The Supreme Court rules that possession before the agreement date indicates possessory rights and necessitates proper stamp duty payment, which is charged on the document rather than the transaction- in the case of Ramesh Mishrimal Jain v Avinash Vishwanath Patne & Anr.

Case title:

Ramesh Mishrimal Jain v Avinash Vishwanath Patne & Anr.

Date of Order:

14 February, 2025

Bench:

Hon’ble Justice J.B Pardiwala
Hon’ble Justice R Mahadevan

Parties:

Appellant - Ramesh Mishrimal Jain
Respondent - Avinash Vishwanath Patne & Anr

SUBJECT

• The Hon’ble Supreme Court (hereinafter referred to as ‘Supreme Court’ or ‘the Court’), found that possession supplied prior to the agreement date implies the acquisition of possessory rights under Section 53A of the Transfer of Property Act, which requires correct stamp duty payment. It dismissed the appellant's appeal, upholding the impoundment of the sale agreement and the recovery of stamp duty and penalties under the Bombay Stamp Act of 1958. Under Explanation I to Article 25 of Schedule I of the Act, the Court determined that the instrument was a conveyance and hence subject to stamp duty. 
• The bench noted that the appellant had occupied the property on a rental basis, and possession was transferred prior to the agreement, emphasizing the requirement for stamp duty on the transaction.

IMPORTANT PROVISIONS

Transfer of Property Act, 1882

• Section 53 – It provides protection to a person who has taken possession of a property based on an agreement, even if the legal formalities of transfer (such as registration) have not been completed.

OVERVIEW

• This appeal challenges the ruling dated August 29, 2019, by which the High Court of Judicature at Bombay ("the High Court") dismissed Writ Petition No. 3246 of 2016. As a result, the order issued by the Court of Civil Judges (Senior Division), Ratnagiri ("the trial Court") on August 3, 2015, was upheld. The trial Court found in favor of the respondents, accepting their application and impounding the relevant document—Exhibit 30, an agreement to sell dated September 3, 2003. 
• The impounded paperwork was for the sale of property in Paiki Village, Kasaba Khed, Khed Taluk, which included House No. 78/B/8 (18 x 9 feet) and an adjoining room (9 x 3 feet). The trial Court ordered that the agreement be delivered to the Registrar of Stamps for the recovery of the unpaid stamp duty and associated penalty in line with the law. 
• The appellant filed a Special Civil Suit No.65 of 2012 for specific performance of an agreement to sell deed dated 03.09.2003. The respondents filed an application under section 34 of the Bombay Stamp Act, 1958, stating the agreement was executed on a Rs.50 stamp paper and required stamp duty of Rs.44,000/- and a penalty of Rs.1,31,850/-. The appellant resisted, arguing the agreement was not a conveyance agreement. The High Court dismissed the application. 

ISSUES RAISED

• Whether possession supplied prior to the completion of the sale deed suggested the acquisition of possessory rights, resulting in stamp duty liabilities?
• Whether the appellant's possession (as a tenant) was different from the sale transaction or constituted a presumed transfer, subjecting the agreement to stamp duty?
• Was the trial court's decision to confiscate the agreement and send it to the Registrar of Stamps for stamp duty and penalty recovery legally justified?

ARGUMENTS ADVANCED BY THE APPELLANT

• The appellant's counsel argued that Explanation I to Article 25 of the Bombay Stamp Act, 1958 only applies to cases where there is an actual or agreed transfer of possession under the agreement to sell. It does not apply to cases where the transfer is contingent on the execution of a subsequent document, such as a sale deed or conveyance deed. 
• The agreement cannot be considered a conveyance for stamp duty purposes, and possession remains with the seller until the sale deed is executed.
• Explanation I does not apply to agreements involving possession transfer after sale deed or conveyance deed execution, as these agreements are only liable for stamp duty at the final conveyance stage.
• The appellant's possession of the property is independent of the sale transaction and will only be handed over after the sale deed is executed. The agreement to sell and extension agreement confirm this, stating that the appellant's possession will remain on a monthly tenancy basis until the sale deed is executed.
• Thus, Explanation I to Article 25 of the Bombay Stamp Act of 1958 does not apply because no possession was transferred under the agreement, and there was no agreement to transfer possession until the sale deed was executed. The appellant's possession remained that of a renter, legally separate from ownership.  
• •    Hence, no stamp duty was required, and the trial court erred in impounding the document, a finding supported by the High Court. As a result, the attorney petitioned the Supreme Court to overturn the High Court ruling.

ARGUMENTS ADVANCED BY THE RESPONDENT

• The counsel for the respondents claimed the property was jointly owned by Respondent No.1 and his mother, who passed away. Respondent No.1 denied the execution of an agreement to sell the property for Rs.11,00,000, with an advance payment of Rs.1,00,000.  
• However, the appellant has filed a suit for specific performance of the alleged agreement to sell and the same is at the stage of recording of evidence.
• The appellant's agreement to sell, which was already in possession as a tenant, is considered a "deemed conveyance" under Article 25 of Schedule I of the Bombay Stamp Act, as it was agreed to transfer possession within 11 months, making the stamp duty leviable.
• To support his argument, the learned counsel cited the Supreme Court rulings in Veena Hasmukh Jain & Another v. State of Maharashtra & Others and Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil. These judgments established that stamp duty is imposed on the instrument itself, rather than the nature of the underlying transaction.
• Even though the appellant claimed no possession was given under the sale agreement, but he remains a tenant and occupies the property. The courts ruled stamp duty was payable under the Bombay Stamp Act and ordered impounding for recovery. Respondent No. 1 filed a civil suit for eviction and possession.
• Despite the appellant's contention that no possession was granted by the agreement to sell, he remained in possession as a tenant. The courts ruled that stamp duty was applicable under the Bombay Stamp Act and ordered that the document be impounded for duty and penalty recovery. Additionally, in 2013, Respondent No. 1 filed a civil complaint for eviction and possession, which is still continuing before the Jt. Civil Judge, Junior Division, and JMFC Khed.

JUDGEMENT ANALYSIS

• The Supreme Court maintained the notion that stamp duty is charged on the instrument itself, not the transaction it symbolizes. It underlined that the timing of possession transfer—whether at the time of signing the agreement to sell or later on—is irrelevant in calculating stamp duty liability. 
• Citing Shyamsundar Radheshyam Agrawal v. Pushpabai Nilkanth Patil (2024), the Court explained that an agreement that specifically provides for the transfer of possession within a certain period is considered a "conveyance" under the Bombay Stamp Act. As a result, such an arrangement attracts stamp duty equivalent to a conveyance, confirming the legal view that revenue collection on property transfers should not be delayed until the sale deed is finalized. 
• In this instance, the agreement to sell indicated that the appellant occupied the property as a tenant and that ownership would not be transferred until after the selling transaction. Despite this, possession was granted prior to the agreement date, meaning acquisition of possessory rights under Section 53A of the Transfer of Property Act, rendering it liable for stamp duty.
• The agreement to sell plainly stated that physical possession had already been handed over to the appellant, which met the elements for it to be considered a "conveyance" under Explanation I to Article 25 of the Bombay Stamp Act. While the selling deed was a formality, the appellant's continued possession was demonstrated by the pending specific performance and eviction suits. Thus, the document was properly declared liable for stamp duty. 
• The Court hence found no reasons to overturn the lower courts' rulings and dismissed the appeal as devoid of merit. It upheld the decision that the agreement to sell was subject to stamp duty, confirming the idea that possession-based agreements can be treated as conveyances under the Bombay Stamp Act. 

CONCLUSION

• The Supreme Court's ruling upholds the idea that stamp duty is determined by the character of the instrument, not the underlying transaction. By emphasizing the importance of possession transfer in classifying agreements as conveyances, the Court reaffirmed the legal framework that governs property transactions. This decision serves as a precedent for future issues involving stamp duty liability on agreements to sell, emphasizing the importance of good paperwork and statutory compliance.