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Section 21: Stock and marketable securities how to be valued

Indian Stamp Act • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 1899
Section 20 All 78 Sections Schedule I (Arts 1–65) Section 22

Legal Commentary & Landmark Judgments: Section 21

Section 21 of the Indian Stamp Act, 1899 regulates the valuation of stocks, shares, debentures, and marketable securities for ad valorem stamp duty assessment, prescribing valuation based on the average market price of the security on the date of the instrument.

  • Average Market Price Benchmark: Where an instrument is chargeable with ad valorem duty in respect of stock or marketable securities, duty must be calculated on the value of such stock or security according to the average price or value thereof on the day of the date of the instrument.
  • Listed vs Unlisted Securities Valuation: For listed securities, average price is determined from official stock exchange trading data on the execution date; for unlisted securities, valuation requires recognized net worth or discounted cash flow (DCF) accounting under statutory rules.
  • Applicability to Mergers and Share Swaps: Forms the critical statutory bedrock for assessing stamp duty on share purchase agreements, corporate amalgamations, demergers, and swap ratios under Companies Act schemes.
Key Landmark Precedents:
  • Hindustan Lever v. State of Maharashtra (2004) 9 SCC 438: The Supreme Court held that in corporate amalgamations involving share exchanges, the valuation of shares for stamp duty purposes under Section 21 must be computed based on the market price of the shares on the effective date, affirming the State's power to assess ad valorem duty on the corporate transfer.
  • State of M.P. v. Rakesh Kohli (2012) 6 SCC 312: The Supreme Court upheld the constitutional validity of valuation mechanisms under stamp legislation, emphasizing that market value benchmarks on securities prevent undervaluation and evasion of fiscal duties.
Courtroom Practice & Strategic Litigation Guidance:

When stamping share purchase agreements or joint venture transfers, procure certified closing price quotes from BSE/NSE for the trading day of execution. If the transaction involves unlisted shares, obtain a statutory valuation report from a Registered Valuer or SEBI-registered Merchant Banker contemporaneously with execution to rebut any Collector reassessment under Section 47A.

Section 20 All 78 Sections Schedule I (Arts 1–65) Section 22