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Monday, July 22, 2013

Documentation- II : Proper Stamping of Documents

Mere proper execution of documents is just not enough. Every document must be stamped in accordance with the law prevailing in the state where documents are first executed so as to make them valid in the eyes of law and enforceable in a court of law in the hour of need. An unstamped or insufficiently stamped document has no validity under law. Any person claiming a right on the basis of such document will not be entitled to any benefit or relief through the legal process. Therefore, every document must be properly stamped, keeping the following in mind:

                                i.            Amount of stamp duty
“A document is deemed to be duly stamped if it bears an adhesive or impressed stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law for the time being in force in India.” [Section 2 (11) of the Indian Stamp Act 1899]
                              ii.            Types of stamps
There are different types of stamps. The general stamp paper is used in mortgage deeds. The adhesive or special adhesive stamps are used in hypothecation deed etc. The revenue stamps are used on DP Notes. The Bills of Exchange are stamped with a different kind of special adhesive stamps. Each document needs to be stamped with the appropriate type of stamp. A document required to be embossed on impressed stamp but affixed with adhesive stamps shall not be treated as duly stamped.
                            iii.            Writing on a stamp paper
If general stamp papers are used for a document, each paper should have some substantial part of the document written or typed on it. The practice of affixing general stamp papers on printed forms is unlawful.
                            iv.            Timing of stamping
The documents must be stamped before or at the time of execution. In cases, where the documents were found to have been stamped subsequent to their execution, the courts have declared the documents null and void.
                              v.            Place of stamping and execution
A document should be stamped before it is executed. If an executant is in another state, or the document is to be acted upon in another state, the excess duty if any in the other state is to be paid there.
Say, for example, M/s. Raichand Chopra & Sons, a partnership firm is to execute the documents at Indore Branch, Madhya Pradesh. As one of its partners is currently residing in Lucknow, Uttar Pradesh, the documents are to be sent to Uttar Pradesh for his signature. The stamp duty in Madhya Pradesh is Rs.10, whereas it is Rs.15 in Uttar Pradesh.
In such a situation, the documents are first to be stamped with Rs.10 while getting them executed in Madhya Pradesh and should be stamped with Rs.15 while getting it executed in Uttar Pradesh.
                            vi.            Cancellation of stamps
As per section 12 of the Stamping Act, every adhesive stamp affixed on documents is required   to be cancelled.
Writing the name of the executant across the stamp amounts to cancellation.
Cancellation is a must because it gives proof that the documents were stamped at the time of their execution. It also prevents the reuse of the stamps.

2.1. Improper Stamping
A document is considered as not stamped properly if it violates any of the provisions under the Stamp Act (as discussed above) that are in force in the respective states.

2.2. Consequences of Improper Stamping
Improperly stamped documents are not legally valid. However, based on the consequences of improper stamping, documents can be divided into two categories:
 i. Improperly stamped documents which are not admissible as evidence at all. They are:

§  Promissory Note,
§  Bill of Exchange, and
§  Instruments chargeable with a duty of ----------- paise (these differ from state to state).
Inadmissible as evidence means they cannot be produced and relied upon in any suit for establishing any right there under.

ii.        All documents other than those stated above, are admissible as evidence after       payment of full or deficit duty.

2.3. Scope for Rectification of Unstamped Document
Documents other than a promissory note and a bill of exchange, which are required to be stamped but are not stamped or inadequately stamped, can usually be made admissible as evidence on payment of the stamp duty and penalty as per the existing rates (Section 35).

3. Adjudication
According to Section 31, any document (except DP Note and Bill of Exchange) can be presented to the stamp office for adjudication of stamp duty thereon before execution or within one month of the date of execution.

The document may be unstamped, inadequately stamped, or improperly stamped. The stamp authorities certify the documents to be properly stamped after collecting the duty or deficit duty and charging adjudication fees. Such an adjudication certificate is conclusive that the instrument is properly stamped in accordance with the stamp law of the state in which the duty is adjudicated.

3.1. Inspection by Stamp Authorities
There are provisions in the stamp laws of different states authorizing the stamp authority to enter the premises for inspection when they have a reason to believe that certain instruments are not properly stamped. The stamping authorities have powers to impound any improperly stamped documents found on inspection.

3.2. Impounding
Stamp authorities have the power to impound any improperly stamped instrument coming to them in whatever way. Such instrument can be voluntarily taken to stamp office. Impounding means charging full or deficit duty with penalty and then issuing a certificate on the instrument that proper duty and penalty have been paid and levied (Section 33).
Section 40 of the Stamp Act authorizes the District Collector to decide the chargeability of the instruments so impounded and the proper stamp duty and penalty to be charged.

    To Continue


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