Asset Reconstruction Company Loan Transfer Duty Must Not Depend On Property Value High Court Rules

In a significant ruling concerning fiscal compliance in the financial sector, the High Court of Madhya Pradesh at Jabalpur has clarified that stamp duty on the assignment of loan portfolios to Asset Reconstruction Companies (ARCs) must be calculated based on the debt assigned, rather than the market value of the underlying mortgaged property.

Justice Maninder S. Bhatti, presiding over the petition filed by Reliance Asset Reconstruction Company Ltd., set aside a demand notice issued by the Collector of Stamps, Raisen, which had sought an additional ₹1.42 crore in deficit stamp duty.

The Origin of the Dispute

The conflict emerged after the petitioner acquired the loan account of D.A. Rubber Industries Limited (formerly Ralson Industries Limited) from the Union Bank of India. The total outstanding liability was valued at approximately ₹53.77 crore. While the ARC complied with the government’s 2005 notification by paying stamp duty of ₹13.30 lakh—calculated at 0.1% of the assigned debt—local audit authorities argued that the transaction should have attracted additional duties under the M.P. Panchayat Raj Evam Gram Swaraj Adhiniyam, 1993, and the M.P. Municipalities Act, 1961, based on the value of the immovable property secured under the loan.

Arguments and Legal Scrutiny

The petitioner argued that an Assignment Deed does not create a fresh mortgage over immovable property. Since the original lender had already paid the necessary stamp duty at the time of the initial mortgage creation, treating the assignment as a new conveyance would result in double taxation.

The State, however, contended that the transaction involved property situated within municipal or panchayat jurisdictions, thus warranting higher duties under regional laws.

The High Court disagreed, holding that the petitioner had merely "stepped into the shoes" of the original lending bank. The court observed that the assignment of a loan, by its nature, does not constitute a new mortgage or create new encumbrances on the property.

Key Observations from the Bench

Highlighting the principles of fairness in taxation, Justice Bhatti noted:

• "The stamp duty as per the provisions of the Notification dated 07-03- 2005 is not charged considering the value of the land which is mortgaged in order to secure the land. On the contrary, the percentage of duty is quantified qua loan securitized or debt assigned."
• "The audit report prima facie has effect of double jeopardy so far as the petitioner is concerned, inasmuch as there can be no incidences of imposition of duty."
• "There cannot be dual liability for the same stamp duty merely because the lending institution has changed."

Implications of the Ruling

By quashing the Collector’s demand, the High Court has reinforced that state authorities cannot pursue "unjust enrichment" by charging multiple duties for the same underlying security transaction. The judgment provides much-needed relief to financial institutions and ARCs, ensuring that the legal burden of stamp duty on loan assignments remains predictable and tied to the value of the debt, rather than the potentially volatile market value of collateralized property. This decision ensures that such transactions continue to be governed by the specific 2005 government notification designed for the securitization sector.