Supreme Court Clarifies Stamp Duty on Sale Certificates in Auction Sales: State of Punjab vs. M/s Ferrous Alloy Forgings (2024)

Date of the Judgment: 19th November 2024
Citation: 2024 INSC 890
Judges: Hon’ble Mr. Justice J.B. Pardiwala and Hon’ble Mr. Justice R. Mahadevan. This was a unanimous decision.

Is a sale certificate issued after a court-ordered auction required to be stamped? This was the central question before the Supreme Court in a recent case. The court examined the interplay between the Registration Act, 1908, and the Stamp Act, clarifying whether a successful auction purchaser must pay stamp duty to obtain a sale certificate. The Supreme Court, in a unanimous decision delivered by a bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan, addressed this issue.

Case Background

The case originated from the winding up of M/s Punjab United Forge Limited, ordered by the High Court under the Companies Act, 1956. The Industrial Finance Corporation of India (IFCI) was granted permission to sell the mortgaged and hypothecated properties of the company. M/s Ferrous Alloy Forging Pvt. Limited, a sister concern of the Respondent No.1, emerged as the highest bidder in the auction. The auction sale was confirmed by the official liquidator and subsequently by the High Court.

Following this, the Respondent No.1 requested that the conveyance deed be executed in its favor, stating that it had paid the full sale consideration and that the board of directors and chairman were the same for both the Respondent No.1 and its sister concern. The Company Judge of the High Court initially declined this request, but a Division Bench of the High Court later allowed an appeal by the Respondent No.1 on 22.10.1997.

The Respondent No.1 then applied for the issuance of a sale certificate for both movable and immovable properties under Order XXI Rule 94 of the Code of Civil Procedure, 1908 (CPC). The Company Judge directed on 13-4-1999 that while the immovable properties would be included in the certificate, their value would be excluded for stamp duty purposes. The Respondent No.1 was asked to file an affidavit and pay the stamp duty. However, the Registrar later directed that stamp duty be paid on Rs. 2.25 crore, the valuation of the immovable properties.

Timeline

Course of Proceedings

The Respondent No.1 challenged the Registrar’s directions through a Writ Petition, arguing that it contravened Section 17(2)(xii) of the Registration Act, 1908, and Order XXI Rule 94 of the CPC. The High Court framed the question of whether a sale certificate issued after a court auction must be stamped. The High Court allowed the Writ Petition, holding that there was no need for stamp duty at the time of issuance of the sale certificate. The High Court directed the Registry to issue the sale certificate and send a copy to the Sub-Registrar under Section 89(4) of the Registration Act, 1908. The High Court also ordered a refund of the stamp duty deposited by the Respondent No.1. The State of Punjab then appealed to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the following legal provisions:

• Section 17(2)(xii) of the Registration Act, 1908: This section states that a “certificate of sale granted to any purchaser of any property sold by public auction by a Civil or Revenue Officer” does not require compulsory registration.
• Section 89(4) of the Registration Act, 1908: This section mandates that a copy of the sale certificate be sent to the Sub-Registrar for filing in Book 1.
• Order XXI Rule 94 of the Code of Civil Procedure, 1908 (CPC): This rule pertains to the issuance of a sale certificate to the purchaser after a court-ordered auction.
• Articles 18 and 23 of the First Schedule to the Stamp Act: These articles specify that stamp duty is applicable when the original sale certificate is presented for registration.

The interplay of these provisions determines whether a sale certificate issued after a court auction requires stamp duty at the time of issuance or only when it is presented for registration.

Arguments

Arguments by the Appellant (State of Punjab):

• The State argued that the order of the Company Judge dated 13-4-1999, which directed the payment of stamp duty, had attained finality as it was not challenged by the Respondent No.1. Therefore, the Registrar’s directions were in consonance with the said order and could not be challenged through a writ petition.
• The State contended that the successful auction purchaser must deposit the stamp duty for the sale certificate to be issued, in accordance with the provisions of the Stamp Act.

Arguments by the Respondent (M/s Ferrous Alloy Forgings P Ltd.):

• The Respondent argued that under Section 17(2)(xii) of the Registration Act, 1908, a sale certificate issued in pursuance of a court auction is not a compulsorily registrable document.
• The Respondent contended that the sale certificate is merely evidence of title and does not transfer title; the transfer of title occurs upon confirmation of the sale. Therefore, it should not attract stamp duty at the time of issuance.
• The Respondent argued that the High Court was correct in directing the issuance of the sale certificate and sending a copy to the Sub-Registrar under Section 89(4) of the Registration Act, 1908, without requiring stamp duty at this stage.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether it is mandatory for the successful auction purchaser to deposit the stamp duty for the sale certificate to be issued to it in view of the provisions of the Stamp Act and the Registration Act.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issue:

Authorities

The Supreme Court relied on the following cases and legal provisions:

On the nature of sale certificates and transfer of title:

• Municipal Corporation of Delhi v. Pramod Kumar Gupta [AIR 1991 SC 401]: The Supreme Court held that the title to the property passes when the sale is held, and the sale certificate is merely a formal declaration of the effect of such confirmation. The issuance of the certificate does not create or extinguish any title.
• Smt. Shanti Devi L. Singh v. Tax Recovery Officer and Others [AIR 1991 SC 1880]: The Supreme Court observed that the transfer of title is not vitiated by the non-registration of the sale certificate, as it is not a compulsorily registrable document under Section 17(2)(xii) of the Registration Act, 1908.
• B. Arvind Kumar v. Govt. Of India and Others [(2007) 5 SCC 745]: The Supreme Court reiterated that the sale becomes absolute and title vests in the purchaser upon confirmation of the sale. The sale certificate is merely evidence of such title.

On the interpretation of Section 17(2)(xii) and 89(4) of the Registration Act, 1908:

• M/s Esjaypee Impex Private Limited v. The Asst. General Manager and Authorized Officer Canara Bank [(2021) 11 SCC 537]: The Supreme Court held that the auction purchaser is entitled to receive the original sale certificate, and a copy of the same is required to be forwarded to the Sub-Registrar for filing in Book 1, as per the Registration Act.
• Inspector General of Registration and Another v. G. Madhurambal and Another [2022 SCC Online SC 2079]: The Supreme Court observed that a sale certificate is not a conveyance subject to stamp duty. Once a validated certificate is issued and a copy is forwarded to the registering authorities, it has the same effect as registration.

On the exercise of writ jurisdiction under Article 226:

• Radha Krishan Industries v. State of H.P. [(2021) 6 SCC 771]: The Supreme Court clarified that while an alternate remedy exists, it does not divest the High Court of its powers under Article 226. The rule of exhaustion of statutory remedies is a rule of policy and convenience, and the High Court can exercise its writ jurisdiction if the nature of the controversy requires it.

Legal Provisions:

• Section 17(2)(xii) of the Registration Act, 1908: Exempts certificates of sale granted in public auctions by civil or revenue officers from compulsory registration.
• Section 89(4) of the Registration Act, 1908: Requires a copy of the sale certificate to be sent to the Sub-Registrar for filing in Book 1.
• Articles 18 and 23 of the First Schedule to the Stamp Act: Specifies that stamp duty is applicable when the original sale certificate is presented for registration.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court followed Municipal Corporation of Delhi v. Pramod Kumar Gupta [AIR 1991 SC 401]* to establish that the sale certificate is merely a formal declaration of the effect of the sale confirmation and does not transfer title.
• The Court followed Smt. Shanti Devi L. Singh v. Tax Recovery Officer and Others [AIR 1991 SC 1880]* to support the view that the non-registration of a sale certificate does not invalidate the transfer of title.
• The Court followed B. Arvind Kumar v. Govt. Of India and Others [(2007) 5 SCC 745]* to reiterate that the sale becomes absolute and title vests in the purchaser upon confirmation of the sale, and the sale certificate is merely evidence of such title.
• The Court followed M/s Esjaypee Impex Private Limited v. The Asst. General Manager and Authorized Officer Canara Bank [(2021) 11 SCC 537]* to support the view that the auction purchaser is entitled to receive the original sale certificate, and a copy of the same is required to be forwarded to the Sub-Registrar.
• The Court followed Inspector General of Registration and Another v. G. Madhurambal and Another [2022 SCC Online SC 2079]* to establish that a sale certificate is not a conveyance subject to stamp duty and that forwarding a copy to the registering authorities has the same effect as registration.
• The Court followed Radha Krishan Industries v. State of H.P. [(2021) 6 SCC 771]* to support its view that the High Court can exercise its writ jurisdiction if the nature of the controversy requires it, despite the existence of an alternate remedy.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of the Registration Act, 1908, and the Stamp Act. The Court emphasized that a sale certificate is merely evidence of title and not the instrument that transfers title. The transfer of title occurs upon the confirmation of the sale. Therefore, the Court reasoned that stamp duty should not be mandatory at the time of issuance of the sale certificate. The Court also considered the practical implications of its decision, noting that requiring stamp duty at the time of issuance would be an unnecessary burden on the auction purchaser.

Logical Reasoning:

The Court considered the argument that the order of the Company Judge had attained finality but rejected it, stating that the issue was a legal one that could be addressed in writ proceedings. The Court also clarified that the High Court was correct in exercising its writ jurisdiction despite the availability of an alternate remedy, as the issue required immediate attention.

The Court’s decision is based on a clear distinction between the transfer of title and the evidence of title. The Court held that the sale certificate is merely evidence of title, and the transfer of title occurs upon confirmation of the sale. This distinction is crucial in understanding why stamp duty is not required at the time of issuance of the sale certificate.

The Supreme Court quoted the following from the judgment:

“The position of law is thus settled that a sale certificate issued to the purchaser in pursuance of the confirmation of an auction sale is merely evidence of such title and does not require registration under Section 17(1) of the Registration Act.”

“It is not the issuance of the sale certificate which transfers the title in favour of the auction purchaser. The title is transferred upon successful completion of the sale and its confirmation by the competent authority after all the objections against the sale have been disposed of.”

“As long as the sale certificate remains as it is, it is not compulsorily registrable. It is only when the auction purchaser uses the certificate for some other purpose that the requirement of payment of stamp duty, etc. would arise.”

There was no minority opinion in this case. The decision was unanimous.

Key Takeaways

• Stamp Duty Not Mandatory at Issuance: A sale certificate issued to a successful auction purchaser does not require stamp duty at the time of issuance.
• Title Transfer: The transfer of title occurs upon confirmation of the sale, not upon the issuance of the sale certificate.
• Registration: Stamp duty is applicable only when the sale certificate is presented for registration, not at the time of issuance.
• Filing with Sub-Registrar: The original sale certificate is to be given to the auction purchaser and a copy is to be sent to the Sub-Registrar for filing in Book 1 as per Section 89(4) of the Registration Act, 1908.
• Writ Jurisdiction: The High Court’s exercise of writ jurisdiction is valid even if an alternate remedy exists, particularly when the issue is of legal importance.

This judgment clarifies the legal position regarding stamp duty on sale certificates in auction sales, providing relief to auction purchasers by removing the burden of paying stamp duty at the time of issuance. It also reinforces the distinction between the transfer of title and the evidence of title, which is crucial in property law.

Directions

The Supreme Court directed that the original sale certificate be handed over to the Respondent No.1 and a copy of the same be sent to the Sub-Registrar under Section 89(4) of the Registration Act. The Court also directed that the stamp duty deposited by the Respondent No.1 be refunded within a period of one month.

Specific Amendments Analysis

There was no specific amendment discussed in the judgment.

Development of Law

The ratio decidendi of this case is that a sale certificate issued to a successful auction purchaser is merely evidence of title and does not require stamp duty at the time of issuance. The obligation to pay stamp duty arises only when the sale certificate is presented for registration. This judgment reaffirms the established legal position and clarifies the distinction between the transfer of title and the evidence of title. There is no change in the previous position of law, but the judgment clarifies the existing law.

Conclusion

The Supreme Court dismissed the appeal by the State of Punjab, holding that stamp duty is not mandatory for a sale certificate at the time of issuance. The Court clarified that the sale certificate is merely evidence of title, and the transfer of title occurs upon confirmation of the sale. This decision provides clarity on the interplay between the Registration Act, 1908, and the Stamp Act, ensuring that auction purchasers are not unduly burdened with stamp duty at the time of issuance of the sale certificate. The Court also upheld the High Court’s decision to exercise writ jurisdiction, emphasizing that it is appropriate when the issue is of legal importance.