The incorrect description on the stamp paper ("memorandum of settlement" instead of "memorandum of understanding") does not invalidate your document, as the substance and content of the MOU remain accurate and legally binding. Courts generally focus on the actual content and intention of the parties rather than minor discrepancies in stamp paper descriptions.
Here are your available remedies:
Rectification Options:
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Correction/Amendment on the stamp paper: You can make a correction by striking through the incorrect words with a single line and writing the correct description above or beside it. Both parties should initial/sign near the correction to acknowledge it.
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Rectification Deed: Draft a separate rectification deed clearly stating the error and the correct description. This should be signed by all parties and can be notarized for additional authenticity.
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Declaratory Note: Add a note at the end of the document stating that the stamp paper description is incorrect and should read "Memorandum of Understanding" instead of "Memorandum of Settlement." All parties should sign this clarification.
Regarding Your Specific Questions:
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The stamp paper description cannot be physically modified after purchase, but corrections can be made as described above.
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A new stamp paper cannot be affixed on top of the existing one.
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A signed declaration by all parties acknowledging the error is legally acceptable.
Important Note on MOU and Stamp Paper:
MOUs are generally not required to be on stamp paper unless they involve specific obligations or considerations that make them legally binding contracts. If your MOU is purely declaratory of intent without binding obligations, you could theoretically remove the stamp paper and use the document without it, though this may affect its evidentiary value in court.
The simplest remedy is to make the correction with proper initials from all parties, as this is widely accepted and legally valid.