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

Factual Matrix

The 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 (4^th 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 4^th respondent to register the agreements.

Issues considered

Two 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 context

For 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 advanced

Relying 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 judgments

The 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 7^th Schedule and Article 246 of the Constitution were also argued in detail by both sides.

Findings of the Court

The Court looked into the Amendment Act that brought in S. 5(1A) of SARFAESI Act and added S.8F to the Indian Stamp Act, 1899. It rejected the contention of the petitioners that no stamp duty is applicable as per the non obstante clause in S.8F.

The Court went on to apply the golden rule of interpretation along the Supreme Court's rulings on the subject of interpretation of non obstante clauses to find that there is no complete exemption from levy of stamp duty.

Justice T.R. Ravi observed:

“…If all the words of the Section are to be given meaning, which is the golden rule of interpretation, it can only mean that, there can be no levy of stamp duty under the Indian Stamp Act. That is to say, there is no omnibus exemption from stamp duty under any other enactment. Neither Section 5(1A) of the SARFAESI Act, nor Section 8F of the Indian Stamp Act, state anything about exemption being granted to the stamp duty payable under any other enactment…”

The Court further clarified the settled position of law that a provision granting exemption has to strictly construed and the Court cannot expand the scope of the exemption.

The learned Single Judge also referred to another government order (G.O. (Ms) No. 110/2013) passed subsequently wherein it was stated that said empowered committee had not yet been constituted. It was also stated in the order that a High Power Committee has been constituted to make recommendations. However, no orders have been issued by the committee in the matter.

The first issue was answered in the negative while the second issue was answered in the affirmative. Therefore, the writ petition was allowed in part, extending the same benefit given to the petitioners in Exts. P4, P5 and P6 judgments.

A direction was given to register the agreements as per the rates suggested in the first G.O. However, the Court made it clear that the direction would be subject to any final determination of stamp duty based on any amendment to the Stamp Act.

The learned Judge also clarified that the Court did not go into the merits of the contention that stamp duty is payable under Article 21 of the Schedule of the Kerala Stamp Act considering the document as 'conveyance' as per S. 2(d)(iv) since it is a matter under consideration of the Government.

Case No: WPC Nos. 18051 & 23003 of 2024

Case Title: J.C. Flowers Asset Reconstruction Pvt. Ltd v. State of Kerala and others

Citation: 2025 LiveLaw (Ker) 294

Counsel for the Petitioners: Sunil Shanker, Vidya Gangadharan, V.V.Asokan (Sr.)

Counsel for Respondents: Muhammed Rafeek, Spl. Govt. Pleader

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