Stamping Out Arbitration: How Maharashtra's Stamp Duty Act Amendment Hampers Mumbai's Arbitration Aspirations
The Government of Maharashtra recently made radical amendments to the Maharashtra Stamp Duty Act, 1958, by enacting the Maharashtra Stamp Duty (Amendment) Act, 2024. One of the amendments was to increase the stamp duty payable on an arbitral award, which was earlier fixed at five hundred rupees. However, after the amendment, an arbitral award concerning immovable property is subject to the...
The Government of Maharashtra recently made radical amendments to the Maharashtra Stamp Duty Act, 1958, by enacting the Maharashtra Stamp Duty (Amendment) Act, 2024. One of the amendments was to increase the stamp duty payable on an arbitral award, which was earlier fixed at five hundred rupees. However, after the amendment, an arbitral award concerning immovable property is subject to the same stamp duty as would be levied on a conveyance document in respect of the same property. The stamp duty on an arbitral award with respect to moveable property is now a percentage of the award amount.
Although this amendment may pose various problems for arbitrations seated in Maharashtra, this article focuses on its potential to discourage parties from choosing Mumbai as the seat of arbitration—ultimately undermining the city's ambitions to rival arbitration hubs like London, Paris, and Singapore.
The Maharashtra Stamp Duty Amendment: A Brief Overview
The Maharashtra Stamp (Amendment) Act, 2024 amends Article 12 of the Maharashtra Stamp Act, which governs arbitral awards, by replacing the existing provision with the following:
Particulars | Stamp Duty |
Where the Award Pertains to Immovable Property | The same duty as is leviable on a conveyance under clause (b) of Article 25 |
Where the Award Relates to Moveable Property | |
Where the award amount does not exceed rupees fifty lakhs | 0.75 percent of the amount granted in the award |
Where the amount granted in the award exceeds rupees fifty lakhs but does not exceed rupees five crore | Rupees thirty-seven thousand five hundred plus 0.5 percent of the amount granted in the award |
Where the amount granted in the award exceeds rupees five crore | Two lakhs sixty-two thousand five hundred plus 0.25 per cent of the amount granted in the award |
A perusal of the amended provision makes it clear that arbitration in Mumbai will now be significantly more expensive. Notably, the absence of an upper limit on stamp duty could lead to steep financial burdens on parties.
The Law in Other Jurisdictions
To appreciate the potential repercussions of the amendment for arbitration in Mumbai, it is helpful to analyse the law in some of the world's most preferred arbitration destinations, such as London, Paris, and Singapore, and the law in India's other arbitration hub, Delhi.
Global arbitration hubs such as London, Paris, and Singapore, do not impose stamp duty on arbitral awards—as evidenced by the United Kingdom's Stamp Act, 1891 and Arbitration Act, 1996; Articles 1442–1527 of the French Code de Procédure Civile which governs arbitration, and the Code Général des Impôts which governs levying of stamp duty; and the International Arbitration Act (Cap 143A, 2002 Rev Ed), Arbitration Act (Cap 10, 2002 Rev Ed), and the Stamp Duties Act, 1929, which govern International and Domestic Arbitration and stamp duty in Singapore. Closer home, Delhi levies a stamp duty of 0.1 percent of the award amount where the amount exceeds ₹1,000 under the Indian Stamp Act, 1899, as amended by the Indian Stamp (Delhi Amendment Act) 2001. This is far lower than the stamp duty payable an equivalent award in Maharashtra post the amendment. For example, under the new law in Maharashtra, the stamp duty on a ₹10 crore award would be ₹5,12,500/–, whereas the stamp duty on an award of the same amount where the seat is Delhi would only be ₹1,00,000/.
Consequences for Mumbai's Ambitions
Mumbai has long had ambitions to emerge as a leading arbitration hub, at least in Southeast Asia. However, the recent amendment to the Maharashtra Stamp Act is almost certainly a death knell for these aspirations. While for parties to International Commercial Arbitrations, the excessive stamp duty is yet another reason among several to not choose an Indian city as the seat, even domestic, commercial litigants may elect to seat their arbitrations in Delhi as far as possible and avoid the added expense of stamp duty on awards. This is especially true in the post-Covid video conferencing era when physical distance is no longer a hurdle.
Further, while foreign and domestic commercial litigants may elect seats other than Mumbai for their arbitrations, individuals and MSMEs who generally operate on a tight budget, and for whom the additional stamp duty expense may be too much to bear, may forgo arbitration altogether in favour of traditional litigation.
Court Fees for a Commercial Suit in Mumbai are capped at Rupees three lakhs. The Court Fee cap, and provisions such as Order XIIIA and Order XXXVII of the CPC that provide mechanisms to avoid full trials, may make litigation a more favourable option for individuals and MSMEs. Unfortunately, this would add more pressure on an already overworked and understaffed judiciary.
The Maharashtra Stamp Duty Amendment Act, by making arbitral awards subject to ad-valorem stamp duty, may increase revenue for the Government in the short term. However, in the long term, it may cause severe damage to Mumbai's hopes of becoming a premier arbitration hub.
In a competitive global market, where cities like London, Paris, and Singapore offer arbitration frameworks that maximise speed and minimise costs, the Maharashtra Government's move is a step backward. Even within the country, Mumbai stands to lose out to Delhi, where, although stamp duty is levied on awards, the amount is far lower.
This author believes that the long term risks of levying ad-valorem stamp duty on arbitral awards outweigh the benefits of increased revenue for the State Government. Any measure that undermines the appeal of arbitration not only disrupts the flow of justice by increasing litigation in courts, but also jeopardizes the economic and developmental ambitions that Mumbai holds for its future as an arbitration destination.
The author is a lawyer based in Mumbai , views are personal.
