A Step in Regression: Stamp Duty on Arbitral Awards in Maharashtra

Introduction

On October 14, 2024, the Government of Maharashtra enacted a pivotal amendment to the Maharashtra Stamp Act, 1958, through the Maharashtra Stamp (Amendment) Ordinance, 2024. This legislative change significantly alters the stamp duty applicable on arbitral awards by moving from a fixed rate to an ad valorem (value-based) system. While ostensibly aimed at enhancing state revenue, this move has stirred considerable concern among legal professionals and businesses, particularly regarding its impact on the arbitration landscape in the state.

Overview of the Amendment

From Fixed to Ad Valorem

Previously, stamp duty on arbitral awards was a nominal fixed amount of ?500. The amended legislation replaces this with a percentage-based duty, aligning the stamp duty payable on arbitral awards with those applicable to conveyance deeds and other financial instruments.

Revised Stamp Duty Structure

1. Awards Involving Immovable Property

Arbitral awards involving the transfer or determination of rights in immovable property now attract the same stamp duty as conveyance deeds under Article 25(b) of the Maharashtra Stamp Act. This typically translates to:

• 4% to 5% of the property's market value, varying by location within Maharashtra.

2. Awards Involving Movable Property

For awards that do not involve immovable property, the duty is calculated as follows:

• Up to ?50 lakhs: 0.75% of the award amount

• ?50 lakhs to ?5 crores: ?37,500 plus 0.5% of the amount exceeding ?50 lakhs

• Above ?5 crores: ?2,62,500 plus 0.25% of the amount exceeding ?5 crores

This tiered structure marks a drastic increase from the earlier flat fee and introduces a significant financial burden depending on the award's value.

Legal and Economic Implications

Increased Cost of Arbitration

One of the most immediate and tangible impacts of this change is the rise in the overall cost of arbitration proceedings. For example, an arbitral award of ?10 crores would now attract a stamp duty of approximately ?5,12,500—an exponential jump from the earlier ?500 charge. This can have a chilling effect on parties seeking efficient and cost-effective dispute resolution through arbitration.

Disincentivizing MSMEs

Micro, Small, and Medium Enterprises (MSMEs), which form the backbone of India’s economy, may find this change particularly burdensome. Arbitration has historically offered a flexible and cost-effective method for resolving disputes outside traditional courts. With higher costs now involved, many MSMEs may reconsider their choice of arbitration or avoid pursuing legitimate claims altogether.

Mumbai’s Status as an Arbitration Hub

Mumbai has long been positioned as a leading arbitration hub in India. However, the increased cost of enforcing domestic arbitral awards could prompt parties to relocate arbitration proceedings to more cost-effective jurisdictions, thus potentially diminishing Maharashtra's attractiveness as a seat of arbitration.

Treatment of Foreign Arbitral Awards

Interestingly, the new ordinance does not affect foreign arbitral awards, which continue to be exempt from stamp duty. The Supreme Court, in the case of M/s. Shri Ram EPC Limited v. Rioglass Solar SA, confirmed that foreign awards are not subject to stamp duty under Indian law. This creates a disparity in the treatment of domestic versus foreign awards and may raise concerns under Article III of the New York Convention, 1958, which mandates non-discriminatory treatment of foreign arbitral awards.

Legal Clarifications and Remedies

Enforceability of Unstamped Awards

While an unstamped arbitral award is inadmissible as evidence in court, it does not become void. The deficiency can be cured by paying the requisite stamp duty along with a penalty, thereby restoring its enforceability.

Refunds for Set Aside Awards

Section 48 of the Maharashtra Stamp Act allows for a refund of stamp duty if an arbitral award is set aside under Section 34 of the Arbitration and Conciliation Act, 1996. However, this refund is subject to specific conditions and timelines, adding another layer of complexity for litigants.

Conclusion

The Maharashtra Stamp (Amendment) Ordinance, 2024, represents a significant policy shift with far-reaching implications. While it may bolster state revenue in the short term, it risks undermining the arbitration framework in Maharashtra by making it more expensive and less accessible. Stakeholders—especially businesses and arbitration institutions—must now adapt to these changes and possibly reconsider dispute resolution strategies. In the long run, there is a pressing need to balance revenue interests with the goal of promoting efficient and affordable justice through arbitration.

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Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.