Stamp duty will not depend on "accidental location" of first signatory: Delhi High Court

The Delhi High Court has held that the geographical location where the first signature is affixed to an agreement cannot, by itself, determine which State's stamp duty legislation will apply. 

Justice Om Prakash Shukla ruled that such an interpretation could make stamp duty liability dependent on the “accidental location” of the first signatory.

"This Court is of the considered opinion that if the geographical location of the first physical signature is treated as conclusively determining the applicable State legislation of a particular State, the consequence would be that liability of stamp duty could vary solely according to the accidental location of the first signatory to a multilateral agreement," the Court observed.

It underscored that in cases of electronic execution, the physical location of a signatory may not necessarily be ascertainable from the instrument itself.

The Court said that the “traditional understanding of “execution”, developed in an era when instruments were ordinarily prepared, stamped and signed in physical form, cannot be mechanically applied to modern digital transactions without examining the consequences of such an interpretation”.

The Court made the observation while setting aside an interim arbitral award concerning four loan agreements executed between companies belonging to the Zee Group and Religare Finvest Limited in March 2014.

It was stated that the agreements were signed by the borrower companies in Mumbai, while Religare, the lender, signed them in Delhi on the same day. The dispute was whether the agreements were governed by the Maharashtra Stamp Act, 1958 (MSA) or the Indian Stamp Act, 1899 (ISA), as applicable in Delhi.

The Court held that the question of when a multi-party agreement is executed must be determined with reference to the nature of the instrument and the signatures required to complete it.

Since the loan agreements required the signatures of both the borrower and the lender, they became executed only when Religare signed them in Delhi, it said.

Hence, the Indian Stamp Act, 1899, as applicable in Delhi, will govern the agreements, the Court held.

Thus, it rejected the arbitrator's finding that the Maharashtra Stamp Act applied.

Justice Shukla also explained that the doctrine of territorial nexus requires a real, rather than illusory, connection between the State imposing the tax and the subject matter of taxation. 

“The raison d’être is that territorial jurisdiction to impose taxation should ordinarily be founded upon a real and meaningful connection between the stamping State and the instrument sought to be stamped, whereas execution may separately serve as the event determining when such liability crystallizes,” the Court said. 

Senior Advocate Kunal Tandon with advocates Aman Raj Gandhi, Ojasvi Sharma, Natasha Singh, Shreni Taran and Vanika Kansal represented Asian Satellite and Widescreen Holdings. 

Senior Advocate Abhimanyu Bhandari along with advocates Siddharth Sharma, ⁠ Mahesh Agarwal, ⁠Rishi Agarwal, ⁠Maj Nirvikar Singh, ⁠Shruti Arora, ⁠Priyakshi, ⁠Shika Chauhan and ⁠Daanish Abbasi appeared for Religare Finvest. 

[Read Judgment]