Introduction:

In the case of J.C. Flowers Asset Reconstruction Pvt. Ltd v. State of Kerala and others (WPC Nos. 18051 & 23003 of 2024), the Kerala High Court addressed the issue of stamp duty applicability on asset reconstruction agreements under Section 5 of the SARFAESI Act, 2002. The petitioner, an asset reconstruction company, entered into agreements with two banks and sought to register these agreements, offering to pay a stamp duty of INR 1 lakh and a registration fee of INR 25,000/-. The Registering Authority refused, citing incorrect fee and stamp duty, leading the petitioner to seek judicial intervention.

Arguments:

The petitioner argued that under Section 5(1A) of the SARFAESI Act, read with Section 8F of the Indian Stamp Act, 1899, documents executed for asset reconstruction purposes are exempt from stamp duty. They also referenced G.O. (Ms.) No. 9/2010/TD, which capped stamp duty and registration fees for ARCIL, and cited previous judgments (Exts. P4 to P6) supporting their position.

The respondents contended that the exemption applies only to the Indian Stamp Act and not to the Kerala Stamp Act. They argued that the agreements in question are ‘conveyances’ under Section 2(d)(iv) of the Kerala Stamp Act, thus attracting stamp duty under Article 21. They also questioned the applicability of the cited judgments, noting pending reviews and appeals.

Court’s Judgment:

Justice T.R. Ravi held that there is no blanket exemption from stamp duty under the SARFAESI Act and the Indian Stamp Act. The Court emphasised that exemptions must be strictly construed and cannot be expanded beyond their explicit terms. It noted that while Section 5(1A) provides an exemption under the Indian Stamp Act, it does not preclude the applicability of state-specific stamp laws like the Kerala Stamp Act.

The Court acknowledged the previous judgments cited by the petitioner but clarified that these were specific to ARCIL and based on the first G.O., which was not a statutory order with the force of law. The Court also observed that the empowered committee mentioned in the G.O. had not been constituted, and no further orders had been issued.

Consequently, the Court allowed the writ petition in part, directing the registration of the agreements as per the rates suggested in the first G.O., but made it clear that this direction is subject to any future amendments to the Stamp Act. The Court refrained from deciding on the applicability of Article 21 of the Kerala Stamp Act, considering it a matter under government consideration.