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TMI Blog2003 (11) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... or a transfer to which a ‘juristic person’ is one of the parties. The transaction between a minor or a person of unsound mind with the other person would not be recognised in law, though the same is between two living beings, as they are not juristic persons in the eyes of law who can by mutual consent enter in a contract or transfer the property. - CIVIL APPEAL NOS. 8231, 8232, 9237 AND 10208 OF 1996 - - - Dated:- 18-11-2003 - R.C. LAHOTI AND ASHOK BHAN, JJ. T.R. Andhiyarujina, Anil B. Divan, J.F. Pochhkhanawala, Pallav Sishodia, U.A. Rana, Arvind Kumar, Ms. Shirin Khajuria, Rajan Narain, Ms. Puja Sharma, H.S.R. Vakil, Sandeep Narain, Shri Narain, Ms. Anjali Jha, Ramesh Singh, Ms. Bina Gupta, Ms. Vanita Bhargava, Mukesh K. Giri, Arun Pednekar and A.S. Siddiqui for the Appearing Party. JUDGMENT Ashok Bhan, J. - Civil Appeal Nos. 8232 of 1996, 8231 of 1996, 9237 and 10208 of 1996 arising from a common judgment of the High Court involving the same question of law are taken up for disposal together. Illustrative facts are taken from Civil Appeal No. 8232 of 1996. 2. Tata Oil Mills Co. Ltd. (Transferor Company) was incorporated on 10-12-1917 under the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter vivos , and which is not otherwise specifically provided for by Schedule I, Explanation. An instrument whereby a co-owner of any property transfers his interest to another co-owner of the property and which is not an instrument of partition, shall, for the purposes of this clause, be deemed to be an instrument by which property is transferred inter vivos ;" It would be seen that conveyance includes a conveyance on sale as well as every instrument. Clause ( g )( iii ) was added by the Maharashtra Act No. 27 of 1985 which came into operation w.e.f. 10-12-1985. It provides that conveyance includes every decree or final order of any civil court. Clause ( g )( iv ) was added by the Maharashtra Act No. 17 of 1993 which came into operation w.e.f. 1-4-1993. 5. Section 2( g )( iii ) came up for interpretation before this Court in the case of Ruby Sales Services (P.) Ltd. v. State of Maharashtra [1994] 1 SCC 531. It was held that the definition of "conveyance" and "instrument" starts with the expression "includes" which shows that the definition is very wide which would include a consent decree as well. That the sub-clause ( iii ) of section 2( g ) was introduced out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person; ( iii )the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; ( iv )the dissolution, without winding up, of any transferor company; ( v )the provision to be made for any person, who within such time and in such manner as the Court directs, dissent from the compromise or arrangement; and ( vi )such incidental consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out : Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the Court unless the Court has received a report from the Company Law Board or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest : Provided fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sanctioning the compromise or arrangement. The foundation or the basis for passing an order of amalgamation is agreement between two or more companies. Under the Scheme of amalgamation, the whole or any part of the undertaking, properties or liability of any company concerned in the scheme is to be transferred to the other company. The company whose property is transferred would be the transferor company and the company to whom property is transferred would be considered as the transferee company. The scheme of amalgamation has its genesis in an agreement between the prescribed majority of shareholders and creditors of the transferor company with the prescribed majority of shareholders and creditors of the transferee company. The intended transfer is a voluntary act of the contracting parties. The transfer has all the trappings of a sale. The transfer is effected by an order of the Court. The proposed compromise or arrangement is subject to verification by the Court as provided therein. First is that the scheme of compromise or arrangement proposed for the purposes of amalgamation or in connection therewith, shall not be sanctioned unless the Court has received a report from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court would have no further jurisdiction to sit in appeal over the commercial wisdom of the class of persons who with their eyes open give their approval, even if, in the view of the Court better scheme could have been framed. This aspect was examined in detail by this Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1997] 1 SCC 579 1 . The Court laid down the following broad contours of the jurisdiction of the company court in granting sanction to the scheme as follows : "1.The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)( a ) have been held. 2.That the scheme put up for sanction of the Court is backed up by the requisite majority vote as required by section 391 sub-section (2). 3.That the meetings concerned of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority. Consequently the Company Court s jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The supervisory jurisdiction of the Company Court can also be culled out from the provisions of section 392. Of course this section deals with post-sanction supervision. But the said provision itself clearly earmarks the field in which the sanction of the Court operates. The supervisor cannot ever be treated as the author or a policy-maker. Consequently the propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement." (p. 579) 9. Two broad principles underlying a scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res, debenture proxy and receipt. The recital in the scheme of amalgamation as well as the order of the High Court under section 394 of the Companies Act, declares, that, upon such order of High Court the undertaking of the transferor company shall stand transferred to the transferee company with all its movable, immovable and tangible assets to the transferee company without any further act or deed. Sub- section 3 of section 394 provides that the certified copy of the Order of the Court has to be presented before the Registrar of companies within 30 days for registration. And in default any officer of the company, who is in default, becomes liable to be punished and fined, which may extend up to Rs. 500. Section 391(3) provides that an order made by the court under sub-section (2) of section 391 shall not have effect till a certified copy of the order has been filed with the Registrar. On presentation of the certified copy of order, the Registrar of the Company certifies that the transferor company stands amalgamated with the transferee company along with all its assets and liabilities. Thus the amalgamation scheme sanctioned by the Court would be an "instrument" within the meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the statutory majority was acting bona fide and not in an oppressive manner. That the arrangement is such as which a prudent, intelligent or honest man or a member of class concerned and acting in respect of the interest might reasonably would take. While examining as to whether the majority was acting bona fide the Court would satisfy itself to the effect that the affairs of the company were not being conducted in the manner prejudicial to the interest of its members or to public interest. The basic principle underlying such a situation is none other than the broad and general principle inherent in any compromise or settlement entered into between the parties the same being that it should not be unfair, contrary to public policy and unconscionable or against the law. 15. Orders passed by the Court resulting in transferring the rights in property have been subjected to levy of stamp duty in several situations. It is therefrom the date of the inception of the Indian Stamp Act, 1899. Section 2( m ) of the Indian Stamp Act, 1899 defines "instrument of partition" to mean any instrument whereby co-owners of any property divide or agree to divide such property in severalty, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act, it was held: "It follows 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; nor because London has still to cause the name of Sun Alliance to be entered on to the register as the holder of the shares. The Registration of the transferee occurs in every case where a transfer is executed, and merely perfects the title of the transferee. The same thing occurs in the case of registered land, where one finds a transfer and subsequent registration. I have therefore come to the conclusion that by the court order the shares were transferred to Sun Alliance, or, to use the words of section 54, by that order property was transferred to a purchaser." Expression "conveyance on sale" as provided in section 54 of the Stamp Act, 1891 is similar to section 2( g ) of the Bombay Stamp Act. The expression "conveyance on sale" as defined in the said section includes every instrument, and every decree or order of any Court or any Commissioner, whereby any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be useful to take notice of the statutory form of an order under section 394(2) of the Companies Act. "THE COMPANIES (COURT) RULES, 1959 FORM NO. 42 ( See rule 84) Upon the above petition and application coming on for further hearing on... upon reading etc., and upon hearing, etc. This Court doth order (1) That all the property, rights and powers of the transferor company specified in the first, second and third parts of the Schedule hereto and all other property, rights and powers of the transferor company be transferred without further act or deed to the transferee company and accordingly the same shall pursuant to section 394(2) of the Companies Act, 1956, be transferred to and vest in the transferee company for all the estate and interest of the transferor company therein but subject nevertheless to all charges now affecting the same other than (here set out any charges which by virtue of the compromise or arrangement are cease to have effect); and (2) That all the liabilities and duties of the transferor company be transferred without further act or deed to the transferee company and accordingly the same shall, pursuant to section 394(2) of the Companies Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed by the counsel for the appellants on the judgment of this Court in General Radio Appliances Co. Ltd. v. M.A. Khader [1986] 2 SCC 656. Transferor-company had taken a premises on rent with the stipulation that the tenant would not sublet the premises without the written consent of the landlord. After sanctioning of the scheme for amalgamation by the Court, the tenanted premises came to be transferred to the transferee company. Landlord filed the eviction suit. The question before the Court was whether the amalgamation amounted to transfer of tenant company s right under the lease by way of subletting and as such violative of the provisions of section 10( ii )( a ) of the A.P. Buildings (Lease, Rent and Eviction) Control Act as also the terms of the rent agreement. It was observed that the A.P. Act prohibited in specific terms both subletting as well as transfer or assignment of the interest of the tenant. By the order of amalgamation, the interest, rights of the transferor company in all its properties including leasehold interest tenancy rights and possession were transferred and vested in the transferee company voluntarily and the transferor company was dissolved and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra ). In that case in a suit for specific performance the property was conveyed to the vendee by a consent decree. The question arose whether the consent decree is an instrument and liable to be stamped. The consent decree contained a recital to the effect that "this decree does operate as the conveyance from the defendants in favour of the plaintiffs in respect of the said property more particularly described in exhibit A to the plaint." The Court held that "there is no particular pleasure in merely going by the label but which is decisive is by the terms of the document. It is clear from terms of the consent decree that it is also an "instrument" under which title has been passed over to the appellant/plaintiffs. It is a live document transferring the property in dispute from the defendants to the plaintiffs." The aforesaid decree was based on an agreement between the parties. So is the case with an order under section 394 of the Companies Act which is also based on an agreement between the transferor company and the transferee company. 25. Learned counsel for the appellants argued that the Ruby Sales Services (P.) Ltd. s case ( supra ) was a case of consent decree where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vy stamp duty under Entry 44, List III of the Seventh Schedule of the Constitution of India and prescribe rates of stamp duty under entry 63, List II. 27. It was next contended that the impugned duty is not a duty upon instrument but it is in reality a duty on transfer of property which the State Legislature is not competent to impose. 28. In Welfare Association , A.R.P. v. Ranjit P. Gohil 2003 (2) Scale 288, it was held that there is a presumption that the Legislature does not exceed its jurisdiction. A statute should be construed so as to make it effective and operative on the principle expressed in the maxim " ut res magis valeat quam pereat . (It is better to validate a thing than to invalidate it). The burden of establishsing that the Act is within the competence of the Legislature, or that it has transgressed other constitutional mandates is always on the person who challenges its vires. That the fountain source of legislative power exercised by the Parliament or the State Legislature is not Schedule Seven; the fountain source is Article 246 and other provisions of the Constitution. The function of the three Lists in Seventh Schedule is merely to demarcate legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up of corporations, whether trading or not, with objects not confined to one State, but not including universities." List I Entry 97 : "Any other matter not enumerated in List II or List III including any tax not mentioned in either of those lists." Union under Entry 91 of List I can prescribe rates of stamp duty in respect of Bill of Exchange, cheques, promissory notes, Bill of lading, letters of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. In exercise of power conferred by Entry 63 List II it is open for the State Legislature to make amendment in the Act in regard to the rates of stamp duty in respect of documents other than those specified in provisions of List I. As discussed above, the order passed 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 State Legislature would have the jurisdiction to levy stamp duty under Entry 44 List III of the Seventh Schedule of the Constitution and prescribes rate of stamp duty under Entry 63 List II. It does not in any way impinge upon any entry in List I. Entry 44 of List III empowers the State Legislature to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the mode of computation of stamp duty. In other words, it was open to the State Legislature to lay down that the basis for computing stamp duty shall not be the amount or value of the consideration of the conveyance as set forth therein but it shall be the market value of the property which is the subject-matter of conveyance. " [Emphasis supplied] Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 1997 was enacted whereby in Article 25 of the Schedule I of the Bombay Stamp Act, 1958 Clause ( da ) and Explanation III were added with retrospective effect prescribing the rates at which the duty was to be calculated and levied. Vires of this provision of this Act were not challenged in the writ petition. 32. It was next contended that provisions of section 2( g )( iv ) read with section 34 of the Bombay Stamp Act which provides that the instrument not duly stamped would be inadmissible in evidence are repugnant to section 394 of the Companies Act and that the State Legislation cannot prevail over the provisions of the Companies Act. It was also contended that in the guise of the stamp duty the State Legislature is in reality imposing a tax on the amalgamation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " inter vivos " as the transfer of property had not taken place between the living beings. We do not agree. "Transfer of Property" has been defined in section 5 of the Transfer of Property Act, 1882 to mean an act by which a living person conveys property, in present or in future to one more other living persons. Company or association or body of individual, whether incorporated or not, have been included amongst the "living person" in this section. It clearly brings out that a company can effect transfer of property. The word " inter vivos " in the context of section 394 of the Companies Act would include within its meaning also a transfer between two juristic persons or a transfer to which a juristic person is one of the parties. The transaction between a minor or a person of unsound mind with the other person would not be recognised in law, though the same is between two living beings, as they are not juristic persons in the eyes of law who can by mutual consent enter in a contract or transfer the property. The company would be juristic person created artificially in the eyes of law capable of owning and transferring the property. Method of transfer is provided in law. One ..... X X X X Extracts X X X X X X X X Extracts X X X X
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