He probably did not apply through their online website, but with paper application. In paper applications, the agency ask you to bring along your passport while applying, so that the visa process can be done quicker(they won't ask you to send your passport to them and this way it won't take days)
I've never heard of getting stamped after denial. I thought they only add a paper to state their rejection of your permit, but maybe this is what they do in India.