This article was originally published on the Money Control website on May 18, 2020 and can be accessed here 🙁https://www.moneycontrol.com/news/business/economy/covid-19-lockdown-the-stamp-duty-conundrum-5280531.html)

The lockdown announced by the government as a result of the Covid-19 pandemic has thrown various operational challenges for businesses trying to function during these times. One of the handicaps people are struggling with is how to duly execute agreements that attract stamp duty as people are unable to obtain stamp papers or have the documents franked due to movement restrictions as well as certain government offices are not being open for business.

Overview of Stamp Duty Law

Stamp duty is an indirect tax levied by Government and is payable on the execution of specific documents (or instruments, as used in legislations). Both the Centre Government and State Governments have jurisdiction to levy stamp duty. Under Article 246 of the Constitution read with Seventh Schedule List I ( the “Union List”), the Central Government has the power to levy stamp duty on certain instruments (such as bills of exchange, cheques, promissory notes, transfer of shares etc.) whereas under List II (“State List”), the State Governments have the power to levy stamp duty in respect of documents other than those specified in List I which are executed within the territory of the relevant State. Further, only those instruments attract stamp duty that fall within the description of instruments described under the relevant stamp acts (being the Indian Stamp Act,1899 (as amended by different states) and the relevant state specific legislations in force, such as the Maharashtra Stamp Act, in Maharashtra (collectively “Stamp Acts”).

Timelines for Payment and consequences of Delay

Stamp duty is required to be paid either prior to or on the date of execution of an instrument, with limited exceptions allowing for payment on the next working day after execution. A delay in payment of stamp duty may be rectified by approaching the Collector of Stamps (“Collector”) who is vested with discretionary powers to accept delayed payments, with or without levying penalties (which in some cases may be up 10 times the deficient stamp duty amount) if he is convinced of the genuineness of the delay. Pertinently, any instrument chargeable with stamp duty and which is inadequately stamped or not stamped at all is not admissible as evidence in a court of law.

Limitation during the Lockdown

Typically, stamp duty can be paid (1) online by using the e-stamping facility (maintained by SHCIL, e-SBTR etc.) in certain states; (2) purchasing non-judicial stamp papers (bond papers bearing impressed stamps) from concerned vendors; and (3) paying duty and getting the document stamped using a franking machine, available with the specified vendors. Given most vendors are not allowed to remain open during the lockdown as well as the restrictions on movement, the second and third options mentioned above are not viable. Further, while prima facie e-stamping appears to be a viable solution, this too is faced with limitations. First, the facility is not available in all states and even in states where it is available, there are varied limitations on the types of documents that may be stamped in this manner such as the minimum amount of duty that can be paid, multiples of amounts for which stamp paper can be purchased etc. Next, the process of e-stamping while allows the payment of duty online, requires the actual stamp paper to be collected physically from identified vendors. While a view can be taken that the obligation to pay stamp duty in time can be achieved if the payment is made online within the timelines applicable under the law, practically, parties would still face challenges in collecting the stamp paper later, the timelines for which cannot be ascertained today.

Possible solutions

While there is no biding order / relief measures announced in most states at the time of this publication, Maharashtra has gone ahead and granted some much needed relief. The Maharashtra Government’s IGR and Controller of Stamps Office, has issued a circular on April 27, 2020 (“Circular”) that effectively allows parties to pay stamp duty without attracting penalties and without the Collector exercising its discretion, within 30 days of the lockdown restriction being lifted. This is a welcome move even in Maharashtra where e-stamping is available through the e-SBTR system.

Unfortunately, other states or the Central government are yet to provide such relief and accordingly it is imperative to consider whether the law and its interpretation can be relied upon to provide some solution. The Indian Stamp Act and most of the state enactments while giving discretionary powers to the Collector to accept delayed payment of stamp duty with or without penalties, prescribe that the Collector may do so if the concerned parties approach the Collector suo moto and if he is convinced that the instruments were not duly stamped on account of a mistake, accident or ‘urgent necessity’. Therefore, if it can be established that (1) the parties did indeed have the intent to pay stamp duty in a timely manner but despite making best efforts to pay the same (including by attempting to use the e-stamping facilities, where available), they were unable to make the payment; and (2) the instrument in question needed to be executed ‘urgently’ and ‘necessarily’, we believe it should be regarded as just and sufficient rationale to satisfy a Collector of the genuineness of the cause and the relevant Collector should accept to stamp such documents without levying penalties.

There are a number of judicial pronouncements that lay credence to the arguments presented above for payment of stamp duty within a reasonable period after the lockdown is lifted, on instruments executed during the lockdown. The High Court of Punjab and Haryana in Kul Bhushan vs Chief Controlling Authority (Financial Commissioner Haryana State) Chandigarh and Others[1] observed that where due to unavailability of a stamp vendor the agreement in question could not be duly stamped, the Collector should not impose any penalty. Also, the Madras High Court in Navinraj vs Gnanasekar[2] opined that a Collector while considering imposing penalty and the quantum thereof, the Collector should take into account ‘all facts and circumstances’ surrounding the matter, including the financial position of the parties involved.

It would also be important to take note that the Government of India, Ministry of Finance issued a communication dated April 20, 2020 (“GOI Letter”) to the state governments requesting them to issue instructions to Collectors to not impose penalty in respect of ‘loan agreement related instruments’ if stamped within a reasonable time (say 30 days) following the withdrawal of the Covid-19 lockdown. Interestingly though, while the GOI Letter clarifies the penalty aspect, it is silent on whether the Collector is bound to accept delayed payment of stamp duty itself or if it can continue to exercise it discretionary powers. While it may reasonable to suggest that the intent was to require Collectors to be duty bound to accept payments made in accordance with the GOI Letter, what is more pertinent is that the GOI Letter can at best be regarded to have persuasive value since it only ‘requests’ state governments to issue directions and nothing more.

Given that the lockdown has now been extended for at least another couple of weeks with the strictest restrictions hitting the metros where commercial activity is concentrated, it is imperative that during this period documents can be executed in the best possible manner to ensure they are admissible in evidence before a court of law with least logistical and financial stress. While Maharashtra’s Circular clears the dust for the state, similar action from other states is eagerly awaited and till then parties may consider the suggestions made in this publication and rely on judicial interpretation and good governance.

– Richa Saxena (Of counsel, Bombay Law Chambers) and Karan Kalra (Founder, Bombay Law Chambers)

[1] MANU/PH/1608/1991 [2] LAWS(MAD)-2015-8-402 #StampDuty #COVID19 #Estamping