9911796707
TMI Blog2003 (11) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... of transferor company with the transferee company was formulated and approved by the Board of Directors of respective companies on 19-3-1993. On 3-3-1994 the scheme of amalga-mation of the transferor company with the transferee company was sanctioned with certain modifications by a Single Judge of the High Court. Appeal filed against the judgment and order of the Single Judge was rejected by the Division Bench on 18-5-1994. Special leave petition against the above judgment of the Division Bench was dismissed by this Court on 24-10-1994. This judgment is reported in Hindustan Lever Employees' Union v. Hindustan Lever Ltd. [1994] 2 SCL 157 (SC). 3. The drawn up order of amalgamation of transferor company with transferee company was approved by the High Court on 24-11-1994. On presentation of the certified copy of the Court's order the Registrar of Companies, Maharashtra issued a certificate amalgamating the two companies. 4. In view of the stamp duty sought to be levied on the order of amalgamation passed under section 394 of the Companies Act, 1956 (hereinafter referred to as "the Act") the appellant filed writ petition in the Bombay High Court challenging the constitutional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going by the label but what is decisive is the terms of the document. It was clear from the terms of the consent decree that it is also an instrument under which the property has been transferred by one person to another. It was observed : "11. There is no particular pleasure in merely going by the label but what is decisive is by the terms of the document. It is clear from the terms of the consent decree that it is also an 'instrument' under which title has been passed over to the appellants/plaintiffs. It is a live document transferring the property in dispute from the defendants to the plaintiffs. 12. Thus the position becomes clear that the consent decree falls under the definitions of 'conveyance' as well as 'instrument'." (p. 535) By Act No. 17 of 1993, the Legislature has added section 2(g)( iv) to include every order passed by the High Court under section 394 of the Companies Act in respect of amalgamation of the companies. Section 394 of the Companies Act reads : "394. 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 betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany have not been conducted in a manner prejudicial to the interests of its members or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within thirty days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees. (4) In this section- (a)'property' includes property, rights and powers of every description; and 'liabilities' includes duties of every description; and (b)'transferee company' does not include any company, other than a company within the meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator on scrutiny of the books and papers of the Company makes a report to the Court that the affairs of the company had not been conducted in a manner prejudicial to the interest of its members or to public interest. 7. By virtue of provisions of section 391 of the Companies Act a scheme sanctioned by the Court is statutorily binding on all its shareholders and creditors including those who dissented from or were opposed to the scheme being sanctioned. Since by law a procedure has been prescribed by which every shareholder and creditor in the absence of individual agreement, gets bound by the scheme, which would otherwise be necessary to give its validity, the two provisos have been introduced casting a duty on the Court to satisfy itself that the affairs of the company were/are not being conducted in a manner prejudicial to the interest of its members or to the public interest. The basic principle underlying these provisos 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 the public policy, unconscionable or against the law. There is no adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 391 of the Act is placed before the Court by the applicant concerned seeking sanction for such a scheme and the Court gets satisfied about the same. 6.That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not unconscionable, nor contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7.That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. 8.That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9.Once the aforesaid broad parameters about the requirements of a scheme for g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to observe that the procedure set out in the Act is met and complied with and that the proposed scheme of compromise or arrangement is not violative of any provision of law, unconscionable or contrary to public policy. The Court is not to exercise the appellate jurisdiction and examine the commercial wisdom of the compromise or arrangement arrived at between the parties. The role of the court is that of an umpire in a game to see that the teams play their role as per rules and do not overstep the limits. Subject to that how best the game is to be played is left to the players and not to the umpire. Both these principles indicate that there is no adjudication by the court on the merits as such. 10. In Hindustan Lever Employees Union's case (supra) it has been held by this Court that section 394 casts an obligation on the Court to be satisfied that the scheme of amalgamation or merger was not contrary to the public interest; the basic principle of such satisfaction is none other than the broad and general principle inherent in any compromise or settlement entered between the parties that it should not be unfair or contrary to public policy or unconscionable or that the scheme shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these appeals. The submissions made by them are on the similar lines. 13. It was contended by the learned counsels appearing for the appellants that an order of amalgamation under section 394 is not an order 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 Courts would become subject to interference by the revenue authorities and would not be admissible in evidence unless the stamp duty is paid. 14. It is difficult to subscribe the view propounded by the learned counsels for the appellants. As stated earlier, the order of amalgamation is based on a compromise or an arrangement arrived at between the two companies. No individual living ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f partition. 16. This Court in Purshotam H. Jadye v. V.B. Potdar [1966] 2 SCR 353, considered as to whether an award made by the Industrial Tribunal could be considered as an instrument. After considering the relevant provisions of the law it was held that the word "instrument" would include awards made by the Industrial Tribunal. 17. In the case of Commissioner of Inland Revenue v. G. Anous & Co. [1891] XXIII Queen's Bench Division 579, considered as to what interpretation has to be placed upon the expression "conveyance on sale" with regard to section 70 of the Stamp Act, 1899 and held :- "The term 'conveyance on sale' includes every instrument and every decree or order of any Court or of any commissioners, whereby any property upon the sale thereof is legally or equitably transferred to or vested in the purchaser or any other person on his behalf or by his direction." The Court held that the thing, which is made liable to stamp duty is the "instrument". It is not a transaction of purchase and sale, which is struck at, it is the "instrument" whereby the purchase and sale are affected which is struck at. It is the "instrument" whereby any property upon the sale thereof is lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that it was an instrument executed in the United Kingdom within the meaning of section 14(4) of the Stamp Act, 1891. It was further held that 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. 20. Section 391(2) of the Companies Act, 1956 provides as follows: "If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed, under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company : Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause... of the compromise or arrangement herein the shares in the transferee company to which they are entitled under the said compromise or arrangement; and (5) That the transferor company do within 14 days after the date of this order cause a certified copy of this order to be delivered to the Registrar of Companies for registration and on such certified copy being so delivered the transferor company shall be dissolved and the Registrar of Companies shall place all documents relating to the transferor company, and registered with him on the file kept by him in relation to the transferee company and the files relating to the said two companies shall be consolidated accordingly; and (6) That any person interested shall be at liberty to apply to the Court in the above matter for any directions that may be necessary. SCHEDULE PART I (Insert a short description of the freehold property of the transferor company) PART II (Insert a short description of the leasehold property of the transferor company) PART III (Insert a short description of all stocks, shares, debentures and other charges in action of the transferor company)". [Emphasis supplied] 22. The transfer of assets an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no express provision in the A.P. Rent Act that in case of involuntary transfer or transfer of rights by virtue of a scheme of amalgamation sanctioned by the court under section 394 of the Companies Act will not come within the purview of section 10(ii)( a) of the A.P. Rent Act, and, therefore, the transferee company is required to be evicted. Even in the case of involuntary transfer or transfer of tenancy rights by virtue of scheme of amalgamation sanctioned by the court by its order under sections 391 and 394 of the Companies Act the transfer will come within the purview of section 10(ii)(a ) of the A.P. Rent Act. It was observed that since the order of amalgamation had been made on the basis of a petition filed by the transferor company it could not be said that it was an involuntary transfer effected by the order of the Court. Instead of supporting the contention of the appellant this decision indicates to the contrary as the Court held that order of transfer of property by a scheme of amalgamation was not "involuntary" meaning thereby it was a voluntary act by agreement between the parties. In any case, the Court decided the dispute between the parties in the context of spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the defendant to the plaintiff. It was held to be an instrument because it had the effect of conveying the title and not because it was a consent decree. Once this definition is kept in view it would be clear that consent or no consent when the decree or order of the Court purports to transfer title in the property, it becomes an instrument. Court negatived the submission made, that, prior to introduction of section 2(g)(iii ) the consent decree was not included in the definition of "conveyance" and "instrument" was negatived by observing "it appears to us that the amendment was made out of abundant caution and it does not mean that the consent decree was not otherwise covered." It clearly shows that the Court was of the opinion that consent decree which purports to convey the title in the property was in an instrument liable for stamp duty at all times and it was only by way of abundant caution that the Legislature had included the consent decree in the definition of the word "conveyance". 26. 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 the compromise between two or more companies. Function ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds employed in an entry would necessarily include incidental and ancillary matters so as to make the legislation effective. The scheme of the Act under scrutiny, its object and purpose, its true nature and character and the pith and substance of the legislation are to be focused at. If the matter is within the exclusive competence of State Legislature, i.e., List II then the Union Legislature is prohibited to make any law with regard to the same. Similarly, if any matter is within the exclusive competence of the Union, it becomes a prohibited field for the State Legislatures. The concept of occupied filed is relevant in the case of laws made with reference to entries in List III. The doctrine of covered field has to be applied only to the Entries in List III. This proposition of law is well-settled in a number of decisions of this Court including State of A.P. v. McDowell & Co. [1996] 3 SCC 709, State of Rajasthan v. Vatan Medical & General Store [2001] 4 SCC 642 and Shri Krishna Gyanoday Sugar Ltd. v. State of Bihar [2003] 2 Scale 226. 29. The relevant entries of the Constitution Schedule VII are as follows : List II Entry 63 : "Rates of stamp duty in respect of documents othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property including the liabilities are transferred as provided in section 394 of the Companies Act and on that transfer instrument, stamp duty is levied. It, therefore, cannot be said that the State Legislature has no jurisdiction to levy such duty. 30. Charging section, i.e., section 3 of the Bombay Stamp Act reads : "3. Instrument chargeable with duty.-Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in Schedule I as the property duty therefor respectively, that is to say- (a)every instrument mentioned in Schedule I, which not having been previously executed by any person, is executed in the State on or after the date of commencement of this Act; (b)every instrument mentioned in Schedule I, which not having been previously executed by any person, is executed out of the State on or after the said date, relates to any property situate, or to any matter or thing done or to be done in this State and is received in this State :" The duty charged by the State Legislature is on the instrument and is on the execution of the instrument. The measure of charging stamp duty m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative societies. The follow up legislation under Entry 43 List I is totally different from the levy of stamp duty and of prescribing rate of stamp duty on such documents. The Bombay Stamp Act does not provide for any Legislation with regard to incorporation, regulation and winding up of corporations. It only levies the stamp duty and prescribes the rate of stamp duty in respect of documents by compromise or arrangement. 33. Section 2(g)(iv ) of the Act does not in any way describe any alternate procedure as compared to the one appearing in section 394 of the Companies Act, 1956. The question of repugnancy of section 2(g)( iv) of the Act vis-a-vis section 394 of the Companies Act, 1956 is therefore, irrelevant. Section 2(g)(iv ) does not impinge or negate the judicial power because it merely defines the word "conveyance" in regard to the order passed by the High Court under section 394 of the Companies Act, the basis of which is consent and voluntary act which ultimately result in transfer of property for consideration. 34. Under the Bombay Stamp Act conveyance includes any instrument by which property, whether movable or immovable, or any estate or interest in any property is t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
