Harshil Matalia, Executive, Vinod Kothari & Company
Squeezing out minority shareholders has gradually become an area of intense interest and scrutiny. With the recent set of notifications, Ministry of Corporate Affairs (MCA) has opened yet another way of squeezing out minority shareholders. The MCA has recently notified sub section (11) and (12) of section 230 of the Companies Act, 2013 (‘Act’) on 3rd February, 2020 (effective from the date of notification itself), whereby power has been given to the majority shareholders holding atleast 3/4th of the share capital of the target company to enter into arrangement for acquisition of any part of the remaining shares of the target company.
While section 236 of the Act specifically provides for squeezing out of minority shareholders, the prerequisite of holding atleast 90% of the share capital is a challenge to implement. Whereas, with the notification, those holding atleast 75% can move ahead with the proposal before the NCLT via Scheme and can acquire the balance by offering a fair price determined by the Registered valuer.
The term ‘squeeze out’ reflects a situation whereby controller shareholders undertakes a transaction to forcibly acquire remaining shares of a company. There are number of methods provided in the Act through which minorities can be squeeze out by majorities, viz. reduction of share capital, consolidation of shares etc.
This write up is an attempt to analyse the implementation of the recently notified provisions and a brief comparison of the same with the existing options of squeezing out minority shareholders.
An Overview of Section 230
Section 230 of the Act provides for any compromise and arrangement between shareholders or creditors of a company with the company pursuant to a scheme. The company or any shareholder or creditor or liquidator (in case the company is under liquidation) can file application before the National Company Law Tribunal (NCLT) for the approval of the scheme of compromise or arrangement along with the documents as provided under rule 3 of the Companies (Compromises, Arrangements and Amalgamations ) Rule, 2016.
Approval from at least 90% of shareholder and creditors of applicant companies will enable the companies to get dispensation from the NCLT convened meeting, otherwise, dual approval as per section 230 (6) of the Act will be required, which is ‘majority of persons representing 3/4th in value.
Further, the Act also provides for sending of a copy of application to all the regulatory authorities, such as Registrar of Companies, Central Government (power delegated to Regional Director), Official Liquidator, Income Tax Authorities, Securities and exchange board of India (in case of listed companies), CCI and Reserve bank of India (in case of NBFC, for inviting their objection, if any on the proposed scheme. In consideration of all the respective Tribunal can allow the scheme. The scheme, once approved by the Tribunal, shall be binding on the company, all the shareholders, creditors, and in case of company being wound up, on the liquidator and the contributories of the company.
Proviso to section 230 (4) provides for right to object to the shareholder holding 10% of the share capital of company either individually or together with other shareholders; and the creditors holding 5% of the outstanding debt either individually or together with other creditors.
The enabling notifications provides for ‘takeover offer’ by the shareholders holding at least 3/4th of the shares of a company to the remaining shareholders, which means shareholders holding 75% or more of the issued share capital of the a company can now enter into an arrangement with the target company to acquire remaining shares by offering them the price determined by the registered valuers. While the other compliance as set out in section 230 of the Act will remain same for the scheme involving takeover offer, the applicant shall additionally be required to deposit 50% of the offer price in a separate bank account after getting requisite approval from the shareholders and creditors but before getting approval from the Tribunal.
In addition to the right to object u/s 230 (4), further liberty has been given to the aggrieved party, other than listed companies, to make application before the NCLT in case of any grievances with the said takeover.
Analysis of acquisition of minority shareholding in terms of section 236
Section 236 empowers the registered holders holding at least 90% of the issued share capital of a company, either individually or along with person acting in concert, by virtue of:
- an amalgamation,
- share exchange,
- conversion of securities or
- for any other reason
to first intimate the company regarding their intention to buy the remaining shares or part thereof, then to make offer to the minority shareholders at a price determined by the registered valuer and finally getting the possession of the shares by depositing the amount equal to the value of shares to be acquired in a separate bank account. Alternatively, the minority shareholders may also offer the shares to the acquirer at a price determined on the basis of valuation by a registered valuer in accordance with prescribed rules.
However, in the practical scenario, the section fails to achieve its objective of releasing the minority shareholders as the section does not clarify whether upon receiving such an offer the minority shareholders or the Acquirer is obligated to sell or buy the shares, and no specific timelines have been prescribed for acceptance of such an offer or for the tender of shares. Further, the instance where the shares are held in demat form, has also not been considered.
The process under section 236 can be seen below:
Other methods of acquiring minority shares under the Act
Apart from the transactions mentioned above, there are several other methods available to implement squeeze out minority shareholders within the Act, such as consolidation of shares, reductions of share capital etc. out of which, most commonly used method is reduction of share capital. However, all the provisions have their own benefits and lacuna’s. The brief overview of the said transactions are as follows:
Consolidation of shares:
Consolidation of shares means consolidating nominal value of shares that results into decrease in the number of shares with increase in nominal value of each share. For example 100 shares of face value of Rs. 10 each may be consolidated into 1 share of face value of Rs 1000 each. Consolidation is also known as reverse stock split, which is the effective tool by which a company can restructure its capital and can eliminate minority holding with the approval of Tribunal in terms of section 61 (1) (b) of the Act and Rule 71 of the NCLT Rules, 2016.
Reduction of share capital:
A company limited by shares can reduce its share capital through: (a) reducing/extinguishing its liabilities on unpaid share capital; (b) with or without extinguishing or reducing its liabilities on any shares which is lost or is unrepresented by its existing assets; or (c) with or without extinguishing or reducing its liabilities on any shares which is in excess of its requirement. Section 66 of the Act provides for the reduction of capital by a company with the approval of Tribunal, only if it is not defaulted in repayment of any deposit accepted by it or interest thereon.
Acquiring Minority shareholding in terms of section 235:
An Acquirer/Transferee Company can acquire the shares of Transferor Company under a scheme or contract subject to the approval of holders of minimum 90% of value of shares other than shares already held by Transferee Company or its nominee or its subsidiary companies. Such approval is required to be obtained by Transferee Company within 4 months after making such offer. Upon receipt of the said approval, within 2 months from the expiry of the offer period, the Transferee Company shall give notice to dissenting shareholders by conveying its intention to acquire their shares and the dissenting shareholders may then approach NCLT for seeking remedy within one month from the date of such notice.
The entire process of acquiring the shares from the dissenting shareholders is extensive and time consuming for the acquirer. This makes the process of squeezing out dissenting shareholders unreasonably lengthy.
In conclusion, the notified section has added a way for unlisted companies to eliminate minorities smoothly vide scheme of arrangement which will further boost the dominance of majority over minority. On prima-facie view, one can say that the section seems to have covered the lacuna’s of other squeezing out provisions of the Act, however, the supervisory role of the respective regulatory authorities and the views to be taken by respective Tribunals will decide the materialisation of the notification.
Links to related write ups –
Takeover under Companies Act, 2013- http://vinodkothari.com/2020/02/takeover-under-ca-2013/
Timothy Lopes, Executive, Vinod Kothari Consultants Pvt. Ltd.
As investors wait eagerly in anticipation of what changes Budget, 2020 could bring, the RBI has on 23rd January, 2020, provided a boost by revising the norms for investment in debt by Foreign Portfolio Investors (FPIs). This comes as a boost to FPIs as the revised norms allow more flexibility for investment in the Indian Bond Market.
Further the RBI has also amended the Voluntary Retention Route for FPIs extending its scope by increasing the investment cap limit to almost twice the previously stated amount. The amendments widen the benefits to FPIs who invest under the scheme.
This write up intends to cover the revised limits in brief.
Review of limits for investment in debt by FPIs
- Investment by FPIs in Government securities
As per Directions issued by RBI with respect to investment in debt by FPIs, FPIs were allowed to make short term investments in either Central Government Securities or State Development Loans. However, the said short term investment was capped at 20% of the total investment of that FPI, i.e., the short term investment by an FPI in Government Securities earlier could not exceed 20% of their total investment.
The above limit of 20% has now been increased to 30% of the total investment of the FPI.
- Investment by FPIs in Corporate Bonds
Similar to the above restriction, FPIs were also restricted from making short term investments of more than 20% of their total investment in Corporate Bonds.
The above cap is also increased from 20% to 30% of the total investment of the FPI.
The above increase in investment limits provides more flexibility for making investment decisions by FPIs.
Exemptions from short term investment limit
As per the RBI directions, certain types of securities such as Security Receipts (SRs) were exempted from the above limit. Thus, the above short term investment limit were not applicable in case of investment by an FPI in SRs.
Now the above exemption is extended to the following securities as well –
- Debt instruments issued by Asset Reconstruction Companies; and
- Debt instruments issued by an entity under the Corporate Insolvency Resolution Process as per the resolution plan approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016
This widens the scope of investment by FPIs who wish to make short term investments in debt.
Further the requirements of single/group investor-wise limits in corporate bonds are not applicable to investments by Multilateral Financial Institutions and investments by FPIs in ‘Exempted Securities’.
Thus this amendment brings in more options for FPIs to invest without having to consider the single/group investor-wise limits.
Relaxations in “Voluntary Retention Route” for FPIs
The Voluntary Retention Route for FPIs was first introduced on March 01, 2019 with a view to enable FPIs to invest in debt markets in India. FPI investments through this route are free from the macro-prudential regulations and other regulatory norms applicable to FPI investment in debt markets subject to the condition that the FPIs voluntarily commit to retain a required minimum percentage of their investments in India for a specified period.
Subsequently the scheme was amended on 24th May, 2019.
On 23rd January, 2020 the RBI has brought in certain relaxations to the above VRR scheme. The changes made are most certainly welcome since it increases the scope of the scheme and provides relaxations to FPIs. The highlights are as under –
Increase in investment cap –
Investment through the VRR for FPIs was earlier subject to a cap of Rs. 75,000 crores. As on date around Rs. 54,300 crores has already been invested in the scheme. Thus based on feedback from the market and in consultation with the Government it was decided to increase the said investment limit to Rs. 1,50,000 crores.
Transfer of investments made under General Investment Limit to VRR –
‘General Investment Limit’, for any one of the three categories, viz., Central Government Securities, State Development Loans or Corporate Debt Instruments, means the FPI investment limits announced for these categories under the Medium Term Framework, in terms of RBI Circular dated April 6, 2018, as modified from time to time.
Now the RBI has allowed FPIs to transfer their investments made under the above mentioned limit to the VRR scheme.
Investment in ETFs that trade invest only in debt
Earlier under the VRR scheme, investments were allowed in the following –
- Any Government Securities i.e., Central Government dated Securities (G-Secs), Treasury Bills (T-bills) as well as State Development Loans (SDLs);
- Any instrument listed under Schedule 1 to Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified, vide, Notification dated October 17, 2019, other than those specified at 1A(a) and 1A(d) of that schedule;
- Repo transactions, and reverse repo transactions.
Pursuant to the amendment, the RBI has allowed FPIs to invest in Exchange Traded Funds (ETFs) investing only in debt instruments.
Further the following features are introduced for the fresh allotment opened by RBI under this route –
- The minimum retention period shall be three years.
- Investment limits shall be available ‘on tap’ and allotted on ‘first come, first served’ basis.
- The ‘tap’ shall be kept open till the limit is fully allotted.
- FPIs may apply for investment limits online to Clearing Corporation of India Ltd. (CCIL) through their respective custodians.
- CCIL will separately notify the operational details of application process and allotment.
The changes made by RBI certainly attract more FPIs to the Indian Bond Market and extends its scope. The relaxations come ahead of the Budget, 2020 wherein foreign investors have more expectations for new reforms to boost growth and investment in the Indian economy.
Links to our earlier write ups on the subject –
Recommendations to further liberalise FPI Regulations –
RBI removes cap on investment in corporate bonds by FPIs –
RBI widens FPI’s avenue in corporate bonds –
SEBI brings in liberalised framework for Foreign Portfolio Investors –
Among a wonderful piece of pre-modern Rajasthani poetry is the couplets, written in Soratha chhand, by poet Kriparam Barahath, aka Kriparam Charan. Kriparamji’s poetry is renowned as Rajiya ra duha, as all of his couplets are addressed to his Man Friday, who possibly had the name Rajkumar, pejoratively called Rajiya. These couplets would have been written approx. year 1800 CE or thereabout. It is possible to get some 130 of these couplets [see here – https://www.charans.org/kraparambarhat/]
Kriparam’s poetry contains crisp sayings, in extremely subtle and deeply touching Rajasthani language. The best part of the poetry is that the language is not very different from present-day colloquial Rajasthani language, and therefore, one may easily use these couplets as sayings.
Kriparamji makes excellent use of Vayansagai or Bayansagai, a very famous alliteration style used in Dingal poetry. In Vayansagai, the first and last word of every part of the couplet start with the same sound, thereby creating intensive impact in recitation. Additionally, each of the Rajiya couplets end with the word Rajiya – being addressed to the Man Friday.
The poet, therefore, worked under tremendous limitations. Since the last word of each couplet had to be Rajiya, the first word of the last part had to start with sound R, leaving him with limited word combinations. Within this constraint, Kriparam still makes perfect carnation of words and conveys crisply what he wants to convey.
I have translated some selected couplets of Rajiya ra Duha – in no particular order.
मूसा नै मंजार, हित कर बैठा हेकठा।
सह जाणै संसार, रह्यो न रह्सी राजिया।
The cat and the mouse are sitting together, as if affectionately. The whole world knows that this has never been so, nor will ever be.
मतलब री मनवार, नूँत जिमावै चूरमा।
बिन मतलब मनवार, राब न पावै राजिया।
So much of warm hospitality that one is being invited and served Choorma. This is all for purpose. Once purpose is served, they will not even serve raab. [Choorma is a sort of homemade delicacy. Raab is layman’s food made of flour soaked in curd. ]
सुधहीणा सिरदार, मतहीणा राखे मिनख।
अस आंघौ असवार, रांम रुखाळौ राजिया।
Senseless leaders engage brainless servants. The horse is blind. So is the horse rider. Only god save them!
पाटा पीड उपाव, तन लागां तरवारियां।
घले जीभ रा घाव, रती न ओखद राजिया।
If the body is hurt by swords, bandage and medication may help ease the pain. However when it tongue (spoken words) that inflict injury, there is not even a molecule of medication.
ऊँचे गिरवर आग, जलती सह देखै जगत।
पर जलती निज पाग, रती न दिसै राजिया।
Everyone sees the fire burning on the high hill. However the one burning at one’s own feet – no one seems to see that.
हियै मूढ़ जो होय. की संगत ज्यांरी करै।
काला ऊपर कोय, रंग न लागै राजिया।
मलियागिर मंझार, हर को तर चन्दण हुवै।
संगत लियै सुधार, रूंखाँ ही नै राजिया।
These two couplets demonstrate the impact of company- working in one case and not working in the other:
If one is absolutely stupid, how can company help? No other colour can be mixes with black.
On the hills of Malayagiri, every tree is that of sandal. See, company can impact even trees.
भाड़ जोख झक भेक, वारज में भेळा वसै।
इसकी भंवरो एक, रस की जांणे राजिया।
The frog, leech and fish – all stay in the same pond. However it only the amour black bee (bhramar, bhanwara) who knows the love of lotus.
कारण कटक न कीध, सखरा चाहिजई सुपह।
लंक विकट गढ़ लीध, रींछ बांदरा राजिया।
It is the able leader that matters, not the strength of the army. See, Ram conquered Lanka with an army of moneys and bears.
रोटी चरखो राम, इतरौ मुतलब आपरौ।
की डोकरियां कांम, राजकथा सूं राजिया।
Their concern is limited to food, spinning wheel and the name of god. What do old ladies have to do with talk of the king or politics. (That is, keep your concerns limited to what matters for you.)
गुणी सपत सुर गाय, कियौ किसब मूरख कनै।
जांणै रुनौ जाय, रणरोही में राजिया।
The deft singer sang seven Sur’s (Swars of music); you showed artful skills in front of a fool. It is lying crying in wilderness.
उपजावे अनुराग, कोयल मन हरकत करै।
कड़वो लागे काग, रसना रा गुण राजिया।
They look similar- the crow and the cuckoo. However cuckoo begets happiness in mind, and crow disdain. All attributes of the tongue (speech).
एक जतन सत एह, कूकर कुगंध कुमांणसां।
छेड़ न लीजे छेह, रैवण दीजे राजिया।
These three have same nature: stray dogs, bad odorous substance, and a bad person. It is best that you don’t disturb them. Let them be.
पहली कियां उपाव, दव दुस्मण आमय दटे।
प्रचंड हुआ विस वाव, रोभा घालै राजिया।
These five things – fire, enemy, disease, poison and wind – the best is to to take preventive measures beforehand. Once they become strong (after occurrence) they cause lot of pain.
दुष्ट सहज समुदाय, गुण छोडे अवगुण गहै।
जोख चढी कुच जाय, रातौ पीवै राजिया।
Evil people, due to their instinctive features, leave out virtues for vices. The leech climbs on breasts and sucks blood instead of milk.
बंध बंध्या छुडवाय, कारज मनचिंत्या करै।
कहौ चीज है काय, रुपियो सरखी राजिया।९०।
It releases from shackles; attains whatever one wishes. Tell me what can match the might of money?
आछा है उमराव, हियाफ़ूट ठाकुर हुवै।
जड़िया लोह जड़ाव, रतन न फ़ाबै राजिया।१०८।
The king is good enough, but has employed senseless ministers/subordinates. It almost like precious stones studded in iron.
काळी घणी करुप, कस्तूरी काँटाँ तुले
शक्कर घणी सरूप, रोड़ां तुलिये राजिया
Kasturi (deer’s musk) is black in colour and ugly in looks. Yet it is weighted on small measuring scale (used for gold/precious materials). Shakkar (ground form of jagery) is offwhite, looks beautiful. Yet it is weighted with stones (before standard measuring scales came, stones were commonly used for weighting heavy things). In essence, what matters is merits, and not looks.
– Ishika Agrawal (email@example.com)
The way businesses are done, has evolved with the evolution of technology. Now-a-days, business transactions and business contracts are mostly executed electronically in order to save time and expenses. However, this also raises concerns on enforceability of e-agreements in courts and the stamp duty implications on such agreements. In this article, we have tried to broadly discuss the acceptance of e- agreements as evidence in courts and the stamp duty implications on such agreements.
II. Whether E-agreement is to be stamped?
In India, stamp duty is levied under Indian Stamp Act, 1899 (“Stamp Act”) as well as various legislation enacted by different States in India for the levy of stamp duty. Every instrument under which rights are created or transferred needs to be stamped under the specific stamp duty legislation. There is no specific provision in the Stamp Act that specifically deals with electronic records and/or the stamp duty payable on execution thereof.
Section 3 of Stamp Act is the charging section which provides for the levy of stamp duty on specified instruments upon their execution. Relevant provision of section 3 is reproduced below:
3. Instruments chargeable with duty- Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore respectively, that is to say—
(a) every instrument mentioned in that Schedule which, not having been previously executed by any person, is executed in India on or after the first day of July, 1899;
(b) every bill of exchange payable otherwise than on demand or promissory note drawn or made out of India on or after that day and accepted or paid, or presented for acceptance or payment, or endorsed, transferred or otherwise negotiated, in India; and
(c) every instrument (other than a bill of exchange, or promissory note) mentioned in that Schedule, which, not having been previously executed by any person, is executed out of India on or after that day, relates to any property situate, or to any matter or thing done or to be done, in India and is received in India.
As per the above provision, broadly, two things are required for chargeability of stamp duty:
- There must be an instrument as mentioned in the schedule I of Stamp Act.
- The instrument must be executed.
What is Instrument?
The word ‘instrument’ is defined in section 2(14) of Stamp Act. There has been certain ambiguousness in the interpretation of definition of Instrument. Recent amendments have been made in the Stamp Act by Finance Act, 2019 which will come in force from 1st April, 2020.
Prior to the amendment, section 2(14) read as:
2(14) “Instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded”.
However, after the amendment, the scope of the definition given in section 2(14) has been widened by the inclusion of clause (b) and clause (c) which states that:
(14) “instrument” includes—
(a) every document, by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded;
(b) a document, electronic or otherwise, created for a transaction in a stock exchange or depository by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded; and
(c) any other document mentioned in Schedule I,
but does not include such instruments as may be specified by the Government, by notification in the Official Gazette;
The aforesaid amendment is only with respect to the electronic document created for a transaction in a stock exchange or depository, but (a) of the aforesaid section is unaltered. Therefore, it may appear that the term “document” in clause (a) does not include electronic documents – however, such interpretation will not be in spirit of law. The Information Technology Act has already accorded legal recognition to electronic records. Therefore, the word “document” shall be read so as to include electronic documents as well.
Apart from the Indian Stamp Act, many states have their own legislation w.r.t. stamp duty. Majority of state specific stamp duty laws also do not specifically include electronic records within their ambit, however, some state stamp duty laws do refer to electronic records. For instance, Section 2(l) of the Maharashtra Stamp Act, 1958  defining instrument, specifically refers to electronic records. It states that:
“instrument includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt;
Explanation. – The term “document” also includes any electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000.”
This makes clear that, Maharashtra Stamp Act imposes stamp duty on electronic agreements as well. This justifies that even electronic agreements come under the scope of Stamp Act, thus need to be stamped.
What is execution?
Section 2(12) of Stamp Act defines the terms “executed” and “execution”, which is also widened by the recent amendment to take into account, attribution of electronic records. It states that:
“2(12). “Executed and execution”- executed and execution used with reference to instruments, mean signed and signature” and includes attribution of electronic record within the meaning of section 11 of the Information Technology Act, 2000.”
Thus the execution means putting signature on the instrument by the party to the agreement. Attribution of electronic record will also be treated as execution. It can be concluded from the above definition that, the specific instrument would attract payment of stamp duty upon their execution i.e. when it is signed or bears a signature, even if the execution takes place electronically.
III. Time and Manner of Stamping
As discussed, an e-agreement is required to be stamped according to State specific stamp laws. Section 3 of the Indian Stamp Act and the stamp legislation of several other States in India specify that an instrument to be chargeable with stamp duty must be “executed”.
Section 17 of Stamp Act stipulates when an instrument has to be stamped. It states that:
17. Instruments executed in India- All instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution.
Thus, the stamp duty is to be paid before or at the time of executing the e- agreement and cannot be paid after execution.
However, one may also refer to section 17 of the Maharashtra Stamp Act which allow payment of stamp duty on the next working day following the day of execution.
There are some of the e-agreements such as click wrap agreements where execution does not takes place by the customer. Click-wrap agreements are the agreements where the customer accepts the terms and conditions of the contract by clicking on “OK” or “I agree” or such other similar terms. In case of such e-agreements, while the agreement can be said to be executed by the originator (by way of attribution), there is no signature of the customer which means such agreement does not get executed. Since, execution does not takes place, such agreements need not be stamped. However, another view can be derived that in such click wrap agreements there is acknowledgement of receipt of the electronic record by the customer. Such “acknowledgment” of receipt of electronic record u/s 12 of IT Act may be treated as deemed “execution”  by the customer. However, there are no clear provisions in the Stamp Act dealing with eligibility of stamp duty to click-wrap agreements.
As regards the manner of stamping, same can be done in three ways:-
- E-stamping: Some states like Maharashtra provides specific provisions for e-stamping. In such case, both the party can digitally sign the document and get it stamped electronically on the same day. For instance, Maharashtra E-Registration and E-Filing Rules, 2013 facilitates online payment of stamp duty and registration fees. Rule 10 of the said rules states that:
Rule 10. For online registration, Stamp duty and registration fees shall be paid online to Government of Maharashtra through Government Receipt Accounting System (GRAS) (Virtual Treasury) by electronic transfer of funds or any other mode of payment prescribed by the Government.
Further, as per Rule 3 of The Maharashtra ePayment of Stamp Duty and Refund Rules 2014, the stamp duty required to be paid under the act, may be paid online into the Virtual Treasury through Government Revenue and Accounting System (GRAS).
- Franking: There is also the concept of franking in some of the states, in which case, document may be printed and stamped by the way of franking before the parties have affixed their signature. For instance, in case of Maharashtra Stamp Act, 1958, section 2(k) which defines “Impressed stamp” also includes impression by franking machine.
- Physical Stamping: Where the facility of e-stamping or franking is not available, a print of the e-agreement may be taken and the same may then be adequately stamped with adhesive stamps or impressed stamps before or on the date of execution by the parties as per section 10 of Indian Stamp Act.
However, the liability to pay stamp duty will be upon either of the party to contract as per the agreement entered between them. In the absence of any such agreement, liability to pay stamp duty shall be upon such person as may be determined under section 29 of the Indian Stamp Act.
IV. Consequences of Non- stamping
Non-payment of stamp duty in respect of documents would attract similar consequences for both physical instruments as well as electronic instruments, unless specific consequences have been prescribed for electronically executed instruments under the respective stamp duty laws.
Inadmissibility as an evidence:
In terms of the Indian Stamp Act and most State stamp duty laws, instruments which are chargeable with stamp duty are inadmissible as evidence in case appropriate stamp duty has not been paid. Section 35 of Indian Stamp Act deals with the consequences of non-stamping of documents. It states that:
- Instruments not duly stamped inadmissible in evidence, etc.-No instrument chargeable with duty shall be admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon, registered or authenticated by any such person or by any public officer, unless such instrument is duly stamped.
However, the inappropriately stamped instruments may be admissible as evidence upon payment of applicable duty, along with prescribed penalty.
Every person who executes or signs, otherwise than as a witness, any instruments which is not duly stamped but the same was chargeable with stamp duty, can be held liable for monetary fines. In case of an intentional evasion of stamp duty, criminal liability can also be imposed.
When all the applicable laws are taken and interpreted in conjunction with one another, it can be understood that, e-agreements being a valid agreements are also liable for stamp duty on execution. However, the same levy will be as per the respective State laws. Where the State legislation provides for the facility of e-stamping, the same shall be availed in order to move towards the goal of paperless economy. Whereas, some States are yet to recognize the importance and validity of e-agreements and e-stamping. It is looked forward on the part of state as well as central government to make specific provisions for e-agreements and e-stamping in order to save time and money and to provide an ease for doing business.
Our write-up on the legal validity of e-agreements can be viewed here.
 The Central Government and the State Government (s) have been empowered under the Union List and the State list (respectively) to levy stamp duty on instruments specified therein.
 The amendment was brought by the Finance Act, 2019, which by Notification of Ministry of Finance dated 8th January, 2020 are to be effective from the 1st day of April, 2020”
 Section 11 of the IT Act provides for attribution of electronic record as follows –
“11. Attribution of electronic records.–An electronic record shall be attributed to the originator–
(a) if it was sent by the originator himself;
(b) by a person who had the authority to act on behalf of the originator in respect of that electronic record; or
(c) by an information system programmed by or on behalf of the originator to operate automatically.”
 For instance, Article 7 of the UNCITRAL Model Law on E-Commerce states that where the law requires a signature of a person, that requirement is met in relation to a data message if a method is used to identify that person and to indicate that person’s approval of the information contained in the data message; and that method is as reliable as was appropriate for the purpose for which the data message was generated or communicated, in the light of all the circumstances, including any relevant agreement. This way of putting “signature” is not explicitly recognized in relevant Acts, however, the Courts may take a liberal view in this regard.