Supreme Court on whether Court has discretion to levy penalty of less than 10 times for impounding inadequately stamped instrument

On 14 December 2018, the Supreme Court of India passed judgement in Gangappa v Fakkirappa (Civil Appeal No. 11932 of 2018). The appeal arose from a judgement of the High Court of Karnataka. The judgement pertains to the penalty that may be imposed by a Court or Authority that has impounded a document that has been filed before it, for insufficient stamp duty. This power is provided to the Court under the Karnataka Stamp Act, 1957 (“The Act”) Facts The Appellant/Plaintiffs filed two suits, O.S Nos. 863 and 864 /2008 seeking the specific performance of two Agreements to Sell, that were entered into by the Respondent/ Defendant. The Principal Civil Judge impounded the agreements in both suits with a direction to the Plaintiffs therein to pay the appropriate stamp duty and penalty. This order came to be challenged before the High Court of Karnataka in W.P. Nos. 69264-65/2010. The writ petitions came to be disposed with a direction that the lower court allow the plaintiffs to place their written submissions on record. Pursuant to this order, the lower court allowed the agreements to be marked as evidence upon payment of the deficit stamp duty and a penalty amounting to twice the amount of deficit duty. The Respondent/Defendant challenged the above order before the High Court of Karnataka, which proceeded to set aside the order of the lower court and impose a penalty of ten times the deficit amount. The present appeal lies from this order of the High Court of Karnataka. Issues The issue before the Supreme Court was whether the trial court had the discretion to impose a penalty of 2 times the deficit amount in light of Section 34 of the Act. Arguments Advanced The Appellants contended that the Act provides for the power of the Deputy Commissioner to reduce the penalty imposed upon due to payment of insufficient stamp duty. In view of the same, the Trial Court should also have the power to reduce the penalty, thus, the Trial Court rightly exercised this power in imposing a reduced penalty. The Respondents contended that Section 34 of the Act did not provide discretion to the Trial Court and mandates the imposition of a penalty of 10 times the deficit amount. The Respondents relied upon the ruling in Digambar Warty v District Registrar (ILR 2013 KAR 2099). Analysis and Ruling The Supreme Court examined the relevant provisions of the Act that provide for situations where an insufficiently stamped document has been produced before a Court. It also examined the provisions of the Act that permitted the Deputy Commissioner to impose a lower penalty upon insufficiently stamped documents. The Supreme Court then compared Section 34, which provides for the imposition of a flat rate of ten times the deficit amount as a penalty, with Section 39 of the Act which provides that the penalty imposed by the Deputy Commissioner may be an amount ‘not exceeding ten times the amount of the proper duty or of the deficit amount. The Supreme Court, referring to the ruling in Digambar Warty observed that the purpose behind Section 34 of the Act was to avoid the wastage of judicial time in adjudicating whether a lower penalty must be imposed, by imposing a fixed penalty. It was also noted that once the Trial Court fixed the penalty, it was open for the same to be refunded upon appropriate orders of the Deputy Commissioner. The Supreme Court held that the ruling of the High Court of Karnataka was in fact correct in law and that there was no discretion provided under the Act to impose a reduced penalty. However, the Supreme Court ruled that as an exception, the pending proceedings against the Appellants may be closed upon payment of the penalty initially prescribed by the Trial court, i.e. twice the deficit amount.