MADRAS REFINERIES LTD. versus CHIEF CONTROLLING REVENUE AUTHORITY, BOARD OF REVENUE, MADRAS

Citation: [1977] 2 S.C.R. 565 · Decided: 05-01-1977 · Supreme Court of India · Bench: A.N. RAY · Disposal: Dismissed
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Judgment (excerpt)

565 
MADRAS REFINERIES LTD. 
v. 
CHIEF CONTROLLING REYE.NUB AUTHORITY, BOARD OF 
REVENUE, MADRAS 
January 5, 1977 
[A. N. RAY, C.J., M. H. BEG AND P. N. SHINGHAL, JJ.] 
Indian Stamp Act, 1899-Loan Agreement and Deed of Trust and Mortgage 
executed on the same day-Payment of stamp duty on which 
document to 
be paid-Tests for deciding. 
A 
B 
. The app7llant company executed a Loan and Note Purchase 
Agreement 
with a f?re1gn b~nk. Under that agreement the appellant was to 
amhorise 
C 
the creation and ISsuanoe of secured notes, Series A and B, 
and the 
Notes 
were to be issued under and secured by a Deed · of Trust and Mortgage bet-
ween the Company and the Bank. The Deed of Trust and Mortgage stated 
that as the appellant was in the process of constructing a 
refinery for the 
refining of crude oil and deemed it necessary to boqow money from time to 
time to finance such construction and to issue its Notes 
therefor, 
and 
to 
mortgage and charge its properties to secure the payment of such 
Notes, 
it 
executed the Deed of Trust aud Mortgage as Security in accordance with the 
terms and conditions of Article 2 of the Deed of Trust and Mortgage to secure 
the due payment of the principal and the premium, if any, and t!;te interest on 
D 
the Notes, and of all other monies for the time being :md from time to time 
owing on• the security of the indenture and on the Notes and the performance 
by the Company of all of its obligations thereunder. It was also agreed that 
the Notes shall be secured and shall have the other terms and conditions pro-
vided in the agreement and shall be guaranteed by the President of India pur-
suant to the terms of the Guarantee Agreement. The Guarantee 
Agreement 
states that the President of India, as the guarantor, unconditionally guaranteed 
as primary obligor and not as surety merely, the due and punctual payment 
E 
from time to time of the principal as well as interest stated m the Agreement. 
The obligations of the guarantor were absolute and unconditional under any 
and all circumstances and were not be to any extent or in any way discharged, 
impaired or otherwise affected, except by performance thereof in accordance 
with the terms thereof. It was also provided that each and every remedy of 
the Trustee shall be cumulative and shall be in addition to any other remedy 
given therein or under the mortgage or any of the other collateral or now or 
hereafter existing at law or in equity or by statute. The Guarantee Agreement 
was executed on the same day as the Deed of Trust and Mortgage between the 
F 
President of India and the foreign bank as a Trustee. 
The High Court decided that stamp duty was chargeable on the Trust and 
Mortgage Deed under Art. 40 (b) of Schedule I to the Act. 
In appeal to this Court it was contended that it was the Guarantee Agree-
ment which was the principal and primary security and that the Deed of Trust 
and Mortgage was a collateral or auxiliary security and as such stamp duty was 
G 
pa ya bl e under Art. 40 ( c) and that the Guarantee Agreement was exempt from 
duty under s. 3 and debentures under Art. 27. 
, 
Dismissing the Appeal, 
HELD : ( 1) It is the real and true meaning of the deed 
of. 
T~st and 
Mortgage and the Guarantee Agreement which has to be ascertamed Jrrespec-
tive of the description given by the parties. 
[568 El 
(2) The Trust and Mortgage Deed was executed before the execution of 
the Guarantee Agreement though both of them were executed on the 
same 
day. It was the Deed of Trust and Mortgage which was the security for the 
H 
566 
SUPREME COURT REPORTS 
[1977] 2.s.c.R. 
A 
loan though the loan was also guaranteed by the President in terms 0£ the 
Guarantee Agreement. 
[568 G-H] 
B 
c 
D 
E 
G 
H 
(3) The. terms and conditions of the Guarantee Agreement cannot detract 
from the basic fact that the Deed of Trust and Mortgage was executed first 
in point of time and was the principal or the primary security for the loan. 
The Deed of Trust and Mortgage was clearly the principal or the primary 
security and could not be said to be a collateral agreement. [569-H] 
( 4) The Deed of Trust clearly stated that the terms "Collateral 
A,gree-
ments" shall mean the Guarantee Agreement and the Undertaking. [570 A-BJ 
(5) The Guarantee Agreement was not an instrument of sale, mortgage 
or settlement and did not fall within the purview of s. 4 (1) of the Act. 
(571 iii·F] 
(6) There is no justification for the contention that the debentures
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