A Step In Regression: Stamp Duty On Arbitral Awards In Maharashtra

The new ad-valorem duty structure makes the stamp duty contingent on the nature and value of the award, aligning with a trend seen in some other states like Karnataka. This article examines the stamp duty applicable to arbitral awards in Maharashtra, analyzes the legal implications for parties, arbitrators, and enforcement agencies, interprets the statutory provisions and case law, and compares Maharashtra's approach with other Indian states such as Delhi, Karnataka, and Gujarat. We also discuss emerging challenges posed by the new duty structure – including enforcement delays, increased litigation, and burdens on access to arbitration – in a manner accessible to legal professionals, policymakers, and informed readers.

Stamp Duty Framework for Arbitral Awards in Maharashtra

Under Indian law, an arbitral award is treated as an “instrument” that can create or affect rights, and thus it attracts stamp duty under the applicable state stamp act. In Maharashtra, stamp duty is governed by the Maharashtra Stamp Act, 1958 (“MSA”). Section 3 of the MSA mandates that instruments executed in the state are chargeable with stamp duty as per Schedule I of the Act. An arbitral award falls within this mandate, meaning that an award made in Maharashtra must be stamped before it can be acted upon or enforced.

The 2024 Ordinance: Ad-Valorem Stamp Duty on Awards

On 14 October 2024, the Governor of Maharashtra promulgated the Maharashtra Stamp (Amendment) Ordinance, 2024, amending Schedule I of the MSA. This ordinance introduced an ad-valorem (value-based) stamp duty regime for arbitral awards, replacing the previous fixed-nominal duty. According to the amended schedule, the stamp duty on an arbitral award is now as follows:

• Awards relating to immovable property: Stamp duty is the same as for a conveyance of property (per Article 25(b) of Schedule I, MSA). In practice, this is about 3% of the market value of the property in many cases. (with effective rates potentially 5%–7% in certain areas after local surcharges. An arbitral award that, for example, grants title to land or directs transfer of real estate will incur stamp duty at this high conveyance rate.
• Awards relating to movable property (e.g. monetary awards): A tiered ad-valorem duty applies based on the award's amount:
• If the award amount does not exceed ₹50,00,000 (₹5 million): duty = 0.75% of the award amount.
• If the award amount exceeds ₹50,00,000 but is up to ₹5,00,00,000 (₹5 crores): duty = a flat ₹37,500 plus 0.5% of the amount over ₹50,00,000. (In effect, exactly 0.75% on the first ₹50 lakh, and 0.5% on the rest up to ₹5 crore.)
• If the award amount exceeds ₹5,00,00,000: duty = ₹2,62,500 plus 0.25% of the amount above ₹5 crores. This effectively tapers the rate for very large awards. For example, an award of ₹100 crore would incur duty of approximately ₹27.62 lakh in Maharashtra under the new regime.

Notably, the Ordinance excludes awards directing partition of property from this new structure, meaning a partition award may be governed by a different provision or remain under prior nominal duty (the legislative intent appears to avoid overlap with stamp duties on partition deeds).

Rationale and Context of the Change

In the times when the nations and the states are striving hard to make their place an attractive destination for arbitrations, this radical shift from a flat ₹500 duty to a value-based duty marks a drastic and regressive change. State authorities have justified the increase as a revenue-generating measure, aligning Maharashtra's stamp duty with that of certain other states. Government of Maharashtra expects this move to substantially boost its revenues – by some estimates up to ₹2,000 crores(₹20 billion) annually. The ordinance was also influenced by recent developments in Karnataka, which amended its stamp law in 2023 to hike duties on various instruments, including arbitration awards. Many fear this move to a recompense state's coffers to meet expenses for popular appeasement schemes like ladki Bahin Yojana.

From a policy perspective, this change represents a complete reversal and a step in regression for Maharashtra. It had previously adopted a pro-arbitration stance – for example, a 2017 amendment to the MSA effectively reduced stamp duty on awards to a nominal amount, which arbitration experts applauded as encouraging the use of arbitration. There was also a Government Resolution which mandated incorporation of institutional arbitration clause in all the government contracts exceeding certain financial threshold. However, now this sudden change of policy has rendered Maharashtra a much less attractive seat for arbitration proceedings. As discussed below, the new regime has significant legal implications for all stakeholders in the arbitral process.

This mandate has several implications for all the stakeholders:

A. Bumpy ride for Award Creditors:

A party has to incur substantial costs for conducting arbitrations including the venue expenses and miscellaneous charges. Now there will be a substantial burden of stamp duty. For example, a company awarded ₹10 crores in damages must now outlay roughly ₹8.75 lakhs in stamp duty (at 0.25% beyond the threshold) in order to enforce that award in Maharashtra – a significant sum. If the award involves immovable property (e.g. a specific performance involving property), the award-holder will have to pay 5% of the property's value as duty.

B. Unfair and double levy:

In the arbitrations involving the immovable property like specific performance of agreement, apart from being exorbitant this levy would be very unfair for a party who might have paid already 5% stamp duty on the subject matter agreement (at the time of its registration) which is now sought to be enforced through arbitration. Such party will have to be bear the same burden all over again.

C. Contrary to legislative policy intent:

The Arbitration and Conciliation Act, 1996 (“Arbitration Act”) treats the arbitral award at par with the decree of the Civil Court for all the purposes.^[1] The decree of a Civil Court does not need payment of any stamp duty for its enforceability or validation. Treating the arbitral award on drastically different footing militants against the very legislative intent of making arbitration an effective substitute for litigation, and arbitral tribunal to Civil Court. This factor would way heavily with the parties prospecting arbitration as a dispute resolution mechanism and maybe ultimately be a deterrent for arbitration. By very nature the arbitral award is identical to the decree of a Civil Court. Labelling the former as an 'instrument' is not only a misnomer but is completely logic defying.

Section 5 of the Arbitration Act permits judicial interference only to the extent as Part I of the Act would permit. This stamp duty hike would put this provision on a backburner and not increases judicial interference but also interference by the revenue authorities.

D. An inherently flawed Approach:

Irrespective of the stakes involved, the court fee in Maharashtra (and any other state) stands capped. The Maharashtra Court-Fees Act, 1959 specifies that the maximum court fee payable on a plaint, memorandum of appeal, or cross-objection is ₹3,00,000/-. This cap is for a reason; since the court fees are meant to cover the expenses for the State for running a justice delivery system. Dispensation of Justice being a fundamental and sovereign function of a Stat, Court fees are never seen as means to augment revenue. Arbitration is 'alternate dispute resolution mechanism' supposed to be an alternative to the court system. However this differential stamp duty treatment (from nil for a decree of civil court to market value based stamp duty on Award), renders it anything but alternative. Most importantly, the stamp duty on instruments is meant for the indentures or instruments that come into existence by will and volition of the parties. Arbitral Award is not an instrument mutually and voluntarily executed by the parties. It is a result of highly contentious and often involuntary process. This should not be confused with the parties willingness to opt for arbitration as a dispute resolution mechanism. The reference or opting to arbitration may well be voluntary but final award is not a consensual document to treat it as an instrument.

E. A joy ride for Award Debtors (Losing Parties):

This amendment gives one more weapon in the arsenal of the award debtors.

In the present system, the respondent to arbitral proceedings is able to punch holes since inception of the process. This begins with objections to the appointment of the arbitrator on the ground of the deficit study on the arbitration agreement. After huge turmoil, finally when this issue was put to rest in Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, this amendment made its way to give the debtor another weaponry. On the face of it, the stamp duty is paid by the party seeking to enforce the award (typically the winner). However, the new structure indirectly gives award-debtors a tactical advantage to delay or derail enforcement. Under Indian stamp laws, an instrument that is not properly stamped cannot be acted upon in court until the deficiency is cured (Section 35 of the Stamp Act, 35). This means if a winning party files an application to enforce an award without paying the requisite stamp duty, the court is obliged to halt proceedings and “impound” the award until the duty (and any penalty for delay) is paid. A savvy award-debtor can raise an objection at the enforcement stage or even at the time of a challenge (Section 34 set-aside petition) that the award is unstamped or under-stamped. In practice, courts in Maharashtra will likely refrain from entertaining any enforcement or challenge of an award unless and until the stamp duty is affixed as required. This provides the losing party an opportunity to stall proceedings, buying time or pressuring the winner. The stamp duty thus becomes a negotiating leverage – a debtor might insist the creditor bear the cost (since legally it must), or even use the high duty as a reason to settle the dispute for a lower amount to avoid further delay. Moreover, if the award-holder delays in paying stamp duty, accumulating penalties may apply. Stamp statutes typically impose a penalty (often up to 10 times the duty, or a monthly interest) for late payment after the instrument is first presented. A party unaware of the new law might wait until the enforcement stage, only to face not just the duty but also a penalty for not stamping the award within the prescribed time of its execution. This creates a perverse situation where the longer the enforcement is delayed (due to setting-aside proceedings, negotiations or delay tactics by award debtor), the more it might cost the award-holder in stamp dues. All these factors mean the award-creditor's journey to realize the fruits of arbitration is now fraught with added expense and procedural hoops in Maharashtra.

F. Unintelligible differentia:

The amendment exempts arbitral award by the tribunal appointed by the Courts in the course of Civil Proceedings. Section 89 of CPC gives civil court a power to refer the dispute to arbitration. Section 89(2) makes applicable the provisions of Arbitration and Conciliation Act, 1996 to such court prompted arbitrations. There is no reason to exclude this category of arbitration since for all the purposes these arbitrations are identical to the ones which commence by consent or through proceedings under Section 11 of Arbitration Act. There is another category which is kept immune from this stamp duty hike which is foreign arbitral awards. A foreign award (one made outside India under the New York Convention or Geneva Convention) can be directly enforced in India under Part II of the Arbitration Act. The Supreme Court of India has held that non-payment of stamp duty on a foreign award does not render it unenforceable in India. This is because the Stamp Act applies mainly to instruments executed within India, and a foreign award is not considered “executed” in an Indian state for stamp duty purposes. Thus, foreign award creditors can breathe easy that the Maharashtra stamp law's rigor does not impede enforcement of international awards. This may make the parties choose foreign destinations even for domestic arbitrations.

G. Pay to challenge:

The right to appeal against the award is a statutory right and should be unhindered by any other rider. The stamping mandate adds one major stumbling lock for the party desirous of challenging the adverse arbitral award. In Section 34 proceedings, the award debtor would not be allowed to mount challenge unless he pays the stamp duty. This may lead to a very anomalous situation.

H. Dilemma for Arbitrators:

Arbitrators and arbitration institutions are also stakeholders indirectly touched by stamp duty rules. Now arbitrators will have to be mindful of the stamp laws because an unstamped award can create enforceability issues for the parties. Under the existing regime, it was common practice for arbitrators to sign awards on stamp paper or ask parties to provide stamp paper at the time of award issuance. Now, arbitrators will have to deliver the award on ordinary paper, leaving stamping to the enforcement or challenge stage. Given Maharashtra's new regime, arbitrators handling proceedings seated in Maharashtra might warn the parties of the duty requirement. In high-stakes cases, a tribunal could even delay the formal handing over of the award until the winning party arranges for stamping – though there is no legal compulsion for the arbitrator to do so. There is a theoretical risk of arbitrators facing backlash or liability if an award becomes unenforceable due to stamp duty issues since the Arbitral Tribunal is obligated to deliver an award which is enforceable.

However in the opinion of the author it is advisable to referring from commenting on the stamp issues in the Award since what falls for the consideration of the tribunal are only the rival merits on the issues referred. Adjudication or commenting on the stamp may not only be an act in excess of its jurisdiction but maybe wholly unwarranted. The efficacy of the award if depends on some statutory compliance (Eg in Maharashtra for sale of restricted tenure lands, the prior sanction of Collector is required. Whilst delivering an award or even a judgment pertaining to such land, the court or tribunal need not be concerned with this post-decisional-compliance and there are several judgments that the same are not the concerns of the judge and his/her judgment is always subject to such compliance. In the same vein, even the arbitrator need not be bothered about the stamp duty compliance. Even practically, this is impossible since the stamp duty being vexed issue would be highly contested and it would be impossible to deal with it before the mandate of Section 29A expires.

I. Courts as Enforcement Fora:

The Supreme Court in M. Anasuya Devi v. M. Manik Reddy^[2] has clarified that objections to stamp duty are premature at the Section 34 stage since an award cannot be set aside merely for not being stamped. The Court held that stamping and registration issues should be considered at the enforcement stage (when the award is sought to be executed under Section 36), not when the award's validity is challenged on substantive grounds. The logic is that Section 34 grounds are limited to those in the Arbitration Act, and deficiency of stamp on the Award is not one of them.

This judgment has been held to be per incuriam by one Delhi High Court judgment, (which act again is in the teeth of Supreme Court judgments deprecating this practice). However, the Judgment does not discuss in details the applicable provisions of Stamp Act.

It is a matter of fact that Stamp Act's mandate to impound unstamped instruments applies to “every person having authority to receive evidence”– which may include a court hearing a Section 34 application if the award is filed as evidence. This creates a procedural conundrum: some High Courts have held that the court should impound the award at the Section 34 stage, then allow the challenger to cure the defect, even though it's not a ground to set aside the award. The new ordinance heightens the stakes of such impounding. If a losing party in Maharashtra files a Section 34 petition, they may need to ensure the award (as submitted to court) is stamped by the time of the hearing; otherwise the court might not entertain the petition until the stamp duty is paid by the award-holder (who may be the respondent in that context). Enforcement judges will have to navigate these waters carefully, balancing the Anasuya Devi precedent with stamp law obligations. It won't be surprising if some proceedings in Maharashtra are stayed or delayed solely due to stamp duty disputes, prompting higher courts to issue clarifications.

J. Stamp Authorities and Revenue: From the perspective of the state revenue department (Stamps and Registration), the ordinance is a boon but also a logistical challenge. With potentially very large amounts at stake per award, the authorities must ensure accurate valuation of the award's subject matter to calculate duty. For purely monetary awards, this is straightforward (a percentage of the award sum). For immovable property awards, the “market value” must be ascertained – stamp authorities may rely on ready-reckoner rates or may demand valuation evidence, potentially leading to further inquiry. If an award covers a complex subject (e.g. transfer of a business or intellectual property), determining the duty could become contentious. The stamp office's decisions on duty are appealable through adjudication processes, which could lead to separate litigation. For example, a party might dispute the Collector's assessment of ₹X duty and litigate that issue while the award enforcement is on hold. This forecasts a rise in ancillary litigation where the core dispute is not the arbitral award's merits but the stamp duty payable on it. Indeed, cases have already arisen – in Karnataka, after the 2023 hike, a writ petition challenged the stamp duty and penalty imposed on an arbitral award by the Collector. Once can expect similar disputes in Maharashtra as parties grapple with the new provisions.

K. Satellite litigations and Costs:

The stamp duty requirement is likely to spur ancillary litigation. Parties might litigate over who should bear the cost of stamp duty – for example, in some cases the winning party may attempt to claim the stamp duty as an item of “costs” recoverable from the losing party. There is no settled law yet on whether courts can direct the loser to reimburse stamp duty; it will likely be argued in upcoming cases. Additionally, disputes over the quantum of stamp duty (especially for high-value or property awards) may lead to separate proceedings (appeals against the Collector's order, etc.). These satellite litigations add to the overall legal expenditure and effort surrounding arbitration, eroding the advantage arbitration has in conclusiveness. Moreover, if a party mistakenly forgoes stamping and later tries to cure it, the penalties imposed can inflate the cost dramatically – possibly becoming another point of contention. Lawyers in Maharashtra will need to advise clients to factor in stamp duty at the time of award, to avoid penalty and interest complications. All told, the process becomes more litigious and complex, moving arbitration outcomes closer to the complexities of court litigation that arbitration was supposed to circumvent.

L. Constitutional and Policy Debates:

The new duty regime may also raise constitutional questions. While states have the right to tax, excessive taxation that effectively hampers a legal remedy can be questioned. Making enforcement contingent on compulsory payment may conflict with the fundamental right to access justice. In extreme scenarios, this could be argued to violate Article 14 (equality before law, if only the wealthy can afford to enforce awards) and Article 21 (right to property and right to a legal remedy) of the Constitution. There hasn't yet been a direct constitutional challenge to a stamp duty on awards, but this ordinance might prompt one.

Comparative Perspective: Stamp Duty on Awards in Other States

Stamp duty on arbitral awards in India varies widely across states – from negligible amounts in some states to onerous ad-valorem levies in others. This patchwork stems from the federal structure: while a baseline is set by the Indian Stamp Act, 1899, states have broad powers to amend stamp duty rates on different instruments within their jurisdiction. Below is a comparative look at how key states treat arbitral awards:

• Delhi (National Capital Territory): Delhi follows the Indian Stamp Act, 1899 with state-specific amendments. Under Article 12 of Schedule I-A to the Stamp Act (Delhi Amendment) 2001, an arbitral award is chargeable at 0.1% of the value of the award (where the award amount exceeds ₹1,000) In practical terms, this is a very small duty. It reflects Delhi's policy of not unduly taxing arbitral awards, arguably to promote the city as an arbitration-friendly locale.
• Karnataka: Karnataka's stamp duty regime was overhauled by the Karnataka Stamp (Amendment) Act, 2023. Prior to 2023, Karnataka had a modest fixed fee for awards (around ₹500 or so, similar to Maharashtra's old rate). The 2023 amendment introduced steep ad-valorem duties. Now, an arbitration award for movable property in Karnataka attracts a 1% stamp duty on the award amount or the market value of the subject-matter. For awards involving immovable property, Karnataka requires the same duty as a conveyance – generally 5% of the property's market value, which can go up to 7% in certain city jurisdictions with surcharges (Bengaluru has additional cess).
• Gujarat: Gujarat takes a relatively balanced approach. As per the Gujarat Stamp Act (an amended version of the Indian Stamp Act for the state), an arbitral award is subject to 0.1% stamp duty on the total sum awarded, with a cap of ₹5,00,000 (₹5 lakhs). This means Gujarat's rate is the same as Delhi's for most awards (0.1%), but unlike Delhi, Gujarat has a maximum limit so that even extremely large awards will not incur more than ₹5 lakh in duty. For instance, a ₹100 crore award in Gujarat would theoretically call for ₹10 lakh at 0.1%, but the cap limits it to ₹5 lakh. By capping the duty, Gujarat ensures that stamp costs do not spiral out of control for big-ticket arbitrations, maintaining a pro-business outlook.
• Tamil Nadu and Andhra Pradesh: These states have strived hard to minimize stamp duty on awards to a token amount. Tamil Nadu has capped stamp duty on arbitral awards at a mere ₹150, and Andhra Pradesh (and the recently bifurcated state Telangana likely following suit) capped it at ₹200. These amounts are so low as to be negligible, regardless of the award value. The policy intent is clearly to remove fiscal barriers to arbitration. Businesses in these states can arbitrate disputes without any fear of a significant stamp duty at the end. It's an emphatic pro-arbitration signal; however, it also means the state forgoes potential revenue from large awards. Notably, Haryana took a similar pro-arbitration stance: the Haryana Stamp (Amendment) Act, 2018 outright exempted “any award made by an arbitrator” from stamp duty. This exemption in Haryana applies to both domestic and foreign awards, ensuring no stamp duty is payable at all on arbitration awards in that state. States like Madhya Pradesh and Odisha have also at times considered or implemented nominal duties to encourage arbitration.
• States Following the Indian Stamp Act baseline: In the absence of state-specific amendments, the Indian Stamp Act, 1899 prescribes only a nominal stamp duty on awards (₹5). Some states, by not enacting any higher rate, effectively let this tiny duty prevail. For example, Uttar Pradesh imposes an ad-valorem duty of 0.25% on awards (higher than the central Act's nominal fee, but still lower than Maharashtra). Many north-eastern states and union territories adhere to the central Act's schedule by default. The central Act's token duty (₹5) reflects an older era when arbitration was less common; many modern commercial states have updated their rates, but as seen, in divergent ways.

These differences can and do influence parties' choices. It is anticipated that the “stamp duty factor” will become part of arbitration clause negotiations for large contracts in India. This stamp hike could have economic implications: legal business may flow out of Maharashtra, and over time the state might actually lose more (in terms of professional services, hospitality, etc., associated with hosting arbitrations) than it gains in stamp revenue. The ordinance bring about an unintended consequence at odds with Maharashtra's aspiration to be an arbitration-friendly hub (Mumbai has been vying to be an international arbitration seat akin to Singapore or London).

Maharashtra's new stamp duty on arbitral awards has fundamentally changed the post-award landscape in the state. On one hand, it bolsters state revenue significantly – a legitimate objective for a government – but on the other hand, it risks making Maharashtra a less attractive venue for arbitration and imposing onerous burdens on those who seek to enforce awards. The legal implications are multifaceted: parties must now budget for and navigate the stamp duty process to secure the benefit of an award; arbitrators and institutions must account for this development in managing cases; and courts face additional procedures to ensure compliance. The statutory provisions of the Maharashtra Stamp Act (as amended) now intertwine with arbitration practice, and case law (like Anasuya Devi and others) will guide how and when stamping issues can be raised in court. Comparatively, Maharashtra's stance is among the harshest in India, especially when juxtaposed with states that virtually waive stamp duty on awards (₹150 in TN, ₹200 in AP, nilin Haryana).

The emerging challenges – delayed enforcement, increased satellite litigation, and a heavier cost of accessing arbitration – cannot be ignored. It would be incumbent on litigants and their counsel to adhere strictly to stamping requirements to avoid derailment of awards, and perhaps lobby for reforms if the burdens prove too severe. From a policy viewpoint, there have been calls to harmonize stamp duties for arbitral awards across India or to cap them, to prevent distortion of dispute resolution choices. Whether Maharashtra's move will become a “new normal” or stand out as an outlier will depend on how other states and the central government respond.

In the meantime, anyone involved in arbitration connected to Maharashtra (be it as a seat of arbitration or the place of enforcement) should be well-advised of the stamp duty implications. The duty may be steep, but it is now an integral part of the arbitration lifecycle in the state. By being proactive – for instance, getting an award stamped immediately upon receipt to avoid penalties, or structuring settlements to account for stamp duty – stakeholders can mitigate some negative effects.