The National Highways Authority of India (NHAI) is responsible for the development and maintenance of national highways in India. In order to construct and expand these highways, it is often necessary for the Central Government to acquire private land from individuals and communities.

One of the challenges that can arise in this process is the payment of stamp duty on compensation paid to land owners. This can be a significant financial burden for the land owners, as well as a delay in the process of acquiring the land.

The question of whether an award rendered by an Arbitrator in terms of Section 3-G of the National Highways Act, 1956 (NH Act, 1956), would be considered an arbitral award in terms of the respective Stamp Acts requiring it to be stamped, has been a matter of debate in the Indian judicial system.

Stamp duty is a tax imposed on legal documents, such as awards, and it is meant to serve as a revenue source for the government. In the context of land acquisition, the stamp duty is imposed on the award passed by the acquiring authority, which determines the compensation to be paid to the landowner. The National Highway Act, 1956 is a Central legislation that lays down the procedure for the acquisition of land for the construction and maintenance of national highways.

The Act also provides for the determination of compensation to be paid to the landowner, through the appointment of an arbitrator in case of disputes. Therefore, the question of whether an award passed under the NH Act, 1956 is liable for stamp duty has been the subject of confusion.

IMPORTANCE OF STAMP DUTY ON ARBITRATION AWARD

It is not specifically stated in the Arbitration Act that parties to an arbitration agreement must pay stamp duties on an arbitral award. The Indian Stamp Act 1899 provides for stamping of deed/documents/instruments with specific stamp duties. Section 35 of the Stamp Act provides that an instrument which is unstamped or is insufficiently stamped is inadmissible for any purpose, which may be validated on payment of the deficiency and penalty.

Depending on where the award is made, the amount of stamp duty that must be paid will vary from State to State. The award is subject to stamp duty of 0.1% of the value of the property to which it relates, as stated in Article 12 of Schedule 1A to the Stamp (Delhi Amendment) Act 2001 as applicable to Delhi. The Registration Act of 1908 does not specifically define the term "award" or set forth a necessity for the registration of an arbitral judgement, which has caused confusion in the legal community regarding whether an arbitral award must be required to be registered.

However, if an arbitral judgement has an impact on immovable property, it must be compulsorily registered under Section 17 of the Registration Act (documents for which registration is required).

Judiciary interpretations of the consequences of not paying stamp duty at the time an arbitral award if enforced have differed. The dispute results from the fact that, unlike decrees in civil actions, an award issued by a panel is not necessarily produced before the courts. The issue of paying stamp duty only comes up in civil actions when a document is going to be admitted into evidence. At the time of enforcement under the Arbitration Act, concerns about the stamping and registration of an award or the related documents may be brought up.

By judicial decree, it had also been noted that Section 34 of the Arbitration Act does not apply to the necessity of stamping an award and registering it, which is addressed by Section 47 of the CPC. The issue of non-stamping of the award must be resolved at the stage of enforcement of the arbitral award and not at the stage of objections under Section 34 of the Arbitration Act, according to the Apex Court's ruling in M. Anasuya Devi v. M. Manik Reddy1. Due to the Apex Court's ruling, it follows that an arbitral award that has been properly signed and is otherwise in compliance with Section 34 of the Arbitration Act, even if it is not stamped or registered is valid. The Stamp duty and registration fee are attracted to be paid just before when the parties would file the enforceable award in the court executing the decree under Section 47 of the CPC.

SHALINI VS NHAI

Section 3-G of the NH Act, 1956 provides for the appointment of an arbitrator in case of any dispute with respect to the compensation amount, arising between the landowner and the Competent Authority regarding the compensation to be paid for the acquisition of land. The award passed by the arbitrator is binding on both parties. It states that if the amount determined by the competent authority is not acceptable to either of the parties, the amount shall, on an application by either of the parties, be determined by the arbitrator appointed by the Central Government, and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to every arbitration under this Act.

On the other hand, Article 11 of the Karnataka Stamp Act, 1957, in particular, deals with the stamp duty to be paid on awards made in land acquisition cases. The Act requires that the award passed in such cases be stamped with a duty as specified in the Act before it is admitted as evidence in a court of law.

In the case of Shalini and Anr vs National Highways Authority of India (NHAI) and Ors2, the main issue for consideration was "Whether the award rendered by the Arbitrator in terms of Section 3-G of the National Highways Act, 1956, would be an arbitral award in terms of Article 11 of the Karnataka Stamp Act, 1957, requiring it to be stamped in terms of the said Article".

The case involved a land owner who had her land acquired for the construction of a national highway project by the NHAI. Being dissatisfied with the award of compensation under the NH Act, the Petitioner submitted a reference for arbitration in terms of Section 3G of the Act. The Arbitrator has thereafter passed an award, awarding compensation of ì4,186/- per sq.mtr along with interest at 9% p.a. The respondent had made payment of part of the award and the balance of amount of the compensation not having been paid, the claimants/Decree Holders have filed Execution Petition No.302/2015 before the Principal District Judge, Dharwad, which was objected to by the respondent – NHAI. In the said execution proceedings, an objection was raised that the award passed by the Arbitrator not having been stamped in terms of Article 11 of the Karnataka Stamps Act, 1957 (hereinafter for brevity referred to as the KSA), the same could not be considered for initiating and prosecuting execution proceedings. The executing Court held that the award required to be stamped and called for payment of stamp duty. This was challenged by the Petitioner, on the ground that the said award is not an award under Article 11 of the KSA.

The Hon'ble Court while dealing with the above question has held that "I answer the point raised by holding that an award of compensation rendered by the Arbitrator in terms of Section 3- G of the National Highways Act, 1956, is not an arbitral award in terms of Article 11 of the Karnataka Stamp Act, 1957, requiring it to be stamped in terms of the said Article. It is hereby declared that no stamp duty is liable to be paid on an award for compensation made under Section 3 (G) of the NHAI Act"

REASONING OF THE COURT

While traversing through the different sections of the respective acts, the Court discussed that the NH Act, 1956 is a Central legislation that lays down the procedure for the acquisition of land for the construction and maintenance of national highways. Section 3G of the NH Act provides for the appointment of an arbitrator in case of any dispute arising between the landowner and the Competent Authority regarding the compensation to be paid.

On the other hand, Article 11 of the Karnataka Stamp Act, 1957 deals with the stamp duty to be paid on awards. The Act requires that the award passed in such cases be stamped with a duty as specified in the Act before it is admitted as evidence in a Court of law.

The Court, holding the above, stated that although the Arbitration and Conciliation Act, 1996's procedures for arbitration are adopted by Section 3-G of the NHA Act, in the absence of either an agreement between the land owners and the NHAI (under Section 7 of the Arbitration Act) for arbitration, the Arbitration Proceedings between the Petitioner and NHAI was purely statutory on account of the NHAI Act. In such a circumstance, the question of land-loser consenting to the requirement of stamping of an arbitral award by being knowledgeable about requirement of stamping does not at all arise.

The Court then observed that in pursuance of Section 30(z)(e) of the KSA in the case of the award under Article 11 of the KSA, it is the awardee, who is required to make payment in the stamp duty. Thus under these circumstances, the Petitioner would have to pay a portion of the land compensation by way of Stamp Duty, if the argument of NHAI was accepted. This according to the Court was not acceptable. The Court stated in Para 22 that "The State cannot take away the compensation awarded to the land-loser by imposing a duty to make payment of stamp duty on the said award, which is an additional burden on the land-loser to obtain just compensation on account of loss of his land," The land loser is only required to use the arbitration process because of the statute, the Court noted in making this conclusion.

The court in the same para also recorded that "It is also clear from the fact that while calculating the compensation payable, there is no calculation of the value of the stamp duty payable on the award made. The requirement to make payment of stamp duty on the award would amount to reduction of just compensation, which is not permissible." Accordingly, the Court held that stamp duty under Article 11 of the KSA would not be applicable to awards under Section 3G of the NH Act. The Court also supplemented its above conclusion on the ground that an Award under Section 3G of the NH Act, was an award for acquisition of land by exercise of the powers of the eminent domain of the state, which in turn is an exercise of sovereign powers.

Therefore, an award made under the NHAI Act cannot be equated with an award passed under Article 11 of the Karnataka Stamp Act, 1957 and is not liable for stamp duty.

ANALYSIS AND CONCLUSION

With reference to the above, it is to be seen that the main reasoning by the Court to hold that stamp duty is not applicable is on the basis that an award made under the NH Act cannot be equated with an award passed in terms of the respective Stamp Acts. This case establishes the said principle and the reasoning is based on the fact that an award under Section 3G of the NH Act, is made by the state exercising the sovereign functions under eminent domain. Accordingly, when compensation is paid to the land loser, making the land loser pay stamp duty from the compensation received would be unconscionable.

In conclusion, awards passed under Section 3-G of the National Highways Authority of India (NHAI) Act, 1956 are not considered as arbitral awards in terms of the applicable sections of the Stamp Acts and are not liable for stamp duty.

The NHAI Act is a Central legislation that aims to acquire land for public purpose and not to collect revenue and as such, awards passed under the Act are not subject to stamp duty.

This is a significant step towards simplifying and streamlining the process of land acquisition for national highway projects, and will provide much-needed relief to land owners who may have been facing financial difficulties as a result of the stamp duty. This policy change is expected to have a positive impact on the development of national highways in India, as it will make the process of land acquisition more efficient and less burdensome for all parties involved. It is also likely to encourage more land owners to participate in the process, as they will not have to bear the additional cost of stamp duty on the compensation they receive.

Footnotes

1 2003 (9) SCALE 12

2 Writ petition no.100591/2021(in the high court of karnataka dharwad bench, 28th day of february, 2022)

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