Feb 25, 2021Recent Amendments to the Maharashtra Stamp Act
The Governor of Maharashtra on, February 9, 2021, promulgated the Maharashtra Stamp (Amendment and Validation) Ordinance, 2021 with immediate effect. Two key amendments to the Maharashtra Stamp Act, 1958 have been introduced in relation to stamping of documents encompassing multiple transactions and stamp duty rates in case of mortgage by deposit of title deeds and mortgage deed. These amendments were earlier discussed by the Maharashtra Cabinet and approved on December 9, 2020.
1. Stamping of Instruments Relating to Several Distinct Matters or Transactions
Section 5 of the Maharashtra Stamp Act, 1958 (‘Principal Act’) which deals with stamping of various instruments relating to several distinct matters has been amended retrospectively, with effect from August 11, 2015, to include within its ambit instruments relating to not only such distinct matters but also distinct transactions.
The Maharashtra Stamp (Amendment and Validation) Ordinance, 2021 (‘Ordinance’) is in line with the interpretation adopted by the Supreme Court judgment in the case of Chief Controlling Revenue Authority v Coastal Gujarat Power Ltd. and Ors.,(‘Coastal Gujarat Power’) wherein it was held that a single mortgage deed executed in favour of a security trustee, for the benefit of thirteen lenders, was to be construed as thirteen distinct transactions and was to be stamped accordingly for each transaction. In the case of Navi Mumbai SEZ v. State of Maharashtra (‘Navi Mumbai SEZ’) before the Bombay High Court, it was contended on similar facts that the phraseology in the Gujarat Stamp Act, 1958 and the Principal Act was different as the term ‘distinct transactions’ was not used in the Principal Act. Relying on past precedents, the High Court held that the phrase ‘distinct matters’ appearing in Section 5 of the Principal Act is equivalent to the phrase ‘distinct transactions’ and stamp duty should be levied in accordance with the principles set out in the Coastal Gujarat Power case.
The Ordinance has clarified the stance taken by the Courts that instruments which cover two or more distinct transactions, and cannot blend into one and be construed as part of a single transaction, will have to be stamped individually. Since the amendment to Section 5 of the Principal Act is retrospective, it must be ensured that such instruments, executed after August 11, 2015, are adequately stamped.
2. Changes in Stamp Duty Rates
The rates applicable to agreements relating to deposit of title deeds, pawn, pledge or hypothecation (Article 6, Schedule I of the Principal Act) and Mortgage Deed (Article 40, Schedule I of the Principal Act) have been amended and made uniform. The changes were brought in to remedy the increasing stamp duty evasions caused due to the differences between the stamp duty rates of these instruments. These changes are prospective in nature, unlike the retrospective amendment to Section 5.
| Sr. No. | Section | Prior to the Ordinance | Amended Provision |
| 1. | Article 6(1)(b) – Agreements evidencing deposit of title deeds to secure repayment of debt exceeding INR 5 lakh. | 0.2% of the amount secured by such deed subject to a maximum of INR 10 lakh. | 0.3% of the amount secured by such deed subject to a maximum of INR 10 lakh. |
| 2. | Article 6(2)(b) – Agreements evidencing pawn, pledge, or hypothecation of movable property to secure repayment of debt exceeding INR 5 lakh. | 0.2% of the amount secured by such deed subject to a maximum of INR 10 lakh. | 0.3% of the amount secured by such deed subject to a maximum of INR 10 lakh. |
| 3. | Article 6(3) – Instrument falling under this article when executed as a collateral or auxiliary or additional security and where the proper duty has been paid on the principal or primary security under this article. | NA | INR 500 |
| 4. | Article 40(b) – Mortgage deed, when possession is not given or agreed to be given by the mortgager. | 0.5% of the amount secured by such deed, subject to a maximum of INR 10 lakh. | (i) if the amount secured by such deed does not exceed INR 5 lakh – 0.1% of the amount secured by such deed, subject to a minimum of INR 100; and (ii) in any other cases, 0.3% of the amount secured by such deed, subject to a maximum of INR 10 lakh. |
Way Forward
After the Supreme Court’s decision in the case of Coastal Gujarat Power, it was inevitable that changes would be introduced to stamp acts across the country to bring them in line with the view taken by the Supreme Court. In any event, the general market practice being followed in financing transactions took this view into account and stamp duty was/is usually calculated on the basis of the number of lenders / banks involved in security documentation. What remains to be seen is whether the new amendment will further allow the Revenue Department to apply this view in other cases – for example, in addition to stamp duty being paid on the basis of multiple lenders, will additional stamp duty be payable on security documents if there are multiple borrowers or security providers, multiple facilities / debts being secured or multiple properties over which security is sought to be created. What is indeed now unquestionable is that the position taken by the Bombay High Court, in the case of Navi Mumbai SEZ, has also been given legislative effect and one may no longer seek to resist the application of the view of the Supreme Court set out in Coastal Gujarat Power to instruments stamped in Maharashtra merely due to the absence of the words ‘distinct transactions’ in the Principal Act.
Moreover, since this amendment to Section 5 of the Principal Act has been made retrospectively applicable, one may need to re-examine documents executed for transactions since August 11, 2015 to determine whether the decision of the Supreme Court in Coastal Gujarat Power has been followed. If not, one cannot rule out negative remarks being made during the audit process and documents may potentially require impounding/ adjudication in line with the provisions of the Principal Act as well.