In a recent ruling, the Allahabad High Court reaffirmed that properties sold in public auctions are not exempt from being reassessed for full stamp duty obligations. The decision came in the case of M/S Young Style Overseas vs. State of Uttar Pradesh and Others (Writ C No. 26449 of 2022), where the court upheld a significant stamp duty deficiency on a property sold under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
Case Background
The petitioner, M/S Young Style Overseas, had purchased a property in Agra through a public auction conducted by Canara Bank after the original owner, M/S Wasan Shoes Limited, defaulted on a loan of ₹4.57 crore. The property, mortgaged to the bank, was sold to the petitioner for ₹2.02 crore. After the sale, authorities conducted an inspection and determined that the market value of the property was substantially higher than declared, leading to a reassessment of stamp duty.
The District Magistrate/Collector (Stamp), Agra, issued two key orders—one in 2017 and the other in 2022—finding that the property had been undervalued and imposing a deficiency in stamp duty of ₹1.45 crore. This prompted M/S Young Style Overseas to challenge the orders, arguing that since the sale occurred through a public auction, the sale price should be considered the market value, exempting the transaction from further scrutiny.
Legal Issues
1. Market Value in Public Auctions: The petitioner claimed that the price paid in the public auction should be deemed the market value, thus negating any deficiency in stamp duty.
2. Applicability of Stamp Duty: The case involved determining whether the stamp duty should be calculated under Article 18 (public auction sales) or Article 23 (general property sales) of the Indian Stamp Act, 1899.
3. Collector’s Authority to Reassess: The petitioner contested the Collector’s authority to reassess the market value under Section 47-A of the Stamp Act, claiming that a public auction sale should not be subject to reassessment.
Court’s Observations
The Allahabad High Court, presided over by Justice Saral Srivastava, ruled against the petitioner, holding that the sale price in the auction did not necessarily reflect the market value. The court observed that the auction process itself was flawed because it did not adhere to the statutory requirements for a public sale, which mandates wide publicity in multiple newspapers. The court noted:
“The sale process was not properly conducted as required under the law. The auction was not advertised adequately, thereby failing to meet the criteria for a public sale.”
The court further stated that the mere fact that the sale occurred through a SARFAESI auction does not automatically exempt it from stamp duty reassessment:
“A public sale under SARFAESI does not shield the transaction from scrutiny under Section 47-A of the Indian Stamp Act. The property must still be assessed at its true market value.”
Court’s Decision
The High Court upheld the orders of the District Magistrate, affirming the reassessment of the property’s value and the corresponding stamp duty deficiency. It directed the petitioner to pay the outstanding stamp duty along with the interest and penalties. Justice Srivastava emphasized that the auction price could not be deemed the market value due to the auction’s limited advertisement and the undervaluation of the property, stating:
“There was clear undervaluation of the property, and the auction did not meet the standard of a proper public auction as required by law.”
The court dismissed the petitioner’s argument that the absence of a circle rate for industrial areas in Agra during the time of the auction rendered the reassessment invalid. The court also rejected the notion that the Collector lacked jurisdiction, affirming the Collector’s power to reassess property values under Section 47-A of the Stamp Act, even in cases involving SARFAESI auctions.
