On 9 February 2021 the Maharashtra governor promulgated the Maharashtra Stamp (Amendment and Validation) Ordinance 2021 with immediate effect. The ordinance introduced two key amendments to the Maharashtra Stamp Act 1958 concerning:
- the stamping of documents that encompass multiple transactions; and
- stamp duty rates for agreements that relate to:
- the creation of a mortgage by deposit of title deeds; and
- mortgage deeds.
On 9 December 2020 the Maharashtra Cabinet discussed and approved these amendments.
Stamping of instruments relating to several distinct matters or transactions
Section 5 of the Maharashtra Stamp Act, which deals with the stamping of various instruments that relate to several distinct matters, has been amended retrospectively with effect from 11 August 2015. The section now includes instruments that relate to not only distinct matters but also distinct transactions.
The Maharashtra Stamp (Amendment and Validation) Ordinance aligns with the interpretation adopted by the Supreme Court in Chief Controlling Revenue Authority v Coastal Gujarat Power Ltd. In this case, the court held that a single mortgage deed which had been executed in favour of a security trustee for the benefit of 13 lenders had to be construed as 13 distinct transactions and stamped accordingly for each transaction.
In Navi Mumbai SEZ v State of Maharashtra, it was contended on similar facts that the wording of the Gujarat Stamp Act 1958 and the Maharashtra Stamp Act was different – the term 'distinct transactions' was not used in the Maharashtra Stamp Act. Relying on past precedents, the Bombay High Court held that the phrase 'distinct matters', which appears in Section 5 of the Maharashtra Stamp Act, is equivalent to the phrase 'distinct transactions'. Therefore, stamp duty should be levied in accordance with the principles set out in Coastal Gujarat Power.
The Maharashtra Stamp (Amendment and Validation) Ordinance has clarified the courts' stance that instruments which cover two or more distinct transactions – that cannot blend into one and be construed as part of a single transaction – must be stamped individually. Since the amendment to Section 5 of the Maharashtra Stamp Act is retrospective, parties must ensure that any such instruments executed after 11 August 2015 are adequately stamped.
The Maharashtra Stamp (Amendment and Validation) Ordinance amends and makes uniform the rates applicable to agreements that relate to the deposit of:
- title deeds, pawns, pledges or hypothecation (Article 6 of Schedule I of the Maharashtra Stamp Act); and
- mortgage deeds (Article 40 of Schedule I of the Maharashtra Stamp Act).
These changes seek to remedy the increase in stamp duty evasion resulting from the differences between the stamp duty rates of these instruments. These changes are prospective in nature, unlike the retrospective amendment to Section 5.
The following table shows the Maharashtra Stamp (Amendment and Validation) Ordinance amendments to stamp duty rates.
|
Serial number |
Section |
Stamp duty rates prior to the ordinance |
Stamp duty rates following the ordinance |
|
1 |
Article 6(1)(b) – agreements that evidence deposit of title deeds to secure repayment of debt exceeding Rs500,000 |
0.2% of the amount secured by the deed, up to a maximum of Rs1 million |
0.3% of the amount secured by the deed, up to a maximum of Rs1 million |
|
2 |
Article 6(2)(b) – agreements that evidence pawn, pledge or hypothecation of movable property to secure repayment of debt exceeding Rs500,000 |
0.2% of the amount secured by the deed, up to a maximum of Rs1 million |
0.3% of the amount secured by the deed, up to a maximum of Rs1 million |
|
3 |
Article 6(3) – instruments that are executed as a collateral, auxiliary or additional security where the proper duty has been paid on the principal or primary security |
Not applicable |
Rs500 |
|
4 |
Article 40(b) – mortgage deeds where the mortgager does not give or agree to give possession |
0.5% of the amount secured by the deed, up to a maximum of Rs1 million |
0.1% of the amount secured by the deed or a minimum of Rs100 if the amount secured by the deed does not exceed Rs500,000 0.3% of the amount secured by the deed, up to a maximum of Rs1 million, if the amount secured by the deed exceeds Rs500,000 |
It was inevitable that changes would be introduced to stamp acts across the country to align them with the court's view in Coastal Gujarat Power. Market practice in financial transactions generally took this view into account anyway: stamp duty calculations are usually based on the number of lenders or banks that are involved in the security documentation.
It remains to be seen whether the amendment will enable the Revenue Department to apply this view in other cases. For example, in addition to stamp duty being payable based on the number of lenders in cases where there are multiple lenders, it could be argued that additional stamp duty is payable on security documents if there are:
- multiple borrowers or security providers;
- multiple facilities or debts being secured; or
- multiple properties over which a party seeks to create a security.
The Maharashtra Stamp (Amendment and Validation) Ordinance has also given legislative effect to the position taken by the Bombay High Court in Navi Mumbai SEZ, and in cases where instruments are stamped in Maharashtra, parties may not disregard the court's view in Coastal Gujarat Power due to the absence of the words 'distinct transactions' in the Maharashtra Stamp Act.
Moreover, since the amendment to Section 5 of the Maharashtra Stamp Act is applicable retrospectively, parties may need to re-examine documents that have been executed for transactions since 11 August 2015 to determine whether they have followed the court's decision in Coastal Gujarat Power. If not, this may result in issues arising during the audit process and documents may require impounding or adjudication pursuant to the provisions of the Maharashtra Stamp Act.
