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TMI Blog2007 (4) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... ana is manufacturing moped up to 72cc. The unit at Ghaziabad is manufacturing moped beyond 72cc. Hero Motors Limited (the transferee company) is another public limited company manufacturing mopeds and scooters. The board of directors of these two companies proposed a scheme of arrangement by which Ghaziabad unit of the transferor company was to be de-merged and merged with the transferee company. This proposed scheme was sanctioned by the Punjab and Haryana High Court on 29.5.2004. It was also sanctioned by the Delhi High Court on 22.7.2004. It appears that there was some mistake in the order of the Delhi High Court and it was corrected on 30.7.2004. 4. In substance the scheme of arrangement provides that the assets of Ghaziabad unit alongwith its liabilities and employees stood de-merged with the transferor company and merged with the transferee company. Under the scheme of arrangement, the shareholders of the transferor company got shares of the transferee company, in the ratio of 100 is to 10.39 shares of the face value of Rs. 10. 5. The immoveable property is situated in this State. The transferee company filed an application before the Tehsildar for recording its name ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo companies, namely, Gobind Vanijya Ltd., Kanpur, and, Ujala Mercantile Ltd., Kanpur, (the transferor companies) (alongwith their asset, liabilities and employees) were amalgamated with Telesia Trading and Finance Ltd., Kanpur (the transferee company). This scheme was sanctioned by the Allahabad High Court on 4.8.2003. 11. Under the scheme, the shareholders of the transferor company got shares of the transferee company in the ratio of 2 is to 1 of face values of Rs. 10. A show cause notice was issued to the transferee company on 25.11.2006 to show cause is to why deficiency in the stamp duty and penalty be not imposed upon it. Hence the writ petition No. 8114 of 2007. WP No. 8119 of 2007 (Pre Dental Merchant case) 12. Ved Mercantiles Ltd., Kanpur, and Parag Mercantiles Ltd., Kanpur, are the transferor companies and Prudential Merchants and Traders Ltd. is the transferee company. A scheme of amalgamation was drawn up by which the first two companies alongwith assets, liabilities, and employees merged with the third company. This scheme was approved on 22.4.2003. The entire assets of the transferor companies consist of investment in equity shares of other companies only. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch scheme is covered by article 23 of Schedule 1-B of the UP Stamp Act? Point 1: No Dismissal - On alternative remedy WP No. 4811 of 2006-Order dated 8.6.2006-No Reasonable Opportunity 17. In pursuance of the show-cause notice dated 5.2.2005 the petitioner had filed its reply on 18.4.2005. Thereafter, no evidence was produced and the arguments were heard on 13.5.2005 and 6.6.2005. However, before any decision could be taken, the presiding officer was transferred and a new officer took over. Thereafter some dates were fixed but the case could not be taken for one reason or the other. 18. The case was adjourned on 21.9.2005 as the staff was on strike on that date. It was listed on 28.9.2005 and 4.10.2005 but was adjourned as the advocates were on strike. Thereafter some dates were fixed in which it was mentioned that the counsel for the Hero Motors was not present. It was again listed on 12.5.2006. It is mentioned in the order-sheet that: The case is taken up today. The respondent is not present; Written arguments have been received; and the case be put up on 8.6.2006 for order. 19. The original file of this case was produced before us. In the original file, there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t intervention of the court and the fact that the court has approved, it does not change its nature. However, here, the transfer cannot take place merely by the agreement of the parties; it can take place only if it is sanctioned by the court. The order regarding scheme of arrangement is different than the order/decree in any other case. In other cases, the transfer can take place without intervention of the court; here it is not so. (iv) Before any document can be treated as an instrument or a conveyance, it has to be executed. The word 'execution' is defined under the Stamp Act. The scheme is not signed by any of the parties and it cannot be said that it is executed. (v) Hindustan Lever and another v. State of Maharashtra (2004) 1 Comp LJ 148 (SC) : (2004) 9 SCC 438 (the Hindustan Lever case) arose from State of Maharashtra where the definition of word 'conveyance' has been amended. It specifically includes such schemes of arrangement. The observation made in the Hindustan Lever case should be seen in that light only. (vi) The Supreme Court decision in Ruby Sales Services (P) Ltd. v. State of Maharashtra and others (1994) 1 SCC 531 (Ruby Sales case) is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while sanctioning the scheme is supervisory only, i.e., To observe that the procedure set out in the Act is met and complied with and that proposed scheme of compromise or arrangement is not violative of any provision of law, unconscionable or contrary to public policy. (Paragraph 12)... Thus the amalgamation scheme sanctioned by the court would be an 'instrument' within the meaning of section 2(1). By the said 'instrument' the properties are transferred from the transferor company to the transferee company, the basis of which is the compromise or arrangement. arrived at between the two companies. (Paragraph 15). 25. The question whether the amendments in the definitions of the conveyance in the Maharashtra Stamp Act are merely clarificatory and out of abundant caution or not has been answered in the Rubey Sales case as well as by the division bench decision of the Bombay High Court in Li Taka Pharmaceuticals Ltd. v. State of Maharashtra (1996) 4 Comp LJ 385 (Bom) : AIR 1997 Bom 7 (the Li Taka case). The Supreme Court in the Ruby Sales case held,- As we have noticed earlier the definitions of 'conveyance' and 'instrument' start with the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done. The fact that our State has not separately provided for scheme of arrangement, as has been done by some other States, does not mean that scheme of arrangement is not covered by article 23 of Schedule 1-B. The transfer of assets of immovable property can be charged under article 23(a) and of movable property under article 23(b) of Schedule 1-B. The question is whether scheme of arrangement can be so split. 30. Section 3 of the UP Stamp Act is the charging section. It provides that all instruments shall be charged with duty of the amount as indicated in the schedules. In these cases, notices have been issued or order has been passed treating the case to be covered by article 23 of schedule-1(B). This article conceives of two kinds of conveyances: Conveyances relating to immovable property [sub-article (a)]; and Conveyances relating to movable property [sub-article (b)]. The question is whether the scheme of arrangement is covered by it; what is the nature of scheme of arrangement? But before that, some words about the company, shareholders, and debenture holders. Company and shareholders 31. In the company limited by shares, the persons holding equity shares in share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemes. In one, transferor-company amalgamates/merges completely with the transferee company. In this case, all assets, liabilities become those of the transferee companies. In the second case, transferor-company demerges a part of the business (including assets, liabilities and employees relating to that business) and merges it with the transferee company. In lieu of these transactions, normally, shareholders of the transferor company are allotted shares of the transferee company and become its members/shareholders. In all cases before us it has so happened. 36. Irrespective of kind of scheme, it is re-arrangement of business for both the companies. It is not only immovable property or the movable property (as it is normally understood) that is transferred but also the intangible rights, privileges alongwith the liabilities are also transferred. There is no way by which the assets and liabilities can be separately judged. The transfer of assets and liabilities are to be seen as one transaction. The consideration of this transaction is: allotment of shares of the transferee company. The ratio of allotment of shares is arrived at after considering net assets transferred (assets mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases involving scheme of arrangement are different than the cases where only movable and immovable property, simplicitor is transferred. These transactions cannot be split up and treated merely as the conveyance of transfer of immovable or movable property. They are a class apart. These cases do not fall under article 23 of Schedule 1-B of the UP Stamp Act... 40. The scheme of arrangement was never stamped in this State yet no notice requiring affixing of stamp on scheme of arrangement was ever issued prior to the Hindustan Lever case (2004) 1 Comp LJ 148 (SC). We had requested the standing counsel to find out the following information: (i) Whether the schemes of arrangement were ever stamped in this State or not; and (ii) Whether any notice for charging stamp duty was ever issued prior to the Hindustan Lever case (2004) 1 Comp LJ 148 (SC). 40.1. The standing counsel, after obtaining instruction, had made the statement in the negative. This shows the stand of the State; it never treated scheme of arrangement to be covered by the UP Stamp Act; it never doubted the proposition that the schemes of arrangement are beyond the UP Stamp Act. It appears that the State always a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention of the legislature. If this is to be the intention of the legislature then, it should come by means of clear and unambiguous language as has been done by the six other States. It is relevant to point out that even in those six States the method of calculating rate of stamp duty for scheme of arrangement is different than the rate for calculating stamp duty on the transfer of immoveable or moveable property under the UP Stamp Act: stamp duty in such cases is much less. Clarification 45. I wish to clarify here that I have only gone into question whether scheme of arrangement is covered under article 23 of Schedule 1-B of the UP Stamp Act or not. I have not decided whether scheme of arrangement can fall under any other article or not. In case it is so covered then stamp duty can always be charged. A notice cannot be invalidated merely for mentioning wrong article. This question may be considered after giving reasonable opportunity to the petitioner. Conclusions 46. My conclusions are as follows: (a) It is not a fit case to dismiss the writ petition on the ground of alternative remedy. (b) The order dated 8.6.2006 in WP 41811 of 2006 was passed without affor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very instrument by which property, whether movable or immovable, is transferred inter vivos, and which is not otherwise specifically provided for by Schedule I, Schedule I-A or Schedule I-B, as the case may be. Explanation.-An instrument whereby a co-owner of a property having defined share therein, transfers such share or part thereof to another co-owner of the property, is, for the purposes of this clause an instrument by which property is transferred. 3. Instruments 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 that Schedule as the proper duty therefor, respectively, that is to say-... Schedule 1-B Article 23 Description of instrument Proper stamp duty 23. Conveyance - as defined by Section 2(10) not being a Transfer charged or exempted under No. 62 - (a) If relating to immovable property where the amount or value of the consideration of such conveyance, as set forth therein, or the market value of the immovable property, which is the subject of such conveyance whichever is greater, does not exceed Rs. 500.... Sixty rupees... ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, in present or in future, to one or more other living persons, or to himself, [or to himself] and one or more other living persons; and to transfer property is to perform such act. [In this section 'living person' includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.] 50. From the bare perusal of the section it is apparent that company is living person within the meaning of section 5 of Transfer of Property Act. Instrument 50.1. Instrument has been defined under section 2(14) of the Stamp Act which is quoted below: 'Instrument'. - 'Instrument' includes every document and record created or maintained in or by an electronic storage and retrieval device or media by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded. Chargeable 50.2. The word chargeable has been defined under section 2 (6) of the Stamp Act which is reproduced below: Chargeable. - 'Chargeable' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son, is executed out of India on or after that day, relates to any property situate, or to any matter or thing done or to be done, in India and is received in India: Provided that, except as otherwise expressly provided in this Act, and notwithstanding anything contained in clauses (a), (b) and (c) of this section, or in Schedule I or I-A the following instruments shall, subject to the exemptions contained in Schedule I-A or I-B, be chargeable with duty of the amount indicated in Schedule I-A or I-B or as the proper duty therefore, respectively, that is to say- (aa) every instrument mentioned in Schedule I-A or I- B, which not having been previously executed by any person, was executed in Uttar Pradesh: (i) in the case of instruments mentioned in Schedule I-A, on or after the date on which the U.P. Stamp (Amendment) Act, 1984 came into force, and (ii) in the case of instruments mentioned in Schedule I-B, on or after the date on which the U.P. Stamp (Amendment) Act, 1952 comes into force; (bb) every instrument mentioned in Schedule I-A or I-B, which, not having been previously executed by any person, was executed out of Uttar Pradesh: (i) in the case of instruments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter called the Transferee Company) pursuant to the provisions of section 394 of the Companies Act, 1956, (hereinafter referred to as the 'said Act') subject to the charges, if any then affecting the undertaking of the Transferor Companies transferred to and vested in the Transferee Company as aforesaid, without such charges in any way extending to other undertakings of transferee company. (2)................ This Court Doth Order (1) That all the property, rights and powers of the above-named two transferor companies specified in the first, second and third parts of the schedule hereto and all other property, rights and powers of the above named two Transferor companies be transferred without...........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 estate and interest of the Transferor Companies therein but subject nevertheless to all charge now affecting the same. Indl Annexure Sanctioned Scheme of Amalgamation. Schedule (Part-I). Description of freehold properties of Transferor Companies-None. Schedule (Part-II) Description of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other chose-in-action of the transferor companies-Annexed. (3) Writ Petition No. 8114 of 2007 - Telesia Trading and Finance Limited v. State of U.P. through Collector, Kanpur Nagar and others (scheme of amalgamation): (1) With effect from 1 February, 2003, (hereinafter called the 'appointed date), the entire undertaking of Gobind Vanijya Limited and Ujala Merchanties Ltd. (hereinafter called the 'Transferor Companies') including all its properties, movable and immovable, and assets of whatsoever nature such as licences, registrations and quota rights, lease and tenancy rights or power of whatever kind nature or description (All undertakings properties, assets, rights and powers are hereinafter collectively referred to as the 'said undertaking'), shall without any further act or deed be and the same shall stand transferred to and vested as a going concern in Telesia Trading and Finance Ltd. (hereinafter called the Transferee company) pursuant to the provisions of section 394 of the Companies Act, 1956 (hereinafter referred to as the 'said Act') subject to the charges, if any, then affecting the undertaking of the transferor companies transferred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, quality, certification, utilities electricity connections, electronics and computer link ups, services of all types reserves, provisions, funds benefits of all agreements and all other interests arising to the Transferor company (herein collectively referred to as the said assets ) shall, without any further act or deed or without payment of any duty or other charges, be transferred to and vested in the Transferee Company pursuant to the provisions of section 394 of the Act, for all the estate, right, title and interest of the Transferor Company therein so as to become the property of the Transferee Company but, subject to mortgages, charges and encumbrances, if any, then affecting the undertaking of the Transferor Company without such charges in any way extending to the undertaking of the transferee company. (2)................. This Court Doth Further Order- (1) That all the property, rights and powers of the transferor Company specified in the first, second and third part's of the schedule hereto and all other the property, rights and powers of the transferor company be transferred without further act or deed to the transferee company and accordingly the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transferee company i.e. DSML pursuant to the provisions of sections 391 to 394 of the Act for all the estate, rights, titles, and interest of the Transferor company i.e. MSML therein. (2).................... This Court Doth Order- (1) The confirmation petition is accordingly allowed. The scheme of amalgamation is approved without any modification with 01.04.2005 as appointed date and the date of this order as effective date. The Transferor Company shall stand dissolved without any order of winding up to be made by the Court. (1) That all the property, rights and powers of the above named Transferor Company specified in the first, second and third parts of the schedule hereto and all other property, rights and powers of the above named Transferor Company be transferred without any 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; and (2) That all the liabilities and duties of the above named Transferor Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed on 8.6.2006 imposing the deficiency of stamp duty of Rs. 9,44,47,000 under Article 23 (a) of Schedule I-B of the U.P. Stamp Act and penalty of Rs. 5,00,00,000. Hence the Writ Petition No. 41811 of 2006. 54. From the bare reading of the scheme of arrangement/amalgamation/merger, de-merger/reconstruction of company, almost in all the writ petitions the word transferor companies and transferee companies have been used and the transferor companies including all its properties movable, immoveable and assets of whatever nature such as licences, registrations, quota rights, lease and tenancy rights and all undertakings properties assets and rights have been transferred to the transferee company. In the court's orders, property rights and powers of transferor companies contained in the Ist, IInd and IIIrd parts of the Schedules, have been transferred without any registered deed of transfer to the transferee company in view of section 394 (2) of the Companies Act and the same has vested in the transferee companies. It is also noticeable that in most of the cases Schedule I and II containing the description of free hold properties and lease properties have not been annexed, only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issuing the impugned notice. (d) Almost in six states there are amendment under the Stamp Act with regard to the chargeability of stamp duty in respect to the scheme of amalgamation of companies/reconstruction of companies. Since in the State of U.P. there is no such amendment, therefore, the stamp duty cannot be charged. (e) The another reason for not charging stamp duty is that before the Hindustan Lever Ltd. case (2004) 1 Comp LJ 148 (SC) the State of U.P. has not been charging stamp duty on such type of scheme of arrangement/amalgamation/merger, de-merger/reconstruction of companies. 56. Therefore, it cannot be charged now unless the relevant provisions of the Stamp Act are amended. The learned standing counsel has submitted that the reason for not charging the stamp duty earlier on such type of scheme of arrangement/amalgamation/merger, de-merger/reconstruction of companies by the Stamp Officers of State Government was non-availability of these kinds of instruments before the public offices. As these types of instruments were only available either with the office of Company Courts or with the officers of Registrar of Companies or with offices of the companies itself, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Act. From the perusal of entire scheme, the definition, of instruments/conveyance/chargeability and relevant chargeable articles of the Schedule I-B of the Stamp Act, it is apparent that different kind of stamp duty is chargeable on different kind of transfer of property. For example, some instruments relating to the transfer of property enumerated in the Indian Stamp Act, 1899, and its schedule are instrument of conveyance, gift, instrument of partition, lease, mortgage deed, settlement trust, transfer of lease, transfer (article 62 Schedule I-B) release, re-conveyance of mortgage of property, exchange of property, instrument of counterpart, certificate of sale, award (article 12 of Schedule I-B). Certain types of agreements to sale with possession of property, etc., separate rates of stamp duties are prescribed for all these instruments in the schedule and chargeable sections. This may be with a view to give certain kind of relaxations to a particular class of instruments. The power of exemption has also been provided under the Stamp Act which is within the domain of the State Government. The question which involves in this case is whether this type of conveyance is chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless language is clear with respect to chargeability on such type of arrangement no stamp duty can be charged. The ruling relied upon by the counsel for the petitioners with regard to the interpretation of fiscal statute as understood by me are fully applicable in reverse in the case of petitioners looking into the nature of the instrument and chargeable section and charging articles. There is no place of equity in interpreting the fiscal statutes since in State of U.P., the properties chargeable under the articles on such type of conveyance is divided only in two classes movable and immovable, therefore, there is no scope for the court to understand other than that and further there is no scope for the petitioner to classify the movable property in different variety howsoever the hard consequences it may face. This observation has come because of the fact that the counsel for the petitioners while making their submissions have also invited the attention of the court towards the fact that in the process of merger and demerger not only assets but liabilities have also gone and that has not been taken into consideration while issuing show cause notice. There is no such provision u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to charge the stamp duty after excluding the liabilities. Learned counsels for the petitioners have also not shown any provision under the provision of the Stamp Act in this regard. Since Stamp Act is a fiscal statute, therefore, the stamp duty has to be charged under the chargeable articles over an instrument. Therefore, the stamp duty in my opinion can be charged even without splitting the liability as no duty is demanded on the liability. So far as the different kind of instrument in one deed is concerned, Section 5 of the Stamp Act takes care of it which is reproduced below: 5. Instrument relating to several distinct matters. - Any instrument comprising or relating to several distinct matters shall be chargeable with the aggregate amount of duties with which separate instruments, each comprising or relating to one of such matters, would be chargeable under this Act. 57. It will be open to the petitioners to take such plea before the stamp authorities by whom notices have been issued. So far as the arguments of the counsel for the petitioners with regard to the absence of computation of stamp duty on the scheme of amalgamation/merger/de-merger/arrangement/reconstruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w live in a welfare State whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that it stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. and Bengal Hotels Limited, (1977) 1 Comp LJ 172 (SC): (1977) 47 Comp Cas 597 (Guj) where the learned judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax. (Para 17) It is neither fair not desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamation/merger, de-merger/reconstruction of companies can be looked into by the authorities under the Stamp Act with a view to charge the stamp duty. Except in the case of Hero Motors all the writ petitions have been filed challenging the show cause notice. However, in the case of Hero Motors, the notices have been issued only after the report of Tehsildar. When such scheme of amalgamation was brought before the Tehsildar for the purpose of mutation of the name of the company then it transpired that the aforesaid scheme has neither been registered nor duly stamped at the time of execution. The correctness of the Tehsildar's order in referring the matter to the stamp authority finds support from section 17 and 49 of the Stamp Act which are reproduced below: 17 Documents of which registration is compulsory.-(1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act No. XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely: (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of companies has not been brought on record, therefore, broadly it can be inferred that it is chargeable only under articles 23 (1) a and 23 (1) b of Schedule I-B of the Stamp Acts as the properties are either immovable or movable have been transferred but from the language used in the scheme it appears that different type of instruments are clubbed together in one deed and apart from the movable and immovable properties, leasehold rights, work in progress, current assets, investments, powers, authorities allotments, approvals, licences, registrations, contracts, engagements, arrangements, claims, rights, interests, benefits and advantages, have also been transferred. It will be open to the petitioners to file their reply before the respective authorities of stamps raising all such pleas which are legally available to them. So far as the case of Hero Motors is concerned, since in this case the order passed by the Stamp Authority has been quashed on the ground of breach of principles of natural justice, therefore, the petitioners in that case also stands on the same footing at the stage of show cause notice. It will also be open to the petitioner in that case to take such plea as av ..... X X X X Extracts X X X X X X X X Extracts X X X X
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