Supreme Court Modifies Penalty on Stamp Duty, Addresses Subsequent Purchaser Liability: M/S. MSD Real Estate LLP vs. The Collector of Stamps (2020)

Date of the Judgment: 17 September 2020

Citation: (2020) INSC 683

Judges: Ashok Bhushan, J., R. Subhash Reddy, J., M.R. Shah, J.

Can a subsequent property purchaser be held liable for the previous owner’s stamp duty penalties? The Supreme Court addressed this issue in a case involving M/S. MSD Real Estate LLP, who purchased a property with an outstanding stamp duty penalty. The court examined the legality of demanding the penalty from the new owner and the cancellation of building permissions due to the same. The bench consisted of Justices Ashok Bhushan, R. Subhash Reddy, and M.R. Shah, with the judgment authored by Justice Ashok Bhushan.

Case Background

The case revolves around a property, the Lantern Hotel in Indore, originally owned by the H.C. Dhanda Trust. In 2005, a Deed of Assent was executed by the trustees. The Collector of Stamps later determined that there was a deficiency in the stamp duty for this deed, classifying it as a Gift Deed. Consequently, in 2008, a demand for Rs. 1,28,09,700/- in deficient stamp duty and a penalty of ten times that amount (Rs. 12,80,97,000/-) was imposed. The H.C. Dhanda Trust challenged this order in the High Court, which was dismissed on 30.03.2017. An appeal was filed before the Supreme Court, which granted an interim order on 10.11.2017, staying the penalty provided the stamp duty was paid within one month. However, the stamp duty was not paid within the stipulated time, and the interim order was vacated on 22.04.2019. Subsequently, the stamp duty was paid on 07.11.2019 by Jogesh Dhanda, son of the late H.C. Dhanda.

On 27.11.2019, M/s. MSD Real Estate LLP (the appellant) purchased the property from the trustees of the H.C. Dhanda Trust. The appellant obtained construction permission on 18.11.2019 and applied for mutation in the Municipal Corporation. The appellant also paid Rs. 2,92,20,794/- as property tax under protest. The appellant then submitted post-dated cheques to cover the penalty amount. However, the Additional Tehsildar (Recovery) issued a notice on 04.06.2020 for the recovery of the outstanding penalty of Rs. 8,80,97,095/-, and the Municipal Corporation cancelled the building permission on the same day. This led to the appellant filing a writ petition in the High Court, which was dismissed on 10.06.2020. The High Court held that the appellant, as a subsequent purchaser, was liable for the penalty. This decision was then appealed to the Supreme Court.

Timeline

Course of Proceedings

The H.C. Dhanda Trust initially challenged the Collector of Stamps’ order in the High Court, which was dismissed. Subsequently, the Trust filed a Special Leave Petition (SLP) in the Supreme Court. The Supreme Court initially granted an interim stay on the penalty, provided the stamp duty was paid. However, since the stamp duty was not paid in time, the interim order was vacated. Following this, the appellant, M/s. MSD Real Estate LLP, purchased the property and faced recovery notices and cancellation of building permissions, leading them to file a writ petition in the High Court. The High Court dismissed the petition, stating that the appellant was liable for the penalty as a subsequent purchaser. This led to the appeal before the Supreme Court.

Legal Framework

The core legal issue revolves around the interpretation of the Stamp Act and the liability of a subsequent purchaser for the previous owner’s stamp duty deficiencies and penalties. The judgment refers to the order of the Collector of Stamps dated 22.09.2008, which determined the deficiency in stamp duty and imposed a penalty. The relevant legal framework includes the provisions of the Stamp Act dealing with the determination of stamp duty, imposition of penalties, and recovery of dues. The court also considered the implications of the interim orders passed by the Supreme Court in the earlier SLP filed by the H.C. Dhanda Trust. The court also considered the provisions of the Madhya Pradesh Public Premises Eviction Act, 1974 as the Municipal Corporation had sought to invoke it.

Arguments

Appellant’s Arguments (M/s. MSD Real Estate LLP):

• The appellant argued that the Additional Tehsildar’s recovery notice was unjustified. They had already deposited the deficit stamp duty and submitted post-dated cheques covering the entire penalty amount, which was acknowledged by the Collector of Stamps on 23.11.2019.
• The appellant contended that the Municipal Corporation’s cancellation of building permission was illegal. The permission was granted after fulfilling all necessary requirements, and the appellant had committed to paying the penalty, which was accepted by the Collector.
• The appellant submitted that subsequent actions by the Municipal Corporation, such as canceling the mutation and initiating eviction proceedings, were malicious and illegal, especially given the Supreme Court’s interim stay order.
• The appellant asserted that the property was rightfully owned by the late Shri H.C. Dhanda since 1948, having received it as a gift from the Maharaja, and there was no pending title dispute.

State’s Arguments:

• The State argued that the recovery notice issued by the Additional Tehsildar was valid because the interim order in the previous SLP was not in effect, and the penalty was outstanding.
• The State contended that there was no provision to accept penalty payments through post-dated cheques.
• The State supported the rejection of mutation and cancellation of building permission due to the outstanding penalty.
• The State argued that subsequent actions and notices were not part of the writ petition and should not be considered in the appeal.

Municipal Corporation’s Arguments:

• The Municipal Corporation acknowledged that the appellant was in possession of the property.
• The Corporation argued that subsequent actions and notices were not part of the writ petition and should not be considered in the appeal.
• The Corporation supported the cancellation of the building permission due to the unpaid penalty.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in a dedicated section. However, the core issues addressed by the court can be summarized as:

1. Whether the High Court was correct in holding the appellant, as a subsequent purchaser, liable for the penalty imposed on the previous owner for stamp duty deficiency.
2. Whether the Municipal Corporation was justified in canceling the building permission granted to the appellant due to the outstanding penalty.
3. Whether the subsequent actions by the Municipal Corporation and other State Authorities after the filing of the appeal can be considered in the present appeal.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court did not cite any specific cases or books in this judgment. However, the court considered the following:

• Order of the Collector of Stamps dated 22.09.2008: This order determined the deficiency in stamp duty and imposed a penalty of ten times the deficient amount.
• Interim order of the Supreme Court dated 10.11.2017 in SLP(C) Diary No.30539 of 2017: This order stayed the penalty subject to payment of stamp duty.
• Order of the Supreme Court dated 22.04.2019 in SLP(C) Diary No.30539 of 2017: This order clarified that no interim order was in operation due to non-payment of stamp duty.
• Order of the High Court dated 10.06.2020: This order dismissed the writ petition filed by the appellant, holding them liable for the penalty.
• Madhya Pradesh Public Premises Eviction Act, 1974: The Municipal Corporation had sought to invoke this Act to evict the appellant.

Authority Table

Judgment

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

How each authority was viewed by the Court?

✓ Order of the Collector of Stamps dated 22.09.2008: The court modified the order, reducing the penalty from ten times to five times the deficient stamp duty.

✓ Interim order of the Supreme Court dated 10.11.2017 in SLP(C) Diary No.30539 of 2017: The court noted that the interim order was not complied with, making the penalty due.

✓ Order of the Supreme Court dated 22.04.2019 in SLP(C) Diary No.30539 of 2017: The court relied on this order to clarify that no interim order was in operation, justifying the recovery notice.

✓ Order of the High Court dated 10.06.2020: The court partially upheld the High Court’s decision, agreeing that the subsequent purchaser was liable but modifying the penalty amount.

✓ Madhya Pradesh Public Premises Eviction Act, 1974: The court did not directly rule on the validity of the invocation of this Act, but it was considered in the context of the Municipal Corporation’s actions.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to balance the interests of the State in recovering stamp duty and penalties with the rights of a subsequent purchaser. The court acknowledged that the appellant, as a subsequent purchaser, was liable for the reduced penalty. However, the court also took into account the fact that the appellant had already deposited a significant portion of the penalty and had committed to paying the remainder. The court’s decision to reduce the penalty and direct the Municipal Corporation to reconsider the building permission application reflects a pragmatic approach aimed at ensuring both compliance with the law and fairness to the appellant. The court also emphasized that subsequent actions by the authorities, which were not part of the original writ petition, should not be considered in the current appeal, thereby maintaining procedural integrity.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning

Judgment

The Supreme Court partly allowed the appeal. The court modified the order of the Collector of Stamps dated 22.09.2008, reducing the penalty from ten times to five times the deficient stamp duty. The court held that the appellant, as a subsequent purchaser, was liable for the reduced penalty. The court upheld the High Court’s decision regarding the cancellation of building permission but directed the Municipal Corporation to reconsider the application upon payment of the reduced penalty. The court also clarified that subsequent actions by the authorities, which were not part of the original writ petition, could not be considered in the current appeal. The court granted liberty to the parties to seek remedy for those actions in other appropriate proceedings. The court emphasized the importance of compliance with the law while also ensuring fairness to the parties involved.

The court stated, “The High Court has rightly observed that facility to deposit the penalty by post dated cheques cannot be approved and the appellant being subsequent purchaser was liable to deposit the amount of penalty which was outstanding against the property and which was subject matter of the gift deed dated 21.04.2005.”

The court further noted, “The above observation of the High Court amply protects the rights of the appellant. In view of the deposit made by the appellant towards the penalty, the appellant is free to apply for building permission which is to be considered by the Municipal Corporation as observed by the High Court in its judgment and order dated 10.06.2020.”

Regarding subsequent actions, the court held, “With regard to subsequent notices, actions and orders, as noticed above, brought on record by IA noted above the said issues cannot be entertained in this appeal. We give liberty to the parties to seek such remedy with regard to subsequent actions and orders as permissible in law.”

Key Takeaways

• A subsequent purchaser of a property can be held liable for outstanding stamp duty penalties imposed on the previous owner.
• The penalty amount can be modified by the courts based on the facts of the case.
• Municipal authorities are justified in canceling building permissions if there are outstanding dues related to the property.
• However, upon payment of the outstanding dues, the authorities must reconsider the application for building permission.
• Subsequent actions taken by authorities after the filing of an appeal cannot be considered in the current appeal.

Directions

The Supreme Court directed that:

• The order of the Collector of Stamps dated 22.09.2008 is modified to the extent that the penalty imposed is reduced to five times the deficient stamp duty.
• The Municipal Corporation is to reconsider the appellant’s application for building permission upon payment of the reduced penalty.
• Parties are at liberty to seek remedy for subsequent actions in other appropriate proceedings.

Development of Law

The ratio decidendi of this case is that a subsequent purchaser can be held liable for the stamp duty penalties of the previous owner, but the penalty can be modified by the court. This judgment clarifies the liability of subsequent purchasers in cases of outstanding stamp duty penalties. The Supreme Court did not lay down any new principle of law but applied the existing principles of stamp duty and property law to the facts of the case. The judgment also reiterates the importance of procedural integrity by not considering subsequent actions in the present appeal, thereby emphasizing that the appeal should be confined to the original dispute.

Conclusion

The Supreme Court’s judgment in M/S. MSD Real Estate LLP vs. The Collector of Stamps modifies the penalty imposed on the appellant, a subsequent purchaser, for the previous owner’s stamp duty deficiency. While holding the appellant liable for the reduced penalty, the court directed the Municipal Corporation to reconsider the building permission application upon payment of the dues. The judgment also clarified that subsequent actions by the authorities, which were not part of the original writ petition, could not be considered in the current appeal. This case serves as a significant precedent for the liability of subsequent purchasers in property transactions involving outstanding stamp duty penalties.

Category

Parent Category: Real Estate Law

Child Categories:

• Stamp Duty
• Property Law
• Subsequent Purchaser Liability
• Building Permissions
• Recovery of Dues

Parent Category: Stamp Act

Child Categories:

• Stamp Act

FAQ

Q: Can a new property owner be held responsible for the stamp duty penalties of the previous owner?
A: Yes, the Supreme Court has clarified that a subsequent purchaser can be held liable for the outstanding stamp duty penalties of the previous owner. However, the court can modify the penalty amount based on the specific facts of the case.

Q: What happens if there are outstanding stamp duty penalties when I buy a property?
A: If there are outstanding stamp duty penalties on a property you purchase, you may be liable to pay them. However, you can challenge the penalty amount, and the court may reduce it based on the specific circumstances.

Q: Can the Municipal Corporation cancel building permissions if there are outstanding stamp duty penalties?
A: Yes, the Municipal Corporation can cancel building permissions if there are outstanding dues related to the property. However, upon payment of the dues, the authorities must reconsider the application for building permission.

Q: What should I do if I am a subsequent purchaser and face recovery notices for stamp duty penalties?
A: If you are a subsequent purchaser facing recovery notices, you should first verify the outstanding dues and then consider challenging the penalty amount. You should also ensure that you comply with the court’s directions and seek legal advice if necessary.

Q: What is the significance of the Supreme Court’s order in this case?
A: The Supreme Court’s order clarifies the liability of subsequent purchasers in property transactions involving outstanding stamp duty penalties. It also emphasizes the need for authorities to act fairly while ensuring compliance with the law. The judgment also highlights the importance of procedural integrity by not considering subsequent actions in the current appeal.