2004 (1) TMI 434 - HC - Companies Law

Sanction of a Scheme of Amalgamation - condonation of the delay in filing appeal - conveyance and an instrument under the Indian Stamp Act - Whether in view of the provisions of sub-section (2) of section 394 an order under sub-section (1) sanctioning a Scheme of Amalgamation or Arrangement is liable to be stamped under the Indian Stamp Act - HELD THAT - While dealing with the submissions of the respective parties it has to be kept in mind that the question as to whether an order under section 394 of the Companies Act 1956 amounted to a conveyance and therefore liable to payment of stamp duty arose in an application filed before the learned Company Judge for sanction of a Scheme of Amalgamation. As will appear from the trend of decisions cited by Mr. S.N. Mukherjee the consistent view of this Court has been that the transfer of assets and liabilities of the transferor company to the transferee company was by operation of law in view of the provisions of sub-section (2) of section 394 of the aforesaid Act and apart from complying with the provisions of sub-section (2) of section 394 nothing further was required to be done in order to complete the transfer of liabilities and assets from the transferor company to the transferee company. The entire exercise appears to have been influenced by the decision of the Supreme Court in the case of Ruby Sales Services Pvt. Ltd. 1993 (10) TMI 348 - SUPREME COURT and that of the Bombay High Court in the case of Li Taka Pharmaceutical Ltd. 1996 (2) TMI 369 - HIGH COURT OF BOMBAY referred to and relied upon by the learned Company Judge in answering the question referred to hereinabove. The entire fabric of the judgment of the learned Company Judge has been woven around the said two decisions and the concept of the order u/s 394 being a conveyance and an instrument was tailored to fit the said two decisions. In our view the moot question which falls for consideration in these appeals is not whether an order u/s 394 is a conveyance or an instrument but as to whether in view of the provisions of sub-section (2) of section 394 an order under sub-section (1) sanctioning a Scheme of Amalgamation or Arrangement is liable to be stamped under the Indian Stamp Act. The facts of both the two aforesaid cases are completely distinguishable from the facts of matters generally relating to orders u/s 394(1) of the Companies Act 1956. Even if the order u/s 394(1) is to be taken to be a conveyance or an instrument the transfer of assets and liabilities effected thereby is purely by operation of law which on account of section 2( d ) of the Transfer of Property Act also excludes the operation of section 6( e ) thereto. Notwithstanding the definition of the expression instrument in section 2(14) of the Indian Stamp Act the unamended provisions of the Indian Stamp Act in relation to such definition and the definition of conveyance and/or instrument does not apply to an order u/s 394(1) of the Companies Act for the purpose of stamp duty. We agree with the view expressed by the Division Bench of this Court in New Central Jute Mills Co. Ltd. 1959 (2) TMI 12 - HIGH COURT OF CALCUTTA that the transfer of assets and liabilities from the transferor company to the transferee company takes place by virtue of sub-section (2) of section 394 without any further act or deed. We are therefore inclined to agree with the submissions made on behalf of the appellants in these appeals that the learned Company Judge erred in importing the concept of transfer as explained in the case of Ruby Sales Service s (P) Ltd. ( supra ) and Li Taka Pharmaceutical Ltd. ( supra ) to the case of amalgamation and/or compromise governed simply by the provisions of sub-section (2) of section 394 of the Companies Act 1956. In our view the transfer of assets and liabilities of the transferor company to the transferee company takes place on an order being made under sub-section (1) of section 394 by operation of sub-section (2) thereof. The judgment and order of the learned Company Judge in the case of Gemini Silk Limited v. Gemini Overseas Limited 2002 (8) TMI 772 - HIGH COURT OF CALCUTTA and the directions contained therein are accordingly set aside and the department is directed to draw up and complete the orders passed u/s 394(1) of the Companies Act 1956 as if the judgment of the learned Company Judge in Gemini Silk Limited v. Gemini Overseas Limited had not intervened. In the event any orders u/s 394(1) have been stamped consequent upon the decision rendered in the case of Gemini Silk Limited v. Gemini Overseas Limited the parties will be entitled to apply for and to obtain refund of such stamp duty in accordance with law. The appeals are accordingly allowed. There will however be no order as to costs.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this judgment is whether an order passed by the Company Court under section 394(1) of the Companies Act, 1956, is considered a 'conveyance' and an 'instrument' under the Indian Stamp Act, and therefore, liable to stamp duty.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The key statutory provisions involved are sections 391, 392, 393, and 394 of the Companies Act, 1956, concerning schemes of reconstruction and amalgamation, and the Indian Stamp Act, particularly the definitions of 'conveyance' and 'instrument'. The judgment also references various precedents, including decisions from the Madras High Court, the Supreme Court, and the Bombay High Court, which have interpreted these provisions in different contexts.

Court's interpretation and reasoning:

The court examined whether an order under section 394(1) of the Companies Act constitutes a 'conveyance' or 'instrument' requiring stamp duty. The court noted that under section 394(2), the transfer of assets and liabilities occurs by operation of law, without any further act or deed, suggesting that such an order might not fit the definitions under the Indian Stamp Act.

Key evidence and findings:

The court considered arguments from various parties, including the appellants and the State of West Bengal, represented by the Advocate General. The appellants argued that the transfer under section 394 is by operation of law and not through a voluntary instrument, distinguishing it from transactions requiring stamp duty.

Application of law to facts:

The court applied the statutory provisions and precedents to the facts, focusing on whether the transfer effected by a court order under section 394(1) is akin to a 'conveyance' or 'instrument' under the Indian Stamp Act. The court found that the transfer occurs by operation of law, which is not typically subject to stamp duty.

Treatment of competing arguments:

The court addressed arguments from both sides, including references to the Bombay High Court's decision in Li Taka Pharmaceutical Ltd. and the Supreme Court's decision in Ruby Sales & Services Pvt. Ltd. It distinguished these cases based on specific statutory amendments in Maharashtra that were not present in West Bengal.

Conclusions:

The court concluded that an order under section 394(1) of the Companies Act does not constitute a 'conveyance' or 'instrument' under the Indian Stamp Act in its application to West Bengal, and therefore, is not liable to stamp duty.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The transfer of assets and liabilities from the transferor company to the transferee company takes place by virtue of sub-section (2) of section 394 without any further act or deed."

Core principles established:

The judgment establishes that the transfer of assets and liabilities under a court-sanctioned scheme of amalgamation occurs by operation of law under section 394(2) of the Companies Act, 1956, and does not require additional documentation or stamping as a 'conveyance' or 'instrument'.

Final determinations on each issue:

The court set aside the judgment of the learned Company Judge, directing that orders under section 394(1) of the Companies Act should be processed without requiring stamp duty. The court also allowed parties who had paid stamp duty based on the earlier judgment to seek refunds in accordance with the law.