Stamp Duty payable on Transfer of Debts along with Underlying Securities: Allahabad HC [Read Judgment]

In Kotak Mahindra Bank v. State of Uttar Pradesh, Allahabad High Court recently held that stamp duty is payable on the transfer of debts along with underlying securities.

In the instant case, debts at Rs.177.49 crore were outstanding towards principal, interest and another amount due and payable by the borrowers to the Kotak Mahindra Bank. The State Bank of India agreed to purchase and acquire the debts from Kotak with all rights title and interest and underlying financial instruments, for a consideration. Accordingly, a deed was executed by the applicant, Kotak Mahindra Bank in favor of State Bank of India (SBI).

The State took a view that at the time of registration of the Deed under the Bombay Stamp Act, Rupees One lakh was paid towards stamp duty under the said Act, on the basis of remission notification which treated the transfer in question to be a transfer of movable property. Therefore, the assignee bank cannot now contend that the instrument in question is chargeable under Article 62(c).

The bench comprising Justice Bharati Sapru, Justice Suneet Kumar and Justice Saumitra Dayal Singh noted that the dominant purpose was to transfer/assign the debts along with the underlying securities, thereby, entitling the Assignee to demand, receive and recover the debts in its own name and right. “The question that would arise is under which Article of Schedule 1B of the Stamp Act, as amended in its application to Uttar Pradesh, the instrument would be charged to stamp duty i.e. Conveyance {No. 23} or Transfer {No. 62(c)}.”

The bench further observed that the transaction is embodied in a document namely the Instrument in the present case and it cannot be said that the transaction was adopted as a cloak to conceal a different transaction of sale of any property.   Duty has to be charged in accordance with the legal rights of the parties to the transaction.