Fake paper, invalid deals?

ABDUL Karim Telgi wasn’t just a forger of revenue stamps and stamp papers. He was also a licensed vendor of stamp papers. That helped h...

ABDUL Karim Telgi wasn’t just a forger of revenue stamps and stamp papers. He was also a licensed vendor of stamp papers. That helped him hoodwink people over the years into believing in good faith that whatever they bought from him was genuine. So, what is the legal status of the fake stamp papers bought in such bona fide circumstances? Will the transactions based on documents found to be fake cease to be valid?

Since such questions never arose before, there is no settled law on the subject. Legal experts are, understandably, divided on the consequences of the scam for those who unwittingly bought fake stamp papers from a duly licensed seller. Some take the extreme view that since the Government lost revenue on account of those counterfeit papers, there is no way any transaction based on them — commercial agreements, property deeds etc — can remain legal. There are others who believe those transactions can be regularised if the purchaser pays stamp duty all over again, this time to the Government.

Both the scenarios are obviously loaded against the purchaser even though he may be in no way to blame. Therefore, a third viewpoint is that the Government will have to bear the loss and honour the transactions despite the fake stamp papers. Courts may well be inclined to take this approach on considerations of equity. The Stamp Act enacted way back in 1899 contains no guidance as the British regime seemed to have underestimated the ingenuity of the natives. So, courts may be forced to play an activist role to fill that gap in the stamp law and protect the interests of the innocent purchasers.

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Judges can draw strength from a comparable provision in the Transfer of Property Act, which is again of colonial vintage. Section 41 of this Act protects a transaction made by a person who did not actually have the authority to make it. The only pre-condition is that the purchaser of the property should have ‘‘acted in good faith.’’ He will have to establish his bona fides by showing that he had exercised due diligence before entering into the transaction. In fact, Section 41 specifies that the purchaser should have paid money to the property seller only ‘‘after taking reasonable care to ascertain that the transferer had power to make the transfer.’’

If the same principle is applied to the current scam, the purchaser can claim that by buying the stamp paper from a licensed vendor, he acted in good faith and had taken reasonable care. Indeed, when the law validates the transfer of a whole property made by somebody who is merely an ‘‘ostensible owner,’’ it will be grossly disproportionate if similar latitude is not allowed to the stamp papers on which that transaction is made.

Another strong ground for protecting the innocent purchaser of fake stamp paper is ‘‘the doctrine of de facto’’ laid down by the Supreme Court in 1981 in Achanti Srinivasa Rao vs State of Andhra Pradesh. That case pertained to a subordinate judge who was found to lack the necessary qualifications. While upholding his dismissal, the court ruled that the orders he passed would, however, continue to be valid as if he was qualified to pass them. The court recognised that any attempt to undo his orders would create further unrest in the public and have far reaching repercussions. Just as there will be if the transactions made on fake stamp papers are not held to be valid.