2004 (1) TMI 375 - HC - Companies Law

Amalgamation scheme - validity of the newly inserted section 33C to the BST Act - Whether the State Legislature can retrospectively declare, that for the purpose of sales tax, the date of amalgamation of the companies shall be from the date on which the scheme of amalgamation is approved by the court and not from the effective date of amalgamation declared by the court - HELD THAT - Once the court has declared that the corporate personality of a company shall came to an end from a particular date, then that status can be altered only by the court. The said status cannot be altered by the State even in exercise of its legislative powers as it would amount to directly interfering with the order passed by the court. Moreover, there cannot be different dates of amalgamation for different authorities. It cannot be said that for the purposes of the Companies Act a company loses its corporate personality from a particular date and for the purposes of the BST Act the said company loses its corporate personality from another date. Once the court declares that a company stands destroyed from a particular date then the corporate personality of that company is destroyed completely from that date. Prospectively for the purposes of sales tax, it may be open to the State Legislature to artificially preserve the separate identity of the companies up to the date on which the court approves the scheme of amalgamation. However, in respect of amalgamation orders passed by the court prior to the insertion of section 33C are concerned, the effective date of amalgamation declared by the court cannot be altered by the State Legislature as it amounts to overruling the orders of the court or declaring that the judicial decisions are not binding. It is well-established in law that the Legislature cannot declare that the judicial decisions of the court are not binding, as it amounts to reversing the decisions rendered in exercise of judicial power. The court s decision always binds unless the conditions on which the decision is based, are fundamentally altered. The State cannot declare as to when a corporate entity shall come into existence or cease to exist. Even assuming that by inserting section 33C the State is trying to preserve the identity of the amalgamated company up to the date on which the scheme of amalgamation is approved, such provision can take effect only prospectively and not retrospectively because there will be nothing to preserve after the corporate personality of a company is destroyed from the effective date as per the order of the court. Therefore, in the eye of law, complete destruction of the corporate body of the amalgamated company takes place from the effective date declared by the court. Any law enacted by the State to the contrary would be directly overruling the court order and render the judicial order nugatory. Such a law which encroaches upon the judicial domain is liable to be declared as unconstitutional. In our opinion, section 33C in fact creates a new liability by retating the transferee company and the transferor company carrying on business as agent or trustee of the transferee company as two separate entities from the appointed date till the date of approval of the scheme by the court. But for this new impost sales tax could not be levied in respect of the transactions between the transferee company and the transferor company carrying on business as agent of the transferee company. Thus, we have no hesitation in holding that section 33C imposes new levy, a new principle and, therefore, the same cannot be said to be clarificatory or explanatory in nature. It is true, by declaring that the amalgamation shall take place from a particular date, the company court is not giving any direction to the sales tax authorities. But once the court declares that the corporate personality of a company shall be destroyed from a particular date, the corporate personality of that company cannot be restored by the State Legislature as it amounts usurping the judicial power. Although the amalgamation is the voluntary act of the parties in deciding to amalgamate from the appointed date that voluntary act acquires legal status and in law the transferee company ceases to exist from the appointed date declared by the court. Such a legal status which flows from the High Court order cannot be altered by the State Government. It is true that there cannot be any inherent limitation on the powers of the State Government to retrospectively levy a tax. The contention of the State that in the instant case retrospective operation of section 33C does not cause any hardship to the petitoners, because at the relevant time when the transactions took place, two companies were distinct and separate entities is also without any merit. As stated hereinafter from April 1, 1993, business was carried on by PIL as agent or trustee of NOCIL and not as a separate and distinct entity. The rights and liabilities of the companies in amalgamation as well as the taxable income of NOCIL and PIL have been determined on the footing that PIL ceases to exist from April 1, 1993. If section 33C is to operate retrospectively then the entire scenario relating to profit sharing ratio, bargains by the shareholders and the assessed income of the two companies will be severely affected. It must be remembered that in the present case it is not the infirmity or deficiency pointed out by the court which is sought to be remedied. On the contrary it is the order of the court which is sought to be nullified by the impugned legislation. In other words, in the present case the basis of amalgamation which has been approved and acknowledged by the High Court is sought to be nullified by the impugned legislation. In none of the decisions cited on behalf of the State it is held that the State render the judicial decision nugatory or worthless. The State has failed to establish the nexus or the rationale behind introducing section 33C with retrospective effect from July 1, 1981. None of the provisions inserted to the BST Act on July 1, 1981, pertained to the effective date of amalgamation of companies. Therefore, there was no question of clarifying or explaining the provisions which were inserted to the BST Act on July 1, 1981. As stated hereinabove by the retrospective insertion of section 33C, the State has in fact sought to nullify the court order which is not permissible in law. Thus, we hold that section 33C is unconstitut-ional in so far as it purports to apply retrospectively. The Apex Court in the case of Basheshar Nath v. CIT 1994 (11) TMI 390 - BOMBAY HIGH COURT ruled that the court should not make any pronouncement on any question which is not strictly necessary for disposal of the case before it. Thus, we allow this petition in terms of this judgment on narrower contention and accordingly make the rule absolute, keeping all other rival contentions open to the extent not dealt with herein, for consideration in an appropriate case. No order as to costs.

Summary

Issues Involved:
1. Legislative competence of the State Legislature to enact section 33C of the BST Act.
2. Retrospective operation of section 33C from July 1, 1981.

Summary:

Issue 1: Legislative Competence of the State Legislature to Enact Section 33C of the BST Act

The petition challenges the validity of section 33C of the Bombay Sales Tax Act, 1959, inserted by the Maharashtra Tax Laws (Levy and Amendment) Act, 2002, on the grounds that the State Legislature is not competent to declare the date of amalgamation for sales tax purposes different from the date declared by the court or the Central Government under the Companies Act, 1956. The court did not find it necessary to pronounce on the legislative competence of the State Legislature in this case, as the petition could be decided on the narrower issue of retrospectivity.

Issue 2: Retrospective Operation of Section 33C from July 1, 1981

The court addressed whether the State Legislature can retrospectively declare that for sales tax purposes, the date of amalgamation of companies shall be from the date on which the scheme of amalgamation is approved by the court, rather than the effective date declared by the court. The court held that once the court declares the effective date of amalgamation, the corporate personality of the amalgamated companies ceases to exist from that date for all purposes. The retrospective insertion of section 33C, which seeks to nullify the effective date of amalgamation declared by the court, was found to be unconstitutional.

The court emphasized that the Legislature cannot declare judicial decisions as non-binding or alter the effective date of amalgamation retrospectively, as it would amount to overruling the court's order. The court concluded that section 33C, insofar as it applies retrospectively from July 1, 1981, is unconstitutional. The court allowed the petition on this narrower ground, without addressing the larger issue of legislative competence.