Case: Madras Refineries Ltd Vs. Controlling Revenue Authority, Board Ofrevenue, Madras

The Deed of Trust and Mortgage was therefore clearly the principal or the primary security and could not be said to be a "collateral agreement". The parties in fact clearly stated in Article I, section 1.01 of the Deed of Trust and Mortgage as follows, --"Collateral Agreements:The term "Collateral Agreements" shall mean the Guarantee Agreement and the Undertaking, hereinafter defined."It was therefore specifically agreed between the parties that the Deed of Trust and Mortgage was not a collateral agreement.8. 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 stipulation that the President, as the Guarantor, unconditionally 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 principal or the primary document, but those cases were decided on different facts and have no real bearing on the controversy before us.9. 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 section 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. 4.50 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 instruments 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."10. It is nobodys 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 nobodys 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 immovable 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 disposition bas not been made in writing, any instrument recording, whether by way of declaration 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 property".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.11. It was the Deed of Trust and Mortgage which was a "Mortgage deed" within the meaning of clause (17) of section 2 of the Act, and it was therefore clearly chargeable with stamp duty at the rate prescribed in article 40(b) of Schedule I to. the Act.12. 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 security, 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. 4.50 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 T rust and Mortgage. As 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.13.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 an d premium thereof and of the other indebtedness." It is also true that as stated in paragraph 10 of the Guarantee Agreement, 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 Nat ional City Bank as the Trustee, 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 CompanyDeed 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 therefore 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 "collateralall 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 stipulation that the President, as the Guarantor, unconditionally 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 forhave 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 security, 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. 4.50 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 T rust and Mortgage. As 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.