Mortgage by Deposit of Title Deeds is Excluded from Stamp Duty under Article 34(b).

The petitioner executed a "Memorandum of Entry" on 11.01.2019 for the creation of a mortgage by deposit of title deeds to secure a loan for a third-party borrower, SMS Ltd.

The petitioner paid stamp duty under Article 6 of the Karnataka Stamp Act, 1957. However, Respondent No. 2 issued an order on 19.11.2020 (Annexure-H) demanding additional stamp duty of Rs. 6,75,00,000/-, reclassifying the document as a "simple mortgage" under Article 34(b) of the Act.

The respondents argued that the petitioner created a charge over the property until the loan was satisfied, thus falling under Article 34(b).

They also raised a preliminary objection regarding the maintainability of the writ petition due to the availability of an alternative remedy under Section 45A(3).

1. Whether the document titled "Memorandum of Entry" for deposit of title deeds attracts stamp duty under Article 6 or Article 34(b) of the Karnataka Stamp Act, 1957.

2. Whether the petitioner personally bound himself to pay the mortgage money so as to satisfy the definition of a "simple mortgage" under Section 58(b) of the Transfer of Property Act, 1882.

The court applied Section 58 of the Transfer of Property Act, 1882, specifically distinguishing between Section 58(b), which defines a "simple mortgage" requiring the mortgagor to bind himself personally to pay the mortgage money, and Section 58(f), which defines a "mortgage by deposit of title-deeds" as a delivery of documents with intent to create security.

It further applied the Karnataka Stamp Act, 1957, noting that Article 6 governs agreements relating to the deposit of title deeds, while Article 34 applies to mortgage deeds not covered by Article 6.

The court also relied on the precedent Rashtrothana Parishat v. State of Karnataka (ILR 1992 KAR 565), which held that if an instrument falls under Article 6, Article 34 is automatically excluded.

The court examined the recitals of the document and found that the petitioner merely delivered title deeds to create security for a loan borrowed by SMS Ltd.

The court noted that for a document to be classified as a simple mortgage under Section 58(b) of the Transfer of Property Act (and thus Article 34(b) of the Stamp Act), there must be a personal undertaking by the mortgagor to repay the money and a specific clause regarding the mortgagee's right to sell the property upon failure.

Upon reviewing paragraphs 4 and 5 of the document, the court found these essential ingredients of a personal undertaking were absent; the petitioner had merely assured the trustee of his clear title to the property. Consequently, the court held that the transaction was a classic mortgage by deposit of title deeds under Section 58(f), which is expressly excluded from Article 34 and properly covered under Article 6.

The court quashed the impugned order dated 19.11.2020 passed by Respondent No. 2. The writ petition was allowed, effectively setting aside the demand for additional stamp duty of Rs. 6,75,00,000/-.