The petitioner, as its name suggests, is a company doing business in cotton, as part of its activity. It advanced fairly large amount to M/s. Kandimalla Raghavaiah and Company, Chilakaluripet. Since the borrower did not discharge its obligation, the petitioner filed O.S.No.299 of 1988 in the Court of Principal Sub-Ordinate Judge, Guntur, for recovery of a sum of Rs.23,59,196/-, with future interest. A compromise was arrived at between the parties. In terms thereof, a decree was passed on 05.02.1990.
The terms of compromise were to the effect that the borrower i.e. the defendant in the suit, shall lease out the premises and machinery mentioned in the schedule, in favour of the petitioner herein for a period of 21 years, at an annual rent of Rs.1,00,000/-. It was also mentioned that the lease can be extended at the request of the petitioner for a further period of 10 years with an increase of the rent by 15%. Other conditions, pertaining to breach of contract, were also incorporated.
The petitioner presented the lease deed, dated 30.12.1989, for registration before the Sub-Registrar, Chilakaluripet, soon after the execution. Stamp duty of Rs.15,000/- was paid treating the document as a lease deed.
The Sub-Registrar kept the document pending and referred the matter to the District Registrar, Narasaraopet, the 2nd respondent, for instructions. In reply to a notice received by him, the petitioner made representation stating that the document is only a lease deed. The
2nd respondent, however, issued proceedings, dated 08.04.2003, taking the view that the document reflects a usufructory mortgage and directed that the deficit stamp duty of Rs.2,00,000/- be paid. He took into account, the proceedings, dated 02.07.1990 issued by the 1st respondent. Revision filed by the petitioner under Section 56(1) of the Indian Stamp Act, 1899, before the 1st respondent, was rejected through order, dated 26.07.2006. Hence, this writ petition.
The petitioner submits that there is absolutely no justification for the respondents in treating the document as a deed of mortgage. They contend that once the period of lease is mentioned and rent is specified, there is no way that the transaction can be treated as mortgage.
No counter-affidavit is filed by the respondents, obviously because, facts are not in dispute and the controversy turns around the interpretation placed upon the document.
Sri M.S.Ramachandra Rao, learned counsel for the petitioner, submits that the nature of a document is to be determined by taking into account, the contents thereof and not on the basis of any external factors. He contends that once the owner of the property agrees to give the property on lease for a specified period, and on a stipulated rent, the fact that there existed money transactions between the lessor and lessee does not make any difference. Placing reliance upon certain precedents, learned counsel submits that the impugned proceedings cannot be sustained in law.
Learned Government Pleader for Revenue, on the other hand, submits that the objective behind the transaction witnessed by the document is the one for securing the repayment of amount due to the petitioner. He contends that the transaction reflected by the document has all the ingredients of an usufructory mortgage, such as (a) the transferor owing amount to the transferee (b) the transferor handing over the possession of the property to the transferee, and effort was to ensure that the amount payable towards the use of the property would liquidate the borrowed amount.
The issue pertaining to the registration of a document presented by the petitioner is pending for the past 13 years. The nomenclature of the document suggests that it is a lease deed and stamp duty and registration charges were paid on that premise. The respondents, however, took the view that it is a deed of mortgage. If the document is treated as deed of mortgage, the stamp duty payable thereon is phenomenal, compared to the one payable on the lease deed.
It hardly needs any mention that it is the contents of the document that determine its nature and not the nomenclature. The gist of the contents of the document has already been mentioned. It is to the effect that the petitioner is granted lease on the property for a period of 21 years on an annual rent of Rs.1,00,000/-. The lease is extendible by another 10 years, at the option of the petitioner. As in the case of any other transaction, the consequences that would flow in the event of any breach, are also incorporated.
The only basis for the respondents to treat the document as a deed of mortgage is that the lessor suffered a decree for a sum of Rs.21,50,000/- in the hands of the petitioner and the property is put at the disposal of the petitioner for the use only as a measure to liquidate the said debt. Therefore, it has to be seen as to whether in the factual situation, referred to above, the deed can be treated as the one of mortgage.
Lease and mortgage are species of the same genus viz., the ‘transfer of property’. Both of them bring about transfer of property, but with a substantial change as to the nature of disposition. The principal objective of a mortgage is to provide security for repayment of amount, whereas the one under lease is that the owner of an item of immovable property permits another to use it on payment of rent. Except in the case of usufructory mortgage and mortgage through conditional sale, the possession of the property continues to be with the mortgagor. In the case of lease, the transferee invariably gets the possession of the property.
Apart from the broad difference, referred to above, there are certain minute important aspects, that differentiate the mortgage from lease. Once a transaction of mortgage is brought about, the mortgagor gets the right to redeem, and the mortgagee gets the corresponding right to foreclose the mortgage. The nature of decree to be passed in a suit for foreclosure of mortgage differs substantially from the one to be passed in a suit for recovery of possession of property from a lessee. A preliminary decree is to be passed and it is followed by final decree. Chapter IV of the Transfer of Property Act, 1882 (for short ‘the Act’) confers rights and places obligations on the mortgagors, on the one hand, and mortgagees, on the other hand, which are typical and germatone to such transactions. Prescription of any fixed term is alien to mortgages.
Lease, on the other hand, involves, just the permission being accorded by an owner of property, to another, to use it. The consideration therefor is the rent fixed with the consent of the parties. In a given case, the lease may be nominal, or phenomenal. Further law does not prohibit the rent being paid in the form of adjustment from the amount due from the lessor to the lessee. What becomes important is the objective underlying the transaction, namely use of the property belonging to the lessor by the lessee, on payment of rent and for a stipulated term. Chapter V of the Act enlists the rights, which a lessor has against the lessee and vice-versa. Termination of lease, on the one hand, and foreclosure/redemption of mortgage, on the other hand, have nothing in common. When such is the radical difference between the two transactions, it is not at all possible to take the one for the other.
In Konjeti Kotayya v. Konjeti Annapurnamma AIR (32) 1945 MADRAS 189, a Division Bench of the Madras High Court held that even where a debtor permitted his property to be used for a particular period, towards satisfaction of the debt, it does not amount to creation of mortgage. Such a transaction is held to be lease. At least, there was a possibility in that case to treat the transaction as a mortgage, since the lease was to be co-terminus with the liquidation of amount due. In the instant case, there exists a provision in the deed for conclusion of lease beyond 20 years and for a further period of 10 years, at the option of the petitioner. Hence, the objective is not just, the liquidation of debt.
In Fuzhakkal Kuttappu v. C.Bhargavi AIR 1977 SC 105, the Supreme Court explained the difference between a transaction of mortgage and transaction of lease. It was held that once a provision is made for payment of amount towards rent, be it in cash or in kind, the mere fact that the payment is going to be made through adjustment, does not make any difference.
In the light of the discussion undertaken in the foregoing paragraphs, the impugned orders cannot be sustained. The document presented by the petitioner is a lease deed and the respondents are not justified in demanding deficit stamp duty by treating it as a deed of mortgage.
Hence, the writ petition is allowed. The impugned orders are set aside. The Sub-Registrar shall process the document by treating it as a lease deed and complete the process of registration within a period of one month from the date of receipt of a copy of this order.
The miscellaneous petition filed in this writ petition also stands disposed of.
There shall be no order as to costs.