Supreme Court Held That Stamp Duty On 'security Bond-cum-mortgage Deed' Should be Determined by Legal Substance, Not Title

In an interesting judgment, the Supreme Court of India held that the stamp duty on judicial documents is to be decided by their inherent judicial nature and not by their designation. The judgment was given on October 8, 2025, as a result of litigation over a "Security Bond-cum-Mortgage Deed" offered by Godwin Construction Pvt. Ltd. to the Meerut Development Authority (MDA).

The firm had paid stamp duty of Rs 100 under Article 57 of the First Schedule 1-B of the Indian Stamp Act, 1899, by treating the instrument as a security bond. The revenue authorities, however, insisted that the document was actually a mortgage deed and claimed payment of stamp duty under Article 40 at a higher rate of Rs 4,61,660.

The Supreme Court gave continuity to the categorisation by the revenue's authorities, reiterating the principle that the nature of the instrument, the legislative effet, determines payment of stamp duty, not the nomenclature.

Facts of the Case

The point of contention was a "Security Bond-cum-Mortgage Deed" registered on December 19, 2006, by Godwin Construction giving security for the debt to develop "Global City" colony situated at Abdullahpur, Meerut.

The firm has paid stamp duty of Rs 100 under Article 57, thus investing the instrument with the character of a security bond. The Deputy Commissioner (Stamps), Meerut Circle, however, gave a notice during the year 2008 that the stamp duty was payable under Article 40 and took recovery action for the same in view of the deficit of Rs 4,61,660. The firm has objected this assessment, but the Allahabad High Court had sustained the demand, raising the present appeal before the Supreme Court.

The Supreme Court interpreted Section 2(17) of the Stamp Act, under which the definition of mortgage is any instrument that transfers the rights over the property to secure loan, debt, performance of engagements. The court also said that the document signed by the company gave the rights over the identified immovable properties to the MDA to secure performance of the obligations, hence satisfying the definition of the mortgage deed.

The court also made clear that Article 57 only applies where a third party provides surety to secure the debts of someone else. As the company itself signed the deed, without the inclusion of another surety, Article 57 was held inapplicable.

Understanding Stamp Duty

The Stamp duty is the tax paid by the government on financial records showing financial transactions or transactions related to immovable properties. The goal is to give the agreement, the contract, and the transfer instrument the force of law. The Stamp duty is paid on most papers including sale deeds of immovable properties, mortgage deeds, leaseholds, loan transactions, and transfer deeds.

The stamp duty is also determined by the type of document, the value of the document, and the state where the process is carried out. The buyer, for example, is forced to pay the stamp duty as a ratio of the sales price or market value of the property where the property is transacted. In the case where loan documents or a mortgage is agreed upon, the duty is dictated by the principal quantum tied up or even the value of the security provided.

This judgment has considerable implications for individuals, corporations, and financial institutions. It underlines the need to represent the nature of transactions through legal documents accurately.