CHIEF CONTROLLING REVENUE AUTHORITY vs. COSTAL GUJARAT POWER LTD. .

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 6054 OF 2015 (Arising out of S.L.P.(C) NO.32319 of 2013) Chief Controlling Revenue Authority …..Appellant(s) Versus Costal Gujarat Power Ltd. and others ..Respondent(s) JUDGMENT M. Y. EQBAL, J. Leave granted. 2. The Full Bench of the Gujarat High Court on reference made by the Chief Controlling Revenue Authority, State of Gujarat under Section 54(1A) of the Gujarat Stamp Act, 1958 (in JUDGMENT short, “the Act”), passed the impugned judgment and order dated 3.12.2012 in Stamp Reference No.1/2011 answering the reference in favour of the respondent and against the Revenue holding that the respondent was not required to pay the dues of deficit stamp duty of Rs. 50,41,600/-. 1 Page 1 3. The questions referred to the High Court for its opinion and decision arise as under:-

(B) The deed of “indenture the deed of mortgage for delayed after assets” which was registered on 6.10.2009 vide Regn.no.3375, at the office of the Sub-Registrar, Mundra (District Kachchh) by the applicant is required to be considered as per Schedule 1’s Articles 6 and 36 as per simple mortgage and whether the applicant is required to pay Rs. 4,21,600 or not?” 4. The facts of the case lie in a narrow compass. 5. The respondent is a Company named Coastal Gujarat Power Ltd and it needed financial assistance for setting up an Ultra Mega Power Project in the area of Kutch-Bhuj and for that JUDGMENT purpose it secured assistance from few lenders. The lenders i.e. financial institutions, which were thirteen in number, formed a consortium as a trust and executed a security trustee agreement (STA) inter se appointing one banker, viz. the State Bank of India as the lead trustee, called the security trustee. The duties of the security trustee are carved out in the said agreement of security trustees. 2 Page 2 6. The respondent executed an “Indenture of Mortgage for Delayed After Assets Deed’ with the State Bank of India, the said

the Sub-Registrar, Mudra, by paying stamp duty of Rs. 4,21,000/- and the deed was registered. 7. According to the appellant, the respondent was liable to pay Rs. 54,62,000/- on the said deed and, hence, demanded the balance amount of Rs. 50,41,000/- from the respondent by issuing show cause notice dated 5.11.2009. The issue was forwarded for consideration of the Deputy Collector, Stamp Duty Valuation Organisation, Bhuj-Kutch under Section 33 of the Act. 8. The respondent was given an opportunity of hearing and JUDGMENT vide order dated April, 3, 2010, the Deputy Collector held that the respondent was liable to pay the deficit stamp duty with the amount of penalty of Rs.250/-. 9. The revision application filed by the respondent under Section 53[1] of the Act was dismissed vide order dated March, 28, 2011. The respondent thereafter made an application under 3 Page 3 Section 54[1-A] of the Act thereby giving rise to the Reference Proceedings. 10. By way of the Reference, the opinion of the High Court was

entitled to recover any additional stamp duty based upon its perception of the legislative intendment behind Section 5 of the Act. The Court noted that stamp duty is payable on instruments and not on transactions. Therefore, merely because the intended effect was achieved by executing one single document as against different sets of documents, such fact would not enable the State authorities to justify the conclusion that the one single document falls under the purview of Section 5 of the JUDGMENT Act. It was SBI alone which had the power to enforce the document against the respondent. The High Court further opined that there being only one instrument creating a mortgage by a borrower in favour of a security trustee, such relation between the borrower and security trustee is independent of the relationship between the borrower and the lending banks. The relationship between the borrower and the security trustee is 4 Page 4 that of a mortgagor and mortgagee. By taking aid of the provision of the Indian Trust Act and after creation of a different valid trust deed and making payment of stamp-duty thereon in

security trustee of the lending Banks and held the mortgage for and on behalf of those beneficiaries. Therefore, by the instrument in question, either fictionally or otherwise, no separate or distinct matters or transactions are created. Thus, the applicant is the mortgagor and the S.B.I., in the capacity of a trustee, is the mortgagee. The instrument does not involve either “distinct matters” or “distinct transactions” so as to attract Section 5 of the Act. The Court found from the document in question that the State Bank of India is the only mortgagee JUDGMENT under the instrument and no rights in the mortgaged property had been created in favour of secured parties or any other persons. 12. The High Court further opined that the principles laid down in The Member, Board of Revenue vs. Arthur Paul Benthall , 1955 SCR 84, can be of no assistance to the State in this case. Indisputably, nobody disputed that the instrument in question 5 Page 5 is a mortgage deed and that according to the provisions of the Act, the same should be charged in accordance with the schedule 1. Thus, by no stretch of imagination, the said

taking aid of the above principles. Finally, the Full Bench held that on consideration of the entire materials on record, the reference was answered as Point [A] No and Point [B] yes. 13. Hence, the present appeal by special leave. 14. Mr. Preetesh Kapur, learned counsel appearing for the appellant, Revenue Authority, assailed the impugned judgment passed by the Full Bench of the Gujarat High Court as being erroneous and contrary to the provisions of the Stamp Act in the matter of Payment of Stamp Duty. Learned counsel submitted JUDGMENT that the High Court has failed to appreciate that the respondents had formed the consortium and had executed the present mortgage instead of several distinct instruments of mortgage with the sole purpose of evading Stamp Duty. Learned counsel submitted that admittedly the respondents had availed financial assistance from 13 lenders for its project and consequently, the respondent was required to execute mortgage 6 Page 6 deed in favour of the 13 lenders. However, in order to avoid payment of Stamp Duty on each mortgage deed, the respondent got the lenders to form a consortium and appointed State Bank

deed between the SBI on behalf of the lenders and respondent is a combination of 13 mortgages dealing with the respondents and such lenders, hence, the respondent cannot be allowed to evade payment of stamp duty by forming a consortium. 15. Learned counsel further submitted that the instrument in question relates to several distinct matters or distinct transactions inasmuch as the respondent borrower availed distinct loan from 13 different lenders, hence, the instrument falls under Section 5 of the Gujarat Stamp Act. Learned counsel JUDGMENT also referred to the Government Circular dated 2.4.2007 and submitted that clause (ii) of the Circular specified that an instrument like the present one would fall within the purview of Section 5 of the Act. 16. Per contra, Mr. C.A. Sundaram, learned senior counsel appearing for the respondent, drew our attention to different clauses of mortgage deed and submitted that security created by 7 Page 7 the said mortgage in favour of the security trustee shall become enforceable only by security trustee upon the occurrence of event of default. According to the learned senior counsel since

under the mortgage deed it cannot be held to be a separate and distinct transaction. According to Mr. Sundaram, Section 5 of the Act shall not have any application. Learned senior counsel further referred to the relevant paragraph of the judgment of this Court in The Member, Board of Revenue vs. Arthur Paul Benthall , 1955 SCR 842 and submitted that the ratio decided in the said Judgment fully applied in the present case. 17. It was further contended what has to be looked into for the purpose of stamp duty is the instrument, i.e., the Mortgage JUDGMENT Deed, to see whether it dealt with distinct matters. The Mortgage Deed dealt with only one single matter, i.e., the mortgage of a single property with one mortgagee. Merely because there was beneficial interest for all the individual banks forming the consortium, this would not amount to distinct matters as per the ratio of the Benthall Case, since there were no distinct mortgages regarding distinct properties, but one 8 Page 8 common mortgage for one property. Hence, even assuming that the banks were seen to have an individual interest, there was in fact a commonality of such interest with all the other “secured

matters. 18. According to the learned counsel, to decide as to whether and how such instrument is to be stamped it is that instrument alone that is to be looked at and not other documents executed between the parties or inter se the banks themselves or between the banks and a party to the instrument, since those are not the instruments being stamped. In fact, following such a course of action would amount to indirectly stamping the loan agreements and STA twice, which is impermissible in law, since those JUDGMENT instruments had already been separately and individually stamped. 19. Lastly, it was contended that in any event, in the instant case, even if a doubt arises with regard to the interpretation of the Mortgage Deed, and as to whether it comprises distinct matters or not, the benefit of such doubt must be given to the assessee, i.e. the Respondent No.1, since it is a settled principle 9 Page 9 of interpretation of fiscal statutes that in case of ambiguity, the interpretation favourable to the assessee must be adopted.

Respondent (assessee) and against the Appellant (revenue), does not suffer from any infirmity. Therefore, the present appeal ought to be dismissed by this Court. As a sequitor to the dismissal of the appeal, the appellant should also be directed to refund the excess stamp duty amount of Rs. 50,41,600/- that was deposited, under protest, by Respondent No.1. 21. Before deciding the question first of all we shall deal with JUDGMENT the relevant document to ascertain the nature of loan. 1. Security Trustee Agreement dated 15.9.2008. The persons set out in Schedule II have been collectively referred to as the “Senior Lenders” which includes their successors, transferee and assigns. These senior dealers entered into an agreement with the respondent M/s. Costal Gujarat Power Limited, a company registered under the Companies Act and referred to as borrower. 10 Page 10 22. From the body of this agreement, it reveals that the borrower had requested the senior lenders i.e. thirteen banks/financial institutions to make available to the borrower loan details of which is more fully set out in Schedule II. Pursuant to the loan agreement entered into by the borrower and the senior lenders, each of senior lenders inter alia agreed to provide to the borrower credit and loan facilities to finance part of the project, costs of the project, more specifically set out in Schedule II. At this stage, we would like to extract herein Schedule II of the said Security Trustee Agreement:- SCHEDULE II PART A LIST OF ECB FACILITY LENDERS

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23. It further appears from the Security Trustee Agreement that the entire financing of the project by Senior Lenders agreed to be secured by first ranking mortgage and pari passu charge/issuing of all the moveable properties of the borrower. 13 Page 13 Further a first ranking pari passu charge of all the borrowers account and each of the other accounts required to be created by borrower under any transaction document.

issuing bank (SBI) desired that the borrowers settle a trust for the beneficial interest of the Senior Lenders and the issuing bank (SBI) had to empower the security trustee to accept the lien created pursuant to the security document. At the request of the borrower, the Senior Lenders and the issuing bank agreed to act as security trustee for the secured parties on the terms and conditions contained in the agreement and in the financing document. By the said agreement, the State Bank of India (project finance SBI Bombay) was appointed as a security JUDGMENT trustee to act on behalf of the secured parties, pursuant to the trust created by the said agreement. th 25. On 6 October, 2009, an indenture on mortgage was executed by and between the borrower, M/s. Costal Gujarat Power Limited and State Bank of India as in the capacity as security trustee for the Senior Lenders as set out in the schedule of this mortgage deed. In the said deed it is mentioned inter alia 14 Page 14 that pursuant to the Senior Loan Agreement entered into between the borrower and senior lenders, each of the senior lenders have agreed to extend to the borrower the loan to the maximum extent set out in schedule-I. By this indenture, English Mortgage in respect of immovable property was created. The relevant clauses of Mortgage deed are set out herein below:- (Emphasis given) “2. Benefit of Indenture . The Security Trustee, acting for the benefit of the secured parties shall hold the Security created by the borrower in its favour this indenture over the mortgaged properties including convents and mortgages given by the borrowers pursuant hereto, upon trust for the benefit of the secured parties subject to the powers and provisions contained herein and in the Security Trustee Agreement, for the due payment of the mortgage Debt and performance of all obligations under the financing Documents. 4. Grant and Transfers :-For the consideration aforesaid and as continuing security for the payment and discharge of the mortgage Debt and performance of all obligations under the Financing Documents by the Borrower hereby secured or intended to be hereby secured, the Borrower both hereby grant, assign, convey assure, charge and transfer into the Security Trustee for the benefit of the secured Parties by was of a first mortgage and charge) all the rights title, interest and benefit in all and singular the beneficial right title and interest of the Borrower in respect of the immovable property situated in situated in district Mundra in the State of Gujarat more particularly described in Schedule 2 hereinunder written (the “delayed After Acquired Assets”) together with all buildings erections and constructions of every description which are standing erected or attached or shall at any time hereafter during the continuance of the Security hereby lands and premises or any part thereof and all rights to use common areas and facilities and incidentals attached hereto, together with all trees, fences, hedges, JUDGMENT 15 Page 15

5. Pari Passu Ranking:- The mortgage and first charge created pursuant to security 4 hereto in favour of the Security Trustee for the benefit of the Secured parties shall rank pari passu inter-se and without and preference or priority over each other. The mortgage and first charge to be created in favour of the Security Trustee for the benefit of the Working Capital lenders and if approved in accordance with the Hedging Plan, the Hedge provides shall rank pari passu inter-se and with the Secured Parties and without any preference or priority over each other and the secured parties once such mortgage and charge in relation to the Mortgaged properties is created in their favour.” 26. Clauses 18.1 and 18.3 are also relevant and reproduced JUDGMENT herein under:- “18.1 Section 67A of the Transfer of Property Act, 1882:- The provisions of Section 67-A of the Transfer of Property ct, 1882, shall not apply to these presents. Notwithstanding that the Security Trustee may hold two of more mortgages executed by the Borrower including these presents in respect of which the Security trustee has the right to obtain the kind of decrees under section 67 of the Transfer of Property Act, 1882, the Security Trustee shall be entitled to sue and obtain such decree on any of such mortgages without being bound to sue on all such mortgages in respect of which the mortgage money shall have become due.” 16 Page 16 27. Clause 23.1, deals with the manner of payment of stamp duty. The said clause reads as under:-

28. From the facts discussed and narrated hereinabove, it is manifest that the instrument of mortgage came into existence only after separate loan agreements were executed by the borrower with the lenders with regard to separate loan advanced JUDGMENT by those lenders to the respondent borrower. The mortgage deed which recites at length as to how and under what circumstances property was mortgaged with the security trustee for and on behalf of lender bank. 29. When several matters are contained in one instrument, what stamp is payable thereon in England has been dealt with 17 Page 17 th and Halsbury’s Law of England 4 Edition volume 44 paragraph 613 at page 399 is quoted herein below:-

30. Coming to the provisions contained in the Stamp Act, we have to see as to whether the provision of Section 5 is ancillary to Section 4 or a separate and distinct provision. For better appreciation Sections 4, 5 and 6 of the Gujarat Stamp Act is reproduced herein below:- “Section 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 principle 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 1 [one hundred rupees] instead of the duty (if any) prescribed for it in that Schedule. (2) The parties may determine for themselves which of the instruments so employed shall, for the purposes of sub-section (1), be deemed to be the principal instrument. Provided that the duty chargeable on the instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instruments employed. JUDGMENT Section 5 - Instrument relating to several distinct matters or distinct transactions. Any instrument 18 Page 18 comprising or relating to several distinct matters shall be chargeable with the aggregate amount of the duties with which separate instrument, each comprising or relating to one of such matters or distinct transactions, would be chargeable under this Act.

31. From bare reading of these provisions, it is clear that Section 4 deals with single transaction completed in several instruments, whereas Section 5 deals only with the instrument which comprises more than one transaction and it is immaterial for the purpose whether those transactions are of the same category or of different categories. JUDGMENT 32. It appears from the trustee document that altogether 13 banks lent money to the mortgagor, details of which have been described in the schedule and for the repayment of money, the borrower entered into separate loan agreements with 13 financial institutions. Had this borrower entered into a separate 19 Page 19 mortgage deed with these financial institutions in order to secure the loan there would have been a separate document for distinct transactions. On proper construction of this indenture

which falls under Section 5 of the Act. 33. Both the learned counsel put reliance on the five Judges Constitution Bench Judgment of this Court in the Case of The Member, Board of Revenue vs. Arthur Paul Benthall (supra). The said case originated from a reference made to the High Court of Calcutta by the Revenue Authorities seeking opinion with regard to the stamp duty payable in the instrument. The JUDGMENT respondent in that case was at the material time the Managing Director of M/s. Bird and Co. Ltd. and Messrs F.W. Heilgers and Com. Ltd which were acting Managing Agents of several Companies Act under the Indian Companies Act. The respondents were also Director of a number of other Companies, and had on occasions acted as liquidator of some Companies, as executor or administrator of estates of deceased persons and 20 Page 20 as trustee of various estates. He proposed to execute power of attorney empowering the M/s. Douglas Chisholm Fairbairn and John James Brims Southerland jointly and severally to act for

administrator, trustee, Managing Agents, liquidator, and all other capacities. The Collector referred the matter under Section 56(2) of the Act to the decision of Chief Controller, Revenue Authority, who eventually referred it to the High Court of Calcutta stating his own opinion that stamp duty was payable on the power “for as many respective capacities as the principal executes the power”. The majority view of the Bench held that the different capacities of the executants would not constitute the distinct matter for the purpose of Section 5 of the Act and JUDGMENT that the proper duty and instrument was payable under Article 48(d) of Schedule 1(a) of the Stamp Act. 34. Answering the Reference, the Constitution Bench of this Court elaborately discussed the scope and object of Sections 4,5, and 6 of the Stamp Act and finally allowed the appeal. Their Lordship held:- 21 Page 21

36. We have also gone through the provisions contained in Sections 33, 39, Article 6 and 6(b) of the Act as also Bombay Stamp (Gujarat Second Amendment) Rules, 2007 and the 22 Page 22 Circular dated 2.4.2007. After giving out anxious consideration to those provisions and also in the light of the ratio decided by the Constitution Bench of this Court in The Benthall case

committed serious error of law in interpreting the provisions of Sections 5 and 6 of the Act. Consequently, the answer given by the High Court on the Reference cannot be sustained in Law. 37. As a result, this appeal is allowed, the impugned order is set aside. It is held that the respondent is liable to pay deficit stamp duty together with interest as directed by the revenue authorities. However, there shall be no order as to costs. JUDGMENT …………………………….J. (M.Y. Eqbal) …………………………….J. (Arun Mishra) New Delhi August 11, 2015 23 Page 23 ITEM NO.1B COURT NO.10 SECTION IX (For Judgment) S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

VERSUS COSTAL GUJARAT POWER LTD. & ORS. Respondent(s) Date : 11/08/2015 This petition was called on for pronouncement of judgment today. For Petitioner(s) Ms. Jesal, Adv. For Ms. Hemantika Wahi,Adv. For Respondent(s) Mr. Dheeraj Nair,Adv. Mr. K. R. Sasiprabhu,Adv. Hon'ble Mr. Justice M.Y. Eqbal pronounced the judgment of the Bench comprising His Lordship and Hon'ble Mr. Justice Arun Mishra. JUDGMENT Leave granted. The appeal is allowed in terms of the signed reportable judgment. [INDU POKHRIYAL ] [SUKHBIR PAUL KAUR] COURT MASTER A.R.-CUM-P.S. (Signed reportable judgment is placed on the file) 24 Page 24