Supreme Court Doubts V.N. Devadoss, Refers Section 47-A Stamp Act “Fraudulent Intent” Requirement to Larger Bench
A Division Bench of Justices Dipankar Datta and Sheel Nagu questions whether Section 47-A stamp duty proceedings require proof of fraudulent intent, referring the issue for authoritative resolution.
A Supreme Court Division Bench comprising Justice Dipankar Datta and Justice Sheel Nagu has referred two questions to a larger bench, expressing serious doubt about a three-judge bench ruling that has, for over a decade, governed how stamp duty undervaluation proceedings under Section 47-A of the Indian Stamp Act, 1899 are initiated. The Court found it unable to accept that “wilful undervaluation with fraudulent intention to evade stamp duty” is a precondition for a registering authority to make a reference under the provision — a requirement the existing precedent had read into a section that, on its plain text, says nothing of the kind. The matter arose from a dispute over a land purchase by Bharat Petroleum Corporation Limited from the Government of India, where stamp duty was paid on the full agreed consideration but the registration authority still triggered an undervaluation inquiry.
How the Dispute Reached the Supreme Court
Bharat Petroleum Corporation Limited purchased a parcel of land from the Government of India for a fixed sale consideration, discharged in full by cheques in 2014. Possession was handed over on 21 January 2014. The transfer deed was executed on 24 June 2016, and at the time of its presentation for registration, Bharat Petroleum paid stamp duty and registration charges on the entire sale consideration recorded in the instrument.
Rather than releasing the registered instrument, the registering authority — the second respondent — made a reference under Section 47-A of the Stamp Act to the District Revenue Officer (Stamps), the first respondent. A show cause notice in Form-I was issued on 22 August 2016, calling upon Bharat Petroleum to pay an additional sum towards alleged deficit stamp duty. The stated basis was that the guideline value of the property was ₹500 per square foot, whereas the instrument had been presented at ₹168.30 per square foot.
Bharat Petroleum challenged the notice in Writ Petition No. 16834 of 2017 before the Madras High Court, contending that in the absence of any material suggesting want of bona fides, recourse to Section 47-A was unwarranted. A Single Judge allowed the writ petition on 8 September 2022, relying on the Supreme Court's ruling in V.N. Devadoss v. Chief Revenue Control Officer-cum-Inspector of Stamps, (2009) 7 SCC 438, which had held that Section 47-A can be invoked only where the registering authority has reason to believe that the property has been deliberately undervalued with fraudulent intent to evade stamp duty. The Single Judge also held that a guideline value alone cannot be conclusive evidence of market value and directed the registering authority to release the transfer deed within two months.
The respondents carried that order in Writ Appeal No. 2540 of 2023 before a Division Bench of the High Court. The Division Bench reversed the Single Judge, holding that once the registering authority entertained a doubt about undervaluation, a reference under Section 47-A was competent, that the statute provided a complete adjudicatory mechanism including a right of appeal, and that Bharat Petroleum had bypassed that mechanism by challenging the show cause notice at the threshold instead of participating in the statutory process. The Division Bench restored the matter to the first respondent and granted liberty to Bharat Petroleum to file its defence. Bharat Petroleum then approached the Supreme Court by special leave.
The Core Question: Does Section 47-A Require Proof of Fraud?
The Supreme Court identified the central question precisely: not the market value of the property, not whether additional stamp duty is ultimately payable, but whether the statutory machinery under Section 47-A could validly be set in motion at all, and what follows if the condition precedent for its exercise is absent.
The Court set out Section 47-A in full. Sub-section (1) provides that if the Registering Officer, while registering any instrument relating to a property transfer, “has reason to believe that the market value of the property or the consideration, as the case may be, has not been truly set forth in the instrument,” the officer may, after registering the instrument, refer it to the Collector for determination of market value and the proper duty payable. The provision contains no reference to wilful conduct, fraudulent intent, or culpable mindset.
The Additional Solicitor General, Mr. N. Venkataraman, appearing for Bharat Petroleum, argued that the "reason to believe" required to trigger Section 47-A was absent. He relied on V.N. Devadoss to contend that the Single Judge had correctly quashed the notice and that the Division Bench of the High Court had erred in not following binding precedent. He also argued that because the transferor in the instrument was the President of India, represented by a government official, the element of fraudulent intention contemplated in V.N. Devadoss could not arise.
The Court rejected that second argument. It held that the President of India figures in such instruments in a constitutional and statutory capacity, not personally, and that instruments executed in the exercise of the executive power of the Union are expressed in the President's name and executed by authorised representatives. In the present case, the instrument recorded the President of India as represented by the Deputy/Assistant Salt Commissioner. The constitutional nomenclature of the President as transferor cannot, by itself, preclude an inquiry into whether consideration or market value has been truly set forth, nor can it render the question of fraudulent intention incapable of arising as a matter of law.
Why the Court Found V.N. Devadoss Difficult to Accept
The Court examined V.N. Devadoss carefully. That three-judge bench decision had declared that the basis for exercising power under Section 47-A is “wilful undervaluation of the subject of transfer with fraudulent intention to evade payment of proper stamp duty.” The Court found that the expressions “wilful undervaluation” and “fraudulent intention” are conspicuously absent from the plain text of Section 47-A(1).
The Court drew a distinction between two propositions. The first — that the authority must have relevant material before formulating reasons and exercising power under Section 47-A — is consistent with the statute. The second — that in addition to the explicit statutory requirement, the officer must also have material demonstrating wilful or fraudulent intent to evade stamp duty — is not. The latter, the Court said, would amount to judicial legislation, reading into the provision something that is not there.
The Court also noted that the Stamp Act is a taxing statute, to be interpreted strictly and literally. Equitable considerations cannot be applied, and there is no scope to imply anything not expressly provided. Reading a culpable mindset requirement into Section 47-A would distort the plain purpose of a valuation-centric provision.
To illustrate the practical problem, the Court constructed two contrasting situations. In an honest sale of an encumbered property, where the agreed price is genuinely lower than the guideline value for objective reasons, the V.N. Devadoss test converts a straightforward market value inquiry into a quasi-criminal one: the honest purchaser must defend not just the price but their character. In a fraudulent sale, where the true consideration is partly paid in unaccounted cash, the registering authority may have no access to material revealing fraudulent intent, making it impossible to issue any notice at all. The Court observed that the test “in a genuine sale of encumbered property, it exposes an honest purchaser to a roving enquiry for no fault of his; in a case of a clandestine cash consideration, it disables the registering authority from even initiating an enquiry.”
The Court also noted that V.N. Devadoss had been subsequently referred to by another three-judge bench in Registrar of Assurances v. ASL Vyapar (P) Ltd., (2024) 17 SCC 572, which repeated the wilful undervaluation formulation though without examining the statutory provision in depth. Two coordinate bench decisions — Ramesh Chand Bansal v. District Magistrate/Collector, (1999) 5 SCC 62, and Shanti Bhushan v. State of U.P., 2023 SCC OnLine SC 489 — pointed in the opposite direction, supporting a literal reading of Section 47-A.
The Court acknowledged that since V.N. Devadoss is a three-judge bench decision subsequently followed by another three-judge bench, the present Division Bench could not pronounce upon its correctness. Judicial propriety required following the binding larger bench. The only available course was a reference.
The Show Cause Notice: Jurisdiction, Not Mala Fides
Before reaching the reference question, the Court addressed the broader principle of when a writ court may interdict a show cause notice. It identified two narrow exceptions: want of jurisdiction (where the authority has no power in law to act at all, making the notice non est), and abuse of jurisdiction or mala fide exercise of power. These are exceptions, not routine avenues for litigating every show cause notice under Article 226.
The Court found that the present case did not fall within the first category. The District Revenue Officer (Stamps) is not a stranger to the statute, and the subject matter is squarely within the field entrusted to that authority. What was being challenged was the manner in which an existing jurisdiction had been set in motion — a distinction the Court described as “apparently fine” but “in law rudimentary.” The respondents' senior counsel, Ms. Haripriya Padmanabhan, relied on Special Director v. Mohd. Ghulam Ghouse, (2004) 3 SCC 440, Union of India v. Kunisetty Satyanarayana, (2006) 12 SCC 28, and Union of India v. VICCO Laboratories, 2023 SCC OnLine SC 489, for the proposition that the inquiry following a show cause notice should not ordinarily be interdicted. The Court noted that it was neither a case of lack of jurisdiction nor of mala fides.
The Court also raised a further point: even if the manner of exercising existing jurisdiction was improper, could the Single Judge have quashed the proceedings entirely, foreclosing any prospective exercise of power, without leaving liberty to the authority to issue a fresh notice in accordance with law? That question did not require final resolution given the reference, but the Court flagged it.
Questions Referred and Interim Position
The Court referred two questions to a bench larger than the present Division Bench:
First, whether V.N. Devadoss, as followed in ASL Vyapar (P) Ltd., correctly declares that the basis for exercising power under Section 47-A is wilful undervaluation with fraudulent intention to evade stamp duty; or whether, on the plain terms of Section 47-A, the power can and ought to be exercised irrespective of any culpable mindset, by truly deciding the real nature of the transaction and value of the property without being bound by the apparent tenor of the instrument.
Second, whether Ramesh Chand Bansal and Shanti Bhushan do not lay down correct law.
Order
The Court directed that the referred questions and papers be placed before the Chief Justice of India for an appropriate order constituting a bench of appropriate strength. Leave was granted in the special leave petition. The Court observed that if V.N. Devadoss is upheld as correct law, the Single Judge's order quashing the show cause notice would be entirely justified; otherwise not. The matter in its present posture remains open pending the larger bench's determination.