Agreement with consortium of banks: Stamp duty is payable on number of transactions, not instrument; SC [Read the Judgment]

The Supreme Court of India has held (Chief Controlling Revenue Authority vs. Coastal Gujarat Power Ltd. & others) that a security trustee agreement entered into by a borrower with one banker acting as security trustee for a consortium of banks, can only be regarded as a set of distinct transactions with each banker forming the consortium and consequently stamp duty would have to be paid on each such individual and distinct transaction.In holding so, the Supreme Court set aside the judgment of the Gujarat High Court which had held that stamp duty is payable on instruments and not on transactions. The High Court had held that the instrument executed does not involve either “distinct matters” or “distinct transactions” so as to attract Section 5 of the Gujarat Stamp Act.The Apex Court after referring to Section 5 of the Gujarat Stamp Act, the interpretation whereof was the issue, said that the said provision 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 categoriesThe facts discernible from the judgment are as follows: a Company named Coastal Gujarat Power Ltd secured assistance from few lenders for setting up an Ultra Mega Power Project in the area of Kutch-Bhuj. 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 respondent executed an “Indenture of Mortgage for Delayed After Assets Deed’ with the State Bank of India, the said security trustee, mortgaging its assets as mentioned in the deed itself. The said document was presented for registration before the Sub-Registrar, Mudra, by paying stamp duty of Rs. 4,21,000/- and the deed was registered. According to the Revenue Authority which was appellant, the respondent-borrower was liable to pay a total of 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. The respondent was given an opportunity of hearing and 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/-.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 Section 54[1-A] of the Act thereby giving rise to the Reference Proceedings before the High CourtThe High Court opined that the State of Gujarat is not 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 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 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 accordance with law, the State Bank of India became the 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 under the instrument and no rights in the mortgaged property had been created in favour of secured parties or any other persons.The counsel for the Revenue Authority advanced the contention that 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. The Authority further submitted that...

Agreement with consortium of banks: Stamp duty is payable on number of transactions, not instrument; SC [Read the Judgment]

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