Judgment:
N.V. Balasubramanian, J.
1. The short and interesting question that arises in the reference is whether the document in question should be classified as a deed of debenture or whether it should be treated as a deed of mortgage. The document in question is styled as 'single debenture' executed by Kamala Sugar Mills, Coimbatore in favour of a single debenture holder to the value of Rs. 30,00,000. According to the deed, the respondent company was desirous of creating a single debenture to the value of Rs. 30 lakhs in favour of the debenture holder and the debenture holder was willing to pay the value of the debenture., viz., Rs. 30 lakhs on the terms and conditions contained in the said deed. The recitals in the deed show' that in consideration of payment of Rs. 30 lakhs paid by the debenture holder, which was admittedly received by the company on 14.12.1981, a demand promissory note was executed by the Managing Director and two other directors of the company in favour of the debenture holder on the same date. The debenture holder who lent the money obtained the security for the said amount by way of mortgage over certain immovable properties and machineries described in the valuation report dated 17.5.1978, mentioned in the deed and the said title deeds were deposited by the company with the debenture holder under the Articles of the agreement executed between the parties on 14.12.1981. The deed styled as a 'single debenture' dated 29.6.1982 contains several recitals which are normally found in a deed of debenture and the claim of the company is that the deed dated 29.6.1982 should be classified as debenture under Article 27 of the Schedule I of the Indian Stamp Act, 1899, but the view of the revenue authorities is that it should be treated as a deed of mortgage under Article 40(b) of the Stamp Act. Since there arose a difference of opinion on the question regarding the classification of the deed, the reference has been made to us.
2. The expression, 'Debenture' is not defined in the Indian Stamp Act. The relevant Article dealing with the levy of stamp duty is Article 27 of the First Schedule to the Indian Stamp Act, and the entry, in so far it is relevant for the purpose of this case, reads as under:
27. Debenture (Whether a mortgage debenture or not), being a marketable security transferable:
(a) by endorsement or by a separate instrument of transfer.
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(b) by delivery;
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Explanation: The term 'Debenture' includes any interest coupons attached thereto but, the amount of such coupons shall not be included in estimating the duty.
Exemption: A debenture issued by an incorporated company or other body corporate in terms of a registered mortgage deed, duly stamped in respect of the full amount of debenture to be issued thereunder, whereby the company or body borrowing makesover, in whole or in part, their property to trustees for the benefit of the debenture holders:
Provided that the debentures so issued are expressed to be issued in terms of the said mortgage deed.
3. There is no definition of the expression, 'debenture' in the Indian Stamp Act. Though there is no precise definition of the expression 'debenture', the debenture is a document which created a debt and it is not necessary that an instrument should be described as a debenture to classify the said document as debenture. The use or the non-use of the word, 'debenture' is not conclusive and there can be different forms of debentures also. The prerequisite condition to consider a document as a debenture is that it should be a marketable security and it should be either transferrable by endorsement or by a separate Instrument of transfer or by delivery. In other words, the debenture, to fall within the ambit of Article 27 of the Schedule I to the Indian Stamp Act, should be a marketable security transferrable either by endorsement or by a separate instrument of transfer or by delivery. The expression, 'marketable security' is defined in Section 2(16-A) of the Indian Stamp Act to mean a security of such a description as to be capable of being sold in any stock market in India and in the United Kingdom. Therefore the deed should be capable of being sold the in Stock Exchange and Rules of the Stock Exchange have to be complied with for the transfer of the said document before it can be regarded as a deed of debenture.
4. Admittedly, on the facts of the case, the document in question is not a marketable security as it is not listed in the stock exchange to be sold in the stock market in India or in the United Kingdom and it is not capable of being sold in the stock market either by endorsement or by transfer or by delivery. The recitals in the document show that the title deeds of immovable properties were deposited by the company with the debenture holder as security for the discharge of the loan of Rs. 30,00,000. In other words, it is not possible to effect the transfer of the document by endorsement or by delivery in favour of a third party as there exists a mortgage over the immovable properties mentioned in the deed. In other words, the transfer of document in question cannot be effected either by endorsement or by delivery unless certain further acts are also, done to transfer the security in favour of the assignee or the subsequent mortgagee. Though many of the recitals found in the deed are normally found in a deed of debenture, the deed in question is not a marketable security to be classified as a debenture. We are of the opinion that the view of the authority that the document in question should be treated as a deed of mortgage is acceptable as all the essential ingredients of mortgage are found in the deed. Therefore, we hold that the document is not a deed of debenture but it is a deed of mortgage. Our answer to the question is that the document dated 29.6.1982 should be classified as a deed of mortgage under Article 40(b) of the Schedule I to the Indian Stamp Act and it should be charged accordingly.