Appeal No 709 of 1975
Appeal by Special Leave from the Judgment and Order dt
9 10 74 of the Madras High Court in Referred ease No 4 of 1968 P Ram Reddy C Ramakrishna and A VV Nair for the Appellant
VP Raman AV Rangam and Miss A Subhashini for the Respondent
The Judgment of the Court was delivered by SHINGHAL J
This appeal by special leave arises out of the decision of the Madras High Court dated October 9 1974 on a reference by the Chief Controlling Revenue authority under section 57 of the Indian Stamp Act 1899 hereinafter referred to as the Act
The Board of Revenue Madras which was the Chief Controlling Revenue authority initially stated the case raising the following questions for decision a Whether the decision of the Board of Revenue that the instrument relating to the Deed of Trust and Mortgage would attract the levy of a Stamp Duty as laid down in Article 40b of Schedule I of the Indian Stamp Act mad that the debentures would be exempted from the levy of stamp duty is correct or not and b Whether the claim of the Respondent herein that the stamp duty is payable on the debenture under Article 27a and on the Deed of Trust and Mortgage under Article 40c is tenable or not  The High Court directed the Board of Revenue to refer three additional questions but ultimately took the view that the additional questions did not really arise in the case
It answered the first question in 567 favour of the Revenue and the second question against the Madras Refineries Limited hereinafter referred to as the Company
The Company feels aggrieved and has come up in appeal to this Court
It will be enough to state those facts which bear on the controversy before us
The Company was incorporated under the Indian  as a public limited company
An agreement known as the Loan and Note Purchase Agreement was executed be tween the Company and the First National City Bank and six others on December 20 1966 by which the Company agreed to authorise the creation and issuance of 14880000 US principal amount of its 5 secured notes Series A  and  7440300 US principal amount of its 512 secured notes Series S  and the sale of or the borrowing to be evidenced by such Notes in accordance with the terms and provisions of the agreement
The Notes were to be issued under and secured by a Deed of Trust and Mortgage between the Company and the First National City Bank
It was a1so agreed that the Notes shall be secured and shall have the other terms and provisions provided in the agreement and shall be guaranteed by the President Of India pursuant to the terms of a Guarantee Agreement in the prescribed form
We shall have occasion to refer to the relevant clauses of the Loan and Note Purchase Agreement the Deed of Trust and Mortgage and the Guarantee Agreement as and when necessary
The Deed of Trust and Mortgage and the Guarantee Agreement were executed between the President and the First National City Bank as Trustee on June 15 1967
In the meantime the Company made an application to the Collector under section 31 of the Act for opinion as to the stamp duty with which the Deed of Trust and Mortgage was
chargeable and the Collector referred the matter to the Board of Reve nue
The Board decided on June 28 1967 that the duty was chargeable on the Trust and Mortgage Deed under Article 40b of Schedule I to the Act
The Company paid Rs 3766500 as stamp duty under protest stating that it would move the Board for a reference of the controversy to the High Court
The Trust and Mortgage Deed was registered on_Jane 30 1967 and the A  series debentures were issued the same day
The Company applied to the Board of Revenue to state the case to the High Court B  series debentures were issued on June 28 1968
The case was stated on March 28 1969 and was decided by the impugned decision of the High Court dated October 9 1974
It has been argued by Mr Ram Reddy for the appellant Company that the Guarantee Agreement was the principal and primary security and the Deed of Trust and Mortgage was a collateral or auxiliary security and that the stamp duty on the Deed of Trust and Mortgage was payable in accordance with article 40c
It has been urged that Guarantee Agree ment was exempt from duty under section 3 of the Stamp Act and the debentures were exempt under article 27
The controversy centres round the question whether the Guarantee Agreement could be said to be principal or primary security  568 Mr Ram Reddy has invited our attention to the following passage in Sergeant on Stamp Duties and Companies Capital Duty sixth edition page 6 Leading and principal object
With reference to the stamp duty upon instruments generally it is a well settled rule of law that an instrument must be stamped for its leading and principal object and the stamp covers everything accessory to that object
In Limeer Asphalte Paving Co vs 1
RCC it was stated In order to determine whether any and if any what stamp duty is chargeable upon an instrument the legal rule is that the real and true meaning of the instrument is to be ascer tained that the description of it given in the instrument itself by the parties is imma terial even although they may have believed that its effect and operation was to create a security mentioned in the Stamp Act and they so declare  This appears to be a correct statement of the law
We have therefore to determine the real and true meaning of the Guarantee Agreement and to decide whether it could be said to be the principal and primary security
The Loan and Note Purchase Agreement was executed on December 20 1966 between the Company and the first National City Bank and others
Under that agreement the Company was to authorise the creation and issuance of secured notes series A and B referred to above and the notes were to be issued under and secured by the Deed of Trust and Mortgage between the Company and the first Nation al City Bank
It was then stated in the Loan and Note Purchase Agreement as follows The Notes shall be dated shall ma ture shall bear interest shall be payable shall be secured and shall have such other terms and provisions as provided in the Mort gage and shall be guaranteed by the President of India Pursuant to the terms of a Guar antee Agreement the Guarantee Agree ment in the form attached hereto as Exhib it 3
 It would thus appear that it was the Deed of Trust and Mortgage which was the security for the loan although the loan was also guaranteed by the President in terms of the Guarantee Agreement
As has been stated the Guarantee Agreement was made between the President of India and the first National City Bank
It was clearly stated in that agreement that the First National City Bank executed it As Trustee under a Deed of Trust and Mortgage dated as June 15 1967
 The Trust and Mortgage Deed was thus executed before 1 exhibit 211
569 the execution of the Guarantee Agreement even though both of them were executed on the same day namely June 15 1967
It is true that it has been stated in the Guarantee Agreement that the President of India as the guarantor unconditionally guaranteed has primary obligor and not as surety merely the due and punctual payment from time to time of the principal as well as the interest etc
stated in the agreement
And it was for that purpose that the guarantor agreed to endorse upon each of the Notes at or before the issue and delivery thereof by the Company its guaranty of the prompt payment of the principal interest and premium thereof and of the other indebtedness
 It is also true that as stated in paragraph 10 of the Guarantee Agree ment the obligations of the guarantor were absolute and unconditional under any and all circumstances and shall not be to any extent or in any way discharged impaired or otherwise affected except by performance thereof in accordance with the terms thereof
 We have also noticed the further stipulation that Each and every remedy of the Trustee shall to the extent permitted by law be cumulative and shall be in addition to any other remedy given hereunder or under the Mortgage or any of the other collateral or now or hereafter existing at law or in equity or by statute Mr Ram Reddy has relied heavily on these averments in the Guarantee Agreement but they cannot detract from the basic fact that the Deed of Trust and Mortgage was executed first in point of time and was the principal or primary security for the loan according to the terms and conditions of the agreement between the parties
It was that document which constituted the First National City Bank as the Trus tee and enabled it to enter into the Guarantee Agreement with the President and the President guaranteed the due performance of the obligations undertaken by the Company thereunder
The Deed of Trust and Mortgage which was executed between the Company and the First National City Bank as a national banking association incorporated and existing under the laws of United States of America stated that as the Company was in the process of constructing a refinery for the refining of crude oil and deemed it necessary to borrow money from time to time to
finance such construction and to issue its notes therefor and to mortgage and charge its properties hereinafter described to secure the payment of such notes it executed the Deed of Trust and Mortgage as security in accordance with the terms and conditions of Article 2 of the Deed of Trust and Mortgage to secure the due payment of the principal of and the premium if any and the interest on the Notes and of all other moneys for the time being and from time to time owing on the security of that Indenture and on the Notes and the performance by the Company of all of its obligations thereunder
The Deed of Trust and Mortgage was therefore clearly the principal or the primary security and could not be said to be a collat eral agreement
The parties in fact clearly 570 stated in Article I section 101 of the Deed of Trust and Mortgage as follows Collateral Agreements The term Collateral Agreements shall mean the Guarantee Agreement and the Undertaking hereinfater defined
 It was therefore specifically agreed between the parties that the Deed of Trust and Mortgage was not a collateral agreement
In all these facts and circumstances it is futile to contend that the Deed of Trust and Mortgage was not the principal or primary security
As was stated in Article 9 of that document that security became enforceable in case of any or more events of default and it cannot be said that merely because the Guarantee Agreement contained the stipu lation that the President as the Guarantor uncondition ally guaranteed the due and punctual payment of principal and interest etc as primary obligor and not as surety merely that agreement become the principal or the primary security
It is the real and true meaning of the Deed of Trust and Mortgage and the Guarantee Agreement which has to be ascertained and this leaves no room for doubt that the view taken by the High Court in this respect is correct and does not call for interference
Mr Ram Reddy relied on some decisions to support his argument that the Guarantee Agreement was the security for the loan and was the princi pal or the primary document but those cases were decided on different facts and have no real bearing on the controversy before us
The Guarantee Agreement was executed for and on behalf of the president by his Authorised Representative and no stamp duty was chargeable for it by virtue of the proviso to section 3 of the Act
That in fact appears to be the reason why counsel for the appellant strenously argued that we should hold it to be the principal instrument for he has next argued that the case falls within the purview of sec tion 4 1 of the Act and the Principal instrument only would be chargeable with the duty prescribed in Schedule I and deed of any trust and mortgage would be chargeable with a duty of Rs 450 p instead of the duty prescribed for it in that Schedule
We find however that there is no merit in this argument also
Sub section 1 of section 4 of the Act reads as follows 4
Several instruments used in single transaction of sale mortgage or settlement 1 Where in the case of any sale mortgage or settlement several instru ments are employed for completing the transaction the principal instrument only shall be chargeable with the duty prescribed in Schedule I for the conveyance mortgage or settlement and each of the other instruments shall be chargeable with a duty of four rupees fifty naye paise instead of the duty if any prescribed for it in that Schedule
 571 It is nobody s case that the Guarantee Agreement was an instrument of sale  for it did not transfer the ownership of anything in exchange for a price paid or promised or part paid and part promised
It was also not an instrument of mortgage because it is no boly s case that there was any transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan or an existing or a furture debt or the performance of an engagement which could give rise to a pecuniary liability
The expression settlement has been defined in clause 24 of section 2 of the Act as follows  Settlement means any non testamentary disposition in writing of movable or immova ble property made a in consideration of marriage b for the purpose of distributing property of the settlor among his family or those for whom he desires to provide or for the purpose of providing for some person dependent on him or c for any religious or charitable purpose and includes an agreement in writing to make such a disposition and where any such dispo sition bas not been made in writing any instrument recording whether by way of decla ration of trust or otherwise the terms of any such disposition 
 The term disposition has been defined in Strouds Judicial Dictionary as a devise intended to comprehend a mode by which property can pass whether by act of parties or by an act of the law and includes transfer and charge of proper ty
As the Guarantee Agreement did not have any such effect it did not constitute a settlement also
That document was not therefore an instrument of sale mortgage or settlement and did not fall within the purview of sub section 1 of section 4 of the Act
It was the Deed of Trust and Mortgage which was a Mortgage deed within the meaning of clause 17 of sec tion 2 of the Act and it was therefore clearly chargeable with stamp duty at the rate prescribed in article 40b of Schedule I to
the Act
We have examined the other argument of Mr Ram Reddy that even if the Guarantee Agreement was not the principal instrument within the meaning of sub section 1 of section 4 of the Act we should hold that the debentures which were issued by the Company were the principal and primary securi ty and that the Deed of Trust and Mortgage was the other instrument within the meaning of that sub section and was chargeable with a duty of Rs 450 p instead of the duty prescribed for it in the Schedule
This argument is also futile for we find that the secured Notes Series A and B were issued under and were secured by the Deed of Trust and Mortgage
As 572 such the Notes were issued in consequence and on the security of the Deed of Trust and Mortgage and there is no justification for the contention that the debentures were the principal instruments and not the Deed of Trust and Mortgage
As the High Court has rightly answered both the ques tions we find no force in this appeal and it is dismissed with costs
PBR Appeal dismissed


Summary:
The appellant company executed a
Loan and Note Purchase Agreement with a foreign bank
Under that agreement the appellant was to authorise the creation and issuance of secured notes Series A and B and the Notes were to be issued under and secured by a Deed of Trust and Mortgage between the Company and the Bank
The Deed of Trust and Mortgage stated that as the appellant was in the process of constructing a refinery for the refining of crude oil and deemed it necessary to borrow money from time to time to finance such construction and to issue its Notes therefor and to mortgage and charge its properties to secure the payment of such Notes it executed the Deed of Trust and Mortgage as Security in accordance with the terms and condi tions of Article 2 of the Deed of Trust and Mortgage to secure the due payment of the principal and the premium if any and the interest on the Notes and of all other monies for the time being and from time to time owing on the security of the indenture and on the Notes and the perform ance by the Company of all of its obligations thereunder
It was also agreed that the Notes shall be secured and shall have the other terms and conditions provided in the agree ment and shall be guaranteed by the President of India pursuant to the terms of the Guarantee Agreement
The Guarantee Agreement state
that the President of India as the guarantor unconditionally guaranteed as primary obligor and not as surety merely the due and punctual payment from time to time of the principal as well as interest stated m the Agreement
The obligations of the guarantor were abso lute and unconditional under any and all circumstances and were not be to any extent or in any way discharged impaired or otherwise affected except by performance thereof in accordance with the terms thereof
It was also provided that each and every remedy of the Trustee shall be cumula tive and shall be in addition to any other remedy given therein or under the mortgage or any of the other collateral or now or hereafter existing at law or in equity or by statute
The Guarantee Agreement was executed on the same day as the Deed of Trust and Mortgage between the President of India and the foreign bank as a Trustee
The High Court decided that stamp duty was chargeable on the Trust and Mortgage Deed under article 40b of Schedule I to the Act
In appeal to this Court it was contended that it was the Guarantee Agreement which was the principal and primary security and that the Deed of Trust and Mortgage was a collateral or auxillary security and as such stamp duty was payable under article 40c and that the Guarantee Agreement was exempt from duty under section 3 and debentures under article 27
Dismissing the Appeal HELD 1 It is the real and true meaning of the deed of Trust and Mortgage and the Guarantee Agreement which has to be ascertained irrespective of the description given by the parties
568 E 2 The Trust and Mortgage Deed was executed before the execution of the Guarantee Agreement though both of them were executed on the same day
It was the Deed of Trust and Mortgage which was the security for the 566 loan though the loan was also guaranteed by the President in terms of the Guarantee Agreement
568 G H 3 The
terms and conditions of the Guarantee Agreement cannot detract from the basic fact that the Deed of Trust and Mortgage was executed first in point of time and was the principal or the primary security for the loan
The Deed of Trust and Mortgage was clearly the principal or the pri mary security and could not be said to be a collateral agreement
569 H 4 The Deed of Trust clearly stated that the terms Collateral Agreements shall mean the Guarantee Agreement and the Undertaking
570 A B 5 The Guarantee Agreement was not an instrument of sale mortgage or settlement and did not fall within the purview of section 41 of the Act
571 EF 6 There is no justification for the contention that the debentures were the principal instruments and not the Deed of Trust and Mortgage
The secured notes were issued under and secured by the Deed of Trust and Mortgage
The notes were issued in consequence of and on the security of the Deed of Trust and Mortgage
571 H 572 A