Arcil moves SC against stamp duty on retail loan NPA

The stamp duty was charged at 4.9% of the amount, or Rs 24.94 lakh

A case that can have industry-wide ramification for asset reconstruction companies (ARCs) acquiring retail loans, is coming up for hearing at the Supreme Court on January 7.

The Asset Reconstruction Company (India) Ltd (ARCIL) is challenging a Gujarat High Court order that said the company must pay stamp duty of about five per cent on loans it acquired from banks using power of attorney. 

But the case is likely to be limited to retail loans only as for large value corporate loans, the assignment deeds are enough. 

Earlier various state governments used to charge 0.75 per cent of the amount, subject to a maximum Rs 1 lakh to Rs 2 lakh, depending on the state law. However, with the latest amendment in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act or Sarfaesi Act, the charges paid on assignment deed have been waived off completely. In normal course, the deed is enough for the ARCs to recover the loans. However, in case of retail loans, the ARCs face problem taking possession only on the basis of the document and therefore, they take ‘power of attorney’ from banks as well. 

In August, 2016, the Gujarat High Court ruled in favour of Chief Controlling Revenue Authority that said Arcil must pay up stamp duty on a Rs 5.09 crore loan that it acquired from Oriental Bank of Commerce through the power-of-attorney route. The stamp duty was charged at 4.9 per cent of the amount, or Rs 24.94 lakh. 

Considering that the ARCs acquire substantial amount of retail loans from banks, many through power of attorney, Gujarat High Court’s order could potentially ruin the game for the companies, particularly if all the states start adopting the practice. Predictably, Arcil has moved the apex court against the ruling, with the logic that the government has even waived off the assignment deed charges to encourage more stressed asset buying. 
 

“We are not the owners of property, but we are the owners of loans. This differentiation has to be there,” said Vinayak Bahuguna, Arcil’s managing director and chief executive officer.

“Commercially, it is going against the grain of securitisation, which is to allow assets to trade freely,” Bahuguna said.

According to Harish Chander, executive vice-president, Edelweiss ARC, the corporate loan recovery won’t get hampered by this ruling, but Gujarat’s example can be cited by other states in charging stamp duty and that could halt the retail loan recovery efforts of ARCs.