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TMI Blog1996 (2) TMI 600X X X X Extracts X X X X X X X X Extracts X X X X ..... shall pay the entire amount of stamp duty assessed without prejudice to the rights and contentions of the petitioners. 3. For appreciating the contentions of the petitioners, it would be necessary to refer to section 2(g). 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 . 4. Clause (g)(iii), which is added by the Maharashtra Act No. 27 of 1985 which has come into operation from December 10, 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 which has come into operation from April 1, 1993. Before appreciating the contentions raised, it would be appropriate to state that even prior to amendment, a conveyance would include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt passes an appropriate order sanctioning the compromise or arrangement. But the foundation or basis for passing an order of amalgamation is the agreement between 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 purposes 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 the transferor company ) is to be transferred to another company (in this section referred to as the transferee company ); the court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamation 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 another 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, particularly 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 to and vest in the transferee-company. Sub-section (4) defines the word property so as to include property, rights and powers of every description. Hence, by the amalgamation order, which is based upon compromise or arrangement between the two or more companies, the property of the transferor-company vests in the transferee-company. 8. Further, unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (g)(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. 10. Re : Contention (a) : Mr. Andhyarujina vehemently submitted that if court decrees and instruments are included and considered as conveyances, 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 Stamps 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 implementation cannot be subjected to payment of duty. He further pointed out that this would be in direct violation of article 142 of the Constitution which provides that every decree or order passed by the Supreme Court shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 notwithstanding 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 case, the court considered the meaning of the expression conveyance on sale as provided in section 54 of the Stamp Act. It is to some extent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hury v. Chief Commissioner, 1964CriLJ132 , 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 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 Stroud's Judicial Dictionary of Words and Phrases (third edition, volume 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) The Conveyancing Act, 1881 (44 and 45 Vict. c. 41), section 2(xiii), 'instrument' includes deed, will, enclosure, award and Act of Parliament ..... 17. The court, therefore, held that in the context of the General Clauses Act, it has to be understood as including reference to a formal legal writing like an order made under a statute or subordinate legislation or any document of formal character made under constitutional or st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 the statutory majority are acting bona fide and are not coercing the minority in order to promote interests 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 interest of the class which it is empowered to bind, or some blot is found in the scheme. 22. Further, while exercising the powers under section 394, it is also settled that it is not for a court to substitute its judgment for the collective wisdom of the shareholders/creditors of two companies who, by and large, are not strict illiterates but are well informed me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not result in impeding the promotion of industry or obstruct the growth of national economy. 24. However, 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] 18 Comp 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 153A 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 proposal and submits it to the court. Nor does the transfer take place by the scheme as sanctioned by the court. But the only transfer is by sub-section (2) of section 153A of the Indian Companies Act. In our view, the aforesaid judgment, on the contrary, would indicate that by the order passed by the court sanctioning the scheme or agreement or compromise between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 competent court thereby rendering that decision ineffective. 27. 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 provided that if an instrument including an order passed by the court transfers movable or immovable property, then on the same instrument, stamp duty as provided under the Act is required to be paid. This cannot be stated to be in any manner making direct inroads into the judicial function of this court or of the Supreme Court. It cannot be said that article 261(3) of the Constitution, which provides tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides 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. 30. 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 compromise between two or more companies. The entire section 394 provides to that effect. It also provides that the 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 purposes shall be sanctioned unless the court has received a report from the Company Law Board or the Registrar of Companies that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest, that is to say, it should not be unfair or contrary to public policy or unconscionable. The court's function while sanctioning the compromise or arrangement is a limited one a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a fixed amount. This is a well-established principle with regard to the stamp duty. In the case of Himalaya House Co. Ltd. v. Chief Controlling Revenue Authority [1972]3SCR332 , 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 III, it was open to the State Legislature not only to make an amendment in the Act in regard to the rates of stamp duty but also in regard to 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 for the conveyance as set forth therein but it shall be the market value of the property which is the subject-matter of conveyance. 34. Learned counsel for the petitioners then relied upon the decision rendered by the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stamp duty is on the instrument or the document which transferred the property and it does not cease to be a duty on instrument because for determining the rates, the measure adopted by the Legislature is the valuation of the property. 35. In the case of Goodricke Group Ltd. v. State of West Bengal [1995] 98 STC 32; [1995] 1 Supp. 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 case 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; it still remains a tax on land or building. The court further held that there is no set pattern of levy of tax on lands and buildings - indeed there can be no such standardisation. No one can say that a tax under a particular entry must be levied only in a particular manner, which may have been adopted hitherto. The Legislature is free to adopt such method of levy as it chooses and so long as the character of the levy remains the same, i.e., within the four corners of the particular entry, no objection can be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) : 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 provisions of the Companies Act. In this regard, 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 because the Bombay Stamp Act nowhere provides that the property which is transferred to the transferee-company shall be divested. It only provides that such document is required to be stamped. If it is not stamped, it would not be admissible in evidence as provided under section 34 of the Bombay Stamp Act. 38. However, learned counsel further submitted that the respondents have not laid down any uniform policy for valuing the movable and immovable properties transferred under the amalgamation scheme. He submitted that under the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (it includes) 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 transferred but the interest in a going concern is transferred. In this view of the matter, we hold that normally in a case of amalgamation of a scheme sanctioned by the High Court, its consideration under article 25(1) of Schedule I to the Stamp Act should be based on its valuation arrived at on the basis of shares allotted by the transferee-company to the transferor-company. In the case of Hindustan Lever Employee's Union v. Hindustan Lever Ltd. [1995] 83 Comp Cas 30 (SC) at the time of making valuation of the share exchange ra ..... 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