Karnataka HC Says Under-Stamped MoU Can Be Admitted In Section 138 Case Without Prior Stamp Duty Or Penalty

The respondent filed a complaint under Section 138 of the Negotiable Instruments Act, 1881, relying on a Memorandum of Understanding dated 19 September 2021, marked as Exhibit P1.

The petitioner, the accused, objected that the MOU was insufficiently stamped under the Karnataka Stamp Act, 1957, and applied under Section 58(2) of that Act to have it rejected.

The Trial Court rejected the application and held that the MOU could be considered for a collateral purpose; the Revisional Court affirmed the result on the ground that the stamp-law provisions did not bar admission in the relevant criminal proceeding.

The petitioner challenged both orders before the High Court.

Section 33 of the Karnataka Stamp Act, 1957 concerns examination and impounding of instruments that appear insufficiently stamped; under the proviso to Section 33(2)(a), a Magistrate or Criminal Court Judge may choose not to examine or impound an instrument in proceedings outside the specified chapters of the criminal-procedure code.

Section 34 generally bars admission of an instrument that is not duly stamped, subject to its provisos; clause (c), however, provides that this restriction does not prevent admission in criminal proceedings other than those under the specified chapters.

The Court held that the corresponding chapters of the Code of Criminal Procedure, 1973, and, following its repeal, the Bharatiya Nagarik Suraksha Sanhita, 2023, are to be read into these provisions.

It also relied on Ravikala H. v. K.V. Ramamurthy, 2011 SCC OnLine Kar 4526.

The Court distinguished the functions of Sections 33 and 34: Section 33 governs examination and impounding, while Section 34 governs admissibility.

The proviso to Section 33(2)(a) gives the criminal court discretion not to examine or impound an instrument in proceedings outside the specified chapters; Section 34(c), in turn, permits admission in such criminal proceedings notwithstanding insufficient stamping.

Because the Section 138 prosecution did not fall within the excluded chapters, the MOU was admissible.

The Court further held that even if the instrument were impounded, payment of duty or penalty would not be a precondition to its admission in such a proceeding, though the amount could be recovered under Section 46 of the Karnataka Stamp Act.

On the facts, the Magistrate had not impounded the MOU, and the Court found no error in the Revisional Court’s decision upholding its admission.

It dismissed the criminal petition and upheld the impugned orders.