1987 (8) TMI 379 - HC - Companies Law

Summary

Issues Involved:
1. Classification of the instrument as "instrument of trust" or "deed of mortgage."
2. Determination of appropriate stamp duty.
3. Interpretation of the instrument's nature and contents.
4. Applicability of the definitions and provisions under the Karnataka Stamp Act, Companies Act, and Indian Trusts Act.
5. Arguments presented by both parties regarding the classification and obligations under the instrument.

Detailed Analysis:

1. Classification of the Instrument:
The primary issue was whether the instrument in question is an "instrument of trust" as claimed by the State Bank of Mysore (the bank) or a "deed of mortgage" as claimed by the Revenue (State). The court needed to determine if the instrument was an instrument of trust, a deed of mortgage, or another type of instrument based on its contents and the applicable legal provisions.

2. Determination of Appropriate Stamp Duty:
The court observed that if the instrument is a trust deed, it is chargeable to stamp duty under the Karnataka Stamp Act at Rs. 90 under article 54A. If it is a deed of mortgage, it would be chargeable at a rate of 10% of the market value of the properties secured (Rs. 125 lakhs), together with any applicable surcharge.

3. Interpretation of the Instrument's Nature and Contents:
The facts leading to the controversy included the execution of a deed by the bank as "debenture trustee" in favor of the Unit Trust of India (UTI) concerning debentures issued by the New Government Electric Factory Ltd. (NGEF). The Sub-Registrar refused to register the deed, leading to an appeal and subsequent adjudication request regarding the proper stamp duty.

4. Applicability of Definitions and Provisions:
The court considered the definitions and provisions under the Karnataka Stamp Act, Companies Act, and Indian Trusts Act. The term "debenture" was defined under the Companies Act, and the court referred to authoritative texts to understand the terms "debenture-trust" and "debenture-trustee."

5. Arguments Presented by Both Parties:
- Revenue's Argument: The instrument was argued to be a mortgage or assignment of mortgage, as the bank admitted taking charge of title deeds and hypothecation relating to NGEF's immovable properties and plant and machinery. Alternatively, it was argued to be a "bond" under section 2(1)(a) of the Act, given the bank's undertaking to pay the UTI the money secured by the debentures.

- Respondents' Argument: The instrument was asserted to be a declaration of trust, with the obligations of the trustee clearly outlined. The preamble indicating the creation of mortgage by deposit of title deeds and hypothecation of plant and machinery should not be construed as creating a mortgage.

Court's Findings and Conclusion:
- Mortgage Argument Rejected: The court rejected the contention that the instrument created a mortgage by deposit of title deeds. The executant of the document was not the owner of the immovable properties (NGEF), and no transfer of interest in the properties was made in favor of UTI under the instrument.

- Bond Argument Rejected: The court found that the instrument did not obligate the bank to pay money out of its funds to UTI. The bank's obligation was limited to applying money realized from the enforcement of securities, which did not constitute a "bond" under the Act.

- Trust Argument Accepted: The court concluded that the instrument was a trust, as the bank (debenture-trustee) held securities (mortgage and hypothecation) in trust for the benefit of UTI. The securities themselves constituted the trust property, satisfying the definition of "trust" under the Indian Trusts Act.

Final Adjudication:
The court adjudicated that the instrument was an instrument of trust and liable to stamp duty under article 54A of the Schedule to the Karnataka Stamp Act. The court emphasized a "beneficial" construction approach, recognizing the importance of debentures and trusts in trade, commerce, and industry.