the arbitral award falls within the definition of 'instrument' as stipulated under the Stamp Act, in the first place, and should it even be subjected to stamp duty needs consideration at the hands of the Court. An arbitral award stems from an adjudication of disputes where one party wins and the other party loses.
Subject to any settlement agreements entered between the parties during the arbitration proceedings, which will anyway be subject to applicable stamp duty, an arbitral award is not a creature of consent but a unilateral expression of adjudication which conclusively determines the rights and liabilities of the parties in relation to the subject matter in dispute.
18. Further, it is trite law that an arbitration proceedings is in the nature of quasi judicial proceedings and that the arbitral award is a decree of Court vis-à-vis its enforcement. Presumably, an award was mistakenly believed to be in the nature of a settlement agreement facilitated through the process of arbitration, mediation, or conciliation. 20 This misplaced understanding is also reflected in Section 89 of the Code of Civil Procedure, 1908, where arbitration is perceived to be a mechanism to execute settlement agreements, and hence an award stemming from arbitration is possibly misconstrued to be an instrument. Interlinking the relevant provisions of Arbitration and Conciliation Act and Stamp Act
19. Taking note of the interplay of both the Acts, it is evident that an award cannot be acted upon by the court unless it is duly stamped. The Hon'ble Apex Court in the case of Anasuya Devi (supra) opined that the question of stamping the award is uncalled for at the stage of setting aside proceedings under Section 34 of the Act of 1996. Further, Apex Court has held that non-stamping of the arbitral award is not a ground for challenge under Section 34 of the Act of 1996, but can be considered as a ground to object at the stage of enforcing the award under Section 36 of the Act of 1996. Various High Courts while taking note of the Hon'ble 21 Apex Court judgment rendered in Anasuya Devi (supra) have often faced difficulties as the law regarding impounding unstamped, insufficiently stamped award while hearing a petition under Section 34 of the Act of 1996 is unsettled. In the above backdrop, the anomaly with respect to the application of Section 33 of Stamp Act while hearing a petition for setting aside an award under Section 34 of the Act of 1996 still continues to subsist.
20. Several recommendations are made by the Law Commissions in the light of the Arbitrators appointed under the New Act have raised several questions as to what should be done when the original award once it is signed. There have been recommendations to incorporate a new provisions to Section 31(1) of 1996 Act on the lines of Section 14(2) of Arbitration Act, 1940 which would clear all the problems relating to stamping of arbitral award. The recommendations are also made to amend Sections 31(1) and 31(5) of the Act of 1996 and in addition provide that if the award requires 22 compulsory registration under Section 17(1)(b) of Registration Act to have it duly registered. Therefore, unless there is an amendment to Section 31(1) of the Act of 1996, mandating award to be duly stamped and compulsory registration wherever it is required, this anomaly will continue.
21. In the present case on hand, the question that requires consideration is, as to whether Executing Court was justified in imposing penalty. An insufficiently stamped instrument if tendered in evidence has to be immediately impounded by the Court or an officer receiving the document. We are dealing with a case of arbitral award which requires stamping only at the stage of enforcement. It is trite law that a domestic award has to be stamped just before its execution. Therefore, I am not inclined to accept the mandate under Section 33 imposing the duty on the court to immediately impound in respect of insufficiently stamped arbitral award. We are dealing with an arbitral award which by fiction assume the character of a decree. Therefore, stamping and 23 registration of an award is a matter which the Court has to see only when the parties file an award for its enforcement. The concept of imposing penalty on an insufficiently stamped instrument cannot be applied to an arbitral award in an execution proceedings.
22. In the light of discussion made supra, if an arbitral award by fiction assumes a character of a decree, the Executing Court cannot impose penalty. An arbitral award is sought to be enforced and is not subject matter of adversial lis which cannot be tendered in evidence for want of sufficiently stamped duty. The principles applicable to an insufficiently stamped instrument under Sections 33 and 34 of the Karnataka Stamp Act cannot be extended to an arbitral award when the same is sought to be executed under Section 36 of the Act of 1996. A decree holder has not tendered an arbitral award for adjudication. On adjudication, an arbitral award is passed by an Arbitrator. The said award on dismissal of application in arbitration suit Com.A.S.No.26/2012 is sought to 24 be enforced by the decree holder. If a decree holder has paid stamp duty and has sought for enforcement of a decree, even if the stamp duty deposited by the decree holder is found to be insufficient that will not attract the provisions of Sections 33 and 34 of the Stamp Act in execution proceedings.
23. As rightly pointed out by learned counsel appearing for the decree holder, it is really agonizing to learn that the decree holder is unable to enjoy the fruits of an arbitral award. The decree holder is virtually compelled to go through so much struggle to execute what has already been granted in his favour after a hard and arduous battle.
24. The intent of Arbitration Act to provide speedy resolution of the disputes gets completely defeated if judgment debtors are permitted to raise untenable defences in execution proceedings. An arbitral award without any provision for its speedy disposal is an anathema to the arbitration proceedings. Therefore, the Executing Court erred 25 in impounding the arbitral award and the consequent imposition of ten times penalty is also not sustainable. As stated supra, the decree holder while seeking enforcement of an arbitral award has filed execution petition and has voluntarily deposited the stamp duty which is accepted by the Executing Court. Therefore, the question of imposing penalty would not arise and therefore, the order of the Executing Court in imposing penalty is liable to be set aside by this Court. The stamp duty collected by the Executing Court is also contrary to the law laid down by the Hon'ble Apex Court in the case of Anasuya Devi (supra).
25. In the present case on hand, the decree holder having filed a petition seeking enforcement of arbitral award has deposited the stamp duty. The execution petition is filed on 23.07.2021. The Executing Court has calculated the stamp duty payable at Rs.72,500/- at first instance. The decree holder has deposited the stamp duty on 31.07.2021. On 05.10.2021, the judgment debtors have come up with an 26 application under Section 33 read with Section 34 of the Karnataka Stamp Act for impounding the arbitral award. The question of impounding an arbitral award in an execution proceedings would not arise. All that the decree holder is required to do is pay the requisite stamp duty to enforce the arbitral award seeking recovery of money. Accordingly, point Nos.2 and 3 are answered in the negative.
My conclusions:
i) In the light of the law laid down by the Apex Court in the case of Anasuya Devi (supra), the date for the purpose of quantifying the stamp duty payable on the instrument is the date on which the instrument is signed.
Therefore, decree holder cannot take benefit of the amendment to Article 11B of the Stamp Act and therefore, is bound to pay stamp duty in terms of unamended Article 11B of the Stamp Act.
ii) After the arbitration process is completed, the merits are given finality by issuing an arbitral award. By way 27 of an legal fiction, the award is to be treated as decree. Such legal fiction is created for the limited purpose of enforcement of an award as a decree. Arbitral award is tendered in execution proceedings for enforceability of an award. Therefore, Sections 33 and 34 of the Stamp Act which mandates and requires an insufficient stamped instrument to be impounded and consequently penalty to be imposed cannot be extended and applied to arbitral awards. An award stemming from arbitration is possibly misconstrued by executing court to be an instrument. The executing court therefore erred in impounding arbitral award in execution proceedings under Section 36 of the 1996 Act.
iii) An arbitral award stems from an adjudication of disputes which is not a creature by consent, but on account of unilateral expression of adjudication which conclusively determines the rights and liabilities of the parties and therefore, question of impounding of an arbitral award under Section 36 proceedings does not arise.
28
iv) The executing court has imposed ten times penalty which is not at all sustainable. The cost of implication for award holders negatively impacts the choice of arbitration as a method of alternate dispute resolution and if the courts starts imposing penalty on an arbitral awards, then decree holders who have benefit of an arbitral award have to unnecessarily incur additional costs for enforcement despite having an award in his favour. Speaking of paradoxes, it is a fact that success of any dispute resolution system largely depends on the effectiveness of the enforcement mechanism provided in it.
v) In the present case on hand, it is really agonizing to see that decree holder who has voluntarily deposited the requisite stamp duty payable is saddled with ten times penalty. The eventual result in the present case on hand is that decree holder has not received any pie of the award. The judgment debtor who has suffered an arbitral award has challenged the arbitral award by initiating Section 34 proceedings and has lost. The biggest challenge for arbitral 29 enforcement mechanism system is its linkage with court process and the short comings of execution of arbitral award is quite tangible.
vi) There is definitely need for quicker enforcement mechanism in India, particularly in terms of protracted process faced by the parties in an arbitration related litigations, or else the trust and confidence of parties on arbitration as a mechanism for dispute resolution would surely wither away with time.
vii) What the executing court has lost sight is that arbitral award is not tendered as an evidence. The order sheets produced by the decree holder also gives an indication that where arbitral awards are sought to be executed by filing execution petitions, the decree holders makes request to the executing court to determine the stamp duty payable and only on calculation of stamp duty, decree holders are called upon to deposit the stamp duty to enable them to enforce the arbitral 30 award. Therefore, it is in this context executing court erred in entertaining an application filed by the judgment debtor and consequently, erred in impounding an arbitral document which was obviously not tendered in evidence for adjudication purpose.
viii) Unless Rules are framed and a mechanism is brought into force indicating that how arbitral award needs stamping and at what point of time it needs stamping before the same is set in execution, the executing courts have to bear in mind the valuable rights accrued to a decree holder and therefore, the executing courts should not impose penalty under Sections 33 and 34 of the Karnataka Stamp Act to an arbitral award.
ix) It is necessary to bear in mind that the enormous increase in civil litigation and huge pendency of cases has led the State to introduce Section 89 of Code of Civil Procedure to encourage the parties to resort to alternate modes of dispute 31 resolution such as Arbitration, Conciliation, Lok Adalath and Mediation. If the party who resorts to arbitration has to incur more expenses, then, he would be discouraged from invoking the remedy by way of arbitration, thus defeating the principle object of the Legislature encouraging parties to resort to arbitration.
26. For the foregoing reasons, I pass the following:
ORDER
(i) The writ petitions are allowed in part;
(ii) The order dated 11.02.2022 passed in Com.Ex.Pet.No.224/2021 vide Annexure-A by the learned Additional City Civil Judge, Commercial Court, Bengaluru (CCH-88) is hereby set aside;
(iii) The Executing Court shall re-determine the stamp duty payable in terms of unamended Article 11(b) of the Karnataka Stamp Act and thereafter, proceed with the execution petition in accordance with law;
(iv) The penalty imposed by the Executing Court is hereby set aside for the reasons stated supra. 32
The Executing Court shall refund penalty of Rs.7,25,000/- imposed on the decree holder;
(v) The pending interlocutory application, if any, does not survive for consideration and stands disposed of.
Sd/-
JUDGE CA