Arbitration is a widely used way of settling disputes between parties in a variety of businesses. It is a type of alternative dispute resolution in which parties agree to settle their differences outside of the legal system.
WHAT EXACTLY IS STAMP DUTY?
Stamp duty is a fee imposed on legal documents that create, transfer, or terminate any right, title, or interest in real estate, including contracts, deeds, and other documents. The percentage of the transaction value or the amount paid, whichever is higher, is used to calculate the stamp duty. For a document to be deemed genuine and legally enforceable, the stamp duty must be paid to the country’s government. The amount of stamp duty paid on any instrument in India is determined by the stamp-related statute prevailing in the state where the document has been signed or entered into for execution or otherwise. For example, the Indian Stamp Act, 1999 (as amended by the state amendment act) applies in Delhi.
STATUS OF STAMP DUTY OF ARBITRAL AWARDS IN INDIA
States in India have different policies regarding stamp duty on arbitral awards. Some states require stamp duty to be paid on arbitral awards, whereas others expressly exempt them from it. The issue of stamp duty on arbitral awards is one that is widely discussed. Proponents contend that it is essential to maintain government revenue and prevent stamp duty evasion, while opponents contend that it is an unnecessary extra cost that prevents arbitration from becoming a more popular form of dispute resolution.
The same thing has been done by the state of Haryana, which exempts arbitral awards from stamp duty. The Haryana Stamp (Amendment) Act of 2018 changed the state’s stamp legislation to exempt “any award made by an arbitrator” from stamp duty. Domestic and international arbitral awards are exempt from this requirement.
ARGUMENTS FOR STAMP DUTY ON ARBITRAL AWARDS
There are numerous justifications for taxing arbitral judgements with stamps:
Revenue for the government:
The fact that stamp tax on arbitral awards brings in money for the government is one of the main justifications for doing so. A tax known as stamp duty is imposed on a number of different kinds of papers, such as contracts, deeds, and other legal documents. The government can earn income that can be utilized to pay for infrastructure and other public service improvements by levying a stamp duty on arbitral verdicts.
Levelling the playing field:
In order to level levels of competition between parties interested in arbitration and those engaging in conventional court action, stamp duty may be imposed on arbitral decisions. Parties are expected to pay a variety of fees and penalties throughout typical court proceedings, including court fees and stamp duty on court orders. The parties to arbitration are exposed to identical expenses by having to pay stamp duty on arbitral awards, which makes sure that both parties are compelled to pay the same amount.
Encouraging compliance:
Stamp taxes on arbitral awards can also be used to induce parties to arbitration to uphold their end of the bargain. Parties are more likely to take their commitments seriously and abide by the provisions of the award if there is a financial penalty for non-compliance. As a result, parties are more inclined to uphold their duties, which can help decrease the probability of problems emerging in the future.
Promoting transparency:
Last but not least, increasing openness in the arbitration process can be accomplished by adding a stamp requirement on arbitral awards. The sum granted is made public when parties are required to pay a fee for the ruling, which can assist advance transparency and responsibility in the arbitration process. This can foster trust between the parties to an arbitration and encourage the adoption of arbitration as a conflict resolution method.
ARGUMENTS AGAINST STAMP DUTY ON ARBITRAL AWARDS:
Increased Cost:
Costs might rise as a result of adding stamp duty on arbitral awards, which would deter parties from utilising arbitration to settle their differences. Various fees, such as those for the arbitrators, are already expected of the parties involved in the arbitration. The arbitration procedure may become even more costly if extra stamp duty payments are imposed.
Double Taxation:
Stamp duty on arbitral awards is allegedly subject to double taxation, according to some. This is so because the agreements or contracts that were the subject of the arbitration already had stamp duty paid on them. It may be considered unjust double taxation to impose additional stamp duty payments on the award itself.
Inconsistency:
Creating discrepancy in the legal system is another defence offered against the imposition of stamp duty on arbitral awards. While stamp duty is sometimes only applied to court orders, it is sometimes also applied to arbitral awards. If the parties to the arbitration operate in separate states, this may cause them confusion and doubt.
Unnecessary burden:
Last but not least, some contend that the imposition of stamp duty on arbitral decisions places an undue burden on the parties to the arbitration. The goal of arbitration is to settle conflicts more quickly and affordably than via regular judicial action. Additional stamp duty charges may make arbitration more difficult and deter parties from choosing it as a dispute resolution method.
Arbitration agreements may be affected by the introduction of stamp duty on arbitral verdicts because parties may be hesitant to incorporate clauses for arbitration in their contracts if they think they will be charged additional stamp duty expenses. As a result, there may be a decrease in the use of arbitration to settle disputes and a rise in the use of disputes, which may be more time and money-consuming. Overall, these practical difficulties can make arbitration more expensive and time-consuming, make the arbitration process unpredictable for the parties, and make people less likely to utilize arbitration to settle disputes. Policymakers should take these issues into account and come up with solutions that encourage the use of arbitration while also making sure that the government can gain money from the enforcement of stamp duty.
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