2025 (10) TMI 446 - SC - Indian Laws

Instrument held mortgage under Article 40, not security bond under Article 57; stamp duty recovery upheld under section 33(4)

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: Whether the instruments titled 'Security Bond cum Mortgage Deed' / 'Security Bond or Mortgage Deed' are chargeable to stamp duty under Article 40 of Schedule 1-B of the Indian Stamp Act, 1899 or under Article 57 of Schedule 1-B of the Indian Stamp Act, 1899.Analysis: The Court examined the operative recitals and clauses of the instruments to determine their true legal character, applying the principle that substance governs over nomenclature. It analysed the definition of 'mortgage-deed' under Section 2(17) of the Indian Stamp Act, 1899 and the scope of Article 57, noting that Article 57's second limb applies only to instruments executed by a surety to secure the obligations of another. The Court referred to Section 126 of the Indian Contract Act, 1872 to interpret 'surety' as requiring a tripartite relationship (surety, principal debtor, creditor). On the facts, the instruments were executed by the principal debtors (the companies acting through directors) in favour of the creditor entities, with no distinct surety third party. Each instrument conferred rights over specified properties to secure obligations and thus satisfied the essential characteristics of a mortgage-deed under Section 2(17). Consequently, Article 57's surety-specific limb did not apply, and the instruments fell within Article 40 for stamp duty purposes.Conclusion: The instruments are chargeable under Article 40 of Schedule 1-B of the Indian Stamp Act, 1899 and not under Article 57; the appeals are dismissed and the impugned High Court judgments are not interfered with.