Somatya Organics (India) Ltd. Vs.
Board of Revenue, U.P. [1985] INSC 246 (29 November 1985)
VENKATARAMIAH, E.S. (J) VENKATARAMIAH, E.S.
(J) MISRA, R.B. (J)
CITATION: 1986 AIR 403 1985 SCR Supl. (3) 786
1986 SCC (1) 351 1985 SCALE (2)1107
ACT:
Indian Stamp Act, 1899 ss.4 and 24, Article
23, Schedule I-B - Immovable property - property subject to equitable mortgage
- Sale of property - Consideration for sale - Computation of - For levy of
stamp duty on sale deed Debt, actual or contingent - Whether to form part of
consideration.
Words & Phrases: 'contingent liability' -
Meaning of Indian Stamp Act, 1899 s.24.
HEADNOTE:
Godavari Sugar Mills - appellant in Civil
Appeal No.
989 of 1972 - was the owner of a distillery
plant consisting of the lands, buildings, machinery etc. It entered into a
technical collaboration Agreement and obtained a deferred payment guarantee up
to the limit of Rs. 65,00,000 from the Punjab National Bank in favour of M/s.
Speichim, Paris under an equitable mortgage by deposit of title deeds of its
property including the aforesaid lands and buildings.
Godavari Sugar Mills resolved to sell the
lands, buildings and machinery to Somaiya Organics - appellant in Civil Appeal
No.988 of 1972 - for a consideration of Rs.36,64,678 and a sale deed was
executed on May 20, 1968. The sale deed recited that out of Rs. 36,64,678 Rs.
28,88,678 represented the price payable for the machinery, vehicles, stores,
finished goods etc. being all moveable items, the sale and transfer of which
had been completed by the parties to the document by manual delivery and the
balance of Rs. 7,76,000 represented the price payable in respect of the lands
and buildings as described in Schedule 'A' attached to the said document and
that the said document was being executed for the purpose of conveying title in
respect of the lands and buildings free of all encumbrances. The document
further stated that in case the vendee was to pay any amount on account of any
charge or encumbrances created by the vendor on the properties sold, the vendee
would be entitled to get back the entire sale consideration with interest from
the vendor on October 28, 1968 a declaration was signed by each appellant to
the effect that the properties which were being transferred under the document
dated May 20, 1968 were being sold subject to the equitable mortgage which had
been created in favour of the Punjab National Bank Ltd. in connection with the
deferred payment guarantee, after the Board of Directors of the two appellants
had 787 passed resolutions to that effect. All the three documents, namely, the
sale deed dated May 20, 1968 and the two deeds of declarations executed by the
appellants acknowledging that the sale was subject to the equitable mortgage
were presented for registration. The document dated May 20, 1968 had been
written on a stamp paper of Rs. 35,000 treating that the consideration for the
sale deed was Rs. 7,76,000.
The Sub-Registrar was of the view that the
properties had been sold subject to two liabilities, one for Rs.1,20,00,000 and
another for Rs.65,00,000 and therefore, the total consideration payable for
sale was Rs. 1,92,76,000 that there was deficiency of stamp duty of Rs.
8,32,420 and that each of the two supplementary deeds of declarations which had
been written on stamp papers of Rs. 3.50 should have been written on stamp
papers of Rs.4.50 and one rupee was payable on each of them as deficient duty.
The Sub- Registrar accordingly impounded the sale deed and the deeds of the
declarations and forwarded them to the Collector for necessary action.
The Collector referred the matter to the
Chief Controlling Revenue Authority - Board of Revenue, under s.56 (2) of the
Indian Stamp Act 1899.
The Board of Revenue made a reference to the
High Court under s 57 of the Act for its opinion.
The High Court held that the two deeds of
declarations were supplementary to the sale deed dated May 20, 1968 and all the
three should be read together to ascertain the terms of sale settled between
the parties, that the intention of the parties was that the immovable property
was being transferred subject to the equitable mortgage created in favour of
the Punjab National Bank Ltd. for Rs. 65,00,000 that under s.4 of the Act the
duty of Rs. 4.50 was payable as against Rs. 3.50 on the two declarations, that
the inclusion of Rs. 1,20,00,000 in the consideration for the sale was
incorrect because the property sold was not subject to the payment of that
loan; that was a loan facility given by the Punjab National Bank to Somaiya
Organics and the property given as security therefor was the property of
Somaiya Organics and not the property which was being sold and the sale was
also not subject to that debt, that Rs.
28,88,678 which was the price of the
moveables i.e. the machinery etc. was not part of the consideration as they did
not constitute the subject matter of sale and they had already been sold by
manual delivery, 788 that the sum of Rs. 65,00,000 for which the equitable
mortgage had been created on the property transferred under the sale was to be
treated as part of the consideration for the conveyance in question under s.24
of the Act, that the value on which stamp duty was payable under the Act as per
Article 23 in Schedule I-B thereto was Rs. 72,76,000 being the total of Rs.
7,76,000 mentioned in the deed and Rs.
65,00,000 being the contingent liability
under the equitable mortgage and that appropriate stamp duty should be
collected on Rs. 72,76,000 in the case of the document dated May 20, 1968 and
Rs. 4.50 as against Rs. 3.50 on each of the two declarations.
Dismissing the Appeals to this Court, ^
HELD: 1. The High Court has rightly taken the
view that the amount of Rs.65,00,000 should also be deemed as part of the
consideration for the sale and that stamp duty was leviable on Rs.72,76,000
under s.24 of the Indian Stamp Act, 1899. [804 D]
2. The object of s.24 of the Act is very
clear. That section means that when a purchaser purchases a property for a
certain amount subject to the payment of another debt, actual or contingent, he
is virtually purchasing the property for the said amount plus the amount of the
debt and the aggregate of the two amounts ought to be treated as the true
amount for which the property is being sold. Otherwise, there is bound to be a
difference between the true consideration and the consideration which is made
liable to stamp duty. [803 D-E]
3. A contingent liability to the payment of
any debt means such outstanding debt or possible adverse verdict which has to
be complied with but which is not ascertained on the relevant date. A security
for any contingent future payments also falls within the meaning of section 24
of the Act. [797 E-F] In the instant case, though in the first document dated
May 20, 1968 it had been recited that the properties mentioned in Schedule 'A' therein
were being conveyed free from all encumbrances by the two deeds of declarations
dated October 28, 1968 executed by and on behalf of Godavari Sugar Mills and
Somaiya Organics it was made very clear that the properties were being conveyed
subject to the equitable mortgage upto the limit of Rs. 65,00,000. It may be
that on that date no liability as sch had actually arisen. But the terms of the
mortgage were such that there was the contingency of the liability up to
Rs.65,00,000 materialising. Pursuant to the prior arrangements 789 entered into
between Godavari Sugar Mills and Somaiya Organics a letter was addressed to the
Punjab National Bank on December 15, 1964 and on the basis of the letter the
title deeds in respect of the property now sold had been handed over to the
bank creating an equitable mortgage up to Rs. 65,00,000. But the bank had not
actually paid any amount under the Deferred Payment Guarantee to M/s Speichim
even by April 29, 1969 as is evident from the letter written by the bank to
Godavari Sugar Mills. The mortgage which had been created on December 14, 1964
was alive on the date of the transaction and it was in force even on April 29,
1969 though the mortgagors had been substituted by the purchaser of the
property i.e. Somaiya Organics. The Deferred Payment Guarantee being in force
even on April 29, 1969 the contingent liability under the equitable mortgage
was also very much in existence on the date of sale i.e. May 20, 1968 even
though no payment had been made by the Bank to N/s Speichim, Paris. If on any
future date the Bank was compelled to pay any amount under the guarantee given
by it, such amount upto the limit of Rs 65,00,000 could be realised by the Bank
by enforcing the mortgage against the property in question. If that was not the
position, there would have been no necessity to execute the two deeds of
declaration stating that the properties were being sold subject to the
mortgage. Had the document of May 20, 1968 been the only document then
questions would have arisen whether the recital therein that the consideration
for the properties which were considered sufficient by the bank to secure Rs.
65,00,000 could truly be Rs.7,76,000 and
whether the said recital amounted to a fraud on the stamp law or not. The duty
to decide the said questions does not arise in view of the deeds of declaration
which treated the sale as one subject to the mortgage the maximum liability
under which at a future time could be Rs. 65,00,000. If the sale had been free
from mortgage then any such contingent future liability would have fallen on
the vendor Godavari Sugar Mills. But the parties to the sale took adequate
precaution to prevent any such liability being there by making it very clear
that the said liability to the Bank would be on the properties sold in the
hands of the purchaser, Somaiya Organics and by stating that under the
tripartite agreement which was to be executed, the Bank would treat Somaiya
Organics as the company responsible for that debt in the place of Godavari
Sugar Mills. The Bank had in fact written to the Godavari Sugar Mills on April
29, 1969 that on November 6, 1968 the name of Somaiya Organics had been
substituted for the name of the Godavari Sugar Mills in the Deferred Payment
Guarantee. [797 F-H; 799 D-E; 800 D-G; 802 G-H; 803 A-C] 790 Lord Canning v.
Raper, 118 English Reports 400;
Mortinore v. Inland Revenue Commissioners,
[1864] 2 & 838;
Independent Television Authority v. Inland
Revenue Commissioners, [1960] 2 All E.R. 481 and Coventry City Council v.
Inland Revenue Commissioners, [1978] 1 All E.R.
1107 relied on.
Sidhnath Mehrotra v. Board of Revenue, A.I.R.
1959 All 655 and Board of Revenue, Uttar Pradesh v. Rai Saheb Sidhnath
Mehrotra, [1965] 2 S.C.R. 269 inapplicable.
CIVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 988 and 989 of 1972.
From the Judgment and Order dated 23.12.1971
of the Allahabad High Court in Misc. Stamp Act Reference No. 466 of 1969.
S.T. Desai, Mrs. A.K. Verma, Joel Peres and
D.N. Mishra for the Appellants.
Anil Deo Singh, Mrs. Sudhir Kulshreshta and
Mrs. Shobha Dixit for the Respondent.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. The appellant in Civil Appeal No. 988 of 1972 is Somaiya
Organics (India) Ltd. (hereinafter referred to as 'Somaiya Organics') and the
appellant in Civil Appeal No. 989 of 1972 is Godavari Sugar Mills Ltd.
(hereinafter referred to as the 'Godavari
Sugar Mills').
These two appeals are filed under Article 136
of the Constitution against the judgment of the High Court of Allahabad in
Miscellaneous Reference No. 466 of 1969 which was a reference made by the Chief
Controlling Revenue Authority - Board of Revenue, Uttar Pradesh under section
57 of the Indian Stamp Act, 1899 (hereinafter referred to as 'the Act') as in
force in the State of Uttar Pradesh involving the question relating to the
proper stamp duty chargeable in respect of a transaction under which certain
lands and buildings belonging to Godavari Sugar Mills were sold in favour of
Somaiya Organics. The facts of the case are these.
Godavari Sugar Mills was the owner of a
distillery plant consisting of the lands, buildings, machinery etc.
situated in the village called Basahia alias
Captainganj in the district of Deoria, State of Uttar Pradesh. It had entered
into a technical collaboration agreement with M/s.
Melle Bezons and in that 791 connection
pursuant to the resolution of its Board of Directors passed on October 23, 1964
it had obtained a deferred payment guarantee upto the limit of Rs. 65 lakhs
from the Punjab National Bank Ltd. in favour of M/s. Speichim, Paris under an
equitable mortgage by deposit of title deeds of its property including the
lands and buildings referred to above. That on March 2, 1962 Godavari Sugar
Mills had resolved to sell the lands, buildings and machinery to Somaiya
Organics for a consideration of Rs.
36,64,678 and pursuant to the said resolution
a sale deed was executed on May 20, 1968. The sale deed recited that out of Rs:
36,64,678, referred to above, Rs. 28,88,678 represented the price payable for
the machinery, vehicles stores, finished goods etc. being all moveable items,
the sale and transfer of which had been completed by the parties to the
document by manual delivery and the balance of Rs.
7,76,000, represented the price payable in
respect of the lands and buildings of the sugar factory as described in
Schedule 'A' attached to the said document and that the said document was being
executed for the purpose of conveying title in respect of the lands and
buildings free of all incumbrances. The above Rs. 7,76,000 was to be paid not
in cash but in the form of allotment of 7760 fully paid-up equity shares of the
face value of Rs. 100 each. The document further stated that in case the vendee
was to pay any amount on account of any charge or incumbrances created by the
vendor on the properties sold, the vendee would be entitled to get back the
entire sale consideration with interest at 1 per cent per month from the
vendor. That on October 28, 1968 a declaration was signed for and on behalf of
the Godavari Sugar Mills by the two Directors of the Godavari Sugar Mills who
had been authorised to do so which had the effect of modifying or correcting
certain error which had crept into the document dated May 20, 1968. It stated
inter alia :
"3. On the 15th day of December, 1964
the company deposited with the Punjab National Bank Ltd.
(hereinafter referred to as "the
Bank") the title deeds of the Company aforementioned immoveable property
with intent to create a security in favour of the Bank by way of equitable
mortgage.
The creation of such security by way of
equitable mortgage was authorised by a resolution of the Board of Directors of
the Company passed on the 23rd day of October, 1964. A list of title deeds so
deposited with the Bank is set out in the Second Schedule hereto.
4. By a deed of Sale dated the 20th day of
May, 1968 and made between the Company of the one part and Messrs. Somaiya
Organics (India) Limited (hereinafter 792 for the sake of brevity called
"the S.O.I.L.") of the other part, the Company transferred with
effect from 1st June, 1967 all its right title and interest in the said
immoveable property described in the First Schedule hereto along with the
Buildings standing thereon in favour of the S.O.I.L. for the consideration and
on the terms and conditions set out in the said deed of the Sale dated 20th May
1968.
5. Through inadvertance and oversight it has
been stated in the said Deed of Sale that the Company had convenated that the
entire property sold was "free from all sorts of transfer charges or encumbrance
created by the Vendor (the company) in favour of any one. "In the said
Deed of Sale it was also further stated that in case of vendee (i.e. the
S.O.I.L.) might have to pay any amount by way of charge transfer or encumbrance
created by the vendor (i.e., the company) on the said property the vendee
(i.e., the SOLL) shall be entitled to get back the entire sale consideration
with interest at 1 % per month from the said vendor (i.e. the Company) we say
that it was not the intention either of the company or of the S.O.I.L. to
transfer the said immoveable property described in the First Schedule hereto
free from the charge created by the Company in favour of the Bank by way of
Equitable Mortgage by deposit of title deeds as aforesaid and it was only through
oversight and inadvertence that it was erroneously stated in the said Deed of
Sale that the property was free from any encumbrance or charge, or that in the
event of the S.O.I.L. having to pay any amount by way of charge transfer or
encumbrance the S.O.I.L. should be entitled to get back the entire sale
consideration as stated aforesaid.
6. We solemnly and sincerely declare and say
that the intention of the company as also the S.O.I.L.
was that the said immovable property should
be transferred subject to the charge created in favour of the Bank by the
Company by deposit of title deeds on the 15th day of December, 1964 as stated
in paragraph 3 above." (underlining by us) As can be seen from the extract
of the declaration given above that the properties which were being transferred
under the document dated May 20, 1968. were being sold subject to the 793
equitable mortgage which had been created in favour of the Punjab National Bank
Ltd. in connection with the deferred payment guarantee. Before the above declaration
was signed resolutions were passed by the Board of Directors of Godavari Sugar
Mills and the Board of Directors of Somaiya Organics on 17th September, 1968
affirming transfer of property under the document dated May 20, 1968 subject to
the equitable mortgage in favour of the Punjab National Bank Ltd. upto the
limit of Rs.65 lakhs. The resolution passed by the Board of Directors of
Somaiya Organics on the 17th September, 1968, referred to above, contemplated
the execution of a tripartite agreement by and amongst Gadavari Sugar Mills,
somaiya Organics and the Punjab National Bank Ltd. treating the deferred
payment guarantee issued in favour of M/s Speichim, Paris as having been given
at the instance and on behalf of Somaiya Organics, confirming the equitable
mortgage, and transferring the liability thereunder as mentioned in the draft
tripartite agreement which had been placed before the Board for its
consideration. Somaiya Organics also executed a deed of declaration on October
28, 1968 stating that it had purchased the properties sold under the document
dated May 20, 1968 subject to the equitable mortgage executed by Godavari Sugar
Mills in favour of the Punjab National Bank Ltd. All the three documents,
namely, the sale deed dated May 20, 1968 and the two deeds of declaration
executed by Godavari Sugar Mills and by Somaiya Organics respectively
acknowledging that the sale was subject to the equitable mortgage were
presented before the Sub-Registrar, Hata for registration. The document dated
May 20, 1968 had been written on a stamp paper of Rs. 35,000 treating that the
consideration for the sale deed was Rs. 7,76,000. The Sub- Registrar was of the
view that the properties had been sold subject to two liabilities, one for Rs.
1,20,00,000 and another for Rs. 65,00,000. According to him the total
consideration payable for the sale was in the order of Rs.
1,92,76,000 and there was deficiency of stamp
duty of Rs.
8,32,420. He was also of the view that each
of the two supplementary deeds of declarations which had been written on stamp
papers of Rs.3.50 should have been written on stamp papers of Rs.4.50 and one
rupee was payable on each of them as deficient duty. The Sub-Registrar
accordingly impounded the sale deed and the deeds of declarations and forwarded
them to the Collector for necessary action. The Collector in his turn under
section 56(2) of the Act referred the matter to the Chief Controlling Revenue
Authority, i.e., Board of Revenue, Uttar Pradesh. The Chief Controlling Revenue
Authority, i.e., Board of Revenue thereafter referred the case to the High
Court of Allahabad under section 57 of the Act. In its reference the Board of
Revenue referred six questions for the opinion of the High Court.
794 The reference was first heard by the High
Court in March, 1970. By its order dated March 2, 1970 the High Court referred
the case back to the Chief Controlling Revenue Authority, Uttar Pradesh
directing it to submit a fresh statement of the case incorporating certain
additions and alterations referred to in that order along with certain other
documents. Accordingly a fresh statement of the case was submitted to the High
Court. In the reference the following six questions were referred to the High
Court for its opinion
1. Whether in view of the above opinion of
the Board, the principal sale deed dated 20.5.1968 is a conveyance not only of
the lands and buildings but also the machineries fixed in the earth in
consideration or Rs.36,64,678 in the light of section 24 of the Stamp Act and
is chargeable with a duty of Rs.9,97,425 under Article 23 Schedule I- B of the
U.P. Stamp (Amendment) Act, 1962, as against Rs. 35,000 paid? or
2. Whether the sale deed aforesaid is a
conveyance only of lands and buildings in consideration of Rs.7,76,000 plus
Rs.1,85,00,000 total Rs.1,92,76,000 in the light of section 24 of the Stamp Act
and is chargeable with a duty of Rs.
8,67,420 under Article 23 aforesaid as
against Rs.35,000 paid? or
3. Whether the sale-deed aforesaid does not
fall within the ambit of section 24 of the Stamp Act and is conveyance of the
lands and buildings along with machineries fixed in the earth in consideration
of Rs. 36,64,678 and is chargeable with a duty of Rs. 1,74,925 under Art.23
aforesaid as against Rs.35,000 paid? or
4. Whether the sale-deed aforesaid does not
fall within the ambit of section 24 of the Stamp Act and is conveyance of lands
and buildings only in consideration of Rs.7,76,000 only and is sufficiently
stamped with a duty of Rs.35,000 under Article 23 aforesaid? 795 or
5. If the sale-deed aforesaid does not fall
under any of the alternatives mentioned above what should be deemed to be its
consideration for payment of stamp duty under Article 23 aforesaid read with
section 4 and section 24 of the Stamp Act? or
6. Whether the other two documents are
supplementary deeds within meaning of section 4 of the Stamp Act and were
liable as such to a duty of Rs.4.50 as against Rs.3.50 paid in each case? On
the basis of the above six questions the High Court formulated two questions
for its consideration by reframing the questions referred to it: (1) what was
the correct duty chargeable under the Stamp Act in respect of the sale deed
dated May 20, 1968, and (2) whether the other two documents were supplementary
deeds within the meaning of section 4 of the Stamp Act and were liable as such
to duty of Rs. 4.50 as against Rs.3.50 paid in each case? The High Court by its
judgment dated December 23, 1971 which is under appeal found that the two deeds
of declaration were supplementary to the sale deed dated May 20,1968 and all
the three should be read together to ascertain the terms of sale settled
between the parties. It held that the intention of the parties was that the
immoveable property was being transferred subject to the equitable mortgage
created in favour of the Punjab National Bank Ltd. for Rs. 65,00,000.
Accordingly, it held that under section 4 of the Act the duty of Rs. 4.50 was
payable as against Rs. 3.50 on the two declarations. The High Court also held
that the inclusion of Rs. 1,20,00,000 in the consideration for the sale was
incorrect because the property sold was not subject to the payment of that
loan.
That was a loan facility given by the Punjab
National Bank to Somaiya Organics and the property given as security therefore
was the property of Somiya Organics and not the property which was being sold.
The sale was also not subject to that debt. This need not detain us any longer
since the correctness of this part of the order is not questioned by any party
before us. Similarly the inclusion of Rs. 28,88,678 which was the price of the
moveables i.e. the machinery etc. was also held by the High Court to be not
part of the consideration as they did not constitute the subject matter of
sale. They had already been sold by manual delivery. This part of the case also
796 is not in question before us. The High Court, however, held that the sum of
Rs. 65 lakhs for which the equitable mortgage had been created on the property
transferred under the sale was to be treated as part of the consideration for
the conveyance in question under section 24 of the Act. It accordingly held
that the value on which stamp duty was payable under the Act as per Article 23
in Schedule I-B thereto was Rs. 72,76,000 being the total of Rs. 7,76,000
mentioned in the deed and Rs. 65 lakhs being the contingent liability under the
equitable mortgage and directed that appropriate stamp duty should be collected
on Rs.72,76,000 in the case of the document dated May 20, 1968 and Rs.4.50 as
against Rs. 3.50 on each of the two declarations.
Aggrieved by the inclusion of Rs. 65 lakhs in
the value for purposes of levying duty Godavari Sugar Mills and Somaiya
Organics have filed these two appeals.
The provision of law which arises for
consideration in this case is section 24 of the Act. It reads thus :
"24. Where any property is transferred
to any person in consideration, wholly or in part, of any debt due to him, or
subject either certainly or contingently to the payment or transfer of any
money or stock, whether being or constituting a charge or incumbrance upon the
property or not, such debt, money or stock is to be deemed the whole or part,
as the case may be, of the consideration in respect whereof the transfer is
chargeable with ad valorem duty:
Provided that nothing in this section shall
apply to any such certificate of sale as is mentioned in Article No. 18 of
Schedule I.
Explanation.- In the case of a sale of
property subject to a mortgage or other incumbrance, any unpaid mortgage money
or money charged, together with the interest (if any) due on the same, shall be
deemed to be part of the consideration for the sale:
Provided that, where property subject to a
mortgage is transferred to the mortgagee, he shall be entitled to deduct from
the duty payable on the transfer the amount of any duty already paid in respect
of the mortgage.
797 Illustrations
1. A owes Rs.1,000. A sells a property to B,
the consideration being Rs.500 and the release of the previous debt of
Rs.1,000. Stamp duty is payable on Rs.1,500.
2. A sells a property to B for Rs.500 which
is subject to a mortgage to C for Rs. 1,000 and unpaid interest Rs.200.
Stamp-duty is payable on Rs.1,700.
3. A mortgages a house of the value of
Rs.10,000 to B for Rs.5,000. B afterwards buys the house from A. Stamp-duty is payable
on Rs.10,000 less the amount of stamp-duty already paid for the mortgage."
The meaning of section 24 in short is that where property is conveyed to a
person for consideration, wholly or in part, of any debt due to him, subject
either certainly or contingently to the payment or transfer of any money or
stock whether or not charged on the property then debt money or stock is to be
deemed the whole or part as the case may be of the consideration in respect of
which the conveyance is charged with ad valorem stamp duty. The Explanation to
section 24 of the Act provides that in the case of a sale of property subject
to a mortgage or other incumbrance any unpaid mortgage money or money charged
together with the interest (if any) due on the same shall be deemed to be part
of the consideration for the sale. A contingent liability to the payment of any
debt means such outstanding debt or possible adverse verdict which has to be
complied with but which is not ascertained on the relevant date. A security for
any contingent future payments also falls within the meaning of section 24 of
the Act.
In the instant case, though in the first
document dated May 20, 1968 it had been recited that the properties mentioned
in Schedule 'A' therein were being conveyed free from all incumbrances by the
two deeds of declarations dated October 28, 1968 executed by and on behalf of
Godavari Sugar Mills and Somaiya Organics it was made very clear that the said
properties were being conveyed subject to the equitable mortgage upto the limit
of Rs. 65,00,000. It may be that on that date no liability as such had actually
arisen. But the terms of the mortgage were such that there was the contingency
of the liability up to Rs. 65,00,000 materialising. Pursuant to the prior
arrangement 798 entered into between Godavari Sugar Mills and Somaiya Organics,
a letter was addressed to the Punjab National Bank on December 15,1964 which
read as follows :
"THE GODAVARI SUGAR MILLS LTD.
E334-45/ December 15, 1964 The Punjab
National Bank Ltd.
Karimjee House Branch, Sir P.M.Road, Bombay -
1.
Dear Sirs RE : DEFERRED PAYMENT GUARANTEE FOR
RS.65 LAKHS IN FAVOUR OF M/S SPEICHIM OF PARIS With reference to the above
facility which your bank has agreed to give to our Company, we beg to record
that at the meeting of the Board of Directors held on Friday the 23rd October,
1964, our Board has approved of and agreed to the terms and conditions on which
the captioned Guarantee is to be issued by your Bank to the Company and for the
sake of good order we beg to hereby record that your Bank at our request has
agreed to initially issue the said guarantee to us on the terms and conditions
set out in the letter dated 16th October, 1974 bearing ref. No. Loans/24241
addressed by the Banks Head Office to the Manager, B.O. Karimjee house, Bombay
and a copy of which is, hereto attached for case of reference.
We hereby confirm that our Company and our
Director will do all act matters and things necessary to carry out and
implement the terms and conditions to be observed and performed as envisaged in
the said letter dated the 16th October, 1964.
As desired by you we have passed the
necessary resolutions at the meeting of our Board of Directors held on the 23rd
October, 1964. A true and complete copy of the relevant portion of the minutes
of the said meeting is annexed as Ex.A to the Joint Declaration of (i) K.J.
Somaiya and (ii) Sri S.K. Somaiya which is sent herewith. We also record that
pursuant to the authority given to our Director Shri 799 K.J. Somaiya in that
behalf, we have through Shri K.J. Somaiya deposited with you all the title
deeds if our immoveable properties at Captainganj with intent to create
security thereon by way of equitable mortgage, the intention of the parties
being that your Bank may look to the said security and thereout reimburse
realise and recover all monies that the Bank may have to pay or disburse by
reason or as a result of or in connection with the issue of the above captioned
guarantee, and also all costs, charges and expenses which the Bank may incur
(and in case of legal costs the attorney and client costs.) We also send
herewith the Counter indemnity duly executed by us and our two Directors Shri
K.J. Somaiya and Shri S.K. Somaiya.
Yours faithfully, FOR THE GODAVARI SUGAR
MILLS LTD. For K.J. SOMAIYA & SONS PRIVATE LTD.
Sd/- Director, Managing Agents." (under
lining by us) On the basis of the above letter the title deeds in respect of
the property now sold had been handed over to the Bank creating an equitable
mortgage up to Rs.65,00,000. It is true that the Bank had not actually paid any
amount under the Deferred Payment Guarantee to M/s Speichim even by April 29,
1969 as can be seen by the letter of that date written by the Bank which read
thus :
"THE PUNJAB NATIONAL BANK LTD.
PNB HOUSE SIR P.M.ROAD BOMBAY 29.4.1969 REF:
LA/B/3404/69 M/s The Godavari Sugar Mills Ltd.
Fazalbhoy Building, Mahatma Gandhi Road,
BOMBAY - 1.
Dear Sir, REF: EQUITABLE MORTGAGE FOR
CAPTAINGANJ DISTILLERY We thank you for your letter No. E 334/45/2754 dt.
800 26.4.1969 and have to inform you that you
had created equitable mortgage in favour of the Bank on 14.12.1964 in respect
of your immoveable property known as "Captainganj Distillery" as
security for Deferred Payment Guarantee issued by us on 15.12.1964 on your behalf
in favour of M/s Speichim Paris. Subsequently on 6.11.1968 the name of M/s
Somaiya Organics (India) Ltd., was substituted for the name of your company in
the said Deferred Payment Guarantee to the intent that the said guarantee be
treated as having been issued by us for and on behalf of the said M/s Somaiya
Organics (India) Ltd.
We hereby confirm that we have not so far
made any payment whatsoever either on behalf of your company or on behalf of
M/s Somaiya Organics (India) Ltd. in respect of the above guarantee either to
M/s Speichim Paris or to any other party.
Thanking you, Yours faithfully, Sd/-
Manager" But it is however clear that the mortgage which had been created
on December 14, 1964 was alive on the date of the transaction and it was in force
even on April 29, 1969 though the mortgagors had been substituted by the
purchaser of the property i.e. Somaiya Organics. The Deferred Payment Guarantee
being in force even on April 29, 1969 the contingent liability under the
equitable mortgage was also very much in existence on the date of sale i.e. May
20, 1968 even though no payment had been made by the Bank to M/s Speichim,
Paris. If on any future date the Bank was compelled to pay any amount under the
guarantee given by it, such amount upto the limit of Rs.65,00,000 could be
realised by the Bank by enforcing the mortgage against the property in
question. If that was not the position, there would have been no necessity to
execute the two deeds of declaration stating that the properties are being sold
subject to the mortgage.
Lord Canning v. Raper 118 English Reports
400, is a case in point. That case concerned the stamp duty payable on an
assignment by a debtor by way of mortgage in favour of one who had stood surety
for the debtor. The question was whether the assignment was a security for the
payment of money to be thereafter lent, advanced or paid within the meaning of
Part I of 801 the Schedule to the Stamp Act, 1815 which was in force in
England. It was held that a security for contingent future payment was as much
within the words and meaning of the statute as a security for certain future
payments. In Mortinore v. Inland Revenue Commissioners (1864) 2 H & C 838,
which was decided about 12 years later the vendor had sold a property subject to
a mortgage debt which was expressed to become payable if but only if, the
vendor's predecessor died without male issue. The point was whether the said
contingent debt had to be taken into account under the wording of section 10 of
the English Stamp Act, 1853, the relevant part of which read thus:
Where any Lands or other Property shall be
sold and conveyed subject to any Mortgage....or other Debt, or to any gross or
entire Sum of Money or Debt shall be deemed the Purchase or Consideration
Money, or Part of the Purchase or Consideration Money......." Martin B,
delivering the judgment of the court, said :
"....we think that the words of the
enactment any mortgage or other debt, include contingent debts as well as
absolute ones....................." In the case before us we need not read
'contingent debts' into the statutory provision in section 24 of the Act
because it expressly refers to any debt which may become contingently payable
which should be deemed to be part of the consideration.
In Independent Television Authority v. Inland
Revenue Commissioners (1960) 2 All E.R. 481, the appellant who was liable to
pay stamp duty objected that the total stamp duty payable could not be
determined at the date when the document was tendered for stamping owing to the
clause for increase or decrease qualifying a liability contracted earlier. This
argument was rejected on the broad principle that such words as 'money payable'
when used in the English Stamp Act, 1891 intended money payable either on a
contingency or as a certainty. Lord Radcliffe, with whom Lord Tucker and Lord
Morris agreed observed thus :
"I take it, therefore, to be a
well-settled principle that the money payable is ascertained for the purposes
of charge without regard to the fact that the agreement in question may itself
contain provisions 802 which will, in certain circumstances, prevent it being
payable at all. If that is so, there is at least no better reason for adopting
a different principle when there are found clauses which merely vary the amount
to be paid according to specified contingencies. Nor does it matter for this
purpose whether the effect of such clause is to make it possible for the sum to
be increased or to be diminished. In Country of Durham Electrical Power
Distribution Co. v. Inland Revenue comrs.
(1909) 2 KB 604 any variation would have been
downwards; in the Underground Electric Rys. Co.
case (1906) AC 21 (that is, the first case)
the variation might have been upwards or downwards.
What is necessary is that it should be
possible to ascertain from the agreement that there is some specified sum
agreed on as the subject of payment which may perhaps fairly be called the
prima facie or basic payment. Even that minimum condition may have to be
restated in relation to certain kinds of securities, such for example as
guarantees, in which the ad valorem charge is calculated according to the
maximum sum contingently payable, or, to put it in another way, the amount of
the guarantee; see Underground Electric Rys. Co. of London, Ltd. & Glyn. Mills,
Currie & Co. v. Inland Revenue Comrs. [1916] 1 KB 306)" In Coventry
City Council v. Inland Revenue Commissioners, [1978] 1 All E.R. 1107, the
Chancery Division has followed the above principle after reviewing all the
cases referred to therein.
It was, however, argued by the learned
counsel for the appellants that the liability of the document for the stamp
duty was dependent upon what was written in it and the Court should not look at
anything else to decide the reference made under section 57 of the Act. It is
not necessary to consider the correctness of this proposition in this case,
since it is the case of the appellants themselves that what was a sale free
from all incumbrances originally was treated as a sale subject to the equitable
mortgage from the very beginning when the deeds of declaration were written,
Had the document of May 20, 1968 been the only document then questions would
have arisen whether the recital therein that the consideration for the
properties which were considered sufficient by the Bank to secure Rs. 65,00,000
could truly be Rs. 7,76,000 and whether the said recital amounted 803 to a
fraud on the stamp law or not. We are relieved of the duty to decide the said
questions in view of the deeds of declaration which treated the sale as one
subject to the mortgage the maximum liability under which at a future time
could be Rs. 65,00,000. If the sale had been free from mortgage then any such
contingent future liability would have fallen on the vender Godavari Sugar
Mills. But the parties to the sale took adequate precaution to prevent any such
liability being there against the Godavari Sugar Mills by making it very clear
that the said liability to the Bank would be on the properties sold in the
hands of the purchaser, Somaiya Organics and by stating that under the
tripartite agreement which was to be executed, the Bank would treat Somaiya
Organics as the company responsible for that debt in the place of Godavari
Sugar Mills. The Bank had in fact written to the Godavari Sugar Mills on April
29, 1969 that on November 6, 1968 the name of Somaiya Organics had been
substituted for the name of the Godavari Sugar Mills in the Deferred Payment
Guarantee 'to the intent that the said guarantee be treated as having been
issued by us for and on behalf of the said M/s. Somaiya Organics (India) Ltd.'.
The object of section 24 of the Act is very
clear. That section means that when a purchaser purchases a property for a
certain amount subject to the payment of another debt, actual or contingent, he
is virtually purchasing the property for the said amount plus the amount of the
debt and the aggregate of the two amounts ought to be treated as the true
amount for which the property is being sold. Otherwise there is bound to be a
difference between the true consideration and the consideration which is made
liable to stamp duty. To illustrate, take the present case itself. The
properties which had been treated as sufficient security by the Bank for the
liability of Rs.65,00,000 must be ordinarily much more valuable than
Rs.65,00,000 but on the date of conveyance stamp duty would have become payable
only on Rs.7,76,000 but for the above rule in section 24 of the Act. In this
case the amount of Rs.7,76,000 must have been fixed by the parties taking into
consideration the liability to the Bank under the mortgage which might arise in
future.
The two decisions on which reliance was
placed by the appellants are of no assistance to them. The first one was
Sidhnath Mehrotra v. Board of Revenue, A.I.R. 1959 All 655.
In that case the High Court of Allahabad held
that where an immoveable property which was encumbered by a charge or mortgage
was sold but not subject to the incumbrance, then the amount of money
constituting the charge or mortgage need not be added to the consideration
mentioned in the conveyance as the value of the property sold. The next 804
decision is the decision of this Court which was rendered on appeal against the
above decision of the Allahabad High Court. The said decision is Board of
Revenue, Uttar Pradesh v. Raj Sabah Sidhnath Mehrotra, [1965] 2 S.C.R. 269.
This Court affirmed the decision of the Allahabad High Court and dismissed the
appeal of the Revenue. In the transaction involved in these two decisions the
sale was free from all incumbrances or any mortgage. In such case even if there
was some mortgage money which had remained unpaid the Explanation to section 24
of the Act could not be relied on by the Revenue to insist upon payment of
stamp duty on such unpaid mortgage money. But the facts of the case before us
are different. Here the sale was in fact subject to the equitable mortgage in
favour of the Bank. Hence these decisions are of no avail to the appellants.
We are of the view that the High Court in its
well- considered judgment has rightly taken the view that the amount of
Rs.65,00,000 should also be deemed as part of the consideration for the sale
and that stamp duty was leviable on Rs. 72,76,000 under section 24 of the Act.
The appeals, therefore, fail and they are
dismissed with costs.
A.P.J. Appeals dismissed.
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