High Court Holds Agreement Followed By Possession Attracts Sale-Duty; Sets Aside Trial Court's Refusal To Impound Document

A bench of the Andhra Pradesh High Court (judges not named in the order) heard a civil revision petition by defendants challenging an interlocutory order of the XXVI-Additional Chief Judge, City Civil Court, Hyderabad, which had refused to impound an agreement of sale filed in a suit for specific performance.

The High Court allowed the revision and held that the agreement of sale in question attracted stamp duty as a sale under Explanation‑I to Article 47‑A of Schedule I‑A of the Stamp Act, 1899, and therefore could not be treated as adequately stamped at Rs. 100. The Court observed that the lower court erred in deciding the question with reference to the Registration Act, 1908, and in concluding that the document “need not be impounded at all.” The Court, in its reasoning, observed: "...... These expressions cannot be read in isolation and one has to find the true meaning by reading the entire Explanation and more so in conjunction with the earlier expression i.e., 'agreement'. Even if these two expressions are looked independently, it means an agreement to sell followed by delivery of possession and an agreement to sell evidencing delivery of possession. In the first case, i.e., 'followed by delivery', possession cannot be disjuncted from the basic source i.e., agreement to sell. Therefore, the expression followed delivery of possession should have a direct nexus to the Agreement and should be read in juxtaposition to the word 'agreement' and it cannot be independent or outside the agreement. Therefore, the delivery of possession should follow the agreement i.e., through the agreement. It takes in its sweep the recital in the agreement itself that delivery of possession is being handed over. It will also cover cases of delivery of possession contemporaneous with the execution of Agreement, even if there is no specific recital in the Agreement. In other words, the delivery of possession should be intimately and inextricably connected with the Agreement. And in the second type, i.e., agreements evidencing delivery of possession, if the document contains evidence of delivery of possession by a recital in that behalf, that is sufficient. Such delivery of possession can be prior to the date of agreement and need not be under the agreement. If the Agreement records the fact that the possession was delivered earlier and such recital served as evidence of delivery of possession, though prior to the Agreement, it falls under the second limb. Therefore, on a proper interpretation of the said expressions, it would follow that an agreement containing specific recital of delivery of possession or indicating delivery of possession even in the past is liable for stamp duty as a 'sale' under the said Explanation." Accordingly, the High Court set aside the trial court's order dated 11.12.2018 and allowed I.A. No.854 of 2018, directing impounding procedures under Sections 33 and 35 of the Stamp Act.

Background The respondents (plaintiffs in the suit) sued the petitioners (defendants) for specific performance of an agreement of sale dated 31.03.2018 relating to Apartment No.401, 4th floor, B‑Block, "YRS Residency", Barkatpura, Hyderabad. The respondents admitted that the petitioners had been in possession of the apartment as tenants from 01.05.2016 and that a rental deed had been executed by the 1st petitioner in favour of the 1st respondent on 31.03.2016. The respondents alleged payment of Rs. 11,00,000 by cheques/demand drafts on 29.03.2018 and agreed to pay the balance consideration of Rs. 74,00,000 at execution of the sale deed. The plaintiffs also sought perpetual injunction restraining alienation of the property.

The respondents had moved I.A. No.798 of 2018 under Order XXXIX Rules 1 and 2 CPC for temporary injunction. The petitioners filed I.A. No.854 of 2018 contending that the agreement was fictitious and, in any event, insufficiently stamped and unregistered, and therefore ought to be impounded under the Stamp Act; they relied on the Division Bench decision in B. Ratnamala v. G. Rudramma and other authorities. The trial court dismissed I.A. No.854, holding that Section 49 of the Registration Act exempted the respondents from filing a registered agreement and that stamp duty of Rs.100 was sufficient for a suit for specific performance; it declined to impound the document, noting the recitals showing that petitioners were tenants and that an understanding had produced the agreement.

On revision, petitioners argued that the lower court wrongly applied the Registration Act and ignored the Stamp Act and binding precedent. The respondents contended that impounding could be considered later when the document was sought to be exhibited at trial; they did not dispute the principle, laid down in Burra Anitha and Uppula Ramesh, that objections to insufficiency of stamp could be raised in interlocutory proceedings. The High Court found the trial court's categorical refusal to impound to be erroneous, held that clause (9) of the agreement expressly accepted delivery/acceptance of possession by respondents and that the agreement therefore fell within Explanation‑I to Article 47‑A Schedule I‑A. The High Court concluded that the stamp duty of Rs.100 was inadequate and the document could not be received in evidence unless impounded under Sections 33 and 35 of the Stamp Act. The Court allowed the revision, set aside the order dated 11.12.2018, allowed I.A. No.854/2018 and made no order as to costs; miscellaneous petitions pending in the revision stood dismissed.

Case Details: Case No.: Revision challenging Order dated 11.12.2018 in I.A. No.854 of 2018 in O.S. No.465 of 2018 (as recorded in the order) Case Title: Civil Revision Petition by Defendants challenging interlocutory order in O.S. No.465 of 2018 (parties not named in the order) Appearances: For the Petitioner(s): [Counsel not indicated in the order] For the Respondent(s): [Counsel not indicated in the order]