P L D 2010 Lahore 707 (PLP)

ASAD MUNIR, J.

By means of judgment and decree, dated 22-3-2010, passed by learned Civil Judge, Islamabad, an Award, dated 29-8-2007, made in favour of the petitioner-company, has been made Rule of the Court. However, the petitioner-company through this civil revision assails the said judgment and decree to the extent that it directs the petitioner-company to pay stamp duty on the Award at the rate of 3% ad valorem along with penalty, if any.

2. It has been contended by Mr. Muhammad Shahid Paracha, the learned counsel for the petitioner, that the Award is exempt from payment of stamp duty in terms of Article 12 of Schedule 1 of the Stamp Act, 1899, as it is the result of arbitration through the intervention of the Court pursuant to the petitioner's application under section 20 of the Arbitration Act, 1940. Alternatively, Mr. Paracha contended that the Award having been filed in the Court of Civil Judge, Islamabad and the subject-matter of the Award having close nexus to Islamabad, the Award is subject to the payment of stamp duty of Rs.40 only, being the maximum stamp duty payable on an award under the Stamp Act, 1899, as applicable in the Islamabad Capital Territory.

3. In response, Syed Tanvir Haider, the learned counsel for the respondents asserts that the Award though filed before the Civil Judge, Islamabad, was made in Lahore; Punjab, where stamp duty at the rate of 3% ad valorem is prescribed on an Award. Learned counsel for the respondent has also contended that reference to the arbitrator was not made by the order of the Court but was made by mutual consent of the parties with the result that the award under Article 12 of Schedule 1 to the Stamp Act, 1899 is subject to the payment of stamp duty and is not covered by the exemption mentioned in Article 12.

4. We have reviewed the respective contentions of the learned counsel for the parties with whose assistance we have also gone through the relevant record. The contention of the learned counsel for the petitioner that the award has been made with the intervention of the Court has to be examined in the light of the provisions of Article 12 of Schedule 1 of the Stamp Act, 1899, as amended by the Punjab Finance Act, (Act VI) of 1995, which is reproduced below: "

12. Award, that is to say any decision in writing by an arbitrator or umpire not being an award directing a Partition, on a reference made otherwise than by an order of the Court in the course of a suit. Three rupees for every one hundred rupees or part thereof for the amount or value of the property to which the Award relates as set forth in such Award." It may be noted, however, that vide section 2 of the Punjab Finance Act (Act XIX of 2004), the stamp duty leviable on an award has been reduced from 3% to 2%.

5. From a perusal of the aforesaid Article 12, it is evident that every award is subject to payment of stamp duty if it is made on a reference otherwise than by an order of the Court in the course of a suit. It follows that any award pursuant to a reference made by an order of the Court in the course of a suit is exempt from payment of stamp duty. Thus, the benefit of exemption from payment stamp duty is available only when the reference to the arbitrator is made by an order of the Court passed in the course of a suit. Such an order can be passed by the Court under section 23 of the Arbitration Act, 1940, during the pendency of a suit if the parties to the suit agree and apply to the Court for reference of their dispute to arbitration. Besides, an order of reference passed under section 20(4) of the Arbitration Act, 1940 is also deemed to have been passed in the course of a suit as the application under section 20 of the Act is recognized as a suit by section 20(2) of the Act.

6. In the present case, an application under section 20 of the Arbitration Act, 1940 was filed by the petitioner but the reference to Arbitrator was not made by an order of the Court. Instead, the parties during the pendency of the said application by mutual agreement appointed an Arbitrator and later on informed the Court that they had referred the dispute to an Arbitrator appointed by them. Learned counsel for the petitioner has referred to Messrs Jame's Construction Company (Pvt.) Ltd. through Executive Director v. Province of Punjab through Secretary to the Government of Punjab (Communication and Works) Department, Lahore and 3 others (PLD 2002 SC 310) to contend that reference to Arbitration was made through the intervention of the Court. We are afraid that the said case is of no help to the petitioner-company as mere pendency of application under section 20 of the Act does not mean that the reference to arbitration has 'been made with the intervention of the Court. It is to be noted that the words "by an order of the Court" envisage a situation where an order for reference to arbitration has been passed by the Court itself. In PLD 2002 SC 310.the issue of stamp duty on an award arose after the Civil Judge had, with the consent of the parties, appointed two Arbitrators and referred the dispute to them whereafter the award was submitted in the Court. The facts of the instant case are clearly distinguishable as the reference of dispute to the Arbitrator was not ordered by the Civil Judge but there was an out of Court agreement whereby the parties referred the dispute to the Arbitrator appointed by them and it is pursuant to his appointment by the parties that the arbitrator proceeded with the arbitration and announced the award.

7. Relying on Hitachi Limited and another v. Rupali Polyester and others (1998 SCMR 1618), Mr. Paracha has also argued that the Award has arisen out of a contract executed and performed in Islamabad where the payment under the contract was also to be made and thus, the subject-matter of the Award, having a close nexus with Islamabad, is subject to the laws applicable in Islamabad whereunder maximum stamp duty of Rs.40 only is prescribed for an Award. We think that 1998 SCMR 1618 is distinguishable as the issues involved therein related to the laws governing the arbitration proceedings only and no question as to the chargeability of stamp duty on an Award was raised before the Hon'ble Supreme Court.

8. It may be stated that section 2(6) of the Stamp Act, 1899, the expression "when such instrument was executed" clearly implies that an instrument is to be stamped according to the time and place where it is executed. Admittedly, the award was made in Lahore where Article 12 of Schedule 1 of the Stamp Act, 1899, imposes a stamp duty of 2% ad valorem unlike the rest of the country where a maximum stamp duty of Rs.50 only is to be fixed on the award regardless of the value of its subject-matter. In the circumstances discussed above, we are of the view that the impugned order suffers from no illegality except that the award in question is liable to payment of stamp duty at the rate of 2% ad valorem instead of 3% ad valorem. It seems that the learned Civil Judge has failed to notice the reduction in stamp duty brought about by section 2 of the Punjab Finance, Act, 2004.

9. As regards the question of imposition of penalty, the impugned order is vague as it does not specify the amount of penalty nor does it even say if any penalty is payable at all. In the circumstances of the case, the imposition of penalty cannot be justified as no fault can be attributed to the petitioner for non-payment of the stamp duty on the award. This is because the Award was executed by the arbitrator, who also filed it and never called upon either the petitioner or the respondent to provide the requisite stamp duty.

10. In the light of the above discussion, we hold that the- Award is subject to the payment of stamp duty but at the rate of 2% ad valorem instead of 3% ad valorem. Since the award was admittedly, made in Lahore, the said stamp duty shall be payable in the treasury of the District Collector Lahore. However, in view of the observations made above, no penalty is payable on the Award. Disposed of. M.H./M-486/L Order accordingly.