‘It exists in no other country’

Even the complicated winding-up procedure requires the omnipresent paper.

Corporate India has a single word to describe this longterm relationship — absurd.

‘‘We operate in many countries but I’ve heard of no other country — except the UK and few Commonwealth countries — which has such a thing like the stamp paper,’’ says the company secretary of a multinational pharmaceutical company. ‘‘If you want to collect duty, there are alternative ways of doing so.’’

The stock market is the best example to prove an alternative can work. Like just so many others, stock market investors were victims of fake stamps and stamp papers for many years. Till dematerialisation happened.

‘‘At the time of transferring the share certificates, a stamp had to be affixed. In case the company found the stamp to be fake, it would confiscate the certificates and the investor would lose all his money,’’ explains Pranav Sanghvi, managing director, J.H. Securities.

Sanghvi says till a few years ago there were crores of fake stamps floating in the market, available for half the value of the stamp. ‘‘Now the duty is paid directly to the clearing house through the investor’s demat account, thus removing the need of stamps and stamp papers,’’ he explains, the relief almost audible.

For the corporate world, one alernative introduced some years ago was ‘‘franking’’. It is basically a stamp on an agreement, applied by a specified government agency.

The procedure is short: write the agreement on a plain piece of paper, go to the franking agency — for example, the Stamp Offices in Mumbai — pay the stamp duty in cash or by pay order, and get the agreement ‘‘franked’’.

Since franking eliminates the risk of forgery, most companies prefer it, especially when large amounts are involved. It is also more accurate, as the exact amount can be stamped.

However, it comes with its own baggage.

First, it’s possible only in the bigger cities, where franking machines have been installed. Second, there are a limited number of machines. Even Mumbai has just four. ‘‘Only if franking machines are available in numbers will they be useful,’’ says Ganesh Kumar Gupta, chairman, Federation of Indian Export Organisations.

Third, at one time a person can get only two agreements franked. ‘‘So if I have to get five agreements franked, I have to queue up for two hours at least three times,’’ adds a company secretary.

For transactions involving large sums of money, like a merger of two companies that could invite duty of over Rs 1 crore, the company can give the agreement for adjudication to the Stamp Paper Office. The office determines the duty to be paid and franks the document.

Real estate is another sector in which stamp papers play a major role. ‘‘Though franking is applicable to property agreements also, due to lack of awareness among the people stamp papers are used more widely,’’ explains Rajiv Godiwala, a real estate analyst.

How cumbersome that can be is evident from a simple example. If a duty of Rs 10 lakh has to be paid, the person will have to buy 40 stamp papers of Rs 25,000 each — Rs 25,000 is the highest value of a stamp paper. If this value is not available, and that’s a common situation, then the number of stamp papers to be bought is even higher.

It’s these large numbers that have filled the coffers of the likes of Abdul Karim Telgi, the fake stamp paper swindle mastermind.

‘‘Simplify the process in such a manner that forgery is not possible,’’ emphasises Niranjan Hiranandani, managing director, Hiranandani Constructions, Mumbai. ‘‘Security depends on the cleanliness of the system. And this cleanliness must percolate from top down.’’

‘‘The best way to get rid of the stamp paper fraud is to dematerialise,’’ says Pavan Vijay, president, Institute of Company Secretaries of India. ‘‘If the government wants, we can prepare a complete plan to work out this option.’’

Considering ‘‘demat’’ has proved the magic wand in the stock market, Vijay’s plan is worth listening to. It will require opening a demat account with a depository participant (like a bank). The payment can be made to a centralised authority, which will give a certificate that would be proof of payment.

‘‘Details need to be worked out for this plan, but we are ready to provide the complete solution,’’ says Vijay.

Before that, somebody has to acknowledge there’s a problem.