India: Stamp Duty Saga

Last Updated: 26 September 2016
Article by Veena Sivaramakrishnan, Ashish Mukhi and Vedika Lakhotia

As the banking system continues to deal with the increase in defaults, it becomes imperative and puts the spotlight back on the underlying documentation to be used for enforcement. It is common knowledge that bank and financial institutions are mindful as to whether a document through which their rights flow are adequately stamped or not. Stamp duty (or stamp tax) plays a significant role in determining the structuring of a transaction and therefore the nature of document to be executed. Being a state subject, significant time also gets expended in evaluating the stamp friendly jurisdiction and establishing nexus for execution in that state. Even at the time of recovery and enforcement, the issue of enforceability and admissibility of a particular document hinges, inter alia, on whether the document has been properly and adequately stamped.

Insertion of Section 30-A to the Maharashtra Stamp Act ("Mah Stamp Act") vide an amendment in May 2013 created a lot of noise in the industry. Section 30-A makes banks, non-banking financial companies, housing finance companies and such other financial institutions ("Banks/FIs") liable to:

  1. pay proper stamp duty on instruments mentioned under Section 30 (a) to (g) of the Mah Stamp Act executed by it or in its favour;
  2. verify that adequate stamp duty has been paid on instruments executed prior to the amendment;
  3. impound the instruments falling under a) and b) on which proper stamp duty has not been paid and send the same to the relevant Collector of Stamps ("Collector") for recovery; and
  4. pay penalty for failure to impound the instruments as mentioned under c) above.

The financing industry in general relied on the challenge made by some of the Banks/FIs to this provision interalia on the grounds of it being arbitrary, unreasonable in nature and onerous to implement. An interim relief in the form of a stay was granted and the bank and financial institutions heaved a sigh of relief (albeit temporarily and short lived!). A Division Bench of the Bombay High Court, vide its judgment dated 22nd March 2016 in the case of State Bank of India & Ors. Vs. State of Maharashtra & Ors.1 dismissed the challenge to the validity of Section 30-A of the Mah Stamp Act and upheld the same as legal and valid.

The principal effect of the judgment is that the stay granted by the Bombay High Court has been vacated and Banks/FIs have to ensure compliance with Section 30-A by 1st July 2016.

What are the obligations under Section 30-A of the Mah Stamp Act?

  1. Section 30-A(1) imposes a liability on the Banks/FIs to pay proper stamp duty on instruments mentioned under Section 30 (a) to (g), which are executed on or after the amendment.

    Such instruments should be executed by it or in its favour and should create any right in favour of such Banks/FIs. An instrument in favour of an agent/trustee for the benefit of the bank/FIs would also fall within the purview of this provision.

    The rights of the Banks/FIs to contractually claim the stamp duty paid from the other party (if any) remains unaffected.
  2. Section 30-A(2) stipulates that Banks/FIs are required to impound and send to the Collector for recovery of stamp duty on those instruments (executed by Banks/FI's of the nature mentioned above) which have been executed prior to the amendment are still 'effective' and found to be inadequately stamped.

    Banks/FIs would have to conduct a documentation audit of all their entire suite to ensure compliance with this provision.
  3. Section 30-A(3) stipulates that if the respective Banks/FIs fails to impound any such inadequately stamped instrument mentioned above, then such Banks/FIs shall be liable to pay a penalty equal to the amount of stamp duty payable on such instrument.

    The onus being on the Banks/FIs would ensure that stringent documentation audit is conducted to avoid any negative scrutiny by the stamp authorities and to ensure that the reputation of the Banks/FIs remain intact. This penalty is also in addition to the generic penalty provisions under the Mah Stamp Act.

Key findings from the Bombay High Court Judgement

The Bombay High Court while, inter alia, analysing the issue of challenge to the validity of Section 30-A, declared the said provision to be valid and observed as below:

  1. the intention of the amendment is not to single out Banks/FIs as compared to other commercial entitles but to target the instruments of a particular category or class;
  2. the liability imposed on the Banks/FIs is restricted to those instruments which are mentioned in Section 30 (a) to (g) of the Mah Stamp Act;
  3. the State to smoothen the process of collection and recovery of stamp duty has placed a burden on such Banks/FIs for payment of adequate stamp duty for instruments being executed in favour of or creating a right in their favour; and
  4. the provisions is a benefit for the Banks/FIs to ensure that such instruments are and remain admissible and enforceable in legal proceedings.

Various grounds based on constitutional rights enshrined as basic tenets have also been discussed at length.

Mumbai is the commercial capital of the country. While the industry is still coming to terms with the full impact of the Supreme Court judgement in Coastal Gujarat2, the Bombay High Court judgement putting this onus on the Banks/FIs raises more questions especially as regards its practical implementation and operational viability. It is apparent that there would be an appeal and this issue will be discussed till the final level of resolution. Various constitutional rights such as the right to carry on business, right of equality and generally the power of a state to impose such a provision on banks, which is other the subject matter for the centre would invariably be dissected, as has also been done in the Bombay High Court judgement. This is probably one of those issues which the finance industry would eagerly monitor, especially from the perspective of Maharashtra being the hub of the financial activities and the generic sense of ease of doing business in India.

Operational strategy for execution and choice of jurisdiction could see a change based on the outcome of the appeals. CHALLENGing times ahead!

Footnotes

1 Writ Petition No. 308 of 2014

2 Civil Appeal No. 6054 of 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
LexCounsel Law Offices
Vaish Associates Advocates
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
LexCounsel Law Offices
Vaish Associates Advocates
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions