No blanket stamp duty exemption for asset reconstruction agreements under SARFAESI Act; State law applies: Kerala High Court - 2025-10-10

Kerala High Court Clarifies Stamp Duty on Asset Reconstruction Agreements, Denies Blanket Exemption Under SARFAESI Act

Ernakulam, Kerala - In a significant ruling affecting asset reconstruction companies (ARCs), the Kerala High Court has held that the stamp duty exemption provided under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, does not extend to duties payable under state legislation like the KERALA STAMP ACT , 1959.

The single-judge bench of Justice T.R. Ravi , while partially allowing a petition filed by J.C. Flowers Asset Reconstruction Pvt. Ltd., directed the registration authorities to apply the capped rates mentioned in a 2010 Government Order as an interim measure, citing the principle of parity with previous judgments.

Background of the Case

The petitioner, J.C. Flowers Asset Reconstruction Pvt. Ltd., had entered into asset reconstruction agreements with Karnataka Bank Ltd. and Federal Bank Ltd. to acquire their financial assets (non-performing assets). When they presented these agreements for registration, they offered to pay a stamp duty of Rs. 1 lakh and a registration fee of Rs. 25,000, based on a 2010 Government Order and previous High Court rulings.

However, the Registering Authority refused registration, contending that the agreements were chargeable as a 'conveyance' under Article 21 of the KERALA STAMP ACT , attracting a duty of 8% of the purchase consideration, which was significantly higher. Aggrieved, the ARC approached the High Court seeking a direction for registration at the capped rates.

Key Arguments Presented

Petitioner's Stance (Represented by Senior Advocate V.V. Asokan):

- A combined reading of Section 5(1A) of the SARFAESI Act and Section 8(f) of the Indian STAMP ACT , 1899, provides a complete exemption from stamp duty for such agreements.

- The non-obstante clause in Section 8(f) ("Notwithstanding anything contained in this Act or any other law for the time being in force...") was intended by Parliament to override all state stamp duty laws, including the KERALA STAMP ACT .

- In the alternative, the State is bound by its 2010 Government Order (G.O.(Ms.)No.9/2010/TD) and previous High Court judgments that have permitted registration by capping the stamp duty at Rs. 1 lakh and the registration fee at Rs. 25,000.

Respondent's Stance (Represented by Special Government Pleader Mohammed Rafeeq):

- The exemption under the central acts is explicitly limited to the duty payable "under this Act," i.e., the Indian STAMP ACT , 1899. It does not and cannot exempt duties leviable under a state act.

- The legislative power to levy stamp duty on such instruments falls under the State's domain as per the Constitution.

- The 2010 Government Order was an administrative order specific to one company (ARCIL) and cannot be treated as a statutory rule applicable to all.

- The agreements are a form of 'conveyance' under Section 2(d)(iv) of the KERALA STAMP ACT and should be taxed accordingly under Article 21.

Court's Analysis and Ruling

Justice T.R. Ravi meticulously analyzed the interplay between the central and state legislations. The court dissected the two main questions before it: whether a total exemption from stamp duty is available, and if not, whether the capped rates from the 2010 G.O. should apply.

On Total Exemption: The court firmly rejected the petitioner's claim of a blanket exemption. It emphasized the golden rule of interpretation, where all words in a statute must be given meaning. The judgment highlighted the crucial phrase in Section 8(f) of the Indian STAMP ACT , which states the document "shall not be liable to duty under this Act ."

> "If all the words of the Section are to be given meaning... it can only mean that, there can be no levy of stamp duty under the Indian STAMP ACT . That is to say, there is no omnibus exemption from stamp duty under any other enactment," the Court observed.

It concluded that an exemption provision must be construed strictly and cannot be expanded through interpretation to include exemptions from state laws not explicitly mentioned.

On Applicability of Capped Rates: While finding no merit in the total exemption claim, the court turned to the second question regarding the capped fee. It noted that in previous judgments (Exts.P4, P5, and P6), the High Court had extended the benefit of the 2010 Government Order to other ARCs on the principle of parity.

Even though the State argued that these judgments were under challenge and the G.O. was not a statutory order, the court held that as long as those judgments remained unchallenged and in force, the current petitioners were entitled to the same relief.

Final Decision

The writ petitions were allowed in part. The Court directed the 4th respondent (Registering Authority) to register the assignment agreements by applying the capped stamp duty of Rs. 1 lakh and a registration fee of Rs. 25,000, as suggested in the 2010 Government Order.

The court clarified that this direction is subject to any future legislative amendments to the STAMP ACT and does not offer a final opinion on the State's contention that such agreements should be treated as a 'conveyance' under Article 21 of the KERALA STAMP ACT .