Current Trends in Law- Discretion in levying penalty

Through the judgment in the case – Gangappa and Another v. Fakkirappa delivered on December 14, 2018, a Supreme Court division bench consisting of Justice Ashok Bhushan and Justice Ajay Rastogi have answered the legal question in an  negative, holding that there is no discretion vested with the authority impounding the document in the matter of collecting duty under section 33 of the Karnataka Stamp Act, 1957.

While making this legal position clear, the Apex-Court has affirmed the view taken by the Karnataka High Court division bench in its decision in the case – Digambar Warty and Others v. District Registrar, Bangalore Urban District and Another, ILR 2013 Kar 2099. Aggrieved by this judgment of the HC, this appeal was filed by the appellants.

The appellants/plaintiffs entered into agreements to sell with the respondent-defendant of April 12, 2005, and May 16, 2006, and earnest money of Rs 1,40,000/- was paid. The appellants filed suit 863/2008 and 864 of 2008 praying for specific performance of the defendant contract. Another suit filed by the sister suit 327/2008 was also clubbed. The Principal Civil Judge impounded agreements to sell filed by the plaintiffs in suits 863 and 864 of 2008 with direction to the plaintiff to pay deficit duty and penalty vide the order of September 27, 2010. The plaintiffs challenged the order by filing WP 69264-65 and 69263/2010 which were disposed of by the HC through its judgment of March 14, 2013, directing the Principal Civil Judge to permit the plaintiffs to file written submissions.

After the order of the HC, the Principal Civil Judge passed an order on April 22, 2013, by which the agreements to sell in question were admitted in evidence and marked for the plaintiffs in the two suits on payment of deficit duty and penalty. Deficit duty in both the suits was determined as Rs 12013/- and Rs 20320/- respectively and the penalty imposed was double of the deficit duty in both the suits.

Aggrieved by the judgment of the Principal Civil Judge, respondent –defendant filed writ petition in the HC, which disposed of the petition relying on a division bench decision of the Karnataka HC in the Digambar Warty’s case. The HC directed the courts below to levy the penalty at 10 times of the deficit duty as per the said judgment. Aggrieved by this HC judgment, the appellants filed this appeal.

The question which was required to be answered in this case was as to whether the trial court which had admitted the agreement to sell in evidence could have exercised its discretion in imposing penalty at the rate of two times of deficit stamp duty or it was obligatory for trial court  to impose the penalty at the rate of 10 times.

The word used in the proviso to section 34 is “shall”. The sections 33 and 34 clearly indicate that the penalty has to be imposed 10 times. The division bench of the Karnataka HC in Digambar Warty’s case has rightly interpreted the provisions of the sections 33 and 34 of the Act. Thus, the Court stated that it is of the view that the HC in the impugned judgment did not commit any error in relying upon the said judgment. Thus, the Court has said that it has to re-affirm its view in the judgment.

According to the Court, there is one more aspect that needs to be noted in the present case. The Court has seen that even though ten times the penalty has to be collected and imposed by the person Impounding the document under section 37, section 38 empowers the Deputy Collector to refund the duty.

The trial court while imposing the penalty at the rate of two times has given the reason as under:

“The plaintiffs of Original Suits 863/08and 864/08are stated to be agriculturists and residing at Sherwood village. The sad fact is not denied by the defendants therein. It appears that the agreements were prepared by local villagers who are not experienced in the documentation.

“Looking to the status of the plaintiffs, their standard of having  qualification of the document writers, I am of the opinion that the ratio laid down by our Hon’ble High Court in ILR 2011 KAR 4719 can be applied to the facts and circumstances levying  ten times penalty in respect of the said agreement will be harsh on the plaintiffs. Therefore, I am of the opinion that levying the double amount of deficit duty as the penalty will meet the ends of justice.”

The order of the trial court was passed as early as on April 22, 2013, that is more than five years ago.  In view of impounding the documents and imposition of penalty, the court was sure that the suit must not have proceeded further, and it must be at the threshold stage; asking the applicant to deposit the ten times of penalty and thereafter to invoke the jurisdiction of Deputy Collector under section 38 to refund penalty shall be proceeding again taking considerable time.

In the facts of the present case, the Supreme Court was of the view that ends of justice be served in closing the matter by confirming the payment of deficit duty with the double penalty as imposed by the trial court which shall obviate the proceeding of approaching the Deputy Commissioner for reduction of penalty under section38, which in the facts of the present case and for the reasons noted by the trial court was a relevant consideration for refund / reduction of penalty.

In view of these reasons, the Supreme Court has been of the view that the HC has correctly interpreted the provisions of section 33 in the impugned judgment  but instead of prolonging the matter permitting the appellant to deposit 10 times of penalty and thereafter to take recourse under section 38, the Court chose, in the facts of the present case to close the proceedings regarding penalty on the agreements to sell by approving the direction of the trial court for payment of entire deficit duty  and double the penalty . The Apex-Court disposed of the appeal accordingly.

Author – Adv. R.S. Agrawal

Adv. R.S. Agrawal

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