WHETHER COURT ORDER SANCTIONING AMALGAMATION IS AN INSTRUMENT?

[Mr. M. GOVINDARAJAN]

Instrument

A document creating or transferring a right is an instrument.  Can it be said that an order effectuating the transfer is a document?  In ‘Haji Sk. Subhan V. Madhorao’- 1961 (10) TMI 79 - SUPREME COURT the Supreme Court held that the question is whether the word ‘document’ includes a decree of the Court.  There was no good reason why a decree of the court when it affects the proprietary rights and is in relation to them should not be included in this expression.

Order of amalgamation

The order of amalgamation is based on a compromise or an arrangement arrived at between the two companies.   No individual living being owns the company.   Each shareholder is the owner of the company to the extent of his shareholding.  Section 391 to 394 of Companies Act, 1956 gives a method to give effect to the will of the prescribed majority of shareholders/creditors.   Even in the absence of individual agreement by all the shareholders and creditors the decision of the majority in this regard binds all the creditors and the shareholders.  The scheme after being sanctioned by the Court binds all its creditors, members and shareholders including even those who were opposed to the scheme being sanctioned.   It binds the company as well.

Section 394 (2) of the Companies Act, 1956 provides that the properties and liabilities of the transferor company stand transferred to the transferee company by virtue of an order of Court. 

Issue

The issue to be discussed in this article is whether the order of High Court in respect of sanctioning the scheme of amalgamation is an instrument and liable to be stamp duty as per the State Government Stamp duty laws with reference to decided case laws.

Case laws

In ‘Sun Alliance Insurance Limited V. Inland Revenue Commissioners’ – 1971 (1) All Eng. LR 135 the point as to whether the stamp duty was leviable on the Court order sanctioning the scheme of amalgamation was considered at length.  The Court held that it is the court order that effects the transfer and this is nonetheless so because the scheme is not operative until an office copy has been delivered to the Registrar of Companies for registration, for the court order itself ordered that to be done and the Act so provides.  The Court further considered as to whether the order of the Judge is an ‘instrument’ executed in any part of the United Kingdom for the purposes of stamp duty.   It was held that it was an instrument executed in the United Kingdom within the meaning of Section 14(4) of the Stamp Act, 1891.  The order of the Court was liable to stamp duty as it resulted in transferring the property and that the order passed by any court which results in transfer of property would be an instrument as it includes every document. 

In ‘Hindustan Lever & another V. State of Maharastra & another’ – CS:LMJ:1/11/2015 Tata Oil Mills Co. Limited amalgamated with Hindustan Level Limited under a scheme of amalgamation, as sanctioned by the High Court.   On presentation of the certified copy of the court’s order of the Registrar of Companies, Maharastra issued a certificate amalgamating the two companies.   The authorities under the Bombay Stamp Act, 1958 demanded stamp duty on the transfer of assets and properties effected under the scheme of amalgamation as ordered by the Bombay High Court. The Hindustan Level Limited filed a writ petition before the Bombay High Court challenging the constitutional validity of the provisions of the stamp act.    The Division Bench dismissed the petition.   The HLL filed appeal before the Supreme Court on the following grounds:

• Amalgamation being an act by operation of law, transfer of immovable properties effected under the court order sanctioning the scheme of amalgamation is an ‘involuntary transfer’ in nature and therefore not liable to stamp duty as only ‘voluntary transfer under the head ‘conveyance’ is subject to the stamp duty;
• Court order is not an instrument subject to stamp duty.

The HLL contended the following before the Supreme Court:

• An order of amalgamation under Section 394 is not under simplicitor of transfer of property by an act of parties with imprimatur of the court;
• It is an order made by the Court after judicial scrutiny and transfer of the property under such an order would not be an act of parties to which the Court puts its seal of approval;
• Stamp duty can be levied on ‘documents’ or ‘instruments’;
• The order of the Court in exercise of its judicial functions is not a ‘document’ or an ‘instrument’;
• Once the Court passes an order or a decree, it is required to be implemented or executed as such.  The same cannot be subjected to stamp duty otherwise the orders passed by the Court would become subject to interference by the revenue authorities and would not be admissible in evidence unless the stamp duty is paid.

The Supreme Court did not accept the contentions of the HLL.  The Supreme Court held that the order passed by the High Court under Section 394 of the Companies Act is based upon the compromise between two or more companies.  The function of the Court while sanctioning the compromise or arrangement is limited to oversee that the same is lawful and the affairs of the company were not conducted in a manner prejudicial to the interest of its members or to public interest.   Once these things are satisfied the scheme has to be sanctioned as per the compromise arrived at between the parties.   It is an instrument which transfers the properties and would fair within the definition of Section 2(1) of the Bombay Stamp Act which includes every document by which any right or liability is transferred.  The Supreme Court held that the State Legislature would have the jurisdiction to levy stamp duty under Entry 44, List III of the 7^th Schedule of the Constitution of India and prescribe rates of stamp duty under Entry 63, List II. 

The Supreme Court held that the order passed by the High Court under Section 394 is founded on consent and this order is an instrument as defined under Section 2(1) of the Bombay Stamp Act. The Supreme Court did not find any merit in the appeal filed by the appellant and dismissed the same.