Stamp Duty on Commercial Agreements: Why an Unstamped Contract Fails in Court

A State subject

The Indian Stamp Act 1899 provides the framework, but most States have their own stamp legislation or their own schedules of rates. The duty on the same agreement can differ by an order of magnitude between States.

Which State's duty applies depends on where the instrument is executed, and instruments executed in one State and relating to property or performance in another raise their own questions under Sections 19 and 19A.

What Section 35 does

No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having authority to receive evidence, unless it is duly stamped. That includes courts and arbitrators.

The proviso permits admission on payment of the deficient duty together with a penalty, which under the central Act is ten rupees or ten times the deficiency, whichever is greater. States vary. The cost is real but the defect is curable, which distinguishes it from registration failures.

When duty must be paid

Generally before or at the time of execution. Instruments executed in India must be stamped before or at execution; those executed outside India must be stamped within three months of first receipt in India.

E-stamping, available in most States, has made compliance considerably easier than physical stamp paper, and produces a verifiable certificate rather than a document whose authenticity can be questioned.

Arbitration agreements

The question of whether an unstamped agreement containing an arbitration clause can found a reference has been litigated repeatedly, with the position shifting more than once. The practical answer has not changed: stamp the agreement properly, because the alternative is a preliminary dispute that costs more than the duty ever would.

Frequently asked questions

### Is an unstamped agreement valid?

It is not void, but it is inadmissible in evidence under Section 35 until the deficient duty and penalty are paid. In practice that means you cannot rely on it to prove your case, which has much the same effect as invalidity when a dispute arises.

### What is the penalty for insufficient stamping?

Under the central Act, ten rupees or ten times the deficient duty, whichever is greater, payable to admit the instrument in evidence. State legislation varies, and some States prescribe higher multiples.

### Can stamp duty be paid after execution?

The instrument can be impounded and the duty and penalty paid to make it admissible, but this is a cure rather than compliance. Duty should be paid before or at execution for instruments executed in India, and within three months of receipt for those executed abroad.