The Hon’ble Supreme Court in M/s Godwin Construction Pvt. Ltd. v. Commissioner, Meerut Division & Anr, Civil Appeal No. 7661 of 2014, decided on 08.10.2025, reaffirmed the well-established principle that the classification of an instrument for the purposes of stamp duty depends upon its substance and legal effect rather than upon its nomenclature or title.
The Court held that where a Security Bond-cum-Mortgage Deed is executed by the principal debtor itself for the purpose of securing the performance of its own contractual obligations, such an instrument is to be treated as a mortgage deed chargeable under Article 40 of Schedule 1-B of the Indian Stamp Act, 1899, and not as a security bond chargeable under Article 57 of the same Schedule.
The Court further clarified that the existence of a distinct surety, separate from the principal debtor, is a mandatory condition for the applicability of Article 57, in accordance with the definition of “surety” under Section 126 of the Indian Contract Act, 1872.
FACTS
M/s Godwin Construction Pvt. Ltd (hereinafter referred to as “the Petitioner”) was granted permission by the Meerut Development Authority (hereinafter referred to as “MDA”) in 2006 to develop a residential township.
As a condition for approval, the Petitioner was required to execute a deed securing the performance of its development obligations, including payment of external development charges and construction of civic amenities. Accordingly, the Petitioner executed a Security Bond-cum-Mortgage Deed on 19.12.2006 in favour of the MDA.
Under the terms of the deed, the Petitioner mortgaged specified plots of land admeasuring 2,934.45 square metres, transferring its interest in the property to the MDA as security for an amount of Rs.1,00,44,000, being the sum intended to be secured. The Petitioner paid a stamp duty of Rs.100, classifying the document as a security bond under Article 57 of Schedule 1-B to the Indian Stamp Act, 1899.
In 2008, the Deputy Commissioner, Meerut Division (hereinafter referred to as “the Respondent”), issued a notice under Section 33(4) of the Indian Stamp Act, contending that the instrument was in substance a mortgage deed falling under Article 40 of Schedule 1-B, and consequently demanded a differential stamp duty along with penalty and interest.
The Petitioner’s objections were rejected by the Additional Collector (Stamps), the Commissioner, Meerut Division, and later by the Hon’ble Allahabad High Court, all of whom concurred in holding that since the deed had been executed by the principal debtor itself without any surety, it was a mortgage deed within the meaning of Article 40.
Aggrieved by this, the Petitioner filed a civil appeal before the Hon’ble Supreme Court of India.
ISSUES
- Whether the Security Bond-cum-Mortgage Deed executed by the principal debtor for securing its own obligations should be classified as a mortgage deed under Article 40 of Schedule 1-B or as a security bond under Article 57 of Schedule 1-B of the Indian Stamp Act, 1899?
- Whether the absence of a third-party surety renders Article 57 inapplicable to such an instrument?
- Whether the interpretation adopted by the Hon’ble Allahabad High Court and the stamp authorities suffered from any legal infirmity warranting interference by the Hon’ble Supreme Court?
CONTENTIONS OF THE PARTIES
The Petitioner contended that the impugned document was executed by way of security for due performance of a contract, and therefore, the appropriate classification was under Article 57 of Schedule 1-B. It was argued that the deed was not a pure mortgage created for repayment of money, but a composite instrument executed to secure compliance with development obligations imposed by the MDA.
The Petitioner further relied upon the nomenclature of the deed – Security Bond-cum-Mortgage Deed and the explicit recitals therein referring to the securing of contractual performance, to argue that it fell within the scope of Article 57.
It was submitted that the stamp authorities had failed to consider the true purpose and intention behind execution of the deed and had instead relied mechanically on the existence of a mortgage clause to levy duty under Article 40.
The Respondent on the contrary, contended that Article 57 applies only where the instrument is executed by a surety distinct from the principal debtor, thereby involving a tripartite relationship between the creditor, principal debtor, and surety.
It was further submitted by the Respondent that the instrument was executed solely by the principal debtor, i.e., the Petitioner, transferring its rights in immovable property to secure its own obligations, and hence, it satisfied the definition of a mortgage deed under Section 2(17) of the Indian Stamp Act, 1899.
The Respondent maintained that the classification of an instrument for stamp duty purposes must be governed by its substance and operative effect, not by its form or description, and therefore, the authorities had rightly applied Article 40.
DECISION AND FINDINGS
The Hon’ble Supreme Court dismissed the Civil Appeal and upheld the concurrent findings of the stamp authorities and the Hon’ble Allahabad High Court.
The Court observed that the decisive factor for determining the stamp duty payable on an instrument is its substance and legal effect, rather than its nomenclature. Referring to Section 2(17) of the Indian Stamp Act, the Bench held that an instrument by which a person transfers a right in specific property to another, in order to secure payment of money advanced or the performance of an engagement, constitutes a mortgage deed.
The Court analyzed Article 57 of Schedule 1-B and explained that it applies in two distinct situations, i.e., where the instrument is executed to secure the due execution of an office or the proper accounting of property received by virtue of such office and where the instrument is executed by a surety to secure the due performance of a contract.
The Court held that in both cases, the presence of a surety distinct from the principal debtor is indispensable. Where the principal debtor executes the document to secure its own obligations, the correct classification must be under Article 40, which governs deeds creating a mortgage of property.
The Court relied upon K. Simrathmull v. Nanjalingiah Gowder, [1962 INSC 75] and State of Rajasthan v. Khandaka Jain Jewellers , [(2007) 14 SCC 611], wherein it was held that the operative clauses of a document and the legal rights created thereby determine its nature for the purposes of stamp duty.
Applying these principles, the Bench noted that the deed in question was executed by the Petitioner company through its director. The company, being a juristic entity, could act only through its authorised representative, and therefore, it remained the principal debtor. There was no third party assuming the role of a surety within the meaning of Section 126 of the Indian Contract Act, 1872. Consequently, the transaction constituted a mortgage executed by the principal debtor in favour of the MDA to secure its own obligations.
The Hon’ble Court thus concluded that the Security Bond-cum-Mortgage Deed executed by the principal debtor was in substance a mortgage deed chargeable under Article 40 of Schedule 1-B of the Indian Stamp Act, 1899, Article 57 was inapplicable in the absence of a surety and that the levy of stamp duty under Article 40 was lawful, valid, and justified.
AMLEGALS REMARKS
The decision of the Hon’ble Supreme Court in the present case provides authoritative clarity on the classification of hybrid instruments for stamp duty purposes. It reinforces the principle that the legal character and substance of an instrument must prevail over its descriptive title, ensuring that parties cannot evade proper duty by adopting misleading nomenclature.
This ruling carries significant implications for developers, lenders, and public authorities, particularly in the context of development projects and financial transactions involving composite security instruments. It provides much-needed certainty to stamp duty administration by affirming that hybrid deeds executed by principal debtors are to be assessed as mortgage deeds under Article 40.
By upholding the doctrine that substance prevails over form, the judgment strengthens fiscal discipline, promotes uniformity in document classification, and will serve as a guiding precedent for revenue and registration authorities across jurisdictions in India.
For any query, feel free to reach out to rohit.lalwani@amlegals.com