This piece is part of the series intended for business leaders, providing them working knowledge of various business laws. By its very nature, it is neither comprehensive nor is it supposed to replace the guidance of a law expert. Read more about this series.
Early in June 2020, there was a news item that Stamp Duty Authorities of Rajasthan imposed a penalty and raised a demand of Rs. 214 crores for Stamp Duty evasion. This related to a debt agreement between a Company of New Delhi and a consortium of banks (which included a public sector bank of Rajasthan). Allegedly, the agreement was not stamped with the stamp duty of Rajasthan. It was so held even though the Agreement was executed out of Rajasthan and, in all probability, stamp duty of the concerned State was paid. The Debtor argued that since the Agreement was executed outside of Rajasthan, no Stamp Duty was payable to the state of Rajasthan. This argument was rejected. The author is not aware of all the details of the case and hence cannot comment on the propriety of the decision as such.
Stamp Duty implications
However, the above case highlights an important aspect of the effect of place of execution/signing of an Agreement – i.e. stamp duty implications. The other important aspect is the Court jurisdiction, which we shall discuss a little later.
While there is a Central enactment relating to stamp duty – Indian Stamp Duty Act, 1899 (Concurrent List – Entry No.44 of Schedule VII of the Constitution) – most States have their own Acts dealing with levy of Stamp Duty and related administrative matters, to the extent permitted under Central enactment. Major part of all these State Acts are materially similar to the Central enactment and the basic principles remain the same.
The main take-away of the above news item is that the place of execution/signing of an Agreement is very important and should not be taken lightly. It should be clearly mentioned in the contract document. Generally, it is mentioned either in the beginning or at the end. The place of execution of the contract is where it is signed by the Parties to the Contract. If the Contract was not signed by the Parties simultaneously, then the place where the party who signs last is situated, is the place of execution of the Contract.
(There are some other nuances of this aspect of place of execution, like signing two different copies of the same agreement, or signing by digital signature etc – such cases not being many – are not dealt with here for the sake of keeping the write up simple)
The first and foremost aspect of place of execution is the levy of stamp duty. It has to be in accordance with the law of the state in which the Agreement is executed. But if the physical copy of the Agreement is carried to any other State, for any purpose, including to be produced before any authority or court – stamp duty of that State is required to be paid. While it is legitimate to execute the contract in a jurisdiction which levies lower stamp duty, it should be ensured that physical copy of the Agreement never travels to the State where higher duty is to be paid. (The issue whether having a soft/digital copy of the Agreement/Instrument in the latter State would attract Stamp Duty of that State is not yet finally settled by Courts. It is reasonable to assume that since a soft copy will not usually be admissible as evidence, it will not attract the mischief of the law providing for stamp duty in case the Instrument in question is “received in the state”. There are some other nuances of the subject as well, but we defer those for another write-up.
Implications for Court jurisdiction
The other important aspect of place of execution of a Contract/Instrument is jurisdiction of the Court to deal with any issue/dispute arising out of or in connection with the Instrument in question. Normally, the Courts of the place where the Agreement/Instrument is executed has jurisdiction over disputes. However, such jurisdiction may be excluded by agreement between the Parties (by mentioning in the same agreement or by some other Instrument etc), but such an exclusion cannot leave any Party to the Contract without any court jurisdiction or confer jurisdiction on a Court which cannot have a jurisdiction in accordance with general law of the land. If there is no provision in the Agreement/Instrument agreeing for jurisdiction – other than the place of execution – the courts at the place of execution of the instrument will certainly have jurisdiction, apart from any other court which may have jurisdiction under any other law. Therefore, while deciding the place of execution/signing of an Agreement or any other legal instrument, take into consideration the stamp duty implications as also the issue of court jurisdiction. And so, always pay attention to the little line below your signatures which ask you to mention the place of signing of any Agreement.