Summary
Instruments styled "Security Bond cum Mortgage Deed" and "Security Bond or Mortgage Deed", by which the principal debtor itself mortgaged its own property to secure its own obligations, were held chargeable to stamp duty as mortgage deeds under Article 40 of Schedule 1-B of the Indian Stamp Act, 1899 (as applicable in Uttar Pradesh), and not under Article 57, because the second limb of Article 57 requires a surety distinct from the principal debtor.
Issues
- Whether an instrument titled "Security Bond cum Mortgage Deed" executed by a colonizer company in favour of a development authority is chargeable to stamp duty under Article 40 or Article 57 of Schedule 1-B of the Indian Stamp Act, 1899.
- Whether a "Security Bond or Mortgage Deed" executed by a company through its director to secure a bank loan, containing a clause on the mortgagor's personal liability, falls under Article 57 or Article 40.
Provisions considered
- Section 2(17), Indian Stamp Act, 1899The definition of mortgage-deed covers any instrument by which, to secure a loan, a debt or the performance of an engagement, one person transfers or creates in favour of another a right over specified property. Both deeds transferred interests in or created rights over specified property to secure performance or repayment, with a power of sale on default, and so had the essential features of a mortgage deed whatever their title. (¶¶ 16, 17, 28)
- Schedule 1-B, Article 57, Indian Stamp Act, 1899 (as applicable in Uttar Pradesh)Article 57 has two limbs: security bonds or mortgage deeds for the due execution of an office or to account for money or property received by virtue of it, and those executed by a surety to secure the due performance of a contract. The second limb applies only where a surety secures another's obligations, not where the principal executes the deed to secure its own; it was held inapplicable to both deeds. (¶¶ 18, 19, 20, 21, 23, 25, 26, 29)
- Schedule 1-B, Article 40, Indian Stamp Act, 1899 (as applicable in Uttar Pradesh)Article 40 charges mortgage deeds other than, among others, security bonds under Article 57. As neither deed was executed by a surety, both were mortgage deeds chargeable under Article 40, and the demands for deficit stamp duty were upheld. (¶¶ 18, 26, 29)
- Section 126, Indian Contract Act, 1872The word "surety" in Article 57 was read strictly in the sense of Section 126: the person who guarantees to perform the promise or discharge the liability of a third person. A contract of guarantee is therefore tripartite, and Article 57 needs a surety distinct from the principal debtor. (¶¶ 22, 23)
Held
- In stamp duty matters the decisive factor is the substance of the rights and obligations the instrument creates, judged from its operative clauses, and not the name the parties give it. (¶¶ 14, 17, 28)
- A deed by which a colonizer transferred its interest in specified plots to the development authority, to remain charged by way of mortgage to secure development obligations and external development charges, with a right of sale on default, is a mortgage deed within Section 2(17) despite being titled "Security Bond cum Mortgage Deed". (¶¶ 15, 16, 17)
- The second limb of Article 57 is confined to a security bond or mortgage deed executed by a surety to secure another person's obligations. Since a surety under Section 126 of the Contract Act must be distinct from the principal debtor, Article 57 does not apply where the principal debtor mortgages its own property for its own obligations. (¶¶ 21, 22, 23)
- Where a company executes the deed through its director, it is the company, as principal debtor, that mortgages the property; the director signing on its behalf is not a third-party surety. Calling the parties "sureties" in a deed involving only the company and the authority does not bring it within Article 57. (¶¶ 24, 25, 26)
- A clause making the mortgagor personally liable to repay the loan, in a deed executed by a director solely on behalf of the borrowing company, refers to the director acting for the company and does not turn the instrument into a security bond; it remains a mortgage by the principal debtor chargeable under Article 40. (¶¶ 27, 29)
Result
Both appeals dismissed; the High Court judgments upholding the demands for deficit stamp duty under Article 40 of Schedule 1-B were affirmed.