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of <h1>Instrument held mortgage under Article 40, not security bond under Article 57; stamp duty recovery upheld under section 33(4)</h1> <h3>M/s. Godwin Construction Pvt. Ltd. Versus Commissioner, Meerut Division & Anr.</h3> The SC held the instrument was, in substance, a mortgage deed falling under Article 40 of Schedule 1-B of the Indian Stamp Act, not a security bond under ... Levy of Stamp Duty on Security Bond cum Mortgage Deed - Recovery of remaining deficit stamp duty u/s 33(4) of Indian Stamp Act, 1899 - instrument described as “Security Bond cum Mortgage Deed” was chargeable under Article 40 of Schedule 1-B of the Indian Stamp Act or under Article 57 as claimed by the appellant? - HELD THAT:- Having set out the operative clauses of the instrument executed by the appellant, it is evident that the instrument records that the appellant transferred all their interest in the properties detailed in the schedule to the Meerut Development Authority. The transfer was made with the intent that the same shall remain charged by way of mortgage to secure due performance of obligations in developing the colony and payment of external development charges - When juxtaposed with Section 2(17) of the Indian Stamp Act, it is evident that the instrument executed by the appellant fulfils the essential characteristics of a mortgage deed. In substance and effect, the deed confers a right over specified properties in favour of the Meerut Development Authority to secure performance of an obligation, while preserving the appellant’s interest until full discharge of obligation. The nomenclature “Security Bond cum Mortgage Deed” is, therefore, inconsequential, as it is the substance and operative provisions of the instrument which govern its character for the purposes of stamp duty. Article 57 of Schedule 1-B of the Indian Stamp Act operates in two distinct limbs. The first limb covers security bond or mortgage deed executed by way of security for the due execution of office, or to account for money or other properties received by virtue thereof - The second limb, demarcated by the words “or executed by a surety to secure the due performance of a contract”, is restricted in its application to the execution of security bond or mortgage deed by a surety to secure the obligations of another, and does not extend to cases where the principal itself executes the deed to secure its own obligations. In the case at hand, it is apparent from the recitals of the instrument titled “Security Bond cum Mortgage Deed” executed by the appellant that only two parties are involved — the Meerut Development Authority and the appellant, M/s. Godwin Construction Pvt. Ltd. - It stands beyond doubt, that the deed was not executed by a surety but by the principal debtor/appellant, the company, through its director. It is evident that the company itself mortgaged the properties and not the director in his individual capacity. A company, though a juristic person, is not a sentient being, consequently, it must act through its directors. This firmly establishes that the properties were not mortgaged by a third party, but by the principal debtor itself, which, in our opinion, does not attract Article 57. In the absence of any surety, to attract Article 57 of the Indian Stamp Act, the deed executed by the appellant cannot be termed as a security bond. It, however, fulfils all the requirements of a mortgage deed, falling under the ambit of Article 40 of Schedule 1-B of the Indian Stamp Act. The impugned judgments passed by the High Court of Judicature at Allahabad do not suffer from any infirmity as to warrant interference by this Court - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an instrument titled 'Security Bond cum Mortgage Deed' or 'Security Bond or Mortgage Deed' is chargeable under Article 40 or Article 57 of Schedule 1-B of the Indian Stamp Act, 1899, having regard to its substance and operative clauses. 2. Whether the mere nomenclature of an instrument as a 'security bond' or use of language indicating personal liability converts a mortgage executed by the principal debtor into a security-bond within the meaning of Article 57, particularly the second limb 'executed by a surety to secure the due performance of a contract'. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of instrument for stamp duty - Article 40 vs Article 57 Legal framework: The applicable provisions are Section 2(17) (definition of 'mortgage-deed') of the Indian Stamp Act, 1899 and Articles 40 and 57 of Schedule 1-B which prescribe stamp duty for mortgage-deeds and for 'security-bond or mortgage-deed' executed in specified circumstances. Precedent Treatment: The Court reiterates the settled principle that substance and operative effect of an instrument govern its character for stamp duty rather than its nomenclature; no prior case law is expressly followed, distinguished or overruled in the judgment. Interpretation and reasoning: The Court examined the operative recitals and clauses of the challenged instruments and found they (i) transfer or create a right over specified property in favour of the creditor to secure an obligation, (ii) preserve the mortgagor's interest until discharge, and (iii) enable sale of property on default to realize the secured amount. These features satisfy the statutory definition of 'mortgage-deed' under Section 2(17). The Court therefore held that the instruments in substance are mortgage-deeds. Ratio vs. Obiter: Ratio - where an instrument creates or transfers a right over specified property to secure money or performance of an engagement, it is a mortgage-deed under Section 2(17) and chargeable under Article 40 where Article 57 does not apply. Conclusions: The instruments in both appeals are properly characterised as mortgage-deeds. The decisive factor is substance - the instruments attract Article 40 of Schedule 1-B for stamp duty calculation rather than Article 57 insofar as Article 57's conditions are not satisfied. Issue 2: Scope of Article 57 - requirement of a distinct surety and applicability to principal debtor Legal framework: Article 57 operates in two limbs - (i) security-bond or mortgage-deed executed by way of security for due execution of an office or to account for money or property received, and (ii) security-bond or mortgage-deed 'executed by a surety to secure the due performance of a contract.' Section 126 of the Indian Contract Act, 1872 defines 'contract of guarantee' and 'surety' and establishes the tripartite character of a guarantee. Precedent Treatment: The Court applies established statutory construction principles to the text of Article 57 and the Contract Act definition; no express earlier authority is invoked to modify or displace this interpretation. Interpretation and reasoning: The Court construed the second limb of Article 57 strictly - it requires a surety distinct from the principal debtor (tripartite relationship: surety, principal debtor, creditor). The Court reasoned that where the principal debtor itself executes a deed mortgaging its own property, there is no distinct surety and Article 57's second limb is inapplicable. References in an instrument to 'personal liability' of a director or to surety-like language do not convert an instrument executed by the principal debtor into a security bond under Article 57; substance controls over appearance. The company acting through its director remains the principal debtor, not a separate surety. Ratio vs. Obiter: Ratio - Article 57's protection (or lower charging provision) for instruments 'executed by a surety' is confined to instruments where a surety, distinct from the principal debtor, has actually given the security; instruments executed by the principal debtor do not fall within this limb. Conclusions: Because the instruments were executed by the principal debtors themselves (acting through their directors) and no distinct third-party surety was present, the second limb of Article 57 is inapplicable. The instruments therefore cannot be charged under Article 57 on the ground that they are 'executed by a surety'; they are chargeable under Article 40. Cross-reference and Concluding Legal Finding Cross-reference: For the analysis of both appeals, the Court's treatment of Section 2(17) (definition of mortgage-deed) and the strict interpretation of Article 57's 'surety' requirement (as informed by Section 126, Indian Contract Act) are interdependent: demonstration that the instruments satisfy Section 2(17) together with absence of a distinct surety leads to the application of Article 40. Final legal conclusion (ratio decidendi applied to both appeals): The instruments denominated 'Security Bond cum Mortgage Deed' / 'Security Bond or Mortgage Deed' are mortgage-deeds in substance; absent a distinct surety the second limb of Article 57 does not apply; therefore stamp duty is chargeable under Article 40 of Schedule 1-B of the Indian Stamp Act, 1899. The High Court's orders affirming the demand under Article 40 are not interfered with.
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