Supreme Court clarifies stamp duty on BOT toll agreements: Rewa Tollway vs. State of Madhya Pradesh (2024)

LEGAL ISSUE: Whether a Build, Operate, and Transfer (BOT) agreement for road construction, where toll collection rights are granted, constitutes a “lease” under the Transfer of Property Act, 1882 and the Indian Stamp Act, 1899.

CASE TYPE: Civil Law, Stamp Duty, Contract Law.

Case Name: M/S Rewa Tollway P. Ltd. vs. The State of Madhya Pradesh & Ors.

Judgment Date: 19 July 2024

Introduction

Date of the Judgment: 19 July 2024

Citation: 2024 INSC 539

Judges: Vikram Nath, J., Ahsanuddin Amanullah, J.

Can a concession agreement for road construction under a Build, Operate, and Transfer (BOT) scheme, which grants toll collection rights, be considered a lease? The Supreme Court of India recently addressed this question, clarifying the applicability of stamp duty on such agreements. This case revolves around whether these agreements should be treated as leases, attracting higher stamp duty, or as licenses, which would have a lower stamp duty. The Supreme Court of India, in this judgment, interpreted the definition of ‘lease’ under the Indian Stamp Act, 1899 and the Transfer of Property Act, 1882. The judgment was delivered by a two-judge bench comprising Justice Vikram Nath and Justice Ahsanuddin Amanullah.

Case Background

Madhya Pradesh Rajya Setu Nirman Nigam Ltd. (MPRSNN), a company under the Companies Act, 1956, was authorized by the State of Madhya Pradesh on 1st February 2001 to reconstruct and widen a section of the Satna-Maihar-Parasimod-Umaria Road Project using the Build, Operate, and Transfer (BOT) scheme. On 22nd April 2002, MPRSNN invited tenders for the project. M/S Rewa Tollway P. Ltd.’s bid was accepted, and on 8th August 2002, a Letter of Acceptance was issued, requiring a Concession Agreement to be executed within 30 days.

The Indian Stamp Act, 1899, was amended in Madhya Pradesh in 2002, introducing a 2% stamp duty on agreements where the right to collect tolls was granted. This amendment was notified on 12th August 2002. A Concession Agreement was signed on 15th September 2002, on a stamp paper of Rs. 100 between MPRSNN and Rewa Tollway.

On 26th March 2004, a show cause notice was issued to Rewa Tollway, stating that the agreement would be reviewed by the Collector of Stamps, Bhopal. Rewa Tollway argued that the agreement was a concession agreement and not a lease. However, on 30th April 2004, the Collector (Stamps), Bhopal, ordered a recovery of Rs. 1,08,00,000 as deficit stamp duty, treating the agreement as a lease. A recovery notice was issued on 29th May 2004.

Rewa Tollway challenged this order via a writ petition on 6th June 2004. The High Court initially stayed the recovery on 3rd August 2004. However, on 11th February 2010, the High Court dismissed the writ petition, upholding the Collector’s demand. Aggrieved, Rewa Tollway appealed to the Supreme Court on 3rd May 2010, which granted an interim stay on 7th January 2011, and leave on 13th September 2013.

Timeline

Course of Proceedings

The Collector of Stamps, Bhopal, passed an order on 30th April 2004, directing the recovery of deficit stamp duty amounting to Rs. 1,08,00,000, treating the Concession Agreement as a lease. This order was challenged by the appellant in a writ petition before the High Court of Madhya Pradesh at Jabalpur. The High Court dismissed the writ petition on 11th February 2010, upholding the demand raised by the Collector of Stamps. Aggrieved by the High Court’s decision, the appellant filed an appeal before the Supreme Court.

Legal Framework

The core legal issue revolves around the interpretation of “lease” under two key statutes:

• Section 105 of the Transfer of Property Act, 1882: Defines a lease as a transfer of a right to enjoy immovable property for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised.
  “A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.”
• Section 2(16) of the Indian Stamp Act, 1899: Defines a lease to include any instrument by which tolls of any description are let.
  “Lease” means a lease of immoveable property, and includes also— (a) a patta; (b) a kabuliyat or other undertaking in writing, not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for, immoveable property; (c) any instrument by which tolls of any description are let; (d) any writing on an application for a lease intended to signify that the application is granted.
• Section 3(26) of the General Clauses Act, 1897: Defines ‘immovable property’ to include land, benefits arising out of land, and things attached to the earth.
  “immovable property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;

The Supreme Court also considered the constitutional validity of the amendment made in proviso (c) to Clause (C) of Article 33 of Schedule 1(A) as amended by the Indian Stamp (M.P.) Act, 2002, and Section 48 and 48(B) of the Indian Stamp Act, 1899, as amended by M.P. Act 24 of 1990.

Arguments

The appellants, M/S Rewa Tollway P. Ltd., argued that the Concession Agreement was not a lease but a license, and therefore, not subject to the 2% stamp duty. Their arguments can be summarized as follows:

• Legitimate Expectation and Promissory Estoppel: The appellants contended that the Chief Secretary’s circulars dated 1st July 2002 and 21st July 2002, stating that no stamp duty would be levied on BOT agreements, created a legitimate expectation that the agreement would be executed on a stamp paper of Rs. 100. They argued that the subsequent amendment and demand for 2% stamp duty violated the principle of promissory estoppel.
• Ultra Vires Amendment: The appellants argued that the insertion of proviso (c) to Clause (C) under Article 33 of Schedule 1-A by the 2002 Amendment Act was ultra vires as it violated Article 14 of the Constitution of India, nullifying the promise made by the Chief Secretary.
• Lack of Legislative Competence: The appellants argued that the State lacked the legislative competence to bring in the amendment, and it was a colourable and excessive legislation.
• Concession Agreement is not a Lease: The appellants argued that the Concession Agreement was not a lease as there was no transfer of ownership or interest in the property. They emphasized that the agreement was based on a public-private partnership (PPP) model, and the MPRSNN was a 50% partner in the project. The appellants also contended that the essential ingredients of a lease under Section 105 of the Transfer of Property Act, 1882, were not met.
• Incorrect Calculation of Stamp Duty: The appellants argued that the Collector (Stamps), Bhopal, incorrectly calculated the stamp duty on the entire project cost of Rs. 110 crores, whereas the actual cost was Rs. 54 crores, out of which MPRSNN had invested Rs. 29.10 crores.
• Retrospective Application: The appellants argued that the 2002 amendment should be held illegal and arbitrary because the Indian Stamp Act, 1899, was re-amended on 10th March 2008, reverting to the earlier position of charging a stamp duty of Rs.100.

The respondents, the State of Madhya Pradesh, argued that the High Court had correctly interpreted the law and the Concession Agreement. Their arguments included:

• Concession Agreement is a Lease: The respondents argued that the Concession Agreements under the BOT scheme fulfilled all the ingredients of a lease under Section 105 of the Transfer of Property Act, 1882, and Section 2(16) of the Indian Stamp Act, 1899. They argued that possession was transferred to the appellants for toll collection, the period was defined as fifteen years, and there was a consideration.
• Valid Amendment: The respondents argued that the insertion of proviso (c) to Clause (C) to Entry-33 was only for determining the rate of stamp duty and did not interfere with the definition of ‘lease.’
• No Promissory Estoppel: The respondents argued that the communication by the Chief Secretary could not override statutory amendments, and there could be no promissory estoppel against a statute.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the transaction where the right to collect tolls is given in lieu of the amount spent by the Concessionaire in the construction of roads, bridges etc. under the Build, Operate & Transfer (BOT) Scheme amounts to a “lease” as contemplated under Section 105 of the Transfer of Property Act, 1882 and Section 2(16) of the Indian Stamp Act, 1899?
2. Whether the amendment made in proviso (c) to Clause (C) of Article 33 of Schedule 1(A) as amended by the Indian Stamp (M.P.) Act, 2002 is valid?
3. Whether Section 48 and 48(B) of the Indian Stamp Act, 1899, as amended by M.P. Act 24 of 1990, are ultra vires?
4. What is the correct amount on which stamp duty is to be levied?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court upheld the High Court’s decision that the Concession Agreement was indeed a lease. However, it partly allowed the appeals regarding the calculation of stamp duty.

How each authority was viewed by the Court?

• The Court considered the judgments related to legitimate expectation and promissory estoppel, including Navjyoti Co-op. Group Housing Society vs. Union of India [1992] Supp.1 SCR 709, Food Corporation of India vs. Kamdhenu Cattle Feed Industries [1992] Supp.2 SCR 322, The State of Jharkhand and Ors. vs. Brahmputra Metallies Ltd. Ranchi and Anr [2020] 14 SCR 45, State of Bihar and Ors. vs. Shyama Nandan Mishra [2022] 11 SCR 1136, and M/S Hero Moto Corp Ltd. vs. Union of India and Ors. [2022] 13 SCR 592, but found them inapplicable as these doctrines cannot be invoked against legislative power.
• The Court considered State of Gujarat and another vs. Raman Lal Keshav Lal Soni and Ors. [1983] 2 SCR 287, and B.S. Yadav and Ors. etc. vs. State of Haryana and Ors. Etc. [1981] 1 SCR 1024, on the violation of Article 14 but found them inapplicable.
• The Court considered Kunnathat Thathunni Moopil Nair vs. The State of Kerala and another [1961] 3 SCR 77, on legislative competence but found it inapplicable.
• The Court relied on Associated Hotels of India Ltd. vs. R.N. Kapoor AIR 1959 SC 1262, State of Uttarakhand and Ors. vs. Harpal Singh Rawat [2011] 4 SCC 575, and Nasiruddin and another vs. State of Uttar Pradesh Thr. Secretary and Ors [2018] 1 SCC 754, to reiterate the view that the definition of lease under the Stamp Act is wider than under the Transfer of Property Act.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the legal definitions of “lease” and the principle that legislative power cannot be constrained by prior executive decisions or promises. The court emphasized that the Concession Agreement met the criteria of a lease under both the Transfer of Property Act, 1882 and the Indian Stamp Act, 1899. The court also highlighted that the amendment to the Indian Stamp Act, 1899, was a valid exercise of legislative power and did not violate the Constitution.

The Court also took into consideration that the stamp duty was to be calculated on the amount spent by the lessee and not on the entire project cost.

Logical Reasoning:

The Court considered the alternative argument that the agreement was a license, but rejected it based on the above reasoning.

The court stated:

• “The arguments made on behalf of the appellants relating to the vires of inserting the proviso (c) to Clause (C) to Entry 33 of Schedule 1 -A of the IS Act, 1899 by the M.P. Amendment of 2002 have no merits as it neither defines the word ‘lease’ nor does it in any way interfere with the definition of ‘lease’ in any manner, either by expanding or restricting its interpretation.”
• “On the doctrine of promissory estoppel, since it is an equitable doctrine, it only comes into play when equity requires a party be estopped from withdrawing its promise. It has been well settled by this Court in several judgments that the principle of promissory estoppel cannot be invoked against the exercise of legislative power.”
• “Thus, the view taken by the High Court further stands fortified by the above two judgments and the view that we are taking.”

The Supreme Court did not have a dissenting opinion.

The Court clarified that the stamp duty should be calculated only on the amount spent by the lessee, not on the entire project cost. The matter was sent back to the Collector (Stamps) for recalculation.

Key Takeaways

• BOT agreements for road construction, which grant toll collection rights, are considered leases under Indian law.
• Stamp duty on such agreements should be calculated based on the amount spent by the lessee, not the total project cost.
• The doctrine of promissory estoppel cannot be invoked against legislative power.
• Executive decisions cannot override statutory amendments.

Directions

The Supreme Court directed the Revenue Officer/Collector (Stamps) of the concerned district to:

• Re-calculate the stamp duty based on the amount spent by the lessee.
• Communicate the revised demand to the appellants within two months.
• Refund any excess amount deposited by the appellants within two months of the determination.
• The appellants are to deposit any deficit amount within two months of the fresh demand.

Development of Law

The ratio decidendi of the case is that a Concession Agreement under BOT scheme is a lease. The Court also clarified that the stamp duty should be calculated only on the amount spent by the lessee and not on the entire project cost. This case does not change the existing position of law but clarifies the application of the law to the given facts.

Conclusion

The Supreme Court’s judgment clarifies that BOT agreements for road construction, which grant toll collection rights, are considered leases. The Court upheld the validity of the amendment to the Indian Stamp Act, 1899, but directed that stamp duty be calculated only on the amount spent by the lessee. This decision provides clarity on the application of stamp duty to such agreements and reinforces the principle that legislative power cannot be constrained by prior executive decisions.

Category

Parent Category: Contract Law

Child Categories:

• Lease Agreements
• Build, Operate, Transfer (BOT) Contracts
• Stamp Duty
• Indian Stamp Act, 1899
• Section 2(16), Indian Stamp Act, 1899
• Transfer of Property Act, 1882
• Section 105, Transfer of Property Act, 1882

FAQ

Q: What is a Build, Operate, and Transfer (BOT) agreement?

A: A BOT agreement is a project financing model where a private entity builds and operates a project for a specific period, after which the ownership is transferred to the government or public authority.

Q: Why is this case important?

A: This case is important because it clarifies the applicability of stamp duty on BOT agreements, which are common in infrastructure projects.

Q: What was the main issue in the case?

A: The main issue was whether a BOT agreement for road construction, where toll collection rights are granted, constitutes a “lease” under the Transfer of Property Act, 1882 and the Indian Stamp Act, 1899.

Q: What did the Supreme Court decide?

A: The Supreme Court held that a BOT agreement is a lease and stamp duty should be calculated based on the amount spent by the lessee, not the total project cost.

Q: What is the significance of the term ‘lease’ in this context?

A: The term ‘lease’ is significant because it determines the applicable stamp duty. Leases typically attract higher stamp duty than licenses.

Q: What is promissory estoppel?

A: Promissory estoppel is a legal doctrine that prevents a party from going back on a promise when another party has relied on that promise to their detriment.

Q: Did the court apply the doctrine of promissory estoppel in this case?

A: No, the court held that promissory estoppel cannot be invoked against legislative power.

Q: What is the difference between a lease and a license?

A: A lease transfers an interest in the property, while a license merely grants permission to use the property.

Q: What does the term ‘ultra vires’ mean?

A: Ultra vires means “beyond the powers.” In law, it refers to an action that is taken by a body or person that is outside the scope of their legal authority.

Q: What is the significance of the amendment to the Indian Stamp Act?

A: The amendment introduced a 2% stamp duty on agreements where the right to collect tolls was granted.

Q: What does the term ‘ratio decidendi’ mean?

A: Ratio decidendi is the legal principle or reasoning on which a court’s decision is based.

Q: What is the implication of this judgment on other BOT agreements?

A: This judgment clarifies that BOT agreements are leases and should be stamped accordingly, but only on the amount spent by the lessee.