No Omnibus Exception U/S 8F Of Indian Stamp Act Read With S.5 Of SARFAESI Act For Registration Of Asset Reconstruction Agreements: Kerala HC

The Kerala High Court recently held that there is no omnibus or complete exemption on stamp duty provided under S. 8F of the Indian Stamp Act, read with S.5 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for asset reconstruction agreements.Factual MatrixThe writ petitions were preferred by an asset reconstruction company, which entered into asset reconstruction agreements with two banks. Later, the petitioner company tried to register the agreements, which were drawn up on stamp paper worth INR 1 lakh, and offered to pay INR 25,000/- as registration fee. However, the Registering Authority (4th respondent) refused to register on the ground that the fee and stamp duty were incorrect. Aggrieved, the petitioner came before the High Court seeking a direction against the 4th respondent to register the agreements.Issues consideredTwo main issues were considered by the Court in the instant writ petitions. In brief, (i) whether any stamp duty can be levied on the asset reconstruction agreements under S. 5(1)(b) SARFAESI Act in the light of S. 5(1A) and, (ii) if so, whether the stamp duty can be above Rs. 1 lakh and registration fee above Rs. 25,000/ considering G.O. (Ms.) No. 9/2010/TD and the 3 judgments of the High Court in Exts. P4 to P6.Legal contextFor context, S.5(1)(b) of the SARFAESI Act deals with acquisition of rights or interests in financial assets of a bank or financial institution by an asset reconstruction company by entering into agreements.Section 5(1A) reads as follows:“Any document executed by any bank or financial institution under sub-section (1) in favour of the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitisation shall be exempted from stamp duty in accordance with the provisions of section 8F of the Indian Stamp Act, 1899 (2 of 1899):Provided that the provisions of this sub-section shall not apply where the acquisition of the financial assets by the asset reconstruction company is for the purposes other than asset reconstruction or securitisation.”As per G.O. (Ms.) No. 9/2010/TD (first G.O.), the Government of Kerala had passed an order permitted capping of stamp duty and registration fee exclusively for Asset Reconstruction Company (India) Ltd. (ARCIL) to an amount not exceeding 1 lakh and Rs. 25,000/ respectively payable on securities/assignment of debt whether secure or insecure by a charge over movable or immovable properties. It was also mentioned that an empowered committee to consider the cases of ARCIL and to make securitisation/suggestion to the government.In Exhibit P5 judgment (WP(C) No. 22357/2015), ARCIL's agreements were directed to be registered in accordance with the first GO. In Exhibit P6 judgment (WP(C) No. 22551/2016), the petitioner was given liberty to take course of action with respect to the asset reconstruction agreement that was directed, by an interim order, to be provisionally registered similar to how it was done Ext. P5. In Exhibit P4 judgment (WP(C) No. 19371/2017), it was held that the petitioners therein are also entitled to the benefit extended to those in Ext. P5 and P5 judgments on the principle of parity.Arguments advancedRelying on various judgments, including Abdul Azeez v. The Authorized Officer, Phoenix ARC. Ltd. and Anr., Life Insurance Corporation of India v. State of Rajasthan and State of NCT of Delhi v. Sanjay, the petitioners contended that a combined reading of S. 5(1A) of the SARFAESI Act and S.8F of the Indian Stamp Act would clearly show that the intent of the legislature was not to levy any stamp duty on agreements falling under S.5 of the SARFAESI Act. It was also submitted that the non-obstante clause in S. 5 (1A) has the effect of excluding application of any law. The petitioner relied on the first GO and Exts. P4 to P6 judgmentsThe respondents contended that only a stamp duty as per the Indian Stamp Act was exempted when reading the aforesaid provisions together. There is no prohibition on the levy of duty as per the Kerala Stamp Act. It was also argued that the first GO cannot be treated as a statutory order having the force of law since the Constitutional Court has already declared law that Article 21 of the Kerala Stamp Act would apply in the case of the documents in question since it was a 'conveyance' as per S.2(d)(iv) of the Act. The respondent also contended that the judgments produced cannot be treated as precedent due to pendency of review petition and appeal challenging these and, since one of these were rendered per incurium. The Special Govt. Pleader also relied on the Supreme Court's judgment in R. Muthukumar v. The Chairman and Managing Director, TANGEDCO & Ors. to contend that there can be no negative equality. Powers to legislate on and levy of stamp duty as per the 7th Schedule and Article 246 of the Constitution were also argued in detail by both sides.Findings of the CourtThe Court...

No Omnibus Exception U/S 8F Of Indian Stamp Act Read With S.5 Of SARFAESI Act For Registration Of Asset Reconstruction Agreements: Kerala HC

K. Salma Jennath

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