Allahabad HC Rules Stamp Duty Exempt for Equitable Mortgage Without Written Instrument

Allahabad HC rules no stamp duty is needed for equitable mortgages by deposit of title deeds without a written agreement, benefiting HDFC in a landmark judgment.

High Court Exempts Stamp Duty on Equitable Mortgage

In a landmark decision, the Allahabad High Court declared that no stamp duty is required on an equitable mortgage created solely through the deposit of title deeds, provided there is no written agreement evidencing the deposit.

Case Background and Bench Composition

The ruling, delivered on May 30, 2024, involved a full bench of Justices Siddharth, Saumitra Dayal Singh, and Mahesh Chandra Tripathi. The case, Housing Development Finance Corporation Ltd. vs. State of U.P. and 2 Others, was referred to the larger bench by a single judge seeking clarity on the applicability of stamp duty in the context of certain clauses in a loan agreement between HDFC and a borrower.

Core Legal Issue

The central question was whether stamp duty under Article 6 of Schedule 1-B of the Indian Stamp Act, 1899, applies to an equitable mortgage created by the mere deposit of title deeds without a written instrument.

Judicial Analysis and Decision

The court, after examining the Stamp Act and previous rulings, concluded that stamp duty under Article 6 is only applicable to a written document that evidences an agreement related to the deposit of title deeds. The bench noted that while a simple mortgage through the deposit of title deeds is valid, it remains outside the Stamp Act’s scope unless a written agreement is executed between the parties.

Key Observations from the Court

1. The bench stated that stamp duty under Article 6 can only arise from an ‘instrument,’ defined as a document containing written evidence of an agreement to deposit title deeds to secure a loan. Since no such document exists in this case, no stamp duty is applicable.
2. The court clarified that an equitable mortgage could exist via the deposit of title deeds through an oral agreement. However, the loan agreement clauses do not constitute an ‘instrument’ as they lack written evidence of an agreement between the parties.
3. The court emphasized that the Stamp Act imposes duty liability solely on written instruments. Without written words executed by the parties to establish the transaction described under Article 6(1), no taxable event arises under the Stamp Act.

The Allahabad High Court’s decision exempts equitable mortgages created by the deposit of title deeds from stamp duty, provided there is no written agreement. This ruling benefits HDFC and sets a significant precedent in the interpretation of the Indian Stamp Act.