The Supreme Court recently considered the quantum of stamp duty payable on mortgage created by a borrower in favour of a consortium of lenders. The key question considered by the Supreme Court in Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd (2015 (8) SCALE 656) was whether a single mortgage executed in favour of a security trustee for the benefit of several consortium lenders would attract stamp duty as if a single mortgage was created under the document, or whether stamp duty would be payable as if distinct documents had been executed by each lender in the consortium.

The issue becomes critical because if a single mortgage created in favour of a security trustee for the benefit of several consortium lenders attracts stamp duty as if multiple mortgages have been created (i.e a separate mortgage for each secured lender in the consortium), the incidence of stamp duty on the transaction will increase and result in high transaction costs. On August 11, 2015 the Supreme Court opined that in multiple/consortium lending structures, a single mortgage executed in favour of a security trustee for the benefits of all lenders will require to be construed as a separate mortgage for each lender in the consortium and will therefore need to be stamped as if multiple documents creating a mortgage were executed. In Chief Controlling Revenue Authority v. Coastal Gujarat Power Ltd, Coastal Gujarat Power Limited (CGPL), was setting up an Ultra Mega Power Project in Kutch-Bhuj, and availed financial assistance from 13 lenders for setting up the power project. The 13 lenders formed a consortium as a trust and executed a security trustee agreement appointing State Bank of India (SBI) as the security trustee for the benefit of all the lenders. CGPL executed an indenture of mortgage in favour of SBI in its capacity as security trustee for the benefit of all the lenders. The Chief Controlling Revenue Authority demanded stamp duty on the document as if multiple documents were executed.

The Supreme Court declined to accept the view that there was only one instrument creating a mortgage between CGPL and the security trustee (SBI). The Apex Court also did not accept the submissions that since the relation between CGPL and the security trustee (SBI) was independent of the relationship between CGPL and the lending banks, stamp duty should be payable on the indenture of mortgage as if a single document comprising a single transaction/matter had been executed. As a result, post the Supreme Court ruling, mortgages in Gujarat in favour of a security trustee will require to be stamped as if a mortgage has been created in favour of each lender in the consortium.

This Supreme Court decision is likely to have widespread impact in consortium lending transactions. Stamp acts in majority States in India have provisions which are similar to the case relevant provisions contained in the Gujarat Stamp Act, 1958, and the Supreme Court ruling will no doubt create a great degree of discomfort with regard to determination of stamp duty on security documents in consortium/multiple banking structures

 

  

Damini Marwah

Damini Marwah is the General Counsel and Legal Head for IL&FS Financial Services (IFIN), based at Mumbai
IFIN is a subsidiary of Infrastructure Leasing & Financial Services Limited ( IL&FS ), India

 


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