As we are all aware, India has been under complete lockdown for over a month with all public premises / offices / workplaces / commercial premises effectively shut. Presently, the lock down in state of Maharashtra is in effect until May 17, 2020.

Recognizing the cash flow issues faced by several businesses and individuals, the authorities have encouraged banks / NBFCs to continue lending. Accordingly, whilst lending transactions have continued, a more practical problem has emerged around obtaining stamp papers for legal documents required to be executed in such transactions. With stamp duty vendors not working, banks not functioning at full strength and strict measures against movement of people, organizing stamping of documents has become a major challenge. Consequently, lending transactions are not being consummated / delayed, thereby having a ripple effect on cash flows of borrowers.

Taking cognizance of this issue, the Office of the Inspector General of Registration and Stamp Controller, Maharashtra State (“Authorities”), vide its circular bearing reference number No.O.5/Stamp20/Explanation/MN 06/20/146/20 dated April 27, 2020 (“Circular”) has clarified certain provisions of the Maharashtra Stamp Act, 1958 (“Act”) particularly on the timelines within which stamp duty needs to be paid on instruments forming part of lending transactions which are not compulsorily registrable under the Registration Act 1908 (“Document(s)”):

Section 17 of the Act sets out that stamp duty on instruments proposed to be executed in Maharashtra shall be paid before or at the time of execution or on the next working day following execution of such instruments.[1]

While interpreting what would constitute ‘next working day’ for the purposes of Section 17 of the Act, the Circular indicates that Authorities rely on the General Clauses Act, 1897[2] and Maharashtra General Clauses Act, 1904[3]. The view taken by the Authorities is that if Documents are executed during the current lockdown period, it would not be unfair to assume that the ‘next working day’ would be the first working day after the lockdown period is over and, accordingly, as long as stamp duty is paid by the end of such first working day after the lockdown period is over, one would have complied with Section 17 of the Act (“Extended Timeframe”).

The Circular further provides that in the event a party is unable to pay stamp duty on the Documents within the Extended Timeframe, then the concerned party shall have a further option available under Section 40 of Act[4] to pay stamp duty. Essentially, such party will be required to file an application within 1 (one) month from the lifting of lockdown and upon receipt of such application the relevant authorities will accept it as is and will treat such delay as a valid one falling within the purview of Section 40 of the Act. In other words, the benefit of exceptions under Section 40 shall automatically extend to such applications. Moreover, such applications will be accepted with no questions asked i.e. neither any documentary evidence would need to be provided nor any inquiry will be conducted by the authorities.

Although these clarifications provide much needed breathing space for lending transactions in Maharashtra, the legal validity and enforceability of Circular can itself be questioned. Given that some of the clarifications provided by the Circular would necessitate amendments to the Act, it will need to be seen if the constitutional validity of the Circular is questioned in a court of law. Another aspect which could have been touched upon and clarified is whether the scope of the Circular could be expanded to apply to stamping of all kind of instruments (over and above the ones required in lending transactions). Strangely, the essence of the Circular has been presented to only be relevant for instruments required to be executed in lending transactions. Given the rationale provided in the Circular (and discussed above), we see no reason why the same rationale could not have equally applied to all instruments which would normally be governed by Section 17 and 40 of the Act. By keeping the scope of the Circular limited to instruments required to be executed during lending transactions, we believe that the Authorities have missed a golden opportunity to make up for the dip in revenue from stamp duty caused by the lockdown.

Link to the Circular:

http://igrmaharashtra.gov.in/pdf/Circular_regarding_stamping_of_

documents_from_banking_sector_and_filing_of_notice_of_intimation_.pdf

[1] Instruments executed in State: All instruments chargeable with duty and executed by any person in this State shall be stamped before or at the time of execution or immediately thereafter or on the next working day following the day of execution.

[2] Section 10(1): Computation of time: where by any Central Act or Regulation made after the commencement of this Act, any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court of office is open.

[3] Section 11: Computation of time: Where, by any Bombay Act or Maharashtra Act made after commencement of this Act, any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within prescribed limit, then, if the Court or Office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or

[4] Instruments unduly stamped by accident: If any instrument chargeable with duty and not duly stamped, not being an instrument chargeable with a duty of twenty naye paise or less is produced by any person of his own motion before the Collector within one year from the date of its execution or first execution, and such person brings to the notice of the Collector the fact that such instrument is not duly stamped and offers to pay to the Collector the amount of the proper duty, or the amount required to make up the same, and the Collector is satisfied that the omission to duly stamp such instrument has been occasioned by accident, mistake or urgent necessity he may instead of proceeding under sections 33 and 39, receive such amount and proceed as next hereinafter prescribed.

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