Supreme Court Holds “Security Bond cum Mortgage Deed” Chargeable Under Article 40; Dismisses Appeals

A bench of Justices Ahsanuddin Amanullah and Prashant Kumar Mishra heard appeals challenging Allahabad High Court orders on the proper stamp duty for instruments titled as "Security Bond cum Mortgage Deed" and "Security Bond or Mortgage Deed". The appeals raised the narrow question whether such instruments were chargeable under Article 40 (mortgage-deed) or Article 57 (security-bond by a surety) of Schedule I‑B to the Indian Stamp Act, 1899.

The Court held that substance, not nomenclature, determined chargeability and affirmed the High Court’s view that the instruments were mortgage deeds chargeable under Article 40. The Court observed that the decisive inquiry was the “true legal character” of the instrument and that where the principal debtor itself mortgaged its property, Article 57 was inapplicable. The Court, in its reasoning, observed: The Court also noted that “the nomenclature ‘Security Bond cum Mortgage Deed’ is, therefore, inconsequential, as it is the substance and operative provisions of the instrument which govern its character for the purposes of stamp duty.”

Background The first appeal arose from a security bond cum mortgage deed executed on 19.12.2006 by M/s Godwin Construction Pvt. Ltd. in favour of Meerut Development Authority (MDA) to secure obligations for development of a colony; the deed mortgaged specific plots and recited a secured sum of Rs.1,00,44,000 with an advance deposit of Rs.15,00,000. The Deputy Commissioner (Stamps) held that the instrument was chargeable under Article 40 and issued a recovery notice for deficit stamp duty of Rs.4,61,660 plus penalty and interest; stamp appellate and High Court challenges were dismissed. The second matter concerned a loan security executed in 1995 by a company in favour of Allahabad Bank, where stamp authorities similarly treated the deed as a mortgage under Article 40; appellate and writ remedies in the High Court failed.

Counsel for the appellants contended that the documents were security bonds falling under Article 57 because they purported to be bonds executed to secure performance and were stamped accordingly. Respondents argued the documents in substance created rights over specified immovable property to secure obligations and thus were mortgage-deeds under Section 2(17) of the Stamp Act and chargeable under Article 40. The Court analysed the operative recitals and clauses, applied the definition of "mortgage-deed" in Section 2(17) and the concept of a contract of guarantee under Section 126 of the Indian Contract Act to distinguish the second limb of Article 57 as being confined to instruments executed by a surety for another’s obligations. The Court found no distinct surety in either instrument and concluded both were mortgage deeds executed by the principal debtor. The High Court judgments were held to suffer no infirmity and the appeals were dismissed. No interim directions were necessary and no precedent was overruled; the Court relied on statutory interpretation of the Stamp Act and the contract law definition of surety.

Case Details: Case No.: CIVIL APPEAL NO.7661 OF 2014; WITH CIVIL APPEAL NO.12552 OF 2025 (ARISING OUT OF S.L.P. (CIVIL) NO.36434 OF 2014) Case Title: M/s Godwin Construction Pvt. Ltd. v. Commissioner, Meerut Division & Anr. Appearances: For the Petitioner(s): [Advocates not indicated in the judgment] For the Respondent(s): [Advocates not indicated in the judgment]