Milind N. Jadhav, J.
2. Heard learned counsel for the parties.
3. The present Letters Patent Appeal is directed against the judgment and order dated 23.12.2005 passed in Writ Petition No.4846/2005 by the learned Single Judge of this Court, which inter alia, sets aside the judgment dated 05.08.2005 passed by the Appellant No.2 i.e. the Chief Controlling Revenue Authority, Maharashtra. The brief facts which required to be considered are not in dispute and are as follows:
(i) The sister concern/subsidiary Company of the Respondent viz.M/s. Jaika Motors (Independent Company) raised a loan from United Commercial Bank of Rs.7 crores. Out of this Rs.5 crores was raised against hypothecation of stocks whereas Rs.2 crores was raised against book debts of the company.
(ii) In respect of this, two deeds of hypothecation viz. One in relation to stocks and movable whereas the other in relation to book debts was entered into by the said company with United Commercial Bank. A third document namely Security-cum- Mortgage bond/Instrument was also executed by the Respondent in relation to guarantee the payment of the aforementioned loan amount as collateral security for the said loan. This Mortgage/Instrument was with respect to movable and immovable properties of the Company. All the aforesaid three documents were executed on 23.08.2002.
(iii) The Respondent company paid total stamp-duty of Rs.1,73,700/- on the aforementioned loan amount disbursed by United Commercial Bank on the two hypothecation agreements. Insofar as the Security-cum-Mortgage bond for collateral security was concerned, the Respondent paid stamp-duty as per the provisions of Article 40(c) of Schedule-I to the Maharashtra Stamp Act, 1958 (hereinafter referred to as the “Stamp Act”). Thus, the Respondent paid stamp-duty of Rs.200/- on the Security-cum- Mortgage bond Instrument.
(iv) After a period of three years, the audit party of the Accountant General (II), Nagpur, in its regular inspection of the Office of the Joint Registrar observed that the Respondent had under valued stamp-duty on the Security-cum-Mortgage bond Instrument and therefore, issued notice dated 01.01.2005 to the Respondent. Incidently this notice was issued on the premise that the Respondent had entered into a Mortgage deed with the Bank for a sum of Rs.7 crores and in terms of provisions of Article 40(b) of Schedule-I to the Stamp Act, the Respondent was liable to pay stamp-duty @ 1% on the total amount and therefore the Respondent had undervalued the stamp-duty. Respondent was therefore called upon to deposit a differential amount of Rs. 5,26,300/- after adjusting the amount of Rs.1,73,700/- already paid. It is pertinent to note that there was no mention of the two Hypothecation agreements in this demand notice.
4. Being aggrieved by this notice the Respondent filed appeal bearing No. 1/2005 before the Appellant No.2, inter alia, narrating the aforementioned facts and the relevant provisions as contained in Article 40(c) of Schedule (I) to the Stamp Act. On 5th August, 2005, Appellant No. 2 dismissed the Appeal on the ground that the Respondent was liable to pay stamp-duty under the provisions of Article 40(b) of Schedule-I of the Stamp Act. The Appellant No. 2 while dismissing the appeal of the Respondent interpreted the provisions of Sub-Sections (1) (2) & (3) of Section 4 of the Stamp Act and concluded that if there are several instruments in respect of the same transaction then, no matter what the concerned party may call a particular document as principal Instrument, the one chargeable with the highest stamp- duty shall be considered for payment of stamp-duty. Thus, according to Appellant No.2, out of the aforesaid three documents, the Respondent was liable to pay stamp-duty on the third document i.e. the Security-cum-Mortgage deed which was construed as the principal Instrument. However, while passing this order the Appellant No. 2 did not interpret the provisions of Section 4 (2) and the proviso thereto of the Stamp Act, which w as the case pleaded by the Respondent.
5. The Respondent being aggrieved filed Writ Petition No.4846/2005 before this Court to challenge the order dated 05.08.2005 passed by Appellant No.2. The learned Single Judge, while dealing with the controversy in question and the provisions of Article 40 (c) & Article 54 of Schedule-I read alongwith Section 4 of the Stamp Act gave finding that in the present case the Mortgage deed was executed as additional security by way of further assurance and therefore it was covered under Article 40(c) and it was not the principal or primary document/Instrument between the parties. The learned Single Judge held that the reasoning given by the Appellant No. 2 to deny advantage of Article 40(c) to the Respondent was clearly erroneous in as much as the principle or primary security document between the parties was not the mortgage deed but the two hypothecation deeds which were duly stamped. Further, the learned Single Judge held that the Security-cum-Mortgage deed was the document executed by the Respondent to guarantee due performance of and discharge of obligation already cast upon the Respondent by virtue of the two hypothecation deeds. While interpreting Article 54 r/w Article 40 of Schedule-I to the Stamp Act, the learned Single Judge in paragraph no. 7 held thus:
“Thus, the purpose of Security or mortgage contemplated by Article 54 is not as that of a security contemplated under Article 40 of Schedule-I of the Stamp Act. The very opening clause of Article 40 excludes documents covered by Article 54. Article 54 does not contemplate document which is by way of Security for repayment of money advanced or to be advanced to its executor or on its strength as loan. The basic purpose of document covered under Article 54 is to secure discharge of some already existing obligation from the executor of the document.”
The learned Single Judge held that Article 54 had no application to the case of the Respondent and thus quashed and set aside the order dated 05.08.2005 passed by the Appellant No.2 as also the demand notice dated 01.01.2005.
6. The Appellants filed the present Letters Patent Appeal on the principal ground that the order dated 05.08.2005 passed by the learned Single Judge had erroneously and wrongfully relied upon Section 4 of the Stamp Act and determined that the principal document was the deed of hypothecation between the parties which was considered for payment of Stamp-duty and sought to challenge the same on the interpretation of Section 4. The Appellants contended that all three documents i.e. the two hypothecation agreements and the Security-cum-Mortgage deed were executed on the same date i.e. 23.08.2002 and therefore, the presence of the word “collateral” in Article 40(c) ought to have been understood in the context of any document presupposing prior existence of a principal or main document. The thrust of submissions on the part of the Appellants before us was that the two instruments of hypothecation would hardly be called as adequate security for sanctioning a loan of Rs. 7 crores and thus, in that background the document of Security-cum-Mortgage deed had to be construed as the principal Instrument on which stamp-duty was leviable/payable by the Respondent.
7. We have heard Ms.N.P. Mehta, learned Additional Government Pleader for Appellants and Mr.S.V. Manohar, learned Senior Counsel for the Respondent-Company and carefully considered the submissions and gone through the pleadings before us. At the outset, the relevant provisions of Section 4 of the Stamp Act and Article 40(c) of the Stamp Act which are applicable in the present case are required to be considered and they read thus:
“4. Several Instruments used in single transaction of [development agreement] sale, [lease], mortgage or settlement
(1) several instruments are employed for completing the transaction, the principal instrument only shall be chargeable with the duty prescribed in Schedule-I for the conveyance [development agreement] [lease] mortgage or settlement, and each of the other instruments shall be chargeable with a duty of [one hundred rupees] instead of the duty (if any) prescribed for it in that Schedule.
(2) The parties may determine for themselves which of the instruments so employed shall, for the purpose of sub- Section (1), be deemed to be the principal instrument.
(3) If the parties fail to determine the principal instrument between themselves, then the officer before whom the instrument is produced may, for the purposes of this section, determine the principal instrument.
Provided that the duty chargeable on the instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instrument employed.”
(c) when a collateral or auxiliary or additional or substituted security, or by way of further assurance for the secured, above-mentioned purpose where the principal or primary security is duly stamped.
The same duty as a Bond (Article 13) for the amount subject to a maximum of (rupees two hundred)”
8. From a reading of the above provisions, it is evident that the provisions of Section 4 clearly enumerate that when the same transaction is completed by more than one instrument, it is for the parties to determine for themselves which of the said instrument so employed shall for the purposes of Section 4 (1) be deemed to be the principal Instrument. Sub-Section (3) further contemplates and lays down that if the parties fail to determine the principal instrument between themselves, then the Officer before whom the instrument is produced may for the purposes of this Section, determine the principal instrument. The Proviso further states that the duty chargeable on the instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instruments employed. Thus, in the present case, it is required to be seen as to whether the Respondent Company had determined for themselves i.e. between the Respondent and United Commercial Bank as to which document/instrument was deemed to be the principal instrument. Mr. Manohar drew our attention to the clauses of the Security-cum- Mortgage deed dated 23.08.2002 and more specifically to Clause 21 therein which reads thus :
“21. …........Cash credit limit of Rs. 7,00,00,000/- (Rs. 7 crores) has been sanction in the name of M/s. Jaika Motors Limited, on the condition that the borrower company shall furnish the principal and primary security by executing the hypothecation agreement/deed, giving the exclusive first charge of the entire stock, plant and machineries and book debts of the borrower company present and future.
The Borrower Company shall furnish the Collateral security (in addition to the Hypothecation deed) of the sureties/guarantors who shall execute mortgage in favour of the Mortgage Bank in respect of their properties at Nagpur, Amravati and Chandrapur”
9. From the above Clause appearing in the Security-cum- Mortgage deed between the Respondent-Company and United Commercial Bank it is clear that the Respondent-Company had specifically deemed that the two hypothecation agreements would be the principal instruments in consonance with the provisions of Section 4 (2) of the Stamp Act, thereby negating the employment of Section 4 (3) to the facts of the Respondent's case. The parties had specifically elected the Hypothecation agreements as the principal Instruments as required by the provisions of Section 4(2).
10. Our attention was also drawn to the sanction letter dated 27.07.2002 issued by United Commercial Bank to the Respondent-Company in respect of sanction of the credit proposal for Rs.7 crores. In the said letter, apart from the cash credit limit of Rs.7 crores the value of the primary security, viz
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. hypothecation of plant and machineries, Telco vehicles, stores and spares lying at Nagpur, Chandrapur, Amravati, Raipur, Jagadalpur or elsewhere in the Company's go-downs, book debts and all current assets of the company were taken at the invoice Price or Market Price. Further, the immovable properties of the Respondent-Company situated at Amravati, Chandrapur and Nagpur was itself valued at Rs.720.18 lakhs. Apart from this, the Respondent was required to produce the personal guarantees of its five Directors and Corporate guarantees of six associate companies as mentioned therein. 11. Therefore, we are in agreement with the submissions made on behalf of the Respondent that the Security-cum-Mortgage Instrument which was entered into by the Respondent with United Commercial Bank was not the principal instrument and it will have to be construed as a collateral document in view of the provisions of Section 4(2) of the Stamp Act in the facts of the present case. 12. In view of the above, we find no merits in the submissions advanced on behalf of the Appellants and do not find it necessary to interfere with the order and judgment passed by the learned Single Judge. 13. The Letters Patent Appeal is dismissed. The order and judgment dated 23.12.2005 is upheld. 14. Parties to bear their own costs.