Government of Maharashtra has notified the Maharashtra Stamp (Amendment and Validation) Ordinance, 2021 (“Amendment Ordinance”) on February 09, 2021 to amend the Maharashtra Stamp Act, 1958 (“Maharashtra Stamp Act”) to settle the ambiguity around the interpretation of the provisions of Section 5 of the Act. Further the Amendment Ordinance also revises the stamp duty payable in terms of the Maharashtra Stamp Act on certain instruments such as the mortgage by deposit of title deed and the simple mortgage.
The Amendment Ordinance is to align Section 5 of the Maharashtra Stamp Act in line with the interpretation given by the Hon’ble Supreme Court in the case of Chief Controlling Revenue Authority v. Costal Gujarat
Power Ltd (“Costal Gujarat”) while interpreting the provisions of Section 5 of Gujarat Stamp Act, 1958 (“Gujarat Stamp Act”).
In the Costal Gujarat case, Costal Gujarat Power Limited (“Borrower”) availed financial assistance for setting up of an ultra-mega power project from a consortium of lenders consisting of 13 (thirteen) banks and financial institutions (“Lenders”). The Lenders and the Borrower entered into a security trustee agreement wherein the State Bank of India was appointed as the security trustee for the benefit of the Lenders (“Security Trustee”) for holding the security interest created by the Borrower and other parties for securing the loan granted by the Lenders. Subsequently, the Borrower as the mortgagor, executed an indenture of mortgage(“IOM”) in favour of the Security Trustee, being the mortgagee of the secured property. The indenture of mortgage was registered and a stamp duty of INR 4,21,000 (Rupees Four Lakh Twenty One Thousand) was paid. However, the revenue authority issued a show cause notice to the Borrower, requiring the Borrower to pay the deficit stamp duty of INR 50, 41,600 (Rupees Fifty Lakh Forty One Thousand Six Hundred) as the IOM will fall under the category of instruments mentioned under Section 5 of the Gujarat Stamp Act and therefore the mortgage created in favour of the Security Trustee ought to be considered as 13 distinct mortgages and the stamp duty shall be paid on the aggregate amount of the stamp duty applicable to each of the 13 distinct mortgages. The matter was referred to the High Court of Gujarat. The High Court of Gujarat opined in favour of the Borrower and held that stamp duty is payable on instruments and not on transactions. Therefore, merely because the intended effect was achieved by executing one single document as against different sets of documents, such fact would not enable the state authorities to justify the conclusion that the one single document falls under the purview of Section 5 of the Gujarat Stamp Act. The High Court further opined that there being only one instrument creating a mortgage by the Borrower in favour of the Security Trustee, such relation between the Borrower and Security Trustee is independent of the relationship between the Borrower and the Lenders. Therefore, by the instrument in question, either fictionally or otherwise, no separate or distinct matters or transactions are created. Thus, in the IOM, the Borrower is the mortgagor and the Security Trustee, in the capacity of a trustee, is the mortgagee. The instrument does not involve either ‘distinct matters’ or ‘distinct transactions’ so as to attract Section 5 of the Act.
However, the Constitution Bench of the Hon’ble Supreme Court held that the expression ‘distinct matters’ appearing in Section 5 of the Gujarat Stamp Act is different from the expression ‘distinct categories’. Even if two transactions are of same description, those two transactions can be construed as distinct matters. The Apex court further observed that the instrument of mortgage came into existence only after separate loan agreements were executed by the Borrower with the Lenders with regard to separate loan advanced by those Lenders to the Borrower. Therefore, even if the mortgage instrument is of same description and a single document, it refers to distinct matters and therefore fall under Section 5 of the Gujarat Stamp Act.
However, Costal Gujarat decision created an ambiguity with respect to the applicability of this decision on other states, where the expression ‘distinct transaction’ is not appearing in the provisions similar to Section 5 of the Gujarat Stamp Act in their relevant stamp act and moreover the Supreme Court only analysed and interpreted the provisions of section 5 of the Gujarat Stamp Act.
Subsequently, the Hon’ble High Court of Bombay clarified in the case of Navi Mumbai SEZ Pvt. Ltd v. The State of Maharashtra & Ors while interpreting the decision of Supreme Court in Costal Gujarat and held that the phrase ‘distinct matters’ appearing in Section 5 of the Maharashtra Stamp Act is equivalent to the phrase ‘distinct transactions’.
Prior to the amendment the expression ‘distinct transactions’ was not expressly appearing in Section 5 of the Maharashtra Stamp Act.
Now, through the Amendment Ordinance the expression ‘distinct transactions’ has been inserted to Section 5 of the Maharashtra Stamp Act and the amended provisions read as follows
“Any instrument comprising or relating to several distinct matters or transactions shall be chargeable with the aggregate amount of the duties with which separate instruments, each comprising or relating to one of such matters or transactions, would be chargeable under this Act.”
Articles 6 (1) and 40 of Schedule I provides for stamp duty in respect of instruments evidencing mortgage by deposit of title and simple mortgage. It was noticed by the revenue department that the number of documents evidencing mortgage by deposit of title deeds are increasing. Due to the difference in charging stamp duty (the stamp duty chargeable on the instruments under Article 6(1) is less than that chargeable under Article 40), sometimes documents are drafted in such a way that, even though the nomenclature of the document indicates mortgage by deposit of title deed, it attempts to cover simple mortgage.
Further, certain towns had been notified by the State of Maharashtra under the Transfer of Property Act to enable execution of agreement relating to an equitable mortgage. However, in cases of towns not notified, the citizens are burdened to opt for execution of simple mortgage deed instead of mortgage by deposit of title deeds for which the stamp duty chargeable under the said Act is more. In view of the above, it was considered expedient to bring uniformity in stamp duty chargeable on the instruments of mortgage by deposit of title deeds and simple mortgage deed under the Articles.
The Amendment Ordinance has revised the stamp duty payable in terms of Schedule I of the Maharashtra Stamp Act on the following transactions-
As per the amended Article 6 of Schedule I of the Maharashtra Stamp Act, the transaction evidencing the deposit of title deeds, pledge or deed of hypothecation for securing the repayment of existing or future debt/loan in excess of INR 5,00,000 (Rupees Five Lakhs), the stamp duty payable on such instrument has been revised from 0.2 per cent to 0.3 per cent of the amount secured by such deed subject to the maximum of INR 10,00,000 (Rupees Ten Lakhs). However, the maximum amount payable in terms of Article 6 (1) (b) and Article 6 (2) (b) remains the same as prior to the Amendment Ordinance.
Further a new clause (3) has been inserted to Article 6 of Schedule I of the Maharashtra Stamp Act through the Amendment Ordinance, where stamp duty payable on the Deposit of Tile Deeds, Pledge and Deed of Hypothecation and if falling under Article 6 of the Maharashtra Stamp Act, is INR 500 (Rupees Five Hundred) if such instrument is executed as a collateral or auxiliary or additional security and where the proper duty has been paid on the principal or primary security in terms of Article 6 of the Maharashtra Stamp Act.
As per the amended Article 40 of Schedule I of the Maharashtra Stamp Act, for Mortgage Deeds (other than the transactions mentioned in Article 6 , Article 14 , Article 41 , Article 53 , Article 54 ), where possession is not given or agreed to be given, the stamp duty payable has been revised from 0.5 per cent of the amount secured by such deed, subject to the maximum of ten lakh rupees to-
Please find the Amendment at https://lj.maharashtra.gov.in/Site/Upload/Acts/Mah_Ord_No_1_of_2021.pdf.
Menon Verma LLP
Advocates & Solicitors
