The location where the first person signs an agreement cannot automatically decide which State’s stamp duty law will govern it, the Delhi High Court has ruled, cautioning against making tax liability dependent on the “accidental location” of a signatory.
Justice Om Prakash Shukla observed that determining the applicable stamp duty legislation requires a closer examination of the agreement, including the nature of the instrument and the signatures necessary to bring it into existence.
The Court noted that relying exclusively on the geographical location of the first physical signature could produce arbitrary outcomes, particularly in transactions involving multiple parties. It also pointed out that the physical location of a signatory may not be identifiable in agreements executed electronically.
Emphasising the changing nature of commercial transactions, the Court said traditional concepts of execution, developed when agreements were routinely prepared, stamped and signed physically, cannot be applied mechanically to modern digital arrangements.
The ruling came while setting aside an interim arbitral award concerning four loan agreements entered into in March 2014 between companies belonging to the Zee Group and Religare Finvest Limited.
The dispute centred on whether the agreements attracted stamp duty under the Maharashtra Stamp Act, 1958, or the Indian Stamp Act, 1899, as applicable in Delhi.
According to the facts placed before the Court, the borrower companies signed the agreements in Mumbai, while Religare Finvest, the lender, executed them in Delhi on the same day.
The arbitrator had concluded that the Maharashtra Stamp Act governed the agreements. However, the High Court disagreed with this interpretation.
Justice Shukla explained that the agreements required signatures from both the borrowers and the lender to become complete. Consequently, execution took place only when Religare signed the documents in Delhi.
On that basis, the Court held that the Indian Stamp Act, 1899, as applicable in Delhi, would govern the four loan agreements.
The Court also examined the principle of territorial nexus, observing that a State seeking to impose a tax must demonstrate a genuine and meaningful connection between its territory and the subject matter of taxation.
It clarified that the territorial connection establishing a State’s authority to levy stamp duty and the event marking the completion of execution are distinct considerations.
The Court explained that taxation cannot rest on an artificial territorial connection, while the point at which an agreement becomes fully executed must be determined by examining the requirements of that particular instrument.
By setting aside the arbitrator’s contrary finding, the High Court made it clear that stamp duty liability cannot be decided merely by identifying where the first signature on a multi-party agreement was placed.