Stamp act amended to reinforce court decision

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The governor of Maharashtra, in exercising powers conferred in him vide article 213(1) of the constitution of India, passed the Maharashtra Stamp (Amendment and Validation) Ordinance, 2021, on 5 February 2021. It amends section 5, article 6 and article 40 of schedule I of the Maharashtra Stamp Act, 1958, and has been released in addition to the circular issued by the Office of the Inspector General of Registration and Controller of Stamps of the Maharashtra government on 28 September, 2015.

Section 5 – instruments relating to distinct matters

The ordinance has been specifically promulgated to reinforce the judgment of the Supreme Court in the case of Chief Controlling Revenue Authority v Coastal Gujarat Power Limited (2015). The Supreme Court, in this case, upheld the payment of separate stamp duty for different transactions, while interpreting the expressions “distinct matters” and “distinct transactions” as under article 5 of the Gujarat Stamp Act, 1958. After this judgment, the Maharashtra stamp authorities rolled out the circular that was being implemented in an ad hoc manner until then.

The ordinance inserts the expression “or transactions” after “several distinct matters” in section 5 of the Maharashtra Stamp Act, with retrospective effect from 11 August 2015. It concurs with Bombay High Court’s decision in the case of Navi Mumbai SEZ Private Limited v The State of Maharashtra (2019), where it was held that the phrase “distinct matters” is equivalent to “distinct transactions” in that context. This measure induces to stamp the underlying transactions instead of the instrument, especially in cases of mortgage for multiple beneficiaries.

Article 6 of schedule I

The stamp duty payable on agreements relating to deposit of title deeds, pawn, pledge or hypothecation, where the secured amount exceeds ₹500,000 (US$6,800), has been increased from 0.2% to 0.3%, provided the maximum stamp fee payable is capped at ₹1 million. Article 6(3) has been inserted to provide for a stamp fee of ₹500 for an instrument of additional security, if it has been executed under article 6 and the stamp duty on the primary security has been paid in full. This has effectively brought article 6(3) in tandem with article 40(c) of the Maharashtra Stamp Act, which stipulates a nominal stamp fee for the mortgage deed for additional security or collateral.

Article 40(b) of schedule I

A mortgage deed, which is not an agreement relating to deposit of title deeds, pawn, pledge or hypothecation under article 6, shall be subjected to a reduced stamp duty of 0.3% from 0.5% henceforth, provided that the subject property’s possession is not given, or promised to be given. This nominal alteration is not likely to have any material impact on loans of higher value, since the maximum limit of the payable stamp duty is capped at ₹1 million.

Any actions initiated under the existing section 5, and articles 6 and 40, of schedule I of the Maharashtra Stamp Act have been validated by clause 4 of the ordinance. It also clarifies that no suit shall be maintainable for the refund of any stamp duty levied and/or collected.

Conclusion

The amendments to the Maharashtra Stamp Act, via the ordinance, mainly relate to stamp duty in the case of mortgage deeds, executed in cases of consortium lending as a single instrument. It shall not have any significant impact in cases where the rate of stamp duty is on an ad valorem (according to value) basis with no maximum limit. The ordinance has been primarily promulgated to reinforce the Coastal case and the SEZ case by making the amendment to section 5 retrospectively applicable from 11 August, 2015.

While it would be interesting to observe the approach taken by the authorities to implement it to past transactions, however, it may prove burdensome to parties of such mortgages, where the instruments were adjudicated in compliance with applicable law. Finally, this measure may be viewed as one introduced to enhance revenue generation of the state of Maharashtra, from which the stamp duty rates are already one of the highest in India.

Yamini Jain
ILS Law College
Pune