The Secretary to the Commissioner of Salt, Abkari and Separate Revenue, Revenue Board vs Mrs. E.W. Orr and The Bank of Madras

Arnold White, C.J.—The question we have to consider is whether the instrument which has been submitted to us is a mortgage deed within

the meaning of Section 2(17) of the Indian Stamp Act (II of 1899). If so it is chargeable with stamp duty as such under Article 40 of the 1st

Schedule to the Act. Mr. Barton has argued that the instrument in question is a declaration of trust and that it is chargeable as such under Article

At the conclusion of his argument he suggested that the instrument might be construed as a letter of hypothecation accompanying a bill of

exchange, and therefore fell under the 2nd exemption to Article 40.

A mortgage deed is defined for the purposes of the Stamp Act, and for the purposes of that Act only, as including "" every instrument whereby,

for the purpose of securing money advanced, or to be advanced by way of loan, or an existing or future debt, or the performance of an

engagement, one person transfers or creates to, or in favor of another, a right over or in respect of specified property."" The definition is almost as

wide as the definition of a bill of sale in the English Bills of Sale Acts.

What are the material provisions of this deed ? It is an instrument to which the parties are one Mrs. Orr and the Bank of Madras. It recites that

probate of the will of the late Mr. E. W. Orr was granted to Mrs. Orr as sole executrix thereof, that the late Mr. Orr was the sole proprietor of a

certain Gold and Silver smiths business, that Mrs. Orr, in order that certain creditors of the firm may be repaid their loans and with a view to

certain other matters, has entered into an agreement with the Bank of Madras by which the Bank has agreed to advance to Mrs. Orr a certain

amount on a proroissory note to be executed by one Thomas William Barton in favour of the firm (Messrs. P. Orr and Sons) and endorsed by

them to the Bank of Madras upon the said Mrs. Orr executing a declaration of trust of the machinery, plant, stock in trade, goods, chattels and

effects in connection with the business more particularly described in the Schedule to the instrument. In consideration of advances to be made by

the Bank Mrs. Orr declares that she holds the said machinery, plant, stock-in-trade and etc., on trust for and on behalf of the Bank. There is a

provision as regards interest. There is then a provision that the trustee shall have full power to use and employ the trust property in certain ways

and to replace and make good such portions of the trust property as may be sold or otherwise dealt with and that the substituted goods shall be

included in the security; there is a provision for insurance. Then there is a declaration that the trustee stands possessed of the net profits, realized

after payment of all expenses including the retention by the trustee of a sum not exceeding Rs. 20,000 annually, in trust to pay and apply the same

in payment of sums advanced by the Bank. (The reference in the letter of the Board of Revenue to this part of the instrument is not quite accurate).

These are the covenants to which I need refer. In the schedule we have the headings ''''machinery, plant, fixtures and furniture in Madras and

Rangoon"" and "" stock-in-trade, goods, chattels and effects in Madras and Rangoon."" Under these headings are set out the various classes of

articles with their respective values. By the instrument Mrs. Orr creates a trust, declares that she is the trustee and that certain property shall be

trust property. She constitutes the Bank of Madras ceslui que trust in respect of the trust property. That is the object and purport of the deed.

Whatever the precise rights of the cestui que trust may be it is not for us to consider. But it seems to me anamolous for a party who sets up a case

to say that the trust does not give a beneficial interest to the cestui que trust, or that the cestui que trust has not, in the language of Section 2 (17)

any right in respect of the trust property. That is really what Mr. Barton''s argument comes to. It seems to me that there are two trusts created by

the deed. Mr. Barton has agreed that there is a trust in respect of the net profits in paragraph 5 of the deed, but that there is also a trust in express

language in paragraph 1 in respect of the machinery, plant, stock in-trade, goods, chattels and effects in or upon the business premises of the firm.

It has been suggested that the definition is not satisfied because the trust property is not specified and could not be specified since the trust

property consists of the net profits. We have been referred to a Full Bench decision of this Court which is reported in (Reference under Stamp Act

Section (46)I.L.R. (1887) M. 216. In that case there was an agreement between certain persons to transfer the future surplus profits of their

respective trades to a trustee, in order that the trustee should hold the fund so to be created on certain trust declared in the agreement. It was held

that it was liable to stamp duty as a declaration of trust and it was also held that the fund intended to be created under the agreement was not

specified property."" In that case the learned judges had to consider whether a certain sum of money which was to be accumulated by certain

parties who were willing to contribute money for certain purposes was ""specified property."" It may be that the net profits here are not specified

property within the meaning of the definition. But we have a trust declared by the inurnment in respect of the machinery, plant, stock-in-trade etc.

With regard to them we have the schedule to which I have referred. It seems to me that so far as the stock in trade, which are described in the

deed as trust property are concerned the trust property is specified. It is perfectly clear that the object of the instrument was to give the Bank some

rights by way of security. They had their contractual rights on the promissory-note. They wanted something more: and I see no reason for holding

that the deed does not to some extent-to what extent it is unnecessary for us to consider, carry out the object which was in the minds of the parties

when the deed was prepared.

I need scarcely say that the fact that the instrument is a trust deed does not make it the less a mortgage. It is, in my opinion a mortgage deed for

the purposes of the Stamp Act'', because it creates a right in respect of specified property for the purpose of securing money advanced or to be

advanced.

I can deal shortly with Mr. Barton''s second point. Hypothecation is not defined in the Stamp Act nor in the Transfer of Property Act either.

Assuming that this instrument is a bill of exchange within the meaning of the definition in the Stamp Act, it seems to me it is not a letter of

hypothecation within the. meaning of the exemption. According to Mr. Barton the instrument is a formal declaration of trust. I do not think a formal

declaration of trust can be treated as a letter of hypothecation within the meaning of the exemption. I quite agree that a fiscal enactment should be

construed strictly and in favour of the subject, but it seems to me that whatever else the instrument may be, it is a mortgage deed within the meaning

of the definition in Section 2 (17) of the Stamp Act.

Sankaran Nair, J.

I agree.

Oldfield, J.

I agree.