2025 (12) TMI 1605 - HC - Indian Laws

Single mortgage deed securing four separate loan agreements treated as distinct transactions; aggregate stamp duty u/s5 upheld

The dominant issue was whether a single mortgage deed securing repayment under four separate loan agreements attracted stamp duty under s.4 or s.5 of the ... Liability to pay deficit stamp duty with penalty - applicability of Section 4 or Section 5 of Stamp Act - single deed of mortgage executed to secure repayment obligations under four separate loan agreements - HELD THAT:- For applicability of Section 4, there should be commonality of transaction. Section 5 is the converse of Section 4 and deals with cases where several distinct matters or transactions are embodied in a single instrument. Where Section 5 applies, each of the instruments dealing with each of the matter would be chargeable under the Stamp Act by the aggregate amount of stamp duty in respect of all such instruments. It would be apposite to refer to the decision of Hon’ble Apex Court in the case of Coastal Gujarat Power Limited and Ors. [2015 (8) TMI 1524 - SUPREME COURT]. In that case, the respondent-company has secured assistance from thirteen different lenders to form the consortium as a trust and executed a security trustee agreement inter se appointing one banker as the lead trustee for the security trustee. The Respondent executed an indenture of mortgage with the security trustee mortgaging its assets as mentioned in the deed itself which was presented for registration. The High Court held that there being only one instrument creating a mortgage in favour of security trustee, such relation is independent of the relationship between the borrower and the lending banks. Perusal of the impugned order would indicate that the revisional authority has formulated the correct proposition for consideration as regards the applicability of Section 4 or Section 5 of the Stamp Act. The revisional authority has considered the terms and conditions of the loan instruments which imposed obligation on the financial institution to disburse the loan amount within period of one month and execution of mortgage deed by the borrower. The authority noted that instead of executing separate mortgage deeds, the borrower has aggregated the loan amount and executed single mortgage deed which is contrary to the conditions of loan instrument and statutory provisions. The authority held that the loan instruments constituted separate and distinct transactions and assessed the stamp duty leviable on each transaction separately. The Petition stands dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether a single deed of mortgage executed to secure repayment obligations under four separate loan agreements constitutes an instrument used in a single transaction attracting Section 4 of the Maharashtra Stamp Act, 1958, or an instrument relating to several distinct matters/transactions attracting Section 5. (ii) If Section 5 applies, whether 'aggregate amount of duties' means stamp duty computed on the combined loan amount as one base, or the sum of stamp duties payable as if separate instruments (separate mortgages) existed for each distinct transaction. (iii) Whether the revisional authority's determination applying Section 5 and levying deficit stamp duty and penalty disclosed any infirmity warranting interference under Article 227 of the Constitution of India, including whether remand for reconsideration was necessary. 2. ISSUE-WISE DETAILED ANALYSIS A. Applicability of Section 4 (single transaction; several instruments) versus Section 5 (instrument relating to several distinct matters/transactions) Legal framework (as discussed by the Court): The Court examined Sections 4 and 5 of the Stamp Act. Section 4 applies where, in a sale/mortgage/settlement, several instruments are employed for completing the same transaction, with duty on the principal instrument and nominal duty on others. Section 5 applies where one instrument comprises or relates to several distinct matters/transactions, making it chargeable with the aggregate amount of duties as if separate instruments existed for each distinct matter/transaction. Interpretation and reasoning: The Court held that Section 4 requires 'commonality of transaction', i.e., multiple instruments must be employed to complete the same mortgage transaction. On examining the loan agreements, the Court found each loan agreement defined its own loan amount and imposed an obligation to create mortgage security before or at the time of entering into that particular loan agreement, with failure/delay constituting an event of default. The loan agreements did not refer to an aggregate loan of Rs. 625 crores with tranche disbursements, nor did they provide for creation of one single mortgage to secure all four loans. The single mortgage deed came later and secured repayment obligations arising from four separately executed loan agreements with differing dates, amounts, and borrower/co-borrower configurations. Applying the reasoning adopted from the governing precedent relied upon by the Court, the decisive factor was that the mortgage instrument 'embraced' multiple underlying loan transactions which, if the contractual condition had been followed, would have required separate mortgages corresponding to each loan transaction; the existence of a single lender was not determinative. Conclusion: The Court concluded that the single mortgage deed related to and embraced four distinct loan transactions and therefore attracted Section 5, not Section 4. The contention that the loan agreements were merely ancillary instruments employed to complete one mortgage transaction was rejected in view of the loan agreements' express requirement of security creation per individual loan agreement. B. Meaning of 'aggregate amount of duties' under Section 5 Legal framework (as discussed by the Court): The Court construed the latter part of Section 5, which states that the instrument is chargeable with the aggregate amount of duties with which separate instruments, each relating to one distinct matter/transaction, would be chargeable. Interpretation and reasoning: The Court rejected the submission that, even under Section 5, duty must be computed as a single aggregate duty on the combined figure of Rs. 625 crores. It held that Section 5 requires aggregation of duties that would be payable on each separate instrument if each distinct transaction were documented separately, rather than a single computation on the overall combined amount as one transaction. Conclusion: Where Section 5 applies, stamp duty is to be assessed as the sum of duties payable for separate instruments corresponding to each distinct transaction, not as duty on a single consolidated amount. C. Validity of the revisional authority's approach; necessity of remand; interference under Article 227 Interpretation and reasoning: The Court noted that the adjudication at the earlier stage treated the mortgage as securing a single loan transaction and proceeded without noticing that the mortgage deed covered multiple loan transactions, and also took into account Section 6 in a manner the Court considered inapplicable to the situation. However, the Court found that the revisional authority framed the correct question (Section 4 vs Section 5), examined relevant clauses of the loan instruments and mortgage deed, and reached a definite finding that the loan agreements were separate and distinct transactions and that aggregating them into one mortgage deed was contrary to the loan instruments' conditions. The Court further held that remand was unnecessary because the revisional authority had already construed the documents and applied the governing legal position to the facts. Conclusion: No infirmity was found in the revisional authority's application of Section 5 or in its assessment of deficit stamp duty and penalty so as to justify interference under Article 227; the challenge failed and the petition was dismissed (with interim relief extended for a limited period as directed by the Court).