The Supreme Court of India has ruled that a trial court cannot impose a ten-times penalty on an insufficiently stamped agreement of sale when the opposing party requested the document's review by the District Registrar. This ruling clarifies the procedure for handling such situations under the Karnataka Stamp Act.

The Supreme Court of India, in Seetharama Shetty vs Monappa Shetty, reversed the High Court and trial court judgments, ruling that a trial court could not impose a ten-times penalty on an insufficiently stamped agreement of sale when the defendant had requested the document be sent to the District Registrar for review. The Court clarified the procedure for handling such documents and the discretionary powers available to courts and the District Registrar under the Karnataka Stamp Act, 1957.

Background:
Seetharama Shetty, the appellant, filed a suit for perpetual injunction against Monappa Shetty, the respondent, to prevent interference with his possession of agricultural land. The appellant claimed possession based on an agreement of sale executed with the respondent. However, the respondent disputed the agreement's validity, arguing it was insufficiently stamped and therefore inadmissible as evidence. The trial court, acting on the respondent's application under Section 33 of the Karnataka Stamp Act, 1957, had sent the agreement to the District Registrar for determination of the deficit stamp duty and penalty. While the District Registrar determined the deficit stamp duty, the trial court ultimately imposed a penalty ten times the deficit amount, a decision upheld by the High Court.

Questions of Law:
Does an agreement of sale, coupled with possession, meet the definition of a conveyance under the Karnataka Stamp Act, 1957, requiring ad valorem stamp duty?
In these circumstances, were the trial court's order imposing a ten-times penalty, as affirmed by the High Court, legally sound and valid or subject to the Supreme Court's intervention under Article 136 of the Constitution of India?

The Supreme Court analyzed Sections 33, 34, 37, and 39 of the Karnataka Stamp Act, 1957 to clarify the procedure for handling insufficiently stamped documents. The Court noted that while courts have the authority to impound such documents and impose penalties, a party can also request the document be sent directly to the District Registrar for determination of the deficit stamp duty and penalty.

The Apex Court held that "The person who intends to rely on an insufficiently/improperly stamped instrument has [the] option to submit to the scope of Section 34 of the Act, pay duty and penalty. The party also has the option to directly move an application under Section 39 of the Act before the District Registrar and have the deficit stamp duty and the penalty as may be imposed collected."

The Court further observed that, while Section 34 mandates a ten-times penalty for insufficiently stamped documents admitted as evidence, the District Registrar under Section 39 has discretion in determining the penalty amount. Citing its previous judgments in Trustees of H.C. Dhanda Trust v. State of Madhya Pradesh and Petiti Subba Rao v. Anumala S. Narendra, the Court emphasized that the ten-times penalty is an upper limit intended for extreme cases, and the District Registrar should consider various factors, including the financial position of the person concerned, when deciding the penalty.

"The responsibility to exercise the discretion in a reasonable manner lies more in cases where discretion vested by the statute is unfettered. Imposition of the extreme penalty, i.e. ten times of the duty or deficient portion thereof, cannot be based on the mere factum of evasion of duty."

The Supreme Court held that in this specific case, since the respondent had requested the trial court send the document to the District Registrar for determining the stamp duty and penalty, the trial court erred in imposing the ten-times penalty itself.

“Therefore, going by the request of the respondent, the option is left for the decision of the District Registrar. Contrary to these admitted circumstances, though the suit instrument is insufficiently stamped, still the penalty of ten times under Section 34 of the Act is imposed through the impugned orders."

Coram: Justice Hrishikesh Roy, and Justice S.V.N. Bhatti.
Between: Seetharama Shetty vs Monappa Shetty.
DOJ: 02-09-2024