Financial institutions (FIs) are proposing a ceiling on stamp duty payable on English mortgage transactions by states to facilitate funding of infrastructure projects.
In a recent meeting, FI representatives agreed on the need for a ceiling and decided to pursue the issue through an expert committee headed by former revenue secretary N K Singh.
While in equitable mortgage, the lenders have to receive high court nod before selling off assets to recover their dues, such permission is not needed under English mortgage. The sell off of the assets through the high court route sometimes takes as much as eight to 10 years.
FIs have been calling for a switch-over to English mortgage for some time now, but have been hindered by a high stamp duty on such transactions in most states. However, in three states, stamp duty on English mortgage has been capped. While in Maharasthra it is Rs 2 lakhs, Gujarat has pegged it at Rs 2 lakhs plus surcharge. The ceiling is slightly higher in Karnataka at Rs 2.5 lakh. FIs are now mooting that other states follow the model adopted by these three. The Centre has constituted an 11 member committee under the chairmanship of former revenue secretary N K Singh to look into stamp duty rationalisation. The other members of the committee include the finance secretaries of Maharashrtra, Madhya Pradesh, Andhra Pradesh, West Bengal, Assam, Haryana, Tamil Nadu and Delhi.
The move to switchover to the English mortgage system is part of a larger attempt by FIs to secure payments for their loans. However, a legal expert said "even with an English mortgage system, it will be difficult to enforce as the borrower can bring a stay on the institutions."
A case in point is when ICICI put Parasarampuria up for sale. Parasarampuria immediately sought a stay and ruled the courts verdict in its favour.
FIs are also currently drawing up a strategy to secure payments from corporates through the introduction of escrow accounts. This means that company managements will first have to meet FI dues before utilising future cash flows for other expenditure. This move is currently being planned for corporates which have approached for reschedulement of loans. In future this may be extended to other loans as well.
