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The Secretary, Board Of Revenue, Trivandrum v. Sellwell Tea Agencies .
Factual and Procedural Background
This is a reference made by the Board of Revenue under Section 55(1) of the Kerala Stamp Act, 1959. The factual matrix is as follows:
- The Lord Krishna Bank Ltd. acted as the foreman of a Kuri (chitty) and Sellwell Tea Agencies was a subscriber. The subscriber's ticket was prized at the 25th instalment.
- Under Section 27(1) of the Kerala Chitties Act, 1975, the foreman was required to take reasonable security for due payment of future subscriptions before allowing the subscriber to draw the prize amount.
- As security, the subscriber (Sellwell Tea Agencies) executed a letter dated 18-2-1980 transferring "all my rights in the debt due and owing by you on the fixed deposit receipt No. 8/80 dated 18-2-1980 for Rs. 17500/-" and authorising the foreman bank to realise amounts from that fixed deposit as a first charge to meet any defaults in future subscriptions.
- The Sub-Registrar considered the letter to be a "bond" within the meaning of Section 2(a) of the Stamp Act and chargeable under Article 13 of the Schedule. The District Registrar treated the transaction as a "mortgage of moveables" in respect of future instalments (amounting to Rs. 8,750/-) and assessed duty under Article 37. The Board of Revenue concurred with the view that duty might be payable but sought the High Court's decision whether the document should be construed as a mortgage deed for the purposes of Articles 37 or 50, or as a bond for the purposes of Article 13.
Legal Issues Presented
- Whether the letter dated 18-2-1980 can be construed as a mortgage deed within the meaning of Section 2(n) of the Stamp Act and therefore chargeable under Articles 37 or 50 of the Schedule.
- Whether the same letter can be regarded as a bond within the meaning of Section 2(a) and hence chargeable under Article 13 of the Schedule.
- (Raised but not fully argued) Whether the letter attracts no stamp duty at all.
Arguments of the Parties
Sub-Registrar's Position
- The Sub-Registrar treated the letter as a "bond" under Section 2(a) of the Stamp Act and considered it chargeable with duty under Article 13 of the Schedule.
District Registrar's Position
- The District Registrar, after enquiries (finding future instalments to amount to Rs. 8,750/-), considered the transaction to be "a mortgage of moveables" securing that sum and assessed stamp duty accordingly under Article 37.
Board of Revenue's Request to the Court
- The Board of Revenue agreed with the view that some duty might be payable under the Stamp Act but referred the question to the Court whether the document is a mortgage deed for the purposes of Articles 37 or 50, or a bond for the purposes of Article 13.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Janardhana Mallan v. Gangadharan (1983 Ker LT 197; AIR 1983 Ker 178) | Held that a promise to pay future subscriptions by a prized subscriber of a chitty does not amount to a promise to repay a loan or create a debtor-creditor relationship; the prize amount is not received as a loan. | The Court relied on this authority to conclude that the letter's security was not given for securing money advanced or an existing/future debt (items (i) and (ii) in Section 2(n)), but at most for securing performance of an engagement (item (iii)). |
| Rishi Deo Sondhi v. Sugar Mills, Dhampur (AIR 1947 All 190) (Full Bench) | Addressed whether agreements relating to deposits of money could be treated as instruments creating rights over specified property (i.e., mortgage deeds); held that money deposited was not moveable property for purposes of mortgage deed classification. | The Court cited this decision to support the proposition that money deposited (cash or its equivalent) is not the kind of "specified property" over which a mortgage deed can create or transfer rights for stamp-duty purposes. |
| Board of Revenue v. A.M. Ansari (AIR 1976 SC 1813) | Supreme Court endorsement of the principle that money deposited does not amount to moveable property for classification as a mortgage deed in the Stamp Act context. | The Court relied on the Supreme Court's endorsement to reinforce the view that the fixed deposit could not be treated as specified property subject to a mortgage deed. |
| Reference under Stamp Act (1892) ILR 15 Mad 134 (Full Bench) | Held that where an agreement required deposit of cash as security but created no interest in the deposit in favour of the other party, it could not be regarded as a mortgage deed for Stamp Act purposes. | The Court used this authority to show that an authorization to realise deposits, without creation of an interest, does not convert the instrument into a mortgage deed. |
| Muhammed Mazaffar Ali (1922) ILR 44 All 339; AIR 1922 All 82 (Full Bench) | Held that where an instrument does not set forth the value of the property, it is not chargeable to duty under the Schedule provisions that require a value; the Collector has no power to independently ascertain the value for taxing purposes. | The Court applied this principle to hold that because the letter did not specify the amount secured, the District Registrar's subsequent assessment could not properly bring the document within Articles 37 or 50 by independent valuation. |
Court's Reasoning and Analysis
The Court's analysis proceeded in distinct steps, strictly applying statutory definitions and relevant precedents:
- Definitional starting point: the Court examined the definition of "mortgage deed" in Section 2(n) of the Stamp Act. A mortgage deed must transfer or create a right over specified property for the purpose of securing money advanced by way of loan, an existing or future debt, or the performance of an engagement.
- Application of chitty jurisprudence: relying on the authoritative five-judge decision in Janardhana Mallan v. Gangadharan, the Court held that a prized subscriber's promise to pay future chitty instalments does not constitute a promise to repay a loan or create a debt. Therefore, if any right was transferred or created by the letter, it could only be for securing the performance of an engagement (i.e., the contractual obligation to pay future subscriptions), not for securing a loan or debt.
- Nature of the "specified property": the Court examined the substance of the 18-2-1980 letter and concluded that what it did was to authorise the foreman-bank to adjust or realise sums from a fixed deposit (Rs. 17,500) to meet any defaults. The "property" concerned was money deposited with the foreman.
- Precedential treatment of money/deposits: the Court drew on Rishi Deo Sondhi (FB) and the Supreme Court's decision in Board of Revenue v. A.M. Ansari, and a Madras Full Bench reference, to conclude that money or sums on deposit, where no interest in the deposit is created in favour of the other party, do not constitute "specified property" capable of being the subject-matter of a mortgage deed for stamp-duty classification.
- Absence of transfer of interest: the Court found that the letter did not create or transfer any proprietary interest in the fixed deposit in favour of the foreman; it merely authorised realisation for recovery of defaults. On the authorities cited, such an instrument is not a mortgage deed.
- Question of amount: the Court addressed the procedural and legal impropriety of a collector or registrar attempting to ascertain and fix the "amount secured" where the instrument itself does not set forth a value. Citing Muhammed Mazaffar Ali, the Court held that in the absence of a value specified in the instrument, the Collector cannot, by independent assessment, convert the document into one chargeable under Articles that require a specified secured amount.
- Bond argument: the Court examined the definition of "bond" (Section 2(a)) and observed that a bond creates an obligation to pay. Here, the subscriber's obligation to pay future instalments arose from the chitty variola and pre-existed the letter; the letter did not create that obligation. Hence the instrument could not be a bond for purposes of Article 13.
- Scope limitation: the Court declined to answer a broad omnibus question whether the letter attracted no stamp duty at all because that point had not been fully argued or founded in the statements of the case under Sections 54 and 55.
Holding and Implications
Holding:
The Court's core ruling is that the letter dated 18-2-1980 cannot be regarded as a mortgage deed chargeable to stamp duty under Articles 37 and 50 of the Schedule, nor as a bond covered by Article 13.
Implications:
- Direct effect on the parties and the reference: the document cannot be taxed as a mortgage deed under Articles 37 or 50, nor as a bond under Article 13, on the basis of the legal characterisations considered and the authorities relied upon.
- The Court did not decide the separate and broader question whether the letter attracts no stamp duty at all; that question was left unanswered because it was not argued or founded in the statements of case. Accordingly, the decision is confined to the specific characterisations referred by the Board of Revenue.
- The Court's reasoning relies on established precedents and statutory definitions, and the decision resolves the reference by applying those authorities; it does not purport to lay down any novel principle beyond the application of the cited cases.
Administrative follow-up: A copy of the judgment will be forwarded to the Board of Revenue under the Seal of the Court and the signature of the Registrar as required by Section 57(2). The reference is answered accordingly.
M.P Menon, J.:— This is a reference made by the Board of Revenue under Sec. 55(1) of the Kerala Stamp Act, 1959.
2. The Lord Krishna Bank Ltd. was the foreman of a Kuri and Sellwell Tea Agencies, a subscriber. The ticket was prized at the 25th instalment. Under Sec. 27(1) of the Kerala Chitties Act, 1975 the foreman was bound to take reasonable security for the due payment of future subscriptions before allowing the subscriber to draw the prize amount. The security taken by the Bank from the Agencies was in the form of the following letter:—
Dear Sirs,
In consideration of the sum of Rs. 25,000/- paid by you to me (receipt whereof has been acknowledged in a separate receipt dated 18-2-1980 executed by me to you) towards the prize amount due to me in respect of ticket No. 27/27 subscribed to by me in the Chitty No. 1/78 conducted by you in accordance with the terms and conditions of the variola, I do hereby, as beneficial owner, transfer to you all my rights in the debt due and owing by you on the fixed deposit receipt No. 8/80 dated 18-2-1980 for Rs. 17500/- issued by you to me on today and all interest due and/or to become due in respect of the said fixed deposit receipt and/or renewal of the said deposit and all thereof to hold the same as security for the due and regular payment of the future subscription payable by me to you in respect of the said ticket from 26th instalment of the chitty till its termination in accordance with the terms and conditions of the said variola.
You may realise all or any amounts payable by me arising from my default in the due and regular payment of the subscriptions in accordance with the terms and conditions of the aforesaid variola in respect of the said chitty as a first charge on the amounts that may be due to me in respect of the said fixed deposit receipt and/or any renewal thereof. I do hereby hand over to you the said fixed deposit receipt in token of the transfer.
Yours faithfully,
CochinFor Sellwell Tea Agencies
18-2-1980(Partner)
The Sub-Registrar thought that the letter was a “bond” within the meaning of Sec. 2(a) of the Stamp Act, chargeable with duty under Article 13 of the Schedule to the Act. The District Registrar caused enquiries to be made and found that the future instalments payable amtmnted to Rs. 8,750/-. In his opinion, the transaction was “a mortgage of moveables” for the said sum and stamp duty was accordingly payable under Article 37. The Board of Revenue concurred with the above opinion, but wanted a decision from this Court as to whether the document could be construed as a mortgage deed for the purposes of Art. 37 or Art. 50, or as a bond for the purposes of Art. 13.
3. The first question to be considered, therefore, is whether the letter could be treated as a “mortgage deed” under Sec. 2(n). The said sub-section reads:—
“(n) “mortgage deed” includes every instrument whereby, for the purpose of securing money advanced, or to be advanced, by way of loan, or an existing or future debt, or the performance of an engagement, one person transfers, or creates to, or in favour of, another, a right over or in respect of specified property;”
A mortgage deed is thus an instrument whereby a right over or in respect of specified property is transferred or created; and such transfer or creation must be for one or other of the following purposes:—
(i) for securing money advanced or to be advanced by way of loan;
(ii) for securing an existing or future debt; and
(iii) for securing the performance of an engagement.
The letter in question, as already seen, was given for the purpose of securing “due payment of future subscriptions”, as required by Sec. 27(1) of the Chitties Act. In view of the decision of bench of five judges of this Court in Janardhana Mallan v. Gangadharan 1983 Ker LT 197 : (AIR 1983 Ker 178) it must now be taken as settled law that a promise to pay future subscriptions by a prized subscriber of a chitty does not amount to a promise to repay a loan or a debt, because the transaction does not involve payment of a loan by the foreman or the incurring of a debt by the subscriber. This is what this Court had said (at p. 194):—
“In the light of the above discussion we do not think it would be possible to say that on entering into the chitty agreement a debt is incurred by the subscriber for the amount of all the future instalments and in respect of such amount there is a debtor-creditor relationship. As we have stated earlier in this judgment the chitty variola only embodies a promise to pay on future dates. That is not a promise to repay an existing debt, but to pay in discharge of a contractual obligation. For similar reasons neither the prizing of the chitty nor the execution of the security bond would give rise, to a debt, for the prize amount is not received as a loan, but as of right by virtue of the terms of the contract between the parties. We reiterate that the provisions of the relevant Acts relating to chitties to which we have made advertence also only indicate this.”
It can therefore be safely said that even if the letter dated 18-2-1980 involved any transfer or creation of right in respect of property, that was not for purposes enumerated as (i) and (ii) above. At the most, it can only be treated as transferring or creating rights in favour of the foreman for securing the performance of an engagement i.e for purpose No. (iii).
4. The next question is whether the letter had in fact transferred or created rights over or in respect of “specified property”. The subscriber had no doubt stated that
“I do hereby transfer to you all my rights in the debt due on the fixed deposit receipt, and all interest due”
and that the foreman was to
“hold the same as security for the regular payment of the future subscriptions”.
but what was really done was only to authorise the foreman bank to adjust amounts of future subscriptions, if and when defaulted, from the amount of Rs. 17500/- given on fixed deposit. The second paragraph of the letter contained a clear authorisation to
“realise all or any amounts payable by me arising from my default…. as a first charge on the amounts that may be due to me in respect of the fixed deposit receipt……”
The “property” over which or in respect of which rights were attempted to be transferred or created in favour of the foreman was thus money deposited with him or handed over to him.
5. In Rishi Deo Sondhi…(Applicant); v. Sugar Mills, Dhampur…(Opposite Party).* AIR 1947 All 190 (FB) it was contended that certain agreements relating to deposit of moneys in courts could be treated as instruments whereby rights over specified property were transferred or created. The contention was:—
“The specified property may be immovable or moveable. The latter includes cash or equivalent of cash. In the cases under consideration specific sums have been offered as security. The amounts deposited with the other party are, therefore, ‘specified property’ within the meaning of Section 2(17), Stamp Act, and the documents in question come under the category of mortgage deed for purposes of stamp duty.”
The Allahabad High Court declined to accept this contention and held that money was not moveable property, and that the instruments in question were not mortgage deeds. This view was endorsed by the Supreme Court in Board of Revenue v. A.M Ansari AIR 1976 SC 1813.
6. In Reference under Stamp Act (1892) ILR 15 Mad 134 (FB) the question was whether an agreement by an arrack renter to abide by the terms and conditions of the licence which required “deposit in cash, Government notes or stock notes” a sum equal to three months rental as security for due performance, was a mortgage deed, for the purposes of the Stamp Act; and the Court held that as it created no interest in the deposit in favour of the Government, it could not he regarded as a mortgage deed. This view was also noticed with approval by the Supreme Court, in Ansari's case (AIR 1976 SC 1813).
7. As we read the letter dated 18-2-1980 it amounted to no more than authorising the foreman to pay himself out of the money deposited with him, the amounts due from the subscriber by way of future subscriptions in the Kuri, in case payments were defaulted. The money was not moveable property, nor was there any transfer of any interest therein, in favour of the foreman. It was, on the authorities cited, not a mortgage deed.
8. The matter can be looked at from another angle also. Stamp duty chargeable under Articles 37 and 50 of the Schedule depends upon the amount secured by the mortgage deed. If the deed does not specify the amount, can it be said that there is a deed attracting the provisions of the two Articles? A person who executes such a document may be prosecuted under Sec. 60 or Sec. 63 of the Act, but has the Collector power under the Act to ascertain the amount secured, with a view to bring it to tax? In the absence of specific power under the statute can he do what, under the statute, the parties themselves must do? In the matter of Muhammed Mazaffar Ali (1922) ILR 44 All 339 : (AIR 1922 All 82 (2)) (FB) the executant of a gift deed had nor set forth the value of the property in the deed, and the Court held that such an instrument was not chargeable to duty. The court said:—
“According to Article 33 of the Schedule an instrument of gift, such as the one before us, should be stamped with the same duty as a conveyance, for a consideration equal to the value of the property set forth in such instrument. We are satisfied that the words “as set forth in such instrument” refer back to the word “value”, and not to the word “property.” We are confirmed in this view by the authority quoted in the reference before us, reported in (1885) ILR 8 Mad 453 (FB). In the present instance there is no “value” set forth in the said instrument. No doubt this is a contravention of section 27 of the Indian Stamp Act, and, if it be found that the omission to state the value of the property conveyed was done with intent to defraud the Government, a prosecution will lie against the person who executed the instrument, under section 64 of the Indian Stamp Act. The case seems to us strictly analogous to one which would arise if the executant of a deed of gift chose to set a purely nominal value on the property conveyed and to stamp the instrument accordingly. For the purposes of the Stamp Law the valuation given in the instrument would have to be accepted. If there was an intentional undervaluation, then a prosecution would protect the Government against the attempted fraud. There is no provision in the law authorising the Collector to do what he has done in the present instance, namely, to ascertain the value of the property with a view to causing the instrument to be stamped with reference to the value thus ascertained.”
The instrument or the letter here had not obviously specified the amount for which security was offered; and if the above view is correct, even the estimate or assessment made by the District Registrar was incapable of bringing the document under Arts. 37 and 50.
9. The letter cannot also be regarded as a ‘bond’ for the purposes of Art. 13, because a bond, as defined in Sec. 2(a), is an instrument whereby an obligation to pay is created. The obligation of a prized subscriber to pay future instalments arises from the chitty variola; a pre-existing obligation cannot be the creation of an instrument subsequently executed.
10. The last question referred is whether the letter attracts no stamp duty at all. The point was not argued with reference to all the other relevant provisions of the Act. Nor are we inclined to answer such a general or omnibus question for which no foundation is seen laid in the statements of the case drawn up under Sections 54 and 55.
11. On the questions raised, therefore, our decision is that the letter dated 18-2-1980 cannot be regarded as a mortgage deed chargeable to stamp duty under Articles 37 and 50 of the Schedule or as a bond covered by Article 13.
A copy of this judgment will be forwarded to the Board of Revenue under the Seal of the Court and the signature of the Registrar, as required by Sec. 57(2).
Reference answered accordingly.
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