The Indian Stamp Act, 1899 (Stamp Act) that prescribes the rates for the stamping of documents is of the utmost concern to the people investing in real estate. The Finance Ministry has recently proposed certain amendments to the Stamp Act. The amendment bill inter alia proposes to amend the definition of conveyance and lease of immovable property. The conveyance of movable and immovable property has been re-defined to include in its scope every such decree or final order of a court or revenue authority and any order of the tribunal or High Court sanctioning the scheme of reconstruction of companies which results in the transfer of property. Similarly, the definition of lease is proposed to be amended to include in its scope an agreement to lease, the decree and final order of a court in respect of the lease and leases of movable property.

These amendments are in line with a recent judgment of the High Court of Delhi in Delhi Towers Ltd. v. GNCT of Delhi, whereby the High Court of Delhi ruled that stamp duty is payable on a court order approving the scheme of arrangement under Section 394 of the Companies Act, 1956, irrespective of a specific entry in the Stamp Act. A lot of confusion had been prevailing with respect to the stamping of a court order resulting in the transfer of immovable property, as reflected in the contradictory ruling of the various courts in India. The proposed amendments once enacted would bring to rest the speculations surrounding the stamping of such court orders.

The rationale behind the proposed amendment appears to be this: the court order approving the amalgamation / restructuring of the companies is based on the agreement between the transferee company and the transferor company. It is basically a scheme of amalgamation approved by the court in exercise of its jurisdiction under the Companies Act, 1956 which results in the transfer of the immovable property from the transferor company to the transferee company. The said proposal is of vital importance in any amalgamation, merger or demerger transaction as once the proposed amendments are approved, the order of the courts approving the schemes of restructuring of companies will have to be stamped. Once enacted, the said amendment would result in the restructuring of the companies via the intervention of the courts, become an expensive deal. It may be noted that as per 1937 notification on the remission of stamp duty, existent in certain states in India, there is an exemption on the payment of stamp duty, where the property is being transferred between group companies or between holding and subsidiary companies. In light of the same, it is suggested that similar exemption must be made in the proposed amendment to the definition of ‘conveyance’. 

Further, the bill must eliminate the ambiguities regarding the stamping of court orders where the properties proposed to be transferred are situated in various states. In such a case, it shall be practical if the company is required to pay the highest of the stamp duty on the court orders as prescribed by the stamp acts of the various states.

Another pertinent change proposed by the amendment is the insertion of the definition of the term ‘market value’ to mean in relation to any property which is the subject matter of an instrument, the price which such property would fetch or would have fetched if sold in open market on the date of execution of such instruments as determined by the specified authority or the consideration stated in the instrument whichever is higher. The inclusion of such definition would definitely assist in curbing the malpractice of the undervaluation of the properties for the sake of avoidance of higher incidence of stamp duty.

The bill further proposes to make the non-payment of stamp duty as an offence punishable with imprisonment by imposing a rigorous punishment for a period upto six months along with a fine upto ten thousand rupees. Such an inclusion would have a deterrent affect on the defaulters evading stamp duty and would result in mounting revenues for the state exchequer.

The proposed amendments are an attempt to make the Stamp Act in sync with the changing times and re-solve the various anomalies as encountered by our courts, in interpreting the intent of the legislature. Though the primary objective of the Stamp Act is fiscal in nature, one can’t help but notice that the primary focus of the proposed amendments has been towards increasing the revenue for the state alongside bringing in more clarity to the current stamp duty regime. But at the same time, it sets an additional burden on the corporates who might have to reconsider their decisions for opting court based restructuring due to the proposed stamp duty implications.   

Mrinal Kumar is a Principal Associate and Shruti Garg is an Associate with Amarchand & Mangaldas & Suresh A. Shroff. & Co. Views expressed here are personal.

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