Validity of agreement or document which is not duly stamped

Question: What is the legal validity of an agreement between two parties, if it is required under law to be affixed with stamps but is not duly or properly stamped? Whether such agreement would be legally valid if stamps of lesser value are affixed on it than is necessary under the legal requirements?

Answer: This issue has been dealt with in the Indian Stamp Act, 1899.

Firstly, let me point out that an agreement between two parties is an “instrument” within the meaning of this word defined in Section 2(14) of the said Act as under:

“(14) Instrument.—“Instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded;”

Section 2(11) of this Act defines “duly stamped” as under:

“(11) Duly stamped.—“Duly stamped”, as applied to an instrument, means that the instrument bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with law for time being in force in India;”

Now, Section 35 of the Indian Stamp Act, 1899, lays down that if an instrument chargeable with stamp duty is not duly stamped, then it shall not be admitted in evidence for any purpose, nor shall it be acted upon, registered or authenticated by any such person having authority to receive evidence or by any public officer. However, such instrument can be admitted in evidence on payment of the deficient duty, together with a penalty of a sum of equal to ten times such deficiency. This section is reproduced as under:

“35. Instruments not duly stamped inadmissible in evidence, etc.—No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped:

Provided that—

(a) any such instrument shall be admitted in evidence on payment of the duty with which the same is chargeable or, in the case of an instrument insufficiently stamped, of the amount required to make up such duty, together with a penalty of five rupees, or, when ten times the amount of the proper duty or deficient portion thereof exceeds five rupees, a sum of equal to ten times such duty or portion;

(b) where any person from whom a stamped receipt could have been demanded, has given an unstamped receipt and such receipt, if stamped, would be admissible in evidence against him, then such receipt shall be admitted in evidence against him on payment of a penalty of one rupee by the person tendering it;

(c) where a contract or agreement of any kind is effected by correspondence consisting of two or more letters and any one of the letters bears the proper stamp, the contract or agreement shall be deemed to be duly stamped;

(d) nothing herein contained shall prevent the admission of any instrument in evidence in any proceeding in a criminal court, otherthan a proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (5 of 1998);

(e) nothing herein contained shall prevent the admission of any instrument in any Court when such instrument has been executed by or on behalf of the Government or where it bears the certificate of the Collector as provided by Section 32 or any other provision of this Act.”

In this regard, it is pertinent to point out that in the case of Omprakash v. Laxminarayan, (2014) 1 SCC 618, while interpreting Section 35 of the Indian Stamp Act, Hon’ble Supreme Court held as under:

“From a plain reading of the aforesaid provision, it is evident that an authority to receive evidence shall not admit any instrument unless it is duly stamped. An instrument not duly stamped shall be admitted in evidence on payment of the duty with which the same is chargeable or in the case of an instrument insufficiently stamped, of the amount required to make up such duty together with penalty. As we have observed earlier, the deed of agreement having been insufficiently stamped, the same was inadmissible in evidence. The court being an authority to receive a document in evidence to give effect thereto, the agreement to sell with possession is an instrument which requires payment of the stamp duty applicable to a deed of conveyance. Duty as required, has not been paid and, hence, the trial court rightly held the same to be inadmissible in evidence.”

In view of what is mentioned above, an agreement or any other instrument may be of no legal value if it is not duly stamped as required under the law. However, as pointed out above, if the deficient stamp duty is paid for such agreement along with 10 times penalty, then such agreement may become legally valid and may be taken in evidence by courts and other authorities.