Stamp duty legislation is pre-independence legislation; the Indian Stamp Act, of 1899, stipulates stamp duty to be paid on several documents. Stamp duty plays a pivotal role in providing legal validity and sanctity to any document executed in the jurisdiction of India. If an instrument is left unstamped or the stamp duty paid is deficient, it becomes inadmissible as evidence in the courts of law in India and thus, loses its legality.
Stamp duty is a state subject under entry 63 of the State List, Seventh Schedule, Constitution of India; hence, various states have amended the rates of stamp duty payable under the Indian Stamp Act, 1899, as stamp duty forms part of state revenue. Some states have passed new stamp laws themselves, such as the Rajasthan Stamp Act, of 1998, the Maharashtra Stamp Act, of 1958, the Gujarat Stamp Act, of 1958, etc
Stamp duty has to be paid before or at the time of execution of an instrument. Instrument is defined under Section 2(l) of the Indian Stamp Act, 1899, as “instrument” includes “every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy or receipt.” Execution of an document means the signing of all the parties of the document, not just one party.
According to the Delhi High Court, in the case of Religare Finvest Ltd. Vs Asian Satellite Broadcast Pvt. Ltd[1]., it was held that the documents are not instruments until the relevant parties have signed them. The documents with signatures of only Zee Companies were not ‘instruments’ to attract the said provision of stamp duty fees.
Mortgage can be created on an immovable property by various means (equitable mortgage/registered mortgage/simple mortgage/English mortgage/usufructuary mortgage, etc.). Memorandum of Entry is an instrument to create mortgage by deposit of title deeds/equitable mortgage.
Section 58(f) of the Transfer of Property Act defines mortgage by deposit of title deeds as:
“(f) Mortgage by deposit of title deeds. — Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, deliver to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.”
1. Memorandum of entry executed in New Delhi
As per Schedule I-A of Indian Stamp Act, 1899 (as applicable to the national capital territory of Delhi), an agreement relating to deposit of title deeds has to be stamped as specified below:
| Description of Instrument | Proper Stamp Duty | |
| Article 06 | Agreement relating to Deposit of Title Deeds, Pawn or Pledge that is to say, any instrument evidencing an agreement relating to the deposit of title-deeds or instruments constituting or being evidence of the title to any property whatever (other than a marketable security) | |
| (a) if such loan or debt is repayable on demand or more than three months from the date of instrument evidencing the agreement | 0.5 per cent of the amount secured by such deed subject to a maximum of fifty thousand rupees | |
| (b) If such loan or debt is repayable in not more than three months from the date of such instrument. | Half the duty payable under sub-clause (a). | |
Exemption:
Instrument of pawn or pledge of goods if unattested
An Agreement relating to deposit of title deeds is to be stamped @0.5% of the amount secured subject to a maximum of Rs. 50,000 if executed in the national capital territory of Delhi.
State of Haryana & Ors vs Navir Singh & Anr[2]
In this judgment, the Hon’ble Supreme Court held that:
“After the deposit of the title deeds, the creditor and borrower may record the transaction in a memorandum but such a memorandum would not be an instrument of mortgage. A memorandum reducing other terms and conditions about the deposit in the form of a document, however, shall require registration Under Section 17(1)(c) of the Registration Act, but in a case in which such a document does not incorporate any term and condition, it is merely evidential and does not require registration.”
Therefore, the Apex Court held that a memorandum of entry regarding the deposit of title deeds by the Borrower with the creditor without specifying other terms and conditions would not be an instrument of mortgage and hence not liable to be stamped or registered.
NO STAMP DUTY IS TO BE PAID ON A MEMORANDUM OF ENTRY EXECUTED IN NEW DELHI.
2. Memorandum of Entry executed in Mumbai
Schedule I of Maharashtra Stamp Act, 1958
| Description of Instrument | Proper Stamp Duty | |
| Article 06 | Agreement relating to deposit of title deeds, pawn. Pledge, or hypothecation, that is to say, any instrument evidencing an agreement relating to the deposit of title deeds or instrument constituting or being evidence of the title to any property whatever (other than a marketable security), where such deposit has been made by way of security for the repayment of money advanced or to be advanced by way of loan or an existing or future debt | |
| (a) if the amount secured by such deed does not exceed rupees Five lakhs; | 0.1 per cent. of the amount secured by such deed subject to the minimum of one hundred rupees | |
| (b) in any other case | 0.3 per cent. Of the amount secured by such deed, subject to the maximum of twenty lakh rupees | |
| provided that, in case of instrument executed in favor of consortium of banks the duty chargeable shall not exceed fifty lakh rupees. | ||
Explanation I If—For the purposes of clause (1) of this Article, notwithstanding anything contained in any judgment, decree or order of any court or order of any authority, any letter, note, memorandum or writing relating to the deposit of title deeds whether written or made either before or at the time when or after the deposit of title deeds is effected, and whether it is in respect of the security for the first loan or any additional loan or loans taken subsequently, such letter, note, memorandum or writing shall, in the absence of any. separate agreement or memorandum of agreement relating to deposit of such title deeds, be deemed to be an instrument evidencing an agreement relating to the deposit of title deeds.
Explanation II. —For the purposes of this Article, any new instrument executed for additional loan or extension of previous loan shall be treated as a fresh instrument and chargeable with the duty to the extent of additional amount being secured or disbursed or sanctioned.
Exemption
Letter of hypothecation accompanying a bill of exchange
The state government of Maharashtra has inserted a statutory provision (explanation 1) intending to give an overriding effect over any judgment, decree, or order of any court or order of any authority. Thereby, any letter, note, memorandum, or writing shall, in the absence of any separate agreement or memorandum of agreement relating to the deposit of such title deeds, be considered as an instrument evidencing an agreement relating to the deposit of title deeds. Therefore, a memorandum of entry regarding the deposit of title deeds by the Borrower with the creditor executed in Mumbai will be liable to be stamped.
STAMP DUTY IS REQUIRED TO BE PAID ON A MEMORANDUM OF ENTRY EXECUTED IN MUMBAI.
Concept of Differential Stamp Duty
Section 18 of the Maharashtra Stamp Act, 1958 provides for differential stamp duty to be paid in case an instrument is executed out of Maharashtra and is then received in the state, which means that the same instrument is liable to be stamped in accordance to the Maharashtra Stamp Act, 1958 by paying the difference between the amount of stamp duty which is already paid and liable to be paid according to Maharashtra Stamp Act, 1958, within three months of it being first received in the state of Maharashtra.
Therefore, if a memorandum of entry is executed in New Delhi for property situated in Mumbai. If the same memorandum of entry is received in Mumbai (for enforcement or any other purpose), then the instrument shall be liable to stamp duty as per Maharashtra Stamp Act, 1958 and the difference of the amount of stamp duty paid in New Delhi and the duty liable to be paid in Mumbai will have to be paid.
Notes
[1] 2022SCCOnLineDel221
[2] MANU/SC/1036/2013
Author Bio
