The Hon’ble Supreme Court has clarified in the case of Seetharama Shetty v. Monappa Shetty the procedure of admitting insufficiently stamped instruments as evidence. A party that presents an insufficiently stamped instrument can either pay the duty and penalty as provided under Section 34 of the Karnataka Stamp Act, 1957 (“Act”) or apply under Section 39 of the Act to the District Registrar/ Deputy Commissioner for collection and determination of deficient stamp duty and penalty. The instrument impounded is released after payment and then only can be relied upon as evidence.

The Apex Court observed that the purpose of Section 33 of the Act is to prohibit persons from withdrawing insufficiently stamped instruments to ensure payment of proper stamp duty and penalty. Section 34 of the Act allows a party relying on an insufficiently stamped instrument to pay duty and penalty and then utilize it. Under Section 39 of the Act, a party can also move an application to the District Registrar and get the deficit stamp duty and penalty collected. In any case, after the deficits and payment are satisfied, then the party can rely upon the instrument as evidence since impounding effects of Section 35 of the Act are removed. The point of importance is that before the court exercises its jurisdiction under Section 34 of the Act, the party should utilize its option. Section 34 of the Act makes insufficiently stamped instruments inadmissible as evidence. A party relying on such an instrument is also liable to be penalized ten times the deficit stamp duty. However, this is the extremist limit applicable only to extreme situations.

Section 37 of the Act explains how to deal with titled instruments impounded. The section comes into operation when party pays the deficit and penalty and then the court impounds the instrument under Section 33 of the Act and sends it to the Deputy Commissioner/District Registrar. After a party pays the stamp duty and penalty, the objection under the act is not available to the other party. Section 39 of the Act gives power to the Deputy Commissioner to stamp impounded instruments. It provides the procedure to be followed when instruments are impounded under Section 33 of the Act.

A party can also directly invoke the jurisdiction of District Registrar after paying the duty and penalty thus eliminating the possibility of objection under Section 33 or 34 of the Act.

The factual background of the case at hand was that the appellant had filed a suit praying for a perpetual injunction restraining the respondent from interfering with his peaceful possession of land. Appellant claimed this under an agreement of sale which had an impugned clause transferring possession of the property as part performance. The trial court had imposed ten [10] times penalty of deficit duty on the appellant. The issue was whether the trial court could determine penalty without transferring the instrument to the Registrar for determination.

The Apex Court held that trial court had not exercised its jurisdiction under Section 34 of the Act and imposition of penalty was illegal. It is contrary to the procedure as laid down in this judgment. The relevant observation of the court was “The instrument is sent to the District Registrar, thereafter the District Registrar in exercise of his jurisdiction under Section 39 of the Act, decides the quantum of stamp duty and penalty payable on the instrument. The appellant is denied this option by the impugned orders.” The Apex Court set aside the impugned order of payment of ten [10] times penalty and ordered the trial court to transfer the agreement to the District Registrar in order to determine the deficit stamp duty and penalty payable after which it will become admissible.