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STAMP DUTY UPDATES (AFFECTING SECURITY CREATION TRANSACTIONS) IN THE STATE OF MAHARASHTRA
Amendment to Section 5 of the Maharashtra Stamp Act, 1958:
The judgment pronounced by the Hon’ble Supreme Court of India in the matter of CCRA vs. Coastal Gujarat Power Limited[1] on August 11, 2015 calls for a revisit as the state of Maharashtra has introduced (brought into effect by way of an ordinance[2]) the ratio of the judgment whereby stamp duty shall be leviable not just on distinct matters but also on distinct transactions. The substituted and revised Section 5 of the Maharashtra Stamp Act, 1958 now reads as under:
“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”
To understand the change brought in, we lend to the facts of the said judgment. Where a trustee arrangement was set in place for the creation of a mortgage for the benefit of 13 banks, it was held that the ‘mortgage’ be treated as 13 distinct transactions and thereby, the stamp duty shall be charged as if 13 nos. of distinct mortgages have been entered into. Accordingly, where the stamp duty for a mortgage was X, now the stamp duty for a mortgage in favour of trustee (supposing it is acting for the benefit of 13 banks), the stamp shall now be 13 times X.
This move by the State Govt. of Maharashtra may see a challenge as the modification to Section 5 has been brought into effect from August 11, 2015 (i.e., the date on which the Supreme Court had delivered the judgment in CCRA vs. Costal Gujarat as cited above). Moreover, it is interesting to note that the Bombay High Court analyzed the ratio rendered by the Hon’ble Supreme Court in light of the then existing Section 5 of the Maharashtra Stamp Act and upheld that the phrase ‘distinct matters’ appearing therein is equivalent to the phrase ‘distinct transaction’ only in the year 2019[3]. The Ordinance seeking to bring the modification to Section 5 into effect from August 11, 2015 will call to question the legality and enforceability of many mortgage transactions that have been created in favour of banks and financial institutions in the past years (or at least between the period till September 11, 2019 when the Bombay High Court made such interpretation).
Modification to Articles 6(1) and 40 of Schedule I of the Maharashtra Stamp Act, 1958:
The Ordinance has also sought to bring into parity the stamp duty leviable on (a) instrument evidencing mortgage by deposit of title deeds (equitable mortgage)[4]; and (b) simple mortgage deed[5]and necessary modifications have been carried out.
This brief note may kindly not be construed as legal advise and a legal practitioner should be consulted for providing and guiding the reader for a solution based on facts of the case and nature of transaction.
[1] Civil Appeal No. 6054 of 2015 (Supreme Court)
[2] Maharashtra Stamp (Amendment and Validation) Ordinance, 2021 which has come into effect on February 09, 2021 (immediate effect)
[3] W.P. no. 8014 of 2019 (Bom HC)
[4] Article 6(1) of Schedule I of Maharashtra Stamp Act, 1958
[5] Article 40 of Schedule I of Maharashtra Stamp Act, 1958
Penned by Rachit Mehrotra, Associate, Mumbai