In a recent Order of the Hon'ble Bombay High Court, Justice G. S. Patel settled a very peculiar situation, when the stamp duty was initially calculated on the Ready Recknor value, instead of the value fetched in a Court Auction Sale.
As a rule of law, the stamp duty to be paid on an instrument is based on the market value of the property which is either the price at which such property would have been sold at in the open market or the consideration paid for it, whichever is higher. In this particular sale, the sale was conducted through a Court Auction Sale which fetched a price of around 15 Crores but when the sale certificate was sought to be registered, the stamp authorities valued the property at around 155 Crores and demanded stamp duty as per the said price of 155 crores.
Background of the Case
The property was located at Dadar, near the Portuguese Church and after two failed bids, a price amounting to Rs.15.30 crores was fetched for the sale of the property, pursuant to which, Justice G.S. Patel instructed the Prothonotary and Senior Master to issue a sale confirmation certificate, and following which, it was to be lodged with the Collector of Stamps. Also, there was a Sheriff's Report No.76 of 2018 of 26th October, 2018 which directed the Stamp Duty Authorities to register the sale certificate on the basis of auction price of Rs. 15.30 crores.
Despite the above, the Collector of Stamps had valued the property at Rs. 155 crores, due to which the Claimants had to approach the Hon'ble High Court.
Key Observations of the Bombay High Court
The Hon'ble High Court observed that the Stamp Duty authorities were not bound to accept as correct any value or consideration stated in the instrument itself. Should the authority have reason to believe that it is incorrect, they are to determine the true market value based on the Market Value Rules. Rule 4 of Maharashtra Stamp (Determination of True Market Value of the Property) Rules, 1995 ("Rules") give various circumstances for calculation of true market value. However, the Proviso to Sub Rule 6 of Rule 4 of the Rules caught the attention of the court, which left an important exception, i.e., auction sale by courts.
The Proviso states that "Provided that, if a property is sold or allotted by Government or Semi Government body or a Government Undertaking or a Local Authority on the basis of a predetermined price, then value determined by said bodies, shall be the true market value of the subject matter property".
The Hon'ble High Court in its judgment raised an important question as to why a sale through a Court by public auction on the basis of a valuation obtained, i.e. by following a completely open and transparent process, be placed at any different or lower level than the government entities since the process followed in Courts is perhaps much more rigorous than what the proviso contemplates, because the first proviso itself does not require a public auction at all but only that the Government body should fix 'a predetermined price.
The Hon'ble High Court stated that where there is a sale by public auction through a court, sale is always preceded by a valuation obtained by the court as part of the public auction process. In such a situation i.e. when valuation is obtained, such sale or transaction should stand on the same footing as the sales referred to in the Proviso to Sub Rule 6 of Rule 4 of the Rules.
The judgment however reiterates that the sale certificate amount should not be accepted as the true market value. However the adjudicating authority should accept the valuation on the basis of which public auction was conducted as fair market value, or, if the sale was confirmed at a rate higher than the valuation, then to accept the higher value, i.e. the sale amount accepted. If more than one valuation is obtained, then the highest of the most recent of the valuations is to be accepted as the true market value.
This approach ensures consistency between the stamp adjudication process and the basis on which the sale is conducted in the first place and is also consistent with sub-rule (6) of Rule 4. This approach would also ease the burden on the adjudicating authority in spending time and money in having to collect, obtain and assess independent material as to market value, an exercise that would have already been done to the satisfaction of the court.
Further, it was observed that, the adjudicating authority could not question the terms of the sale, made in the present case, in any manner. It could only determine the stamp duty payable, and the basis of valuation of the market value could not be different from the one on which the Court proceeded, i.e. the highest valuation obtained or the actual sale price, whichever was higher.
Firstly, as general practice, in a sale by private treaty, the usual course stipulated in the Maharashtra Stamp Act, 1958 should apply.
Secondly, in sales by the Court, i.e. through the office of the Sheriff, or by the Court Receiver in execution, made by public auction pursuant to a valuation having been previously obtained, then,
- if the sale price is at or below the valuation obtained, then the valuation would serve as the current market value;
- if the final sale price, i.e. the final bid, is higher than the valuation, then the final bid amount and the not valuation should be taken as the current market value for the purposes of the stamp; and
- in case of multiple valuations obtained, then the highest of valuations that is most recent in time to the actual sale, should be taken as the current market value.
To facilitate this, every sale certificate lodged for registration has to be accompanied by a copy of the valuation reports authenticated by the Prothonotary & Senior Master.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.