Full Judgment Text
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PETITIONER:
SOMATYA ORGANICS (INDIA) LTD., ETC.
Vs.
RESPONDENT:
BOARD OF REVENUE, U.P., ETC.
DATE OF JUDGMENT29/11/1985
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
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
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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
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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
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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.
JUDGMENT:
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
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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
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(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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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.
805