
On 14 October 2024 the Government of Maharashtra introduced sweeping changes to the state’s stamp duty laws through the Maharashtra Stamp (Amendment) Ordinance, 2024, (‘Ordinance’). Among the several significant amendments, the most notable is the substantial increase in Stamp Duty rates applicable to arbitral awards.
The ambiguous and vague language of the Ordinance has raised numerous concerns when considering arbitration as their preferred dispute resolution mechanism. We have examined below certain questions and issues arising from the implementation of this Ordinance.
BACKGROUND |
Under the previous regime, arbitral awards attracted a nominal flat fee of INR 500 (Indian Rupees Five Hundred Only), regardless of the award amount. Therefore, stamp duty was not a matter of concern for the Arbitrator or the Parties to an Arbitration. Vide this Ordinance the stamp duty on arbitral awards is payable on an ad-valorem basis. Considering other states, arbitrations in Maharashtra after the ordinance comes into force will be the most expensive. Stamp duty in Delhi was amended via the Indian Stamp (Delhi Amendment) Act of 2001 (‘Delhi Amendment’), wherein an ad valorem system was adopted to pay the stamp duty which is still considerably lesser than the rates in present Ordinance. Having said that, these amendments are not retrospective in nature and will only apply prospectively to the arbitration awards passed after 14 October 2024.
THE NEW STAMP DUTY FRAMEWORK |
By introducing a sophisticated, value-based system and significantly increasing the financial burden The Ordinance has amended Schedule I of the Maharashtra Stamp Act, 1958 (“Stamp Act”) whereby an arbitration award (i) relating to immovable property will attract a stamp duty, same as a conveyance under clause (b) of article 25 of Schedule I of the Act, which is around 5% of the property value; and (ii) awards relating to the moveable property or just allow money claims the following changes have been made:
1 | Where the amount granted in the award does not exceed Rupees fifty lakhs | 0.75% of the amount |
2 | Where the amount granted in the award, exceeds rupees fifty lakhs but does not exceed rupees five crores; | INR 37,500 + 0.5% of the amount |
3 | Where the amount granted in the award exceeds rupees five crores; | INR 2,62,500 + 0.25% of the amount |
The implications of this amendment extend far beyond mere stamp duty rate changes. The Ordinance raises fundamental questions about liability for stamp duty payment, timing of compliance, and strategic considerations in arbitration proceedings.
ANALYSING SOME OF THE ISSUES ARISING OUT OF THE ORDINANCE |
As stated, the Ordinance is ambiguous in terms of the mode in which the legislature intends its application. This Ordinance is brought about with the view to bring “simplicity and uniformity” in levying stamp duty and to “increase the Government revenue”. The Ordinance does not make fiscal sense under any circumstances whereby which the litigants have to incur high arbitration costs. Also, under no situation does it render necessary to “immediately” amend the Stamp Act. No concrete reasons are provided for this immediate executive action by the Governor under Article 213 of the Constitution of Indian. We further discuss certain issues that might arise and their possible outcomes.
On whom will the burden to pay stamp duty fall?
Section 30 of the Stamp Act provides for who must pay the stamp duty in absence of an agreement on payment of stamp duty. Under Section 30(g) of the Stamp Act if none of the other conditions are satisfied, the party executing the instrument will have to bear the stamp duty. Thus, as per Section 30(g) the party trying to execute the arbitral award i.e. the successful party, will pay the stamp duty.
In case if an arbitral award is of rejecting a claim i.e. a nil award, on such an arbitral award there will not be any stamp duty payable, as it is well settled in law that the stamp duty is payable on the amount granted in the arbitral award and not on the amount claimed.
Since the ordinance has drastically amended the stamp duty applicable on arbitral awards, parties opting for arbitration will now have to keep the stamp duty aspect in their minds while formulating their strategy.
Can the Arbitrator Tribunal award the stamp duty to the award holder as costs?
Section 31A of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) provides that the Arbitration Tribunal has the discretion to decide on the matter of the costs of the arbitration as between the parties. The provision also defines “cost” associated with the arbitration from which it can be inferred that stamp duty can be considered as the cost of the arbitration and the arbitrator has the authority to adjudicate with regards to its payment or its apportionment between the parties.
Section 31A (2)(a) of the Arbitration Act also states, “the general rule is that the unsuccessful party shall be ordered to pay the costs of the successful party”, this reduces the burden of payment of stamp duty from the successful party and shits it on the unsuccessful party.
For ongoing arbitrations, parties must now carefully consider the timing of arbitral award execution. The substantial increase in stamp duty rates may influence decisions about when and how to proceed with execution. Parties may need to request arbitrators to specifically address stamp duty allocation in their arbitral awards of costs, particularly given the significant financial impact of the new rates.
When will stamp duty have to be paid? Will there be any penalty for delay in paying stamp duty?
Section 17 of the Stamp Act mandates that all instruments chargeable with duty, executed within Maharashtra, to be stamped before or at the time of execution, or immediately thereafter on the next working day. If the instrument is executed in a different state, the same must be stamped within 3 months from the date it is first received in that state as per section 18.
Failure to make payment may lead to a penalty at the rate of 2 % of the deficient portion of stamp duty for every month or part thereof, from the date of execution of such instrument.
Is the ordinance applicable for awards passed under statutes mandated arbitrations?
No, the Ordinance is not applicable to the arbitral awards passed under statute mandated arbitrations such as referred by Micro Small Medium Enterprises Act, 2006. On a literal interpretation of section 1(6) of the Ordinance, it can be observed that only those Awards are subjected to stamp duty which are made as a result of a written agreement to submit present or future differences to Arbitration thereby excluding statutory arbitrations.
What happens if the award is passed in a different state, but execution of the award is sought in Maharashtra?
Section 19 of the Stamp Act provides that when an instrument is executed outside Maharashtra but relates to matters and property within the state of Maharashtra, then it must comply with the state's stamp duty laws. As per sub-clause A, the stamp duty payable on such instrument is the same as provided in schedule I less any duty paid on such instrument under any other laws of India. However, if the duty on Maharashtra is more as compared to already paid, then the difference amount must be paid on such instrument as per the laws of Maharashtra as per clause B.
What happens if the award is set aside under challenge under Section 34 of the Arbitration Act?
An arbitral award being insufficiently stamped or unstamped cannot be grounds to set aside the arbitral award under challenge under Section 34 of the Arbitration Act. This was confirmed by the Hon’ble Supreme Court of India in M. Anasuya Devi v. Manik Reddy[1], wherein the court held that, courts may not get into the issue of stamp duty at the Section 34 stage and the same is only relevant at the time of enforcement of the arbitral award under Section 36 of the Arbitration Act. Fruther, the Apex Court also held that any question regarding the stamping of the arbitral award will fall within the ambit of Section 47 of the Civil Procedure Code,1908 and is not covered by Section 34 of the Arbitration Act.
Another question that arises herein is what will happen if a party has paid the stamp duty on an arbitral award, then after the payment the arbitral award is set aside. In such case, Section 47 of the Stamp Act states that if for any reason an instrument is found unfit by reasons of any error or mistake, an application for a refund of the stamp duty can be made under Section 48 of the Stamp Act. However, specified timelines must be followed as envisaged under Section 48 of the Stamp Act.
IMPACT ON ARBITRATION COSTS AND ACCESS TO JUSTICE |
The substantial increase in stamp duty rates raises important questions about access to arbitration as a dispute resolution mechanism. The new financial burden may discourage parties from choosing arbitration, particularly in cases involving significant monetary claims or immovable property. This could potentially undermine the objective of promoting alternative dispute resolution mechanisms as a means of reducing the burden on courts.
The increased costs may also influence the behaviour of parties during arbitration proceedings. Parties may become more cautious about the claims they pursue, knowing that success in arbitration now carries a significant additional financial burden in the form of stamp duty. This could lead to more conservative claim strategies or on the other hand increase pressure to settle disputes before reaching the award stage.
Further, this ordinance creates a dual system whereby statutory and contractual arbitrations are treated differently for determining the stamp duty.
C&M COMMENT |
The Ordinance represents a significant change in the arbitration landscape of Maharashtra. While its revenue implications for the state are clear, its impact on arbitration practice and access to alternative dispute resolution mechanisms remains to be seen. Stakeholders must carefully navigate these changes while balancing the need for effective dispute resolution with cost considerations.
The success of this new regime will largely depend on how it is implemented and interpreted by courts and arbitral tribunals. As the arbitration community adapts to these changes, further clarifications and possibly amendments may be needed to address practical challenges that emerge in its application.
It is also important to note that, Government of India (‘GOI’), in October 2024 had sought public feedback on Draft Arbitration and Conciliation (Amendment) Bill, 2024 (‘Draft Amendment’). In the Draft Amendment inter alia, GOI has sought to amend Section 31(1) of the Arbitration Act, by adding the words ‘duly stamped’. By bringing this changes GOI seeks to align arbitral awards with the Indian Stamp Act, 1899. Considering the passing of the Draft Amendment and the Ordinance, parties conducting arbitration in Maharashtra in the future, will have no choice but to pay the stamp duty at the time of signing of the award.
Please note that the Ordinance has not been passed as an act by both the Houses of State Legislature and is pending approval.
[1] (2003) 8 SCC 565

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