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(2) For that purpose every such person shall examine every instrument so chargeable and so produced or coming before him in order to ascertain whether it is stamped with a stamp of the value and description required by the law in force in India when such instrument was executed or first executed:"

18. Section 35 of Stamp Act provides that instruments not duly stamped is inadmissible in evidence and cannot be acted upon. The relevant portion of the said section is extracted below:

19. Having regard to Section 35 of Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. Section 35 of Stamp Act is distinct and different from Section 49 of Registration Act in regard to an unregistered document. Section 35 of Stamp Act, does not contain a proviso like to Section 49 of Registration Act enabling the instrument to be used to establish a collateral transaction.

22.1. The court should, before admitting any document into evidence or acting upon such document, examine whether the instrument/document is duly stamped and whether it is an instrument which is compulsorily registrable.
22.2. If the document is found to be not duly stamped, Section 35 of Stamp Act bars the said document being acted upon. Consequently, even the arbitration clause therein cannot be acted upon. The court should then proceed to impound the document under Section 33 of the Stamp Act and follow the procedure under Section 35 and 38 of the Stamp Act.

Reliance was placed on the decision of the Supreme Court in SMS Tea Estates Pvt. Ltd. Vs. Chandmari Tea Co. Pvt.Ltd., 2011(4)-Arb.L.R. - 265(S.C.) - At paragraphs 10 and 11 where the Supreme Court held as follows :

"10. ... ... ... ... ... ... ... ... ... ...

xxx xxx xxx Having regard to Section 35 of the Stamp Act, unless the stamp duty and penalty due in respect of the instrument is paid, the court cannot act upon the instrument, which means that it cannot act upon the arbitration agreement also which is part of the instrument. ... ... ... ..."