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CS Professional · Drafting, Pleadings and Appearances · Drafting of Agreements, Deeds and Documents

Ravi Exports Ltd borrows Rs 20 lakh from a bank and deposits marketable shares as security. The bank takes a letter from Ravi Exports recording the deposit, but the letter is not a promissory note or bill of exchange. Which statement about stamp duty on this letter is correct under the Indian Stamp Act, 1899?

The letter is chargeable with duty as if it were an agreement or memorandum of agreement under Article 5(c) of Schedule I. Section 23A of the Indian Stamp Act applies to non-promissory-note instruments given on deposit of marketable securities as security for a loan, so no conveyance duty applies.

  1. AIt is chargeable with duty as if it were an agreement or memorandum of agreement under Article 5(c) of Schedule ICorrect
  2. BIt is chargeable as a promissory note
  3. CIt is exempt because shares are movable property
  4. DIt is chargeable as a conveyance on the full value of the shares

Explanation

Section 23A applies to an instrument, not being a promissory note or bill of exchange, given on the occasion of depositing a marketable security as security for money advanced by way of loan. Such an instrument is chargeable as if it were an agreement under Article 5(c) of Schedule I. The conveyance and exemption options contradict this deemed treatment. Himachal Pradesh refers to Schedule I-A instead, but that does not alter the general rule.

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