The Punjab and Haryana High Court in Edelweiss Asset Reconstruction Company Limited v. State of Punjab, CWP No. 13346 of 2020 and connected cases (decided on 26.10.2021 by Rajbir Sehrawat, J.) allowed all three writ petitions filed by the petitioner ARC, setting aside the orders demanding deficient stamp duty on assignment deeds. The Court held that the proceedings were barred by limitation under Section 47-A of the Indian Stamp Act, 1899, that the assignment deeds fell under Article 62(c) and not Article 23 of Schedule 1-A, and that the Chief Controlling Revenue Authority had no jurisdiction to initiate suo moto proceedings under Section 56 of the Act.
Background
M/s Edelweiss Asset Reconstruction Company Limited acquired loans from Punjab National Bank and Dena Bank through assignment deeds. The loans, with an outstanding amount of approximately Rs. 1,76,38,15,484, were secured by mortgage of immovable properties and pledge of moveable properties belonging to the defaulting borrower, M/s Winsome Yarns Limited. The assignment deeds were duly registered and stamp duty was paid under Article 62(c) of Schedule 1-A of the Indian Stamp Act, 1899, as applicable in Punjab.
After a period exceeding three years from the date of registration, the respondent authorities initiated proceedings for recovery of alleged deficient stamp duty amounting to Rs. 1,45,85,000. The respondents contended that the deeds should have been stamped as conveyance deeds under Article 23, attracting substantially higher duty. The defaulting borrower company (M/s Winsome Yarns Limited) also intervened, supporting the State’s position.
The Three-Year Limitation Under Section 47-A
The Court found substance in the petitioner’s argument that the proceedings were time-barred. Section 47-A of the Indian Stamp Act, as applicable in Punjab, provides an outer limit of three years for authorities to initiate action for recovery of alleged deficient stamp duty. The respondents had admittedly initiated recovery proceedings after this period had expired.
To circumvent the limitation bar, the respondents argued that the case involved fraud by the petitioner in describing the deeds as “assignment deeds” instead of “conveyance deeds,” and that fraud knows no limitation. The Court rejected this argument on multiple grounds. The deeds disclosed the full consideration and complete details of properties furnished as security. There was no suppression or falsity in the contents. At most, there was a question of description, which falls squarely within the scope of Section 47-A(3), empowering the Collector to determine the true nature, character, and description of a deed. The Court further observed that the Indian Stamp Act contains no definition of “fraud,” and the general principle that fraud has no limitation applies only to private actions that could not have been detected by public authorities in the exercise of their functions. A public officer’s failure to properly read a deed at the time of registration cannot be branded as fraud to the prejudice of a citizen. The reliance on the judgments in Mahajan Sabha, Gurdaspur (Supreme Court) and Vikas (Punjab and Haryana High Court) and Tetra Devi (Patna High Court) was found to be well placed.
Assignment Deed Is Not a Conveyance Deed
On the substantive question of classification, the respondents argued that the deeds fell under Article 23 (conveyance) rather than Article 62(c) of Schedule 1-A, relying on the definition of “conveyance” under Section 2(10) of the Act.
The Court held that the transaction involved in the assignment deeds was the transfer of the right to recover a loan secured by mortgage of immovable properties and pledge of moveable properties. The lending institutions, as mortgagees, did not possess complete title to the properties. They only held an interest and a right in the properties to secure repayment. What was being transferred through the assignment deeds was this interest and the right to sue for recovery, not absolute title.
The definition of “mortgage deed” under Section 2(17) includes every instrument by which a right in or regarding specified property is transferred to secure repayment of a loan, without distinguishing between moveable and immovable property. On the other hand, “conveyance” under Section 2(10) contemplates complete transfer of title by sale. The Court found the reliance on the Full Bench judgment of the Allahabad High Court in Kotak Mahendra Bank Limited and the Madras High Court judgment in Easun Products of India Pvt. Ltd. to be well placed in holding that the assignment deeds fell within Article 62(c).
The respondent-borrower’s argument that the deeds mentioned transfer of “title” and “rights” in addition to “interest,” thereby taking them outside Article 62(c), was dismissed as hyper-technical and not based on any legal concept. The Court observed that the substance of the transaction, not its description, determines stamp duty assessment.
The State’s Manual of Audit Cannot Expand Statutory Definitions
The State argued that its Manual of Audit had expanded the definition of “conveyance” to include transfer of “book debts.” The Court held this argument to be totally irrelevant. The definition of “conveyance” is specified in the Act, and unless modified through proper legislative amendment, that definition must prevail. The rule-making power conferred on the State Government is for carrying out the objects of the Act, not for amending statutory definitions. The alleged extension of the definition by including book debts was not even done by framing rules under the Indian Stamp Act.
Chief Controlling Revenue Authority Lacked Jurisdiction Under Section 56
The Court also addressed the proceedings initiated by the Chief Controlling Revenue Authority. The Collector had already issued orders for recovery of alleged deficient stamp duty. The Chief Controlling Revenue Authority then converted a letter from the defaulting borrower into a miscellaneous application and issued notice to the petitioner. The Court found this exercise of power to be absurd on its face.
Under Section 56, the Chief Controlling Revenue Authority has no power to enter into suo moto adjudication upon deficiency in stamp duty, nor does it possess revisional powers to assess alleged deficiency except upon a reference drawn by the Collector. The “control” under Section 56(1) means administrative control, not adjudicatory power. A persona designata created by statute must be reined in by the provisions of that statute. The Court observed that the entire exercise was carried out on the defaulting borrower’s application, apparently to help the borrower raise objections regarding admissibility of the assignment deeds before the NCLT and DRT.
Result
All writ petitions were allowed and the impugned orders were set aside.
Mrs. Munisha Gandhi, Senior Advocate, with Mr. Vaibhav Sharma and Ms. Vedika Gandhi, Advocates, appeared for the Petitioner, i.e., M/s Edelweiss Asset Reconstruction Company Limited.