Possession and Part Performance: Stamp Duty Compliance Is Non-Negotiable, Says Delhi High Court

High Court affirms arbitrator’s decision on insufficient stamping of Agreement to Sell under Article 23A, Schedule I-A, Indian Stamp Act, 1899.

The Delhi High Court has upheld the arbitration tribunal’s decision on the insufficient stamping of an Agreement to Sell (ATS) under Article 23A of Schedule I-A to the Indian Stamp Act, 1899. The judgment, delivered by Justice C. Hari Shankar, emphasizes the importance of stamp duty compliance in agreements involving the transfer of immovable property and possession under Section 53A of the Transfer of Property Act (TPA), 1882.

Respondent 2 owned a property at F-20, Geetanjali Enclave, New Delhi, and entered into a Collaboration Agreement with Respondent 1 on October 24, 2010, for its demolition and reconstruction. The agreement allowed Respondent 1 to sell the second floor of the reconstructed property. Subsequently, on November 14, 2011, Respondent 1 entered into an ATS with the appellants for the sale of the second floor for ₹2.85 crores. The appellants paid the full consideration, and possession was handed over on July 25, 2012.

The learned arbitrator had impounded the ATS for insufficient stamping as per Article 23A of Schedule I-A to the Indian Stamp Act, 1899, which applies to agreements involving the transfer of immovable property in part performance under Section 53A TPA. The appellants challenged this, arguing that Article 23A did not apply since the ATS did not convey immovable property.

Justice C. Hari Shankar clarified that Section 53A TPA protects a transferee in possession under an agreement to sell from being dispossessed by the transferor. This protection necessitates that such agreements must bear the appropriate stamp duty under Article 23A of Schedule I-A, which covers contracts for the transfer of immovable property in part performance. The judgment rejected the appellants’ contention that Article 23A did not apply because the transfer of possession was not simultaneous with the execution of the ATS.

The court highlighted that the essence of Section 53A is to protect the possession acquired in part performance of an agreement. The subsequent possession obtained by the appellants was clearly in furtherance of the ATS, satisfying the requirements of Section 53A. Therefore, the ATS was rightly impounded for insufficient stamping as per Article 23A. Justice Shankar noted, “The mere fact that some time elapsed between the taking of possession and the execution of the ATS does not break the nexus between the two events”.

Justice C. Hari Shankar observed, “The execution of the ATS, making of payment by the petitioner thereunder, and grant of possession of the disputed property to the petitioner, are inalienable events, which cannot be divorced from one another. They are part of one transaction. The ATS, therefore, is squarely covered by Section 53A”.

The Delhi High Court’s judgment underscores the stringent requirements for stamping agreements involving the transfer of immovable property and possession under Section 53A TPA. By affirming the arbitration tribunal’s decision, the court has reinforced the legal framework ensuring compliance with stamp duty obligations. This decision is expected to influence future cases involving similar agreements, emphasizing the critical role of appropriate stamping in upholding property transaction laws.

Date of Decision: July 24, 2024