9911796707
Advanced Search 
TMI Blog1987 (8) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... ut a trust deed, it is chargeable to stamp duty under the Act at Rs. 90 under article 54A in the Schedule to the Act and at the rate specified in article 34 of the Schedule to the Act on the market value of the properties secured (which is Rs 125 lakhs) if it is a deed of mortgage and duty payable will be 10 per cent, of the market value of the properties together with such surcharge as may be payable to the local authority as if it is a deed of conveyance. The facts leading to the controversy may be stated and they are as follows: By a deed dated March 23, 1982, executed by the bank styling itself as "debenture trustee" in favour of the Unit Trust of India (hereinafter referred to as "the UTI") concerning certain debentures issued by the New Government Electric Factory Ltd. (a company incorporated under the Companies Act) (heinafter referred to as NGEF) of the total value of Rs. 125 lakhs in two series was presented for registration before the Sub-Registrar having jurisdiction who refused to register the same and did not pass any order rejecting registration. Therefore, the bank, the UTI and the NGEF presented an appeal to the District Registrar who refused to pass any order on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned advocate appearing for the bank, has advanced the main arguments which have been adopted by the other counsel appearing for the other respondents. For the Revenue it is contended that the instrument in question is one of mortgage or assignment of mortgage as the author of the trust, the bank, admits taking charge of all title deeds and deed of hypothecation relating to immovable properties and plant and machinery of the NGEF to hold the same for the benefit of the UTI, the debenture-holder, with power to enforce the security for the benefit of the UTI and, therefore, it should be adjudicated to be a deed of mortgage. In the alternative, it is contended, if it is not a deed of mortgage, it should be held to be a "bond" within the meaning of that expression as defined in section 2(1)(a) of the Act having regard to the undertaking given by the bank to pay the UTI the money secured by the debentures of the value of Rs 125 lakhs. As against the above contentions, counsel for the respondents have asserted that the instrument is no more than a declaration of trust together with the obligations of the trustee clearly spelt out and what is narrated in the preamble to the document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of a series of like debentures. But the term, as used in modern commercial parlance, is of extremely elastic character" It has a historical background with which we may not now concern ourselves. The meaning of the term implies on the facts of this case that the NGEF is the debtor and the UTI is the creditor and, therefore, the debenture-holder. The next questions we should ask ourselves are what is a debenture-trust ? and who is a debenture-trustee ? Section 118 of the Companies Act, 1956, provides that any trust deed for securing any issue of debentures shall be forwarded to the holder of such debentures or any member of the company at his request within seven days of the making of the trust deed on payment of the fee specified in that section itself. It further provides the consequences of refusal to furnish copies of the trust deed and the court's power to direct such furnishing. Apart from the above, the trust deed is required to be available for inspection by any member or debenture holder on payment of a fee. Similarly, section 119 of the Companies Act provides for the liability of the trustees to debenture holders with certain consequences and exceptions. It is sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trustee or the trustees hold such properties in trust for the benefit of the beneficiary, viz., the debenture holder to be used in the event of default of payment of interest or principal amount of debt advanced as per terms agreed by selling such properties in the hands of the trustee or trustees. In this content, it is useful to refer to another passage in Palmer's Company Law, and it is as follows: "A trust deed usually contains a legal mortgage of the freehold and leasehold properties, e.g., in the case of a brewery, the brewery and tied houses, and a general charge by way of floating security on the rest of the assets and undertaking. Under the Law of Property Act, 1925, section 87, the legal mortgage takes the form of a demise to the trustees for a term of years or a charge by way of a legal mortgage. Following on the charge comes a clause specifying the various events on the happening of which the security is to become enforceable. These usually are: 1.default in payment of principal or interest; 2.winding up; 3.breach of covenant; or 4.appointment of receiver. Other events are sometimes added. The trust deed then provides that, when the security becomes enforce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of the UTI in respect of the said debentures being 7500 Series "A" and 5000 Series "B"-11% mortgage debentures of Rs. 1,000 each for the time being issued and outstanding and entered in the register of debenture-holders maintained by the company ranking inter se pari passu without any preference or priority of one over the other or others and so that the debenture-trustees shall hold upon trust the moneys which shall arise or may be obtained by enforcement of the said securities or any part thereof or from any sale, collection, conversion or receipt by the debenture-trustees of the proceeds thereof if the said securities have become enforceable and shall in the first place pay and reimburse to themselves and to retain and discharge all the costs, charges and expenses incurred in or about the enforcement, sale, collection or conversion or exercise of the powers, of the trust of the debenture-trustees and shall apply the residue of the said moneys, subject to the prior charge of the company's stocks of raw-materials, semi-finished and finished products, consumable stores and stores and spares not relating to the plant and machinery on the security of which the company has ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of property tax on immovable properties. It is not necessary to reduce to writing the transfer of interest in the immovable property by way of security as in the case of other forms of mortgage. If reduced to writing, the creation of equitable mortgage would also attract the same rigour as other mortgages, the stamp duty payment and compulsory registration under the Registration Act. Merely because there is a recital about the creation on the same day, viz., March 23, 1982, of a joint mortgage by deposit of title deeds along with other documents in favour of certain institutions including the bank (para. 11 of the instrument under reference), the instrument under reference cannot be construed as a deed of mortgage. This court in the case of Murugharajendra Co. v. Chief Controlling Revenue Authority [1974] 1 Kar LJ 177 ; AIR 1974 Kar 60, has explained when exactly an instrument of equitable mortgage, if at all, is liable to be charged to stamp duty under the Act. After adverting to the definition of the term "instrument" in section 2(j) of the Act and the decision of the Supreme Court in the case of United Bank of India Ltd. v. Lekharam Sonaram and Co. [1965] 35 Comp Cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our own High Court, reliance placed on the decision of the Madras High Court in the case of Secretary to the Commissioner of Salt, Abkari and Separate Revenue, Revenue Board, Madras v. Mrs. E.M. Orr and the Bank of Madras [1915] 38 ILR Mad 646, by the Revenue is not on a correct understanding of the law and certainly without reference to the facts of the case we have on hand. In the Madras case, Mrs. Orr executed the document in question which provided for the Bank of Madras advancing moneys to her to carry on her deceased husband's business against the plant and machinery belonging to the business which was entrusted to the bank as trustee with power to use, sell or employ, exchange or otherwise deal with the trust property, etc. In those circumstances, it was held by the Madras High Court that, having regard to the true intention of the parties, namely, the executant and the executee of the document, which was to give control of the properties of the business to the bank as trustee together with certain rights by way of security, the document was a deed of mortgage liable to be stamped as such. On the facts of that case, we could not have come to a different conclusion either. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Lahore 276). It is also well-settled that in deciding the question whether an instrument does or does not fall within the purview of a bond as defined in section 2(1)(a) of the Act, the instrument should be considered as a whole and it is not permissible to divide it into several parts and look at it piecemeal and then to assign each one of such parts to some other articles in the Schedule to the Act (see L.H. Sugar Factory, Pilibhit v. Moti, AIR 1941 All 243 [FB]). To be a "bond", the executor of the instrument must expressly undertake to pay money as an obligation arising out of the instrument. It shall not be a matter to be inferred. In these circumstances, we are of the view that the instrument under reference, read as a whole, does not answer to the definition of "bond" in the Act. We have relied mainly on the language employed in the declaration to which we will make a more detailed reference later in the course of this opinion. This takes us to the contention of the respondents before us that the document in question is a trust simpliciter notwithstanding the long preamble and its contents as well as the several provisions made in the instrument regarding the rights and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust and the UTI is the one to enforce the provisions of the trust if the benefit is not given to it. That the bank is the author of the trust cannot be disputed as it is the executant debenture-trustee that has made the declaration as evidenced by the instrument itself. Are the securities, the mortgage by deposit of title deeds and the deed of hypothecation both of which do not give possession of the properties to the bank capable of being held as properties ? The answer seems to be in the affirmative. Mortgage of any kind under the-Transfer of Property Act is an acquisition of interest in immovable property capable of being transferred in like manner to others and, therefore, the mortgage acquired by the bank jointly constitutes its property and that of the other mortgagees who apparently have agreed that the bank shall hold the title deeds in its possession and as the bank ranks pari passu with the other institutions, it is capable of realising its securities in its own right. This is obvious to any reader of the instrument in question. Similarly, by deed of hypothecation, the NGEF has pledged its machinery and plant with the bank while retaining possession of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case, there is only one debenture-holder, viz. , the UTI. That should not make any difference to the practice of creating debenture-trustees. We have essentially relied on the language of the declaration contained in the instrument, particularly the following passages; "....Debenture trustees shall hold the securities created in their favour.... shall hold upon trust the moneys which shall arise.... by enforcement of the said securities.... if the said securities have become enforceable........ shall apply the residue of the said moneys...... as provided herein " First: in or towards payment of the said debentures..... etc. That the bank is to charge a fee for its services as a trustee annually is neither breach of trust nor opposed to any provision of the Indian Trusts Act. It is but legitimate that the trustee has to defray expenses incurred by it or him or her or them while discharging its, his or her or their obligations under the provisions of the trust. In Hodgson v. Accles (1902) 51 W.R 57, it has been held that the trustees are commonly given remuneration by the deed, but, unless otherwise provided, this ranks after the debenture or debenture stock-holders. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
