In a recent judgment, the Allahabad High Court clarified that even if arbitration proceedings are ongoing, the Stamp Authorities are not restricted from starting proceedings under the Indian Stamp Act, 1899.
The case arose when M/S DLF Home Developers Pvt Ltd filed a writ petition to stop stamp duty proceedings that had been initiated while their arbitration case was still pending. They argued that once an arbitrator is appointed, all related issues, including stamp duty, should be handled within arbitration alone.
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However, the Court rejected this view. Justice Piyush Agrawal stated:
“This Court also could not find any observation or direction of the Apex Court restraining the stamp authorities to initiate the proceedings, if the agreement is found to be deficit of stamp duty.”
The petitioner had relied on a Supreme Court decision interpreting the connection between arbitration agreements under the Arbitration and Conciliation Act, 1996, and the Indian Stamp Act, 1899. The Supreme Court had ruled that arbitration could proceed even if the agreement lacked proper stamp duty and that the arbitrator could decide on the sufficiency of the stamp. However, the Allahabad High Court clarified that this did not prevent the Stamp Authorities from performing their duties under law.
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Case Background
The petitioner sought to stop the stamp duty proceedings on the grounds that the matter was already before the Delhi High Court and the arbitral tribunal. They also wanted the stamp recovery actions to be quashed.
The State, on the other hand, raised strong objections. It pointed out that the petitioner had received and responded to show cause notices but had delayed filing the writ petition. Additionally, it was argued that once the agreement assigned responsibility to the petitioner, they could not challenge the same in writ proceedings.
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In return, the petitioner argued that the notices were unnecessary as the arbitrator was already deciding the issue and the show cause notice was issued with bias.
The Court referred to Siemens Ltd Vs. State of Maharashtra and Others, where it was held that although High Courts should avoid interfering with show cause notices, they can step in if there's clear abuse of law or lack of jurisdiction.
Similarly, the Court cited Union of India vs. Vicco Laboratories, where the Supreme Court had observed that interference is allowed only if the show cause notice is evidently without jurisdiction or unfair.
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“A show cause notice must detail out alleged breaches and explain the consequences if the noticee does not respond adequately. This ensures the principles of natural justice are followed,” noted Justice Agrawal.
The Allahabad High Court ultimately ruled that the show cause notice was not premeditated and that the petitioner had every opportunity to respond. Therefore, it found no reason to interfere.
The writ petition was dismissed.
Highlight Quote:
“There is no bar under the law that stops Stamp Authorities from acting, even if arbitration is going on,” — Justice Piyush Agrawal
Case Title: M/S DLF Home Developers Pvt Ltd v. State Of U.P. And 6 Others [WRIT - C No. - 13451 of 2025]
