Background
Last year in February of 2021, vide the Maharashtra Stamp (Amendment and Validation) Ordinance, 2021 (Mah. Ord. I of 2021) (“Ordinance“), the stamp duty chargeable on instruments of mortgage by deposit of title deeds and simple mortgage deed under Articles 6 and 40 of Schedule I of the Maharashtra Stamp Act 1958 (“the said Act“) respectively were made uniform and brought on par. The rate of stamp duty payable on an instrument of mortgage by deposit of title deeds was increased from 0.2% to 0.3% of the secured amounts and the rate of stamp duty on an instrument of a simple mortgage was decreased from 0.5% to 0.3% of the secured amounts.
It appears that the main reason behind the Ordinance was the inherent realisation on the part of the legislative authorities that due to the difference in stamp duty for instruments of mortgage, more often than not the documents were drafted in such a way that even though the nomenclature of the document indicated a mortgage by deposit of title deed, it in fact attempted to cover within its ambit the properties of a deed of simple mortgage. Due to the ambiguous nature of such documents created solely with the intention of stamp duty evasion, the same created difficulties in adjudication of amount of proper stamp duty chargeable for them under the said Act. Another common practice adopted by most lenders and borrowers was to execute the said documents outside Maharashtra in states such as Delhi, Gujarat etc., to avail the benefit of low stamp duty rates prevailing in these states.
Additionally, to align with the judgement of the Hon’ble Supreme Court in the case of Chief Controller Revenue Authority, Gujarat Vs. Coastal Gujarat Power Limited (Civil Appeal No. 6054 of 2015) (“Coastal Judgment“), Section 5 of the said Act was also amended under the same Ordinance to levy stamp duty in respect of any instrument comprising or relating to several distinct transactions along with distinct matters.
Issues
The Ordinance effectively removed any doubts with respect to the applicability of Coastal Judgment in Maharashtra. This essentially means that as was the case in Coastal Judgment, a common security/charge creation instrument (whether mortgage / pledge / hypothecation, or otherwise) for securing multiple loans availed from multiple lenders (also commonly known as consortium transactions/deals) will be treated as distinct transactions in Maharashtra. Accordingly, such instrument will attract stamp duty for each such transaction, by considering each transaction as an independent one.
It is to be noted that Section 5 and relevant article under the said Act for loan transactions had no cap on the stamp duty payable which made consortium lending / mortgage agreements highly unfeasible for the banking community. This also increased the cost of borrowing and strained the already ailing cash-strapped financial markets.
Further, while changes were made in the stamp duty rates in Articles 6 and 40 of Schedule I of the said Act for instruments of mortgage by deposit of title deeds and simple mortgage deed, the maximum stamp duty amounts payable remained unchanged. Further, considering that the stamp duty under Article 40 for mortgage deed was reduced by 0.2%, the state coffers would have suffered some losses for sure.
Amendment
In a span of little less than a year from the Ordinance, the government probably realised the aforementioned issues and therefore on 23rd December 2021, a bill for further amendment of Maharashtra Stamp Act 1958 was introduced in the Maharashtra’s legislative assembly. Recently, on 20th January 2022, the said bill received the Governor’s assent by virtue of which the Maharashtra Stamp (Amendment) Act, 2021 (Mah Act No. VII of 2022) (“Amendment“) is now in force.
The Amendment has raised the existing capped amount of Rs. 10 Lakhs to Rs. 20 Lakhs under Articles 6 and 40 of Schedule I of the said Act for instruments of mortgage by deposit of title deeds and instrument of simple mortgage, in an attempt to make up for the deficit on account of reduced stamp duty rates.
Further, to strike a balance between state revenue and providing a conducive commercial environment for conduct of business, the Amendment has inserted a new proviso whereby an upper limit of Rs. 50 Lakhs is applicable under Articles 6 and 40 for mortgage agreements in a consortium lending transaction.
The Amendment makes certain other consequential changes in the said Act as well such as in Article 33 (further charge on mortgage property), Article 41 (mortgage of crop) and Article 54 (security bond or mortgage deed) of Schedule I of the said Act to harmonise the stamp duty rates in respect of mortgage in Maharashtra.
Conclusion
The Amendment is not a major game changer but definitely comes as a sigh of relief for the banking sector and other stakeholders who may be involved in consortium deals in Maharashtra. Further, the government too stands to benefit or at least make up for loss of potential revenue. The Amendment is an earnest balancing effort by the legislative authorities seeking to achieve desirable results for both sides of the coin.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
