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TMI Blog1996 (2) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... time of admission of the petitions, this Court had granted interim relief by taking usual undertakings that in the event this Court directs the petitioners, the petitioners shall pay the entire amount of stamp duty assessed without prejudice to the rights and contentions of the petitioners. 3. For appreciating the contention of the petitioners, it would be necessary to refer to section 2( g ) . Section 2( g ) reads as under: "( g ) 'conveyance' includes, ( i )a conveyance on sale, ( ii )every instrument, ( iii )every decree or final order of any civil court, ( iv )every order made by the High Court under section 394 of the Companies Act, in respect of amalgamation of companies; by which property, whether movable or immovable, or any estate or interest in any property is transferred to, or vested in, any person, inter vivos, and which is not otherwise specifically provided for by Schedule I;" Clause ( g )( iii), which is added by the Maharashtra Act No. 27 of 1985 which has come into operation from 10-12-1985, provides that conveyance includes every decree or final order of any civil court. Clause ( g )( iv ) is added by the Maharashtra Act No. 17 of 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings under section 394 would commence because of the agreement entered into by two companies. The amalgamation scheme, which is an agreement between the companies, is presented before the Court and the Court passes appropriate order sanctioning the compromise or arrangement. But the foundation or basis for passing an order of amalgamation is the agreement between the two or more companies. Section 394 makes this abundantly clear. It reads as under: "Provisions for facilitating reconstruction and amalgamation of companies. (1) Where an application is made to the Court under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Court ( a )that the compromise or arrangement has been proposed for the purpose of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and ( b )that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a 'transferor company') is to be trans-ferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the compromise or arrangement, to cease to have effect." [Emphasis supplied] Section 394 quoted above clearly provides that application and order of amalgamation under section 394 is based upon a compromise or arrange-ment which has been proposed for the purpose of amalgamation of two or more companies. Under the said scheme of amalgamation, the whole or any part of the undertaking, property or liability of any company concerned in the scheme is to be transferred to other company. The company whose property is transferred would be a transferor company and the company to whom the property is to be transferred would be considered as a transferee company. The proviso to sub-section (1) of section 394 provides that the proposed compromise or arrangement would be subject to verification by the Court as provided therein, parti-cularly whether the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. Sub-section (2) further provides for transfer of any property or liabilities by virtue of the order and that property shall be transferred and vest in the transferee company. Sub-section (4) defines the word 'prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax can only be imposed by the Parliament under List I entry 97. ( c )In the guise of a stamp duty, the State Legislature is imposing in reality a tax on the amalgamation of companies and has encroached on the field of Parliament under entry 44 List I, Seventh Schedule of the Constitution. ( d )The provisions of clause ( c )( iv ) of section 2 read with section 34 of the Bombay Stamp Act are repugnant to sections 391 and 394 of the Companies Act and the State legislation cannot prevail over the provisions of the Companies Act. Re: Contention ( a ): 8. Mr. Andhyarujina vehemently submitted that if Court decrees and instruments are included and considered as conveyance, then, the result would be a startling one and that every order passed by this Court or the Supreme Court or the civil court would be subject to interference by the revenue authorities and would not be admissible under section 34 of the Bombay Stamp Act unless it is duly stamped. The consequence would be that there will be inroads in judicial orders passed by the Courts. He contended that once the Court passes an order or a decree, it is required to be implemented or executed and its execution or implemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument whereby any property upon the sale thereof is legally or equitably transferred and the taxation is confined to the instrument where the property is transferred. 10. The next decision which deals with the amalgamation scheme is the case of Sun Alliance Insurance Ltd. v. IRC [1971] 2 Weekly Law Reports 432. In that case, the Court observed that the question that arose for determination was whether relevant stamp duty was payable on the Judge's order sanctioning the scheme of arrangement under section 206 of the Companies Act, 1948 and held that since the scheme of arrangement had no force or effect unless or until it was sanctioned by the Court, it was the Judge's order which transferred the outstanding shares notwithstand- ing the fact that the scheme did not become operative until an office copy of the Judge's order was lodged for registration with the Registrar of Companies. The Court further considered whether the Judge's order was an instrument executed in any part of the United Kingdom for the purpose of section 14(4) of the Stamp Act, 1891 and it was held that it was an instrument executed in the United Kingdom within the meaning of section 14(4). In that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties and in that context, the Court held that the scheme of the definition and the context of sub-clause ( d ) of section 2( vi ) read with sub-clause ( 6 ) of the Payment of Wages Act, 1936, seem to suggest that the word 'instrument' would include awards made by Industrial Courts of competent jurisdiction. 13. In the case of Mohan Chowdhury v. Chief Commissioner AIR 1964 SC 173, the Court considered the question whether operation of the 'order' passed under the provisions of article 359(1) of the Constitution was an instrument as provided under section 8(1) of the General Clauses Act. The Court held that the General Clauses Act does not define the 'instrument'. Therefore, the instrument must be taken to have been used in the sense in which it is generally understood in legal parlance. The Court referred to the Stroud's Judicial Dictionary of Words and Phrases (Third Edition, Vol. 2, page 1472), where 'instrument' is described as follows: "An 'instrument' is a writing, and generally imports a document of a formal legal kind. Semble, the word may include an Act of Parliament... (11) Conveyancing Act, 1881 (44 and 45 Vict. c. 41), section 2( xiii ) , 'instru-me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions must have been complied with; ( ii ) class must have been clearly represented; ( iii ) the arrangement must be such as a man of business would reasonably approve; and ( iv ) the arrangement must be acceptable with legal provisions. Similarly, in Buckley on the Companies Act, 14th Edition, reads: "In exercising its power of sanction, the Court will see, first, that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purport to represent, and, thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve. The Court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but, at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the scheme should not be a device to evade law. The Court further held that when the Court is concerned with a scheme of merger with a subsidiary of a foreign company, then the test is not only whether the scheme shall result in maximising profits of the shareholders, or whether the interest of employees was protected but it has to ensure that merger shall not result in impending promotion of industry or shall obstruct growth of national economy. 17. However, the learned counsel Mr. Andhyarujina relied upon the decision rendered by the Calcutta High Court in the case of Sailendra Kumar Ray v. Bank of Calcutta Ltd. [1948] 18Comp.Cas. 1. The Court has held that transfer of assets of one company to another company in a scheme of amalgamation sanctioned by the Court under section 153 A of the Indian Companies Act, 1913, is not a transfer by assignment within the meaning of Order 21, Rule 16 of the Code of Civil Procedure, 1908. In that case, the Court held that transfer is accomplished by statutory provision and that it takes place by virtue of the order passed by the Court. The transferor company makes no assignment at all, either in substance or in form. It only makes a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision providing that notwithstanding any judgment of the Court, the reassessment invariably made must be deemed to be valid as it attempts to invalidate the assessment without removing the basis of its invalidity and in that context, the Court relied upon its earlier decision in the case of Municipal Corpn. of the City of Ahmedabad v. New Shrock Spg. Wvg. Co. Ltd. AIR 1970 SC 1292 where the Court has observed that the provision which commands the Corporation to refuse to refund the amount illegally collected despite the orders of the Court and the High Court is a strange provision and it attempts to make a direct inroad into the judicial powers of the State. The Court further observed that no Legislature in the country has the power to ask the instrumentalities of the State to disobey or disregard the decision given by the Courts. By exercise of those powers, the Legislature can remove the basis of a decision rendered by a compe- tent court thereby rendering that decision ineffective. 20. In our view, the above case has no application to the facts in the present case. The Legislature is not making any direct or indirect inroads into the judicial powers. It has only provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in the present case. Section 2( g )( iv ) of the Bombay Stamp Act only provides that conveyance would include every order made by the High Court under section 394 of the Companies Act in respect of amalgamation of companies by which movable or immovable property is transferred to any other person inter vivos which is not otherwise specifically provided by Schedule I of the Bombay Stamp Act. Section 34 of the Bombay Stamp Act provides that no instrument chargeable with duty shall be admitted in evidence. This section does not invalidate the document if not duly stamped. It only provides that it would not be admissible in evidence if it is not properly stamped. Therefore, the Court's order is not invalidated by the said section. 23. In view of the aforesaid discussion, we hold that the order passed by the Court under section 394 of the Companies Act is based upon compro-mise between two or more companies. The entire section 394 provides to that effect. It also provides that Court may either by order sanctioning the compromise or arrangement make provisions for all or any of the matters specified therein. It also provides that no compromise or arrangement proposed for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be said that the State Legislature has no jurisdiction to levy such duty. 26. Further, the charging section, viz., section 3 of the Bombay Stamp Act provides that subject to the provision of the Act and the exemption contained in Schedule I, the instrument shall be chargeable with the duty of the amount indicated in Schedule I as the proper duty therefor. Hence, duty charged by the State Legislature is on the instrument and is on the execution of the instrument. The measure of charging stamp duty may be fixed or ad valorem and that is to be determined by the Legislature. The basis for computation of stamp duty can be determined by the Legislature and it may be on the basis of the market value of the property transferred or it may be a fixed amount. This is well-established principle with regard to the stamp duty. In the case of Himalaya House Co. Ltd. v. Chief Controlling Revenue Authority AIR 1972 SC 899, the Supreme Court observed as under: "On a conspectus of these authorities it is, therefore, apparent that in the exercise of powers conferred on it by Entry 63 of List II and Entry 44 of List II, it was open to the State Legislature not only to make an amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus between the two indicating a relationship between the levy on the tea estate and the criteria for determining the measure of liability. In the present case, as stated above, the levy of stamp duty is on the instrument. The measure of duty is on the basis of the valuation of the property. There is direct relationship for determining the measure of the stamp duty. The measure of tax is not determinative of its essential character or of the competence of the Legislature. Therefore, the true nature and character of the stamp duty is on the instrument or the document which transferred the property and it does not cease to be a duty on the instrument because for determining the rates, the measure adopted by the legislature is the valuation of the property. 28. In the case of Goodricke Group Ltd. v. State of West Bengal 1995 Suppl. (1) SCC 707, after referring to various decisions the Court held that merely because a tax on land or building is imposed with reference to its income or yield, it does not cease to be a tax on land or building. The income or yield of the land/building is taken merely as a measure of the tax; it does not alter the nature or character of the levy; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation is totally different from levy of stamp duty and of prescribing rate of stamp duty on such documents. It is open to the State Legislature to fix the rates of stamp duty in respect of documents specified in Entry 43, List I. The Bombay Stamp Act nowhere provides for any Legislation with regard to incorporation, regu-lation and winding-up of corporations. It only levies the stamp duty and prescribes the rates of stamp duty in respect of documents by which companies transfer its assets. Re: Contention ( d ): 30. Lastly, it is contended that the provisions of section 2( g ) read with section 34 of the Bombay Stamp Act are repugnant to section 394 of the Companies Act and the State Legislation cannot prevail over the provi-sions of the Companies Act. In this regard, the learned counsel submitted that in view of section 394(2) of the Companies Act, the property of the transferor company vests in the transferee company as soon as the order is passed by the Court sanctioning the amalgamation scheme. Therefore, the State Legislature cannot say that such transfer would be of no consequence if no stamp duty is paid. In our view, this submission is also without any substance bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rately: ( a )Market value of shares (predetermined as per Exchange Ratio or the one prevailing on the day the Scheme of Amalgamation comes into operation, as the case may be) of the transferee company allotted to the shareholders of the transferor company and any other form in which net amount of consideration is paid; and ( b )The liabilities of transferor company which are being transferred to and are going to become liabilities of the transferee company. (Liabilities are also certified). 33. This contention is devoid of any substance because by the scheme of amalgamation, what is transferred is assets minus liabilities and there is no question of any transfer of these two components of a going concern separately. Further, this submission would be contrary to the meaning of the word 'conveyance' as provided under section 2( g )( iv ) . Section 2( g )( iv ) itself provides that every order made by the High Court in respect of amalgamation of a company by which property, whether movable or immovable, or any estate or interest in property is transferred to or vested in any other person. By the amalgamation scheme, the assets and liabilities are not separately transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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