Maharashtra government increases stamp duty payable on Arbitral Awards

Maharashtra will now impose ad valorem stamp duty rates on arbitral awards.

By Shaneen Parikh and Sanskriti Sidana 

On October 14, 2024, the Maharashtra Stamp (Amendment) Ordinance, 2024 (“Ordinance”) was promulgated, bringing about significant increments in some of the stamp duty rates prescribed under Schedule I to the Maharashtra Stamp Act, 1958. The purpose behind the Ordinance is straightforward – “to bring simplicity and uniformity in levy of stamp duty and to increase the Government revenue”. Accordingly, the stamp duty rates for several instruments which were fixed eons ago at nominal amounts have now been benchmarked with the current inflationary environment and the Government’s bid for an increase in its income.

Chief among these amendments is the increase in the stamp duty levied on arbitral awards. The rate of the stamp duty for arbitral awards (not being an award directing partition) was last revised in Maharashtra in 2015, when it was increased from Rs 100 to Rs 500, irrespective of the monetary value of the award.

With the promulgation of the Ordinance, the State Government will now impose ad valorem stamp duty rates on the award, i.e.:

* An award relating to immovable property will carry the same duty as is leviable on a conveyance under article 25(b) of Schedule I to the Maharashtra Stamp Act (between 4% to 5% of the market value of the property, depending on its location); and

* An award relating to movable property, will now require ad valorem stamping, depending on the award amount. An award of less than Rs 50 lakhs will carry stamp duty of 0.75% of the award amount, an award of more than Rs 50 lakhs but less than Rs 5 crores will be stamped at Rs 37,500 plus 0.5% of the award amount, and an award exceeding Rs 5 crores will carry stamp duty of Rs 2,62,500 plus 0.25% of the award amount.

This ought not to cover an award granting damages or other such actionable claims if unrelated to movable or immovable property.

This increment will place Maharashtra among the states with the highest rate of stamp duty levied on arbitral awards, alongside Karnataka, which also increased its stamp duty rates earlier this year. In contrast, in Delhi, stamp duty on arbitral awards is calculated at roughly 0.1% of the value of the property to which the award relates. In other statutes the rate is less - the Indian Stamp Act, 1899 prescribes a stamp duty of Rs 5; it is a maximum of Rs 100 in West Bengal, Rs 150 in Tamil Nadu, Rs 200 in Andhra Pradesh and Telangana, and Rs 300 in Gujarat – all nominal amounts, irrespective of the quantum of the award.

With the recent increments from Maharashtra and also Karnataka, one wonders if other State Governments will suit.  This trend is concerning, as it would only add to the financial burden on an award holder, who is not only being denied rightful payment by an award debtor, but also must bear additional costs towards stamp duty for receiving that award (over and above the high costs of litigation in India). Moreover, Mumbai, which has been a popular seat of arbitration in India, being India’s commercial capital, with a set of sophisticated and commercial judges in the High Court, could lose some of its sheen, as parties consider one more set of costs, when deciding on where they should seat their arbitration. Given the Government’s stated focus on enforcement of contracts and consolidating India as a pro-arb friendly jurisdiction with a cost effective and efficient process, one also wonders whether this Ordinance deserves a relook.

(Shaneen Parikh, Partner (head – international arbitration) and Sanskriti Sidana, Principal Associate, Cyril Amarchand Mangaldas.) 

Views are personal, and do not represent the stance of this publication.