The borrower then performed an indenture of Mortgage (“Mortgage Deed”) with the security agent in question and mortgaged his assets. With respect to stamp duty, the question arose as to whether the mortgage deed should be treated as a single document or as a combination of thirteen mortgages relating to the borrower and lenders pursuant to Section 5 of the Gujarat Stamp Act, 1958 (Law). The main point of contention of the tax authority in this case was that the lending banks had formed the consortium and executed the mortgage deed instead of several different mortgage instruments for the sole purpose of circumventing stamp duty. This has been a common practice for a long time, particularly in cases where the risks are too great or when the project for which the debt is to be incurred is too large or simply when the loan amount is too high. In addition, the execution of security documents, which are at most for the benefit of the security agent, can be characterized as evasive stamp duty by adopting a given structure that is legal, but not the circumvention of stamp duty. For example, in recent years, financing through the issuance of convertible or non-convertible bonds has become a popular method and, for these issues, a bond trustee acting on behalf of bondholders is almost always named. If the principle established by the Supreme Court is to be respected and a guarantee in favour of such an agent is to be treated as a guarantee created for the benefit of any holder of a stamp duty bond, this could create greater confusion, especially since there could be hundreds of obligations in a situation. In a judgment and order of December 3, 2012, the full bank of the Supreme Court of Gujarat responded to the request in favor of the borrower and against the tax authority and found that the borrower was not required to pay the stamp duty of the deficit on the mortgage deed. The High Court found that stamp duty was exercised on instruments and not on transactions. The borrower, Coastal Gujarat Power Limited, had used loans from thirteen lenders through separate loan agreements. These lenders then formed a consortium as a trust and appointed the State Bank of India trustee.

Indeed, this litigation completely neglects the long-standing practice and purpose of a securities trust in several credit transactions.