Case: Joint District Registrar (Class-I) and Collector of Stamps, Nagpur and Another Vs. M/S Jaika Automobiles Private Limited, Nagpur

The brief facts which required to be considered are not in dispute and are as follows:(i) The sister concern/subsidiary Company of the Respondent viz.M/s. Jaika Motors (Independent Company) raised a loan from United Commercial Bank of Rs.7 crores. Out of this Rs.5 crores was raised against hypothecation of stocks whereas Rs.2 crores was raised against book debts of the company(ii) In respect of this, two deeds of hypothecation viz. One in relation to stocks and movable whereas the other in relation to book debts was entered into by the said company with United Commercial Bank. A third document namely Security-cumMortgage bond/Instrument was also executed by the Respondent in relation to guarantee the payment of the aforementioned loan amount as collateral security for the said loan. This Mortgage/Instrument was with respect to movable and immovable properties of the Company. All the aforesaid three documents were executed on 23.08.2002(iii) The Respondent company paid total stamp-duty of Rs.1,73,700/- on the aforementioned loan amount disbursed by United Commercial Bank on the two hypothecation agreements. Insofar as the Security-cum-Mortgage bond for collateral security was concerned, the Respondent paid stamp-duty as per the provisions of Article 40(c) of Schedule-I to the Maharashtra Stamp Act, 1958 (hereinafter referred to as the Stamp Act). Thus, the Respondent paid stamp-duty of Rs.200/- on the Security-cumMortgage bond Instrument(iv) After a period of three years, the audit party of the Accountant General (II), Nagpur, in its regular inspection of the Office of the Joint Registrar observed that the Respondent had under valued stamp-duty on the Security-cum-Mortgage bond Instrument and therefore, issued notice dated 01.01.2005 to the Respondent. Incidently this notice was issued on the premise that the Respondent had entered into a Mortgage deed with the Bank for a sum of Rs.7 crores and in terms of provisions of Article 40(b) of Schedule-I to the Stamp Act, the Respondent was liable to pay stamp-duty @ 1% on the total amount and therefore the Respondent had undervalued the stamp-duty. Respondent was therefore called upon to deposit a differential amount of Rs. 5,26,300/- after adjusting the amount of Rs.1,73,700/- already paid. It is pertinent to note that there was no mention of the two Hypothecation agreements in this demand notice4. Being aggrieved by this notice the Respondent filed appeal bearing No. 1/2005 before the Appellant No.2, inter alia, narrating the aforementioned facts and the relevant provisions as contained in Article 40(c) of Schedule (I) to the Stamp Act. On 5th August, 2005, Appellant No. 2 dismissed the Appeal on the ground that the Respondent was liable to pay stamp-duty under the provisions of Article 40(b) of Schedule-I of the Stamp Act. The Appellant No. 2 while dismissing the appeal of the Respondent interpreted the provisions of Sub-Sections (1) (2) & (3) of Section 4 of the Stamp Act and concluded that if there are several instruments in respect of the same transaction then, no matter what the concerned party may call a particular document as principal Instrument, the one chargeable with the highest stamp- duty shall be considered for payment of stamp-duty. Thus, according to Appellant No.2, out of the aforesaid three documents, the Respondent was liable to pay stamp-duty on the third document i.e. the Security-cum-Mortgage deed which was construed as the principal Instrument. However, while passing this order the Appellant No. 2 did not interpret the provisions of Section 4 (2) and the proviso thereto of the Stamp Act, which w as the case pleaded by the Respondent5. The Respondent being aggrieved filed Writ Petition No.4846/2005 before this Court to challenge the order dated 05.08.2005 passed by Appellant No.2. The learned Single Judge, while dealing with the controversy in question and the provisions of Article 40 (c) & Article 54 of Schedule-I read alongwith Section 4 of the Stamp Act gave finding that in the present case the Mortgage deed was executed as additional security by way of further assurance and therefore it was covered under Article 40(c) and it was not the principal or primary document/Instrument between the parties. The learned Single Judge held that the reasoning given by the Appellant No. 2 to deny advantage of Article 40(c) to the Respondent was clearly erroneous in as much as the principle or primary security document between the parties was not the mortgage deed but the two hypothecation deeds which were duly stamped. Further, the learned Single Judge held that the Security-cum-Mortgage deed was the document executed by the Respondent to guarantee due performance of and discharge of obligation already cast upon the Respondent by virtue of the two hypothecation deeds. While interpreting Article 54 r/w Article 40 of Schedule-I to the Stamp Act, the learned Single Judge in paragraph no. 7 held thus:Thus, the purpose of Security or mortgage contemplated by Article 54 is not as that of a security contemplated under Article 40 of Schedule-I of the Stamp Act. The very opening clause of Article 40 excludes documents covered by Article 54. Article 54 does not contemplate document which is by way of Security for repayment of money advanced or to be advanced to its executor or on its strength as loan. The basic purpose of document covered under Article 54 is to secure discharge of some already existing obligation from the executor of the documentThe learned Single Judge held that Article 54 had no application to the case of the Respondent and thus quashed and set aside the order dated 05.08.2005 passed by the Appellant No.2 as also the demand notice dated 01.01.2005.

Court's reasoning:
9. From the above Clause appearing in the Security-cumMortgage deed between the Respondent-Company and United Commercial Bank it is clear that the Respondent -Company had specifically deemed that the two hypothecation agreements would be the principal instruments in consonance with the provisions of Section 4 (2) of the Stamp Act, thereby negating the employment of Section 4 (3) to the facts of the Respondents case. The parties had specifically elected the Hypothecation agreements as the principal Instruments as required by the provisions of Section 4(2)In the said letter, apart from the cash credit limit of Rs.7 crores the value of the primary security, viz. hypothecation of plant and machineries, Telco vehicles, stores and spares lying at Nagpur, Chandrapur, Amravati, Raipur, Jagadalpur or elsewhere in the Companys go-downs, book debts and all current assets of the company were taken at the invoice Price or Market Price. Further, the immovable properties of the Respondent-Company situated at Amravati, Chandrapur and Nagpur was itself valued at Rs.720.18 lakhs. Apart from this, the Respondent was required to produce the personal guarantees of its five Directors and Corporate guarantees of six associate companies as mentioned therein11. Therefore, we are in agreement with the submissions made on behalf of the Respondent that the Security-cum-Mortgage Instrument which was entered into by the Respondent with United Commercial Bank was not the principal instrument and it will have to be construed as a collateral document in view of the provisions of Section 4(2) of the Stamp Act in the facts of the present case12. In view of the above, we find no merits in the submissions advanced on behalf of the Appellants and do not find it necessary to interfere with the order and judgment passed by the learned Single Judge.