2003 (11) TMI 335 - SC - Companies Law

State Legislature can impose stamp duty on amalgamation orders under Companies Act. Company court's role is supervisory, not appellate.

Hindustan Lever Versus State of Maharashtra

The court held that the State Legislature has the legislative competence to impose stamp duty on orders of amalgamation under the Companies Act, as they ... Whether the State Legislature had the legislative competence to impose stamp duty on the order of amalgamation passed by a court? Whether an order sanctioning a scheme of amalgamation under section 394 read with section 391 of the Companies Act, 1956, is liable to be stamped in accordance with the provisions of the Bombay Stamp Act in its application in the State of Maharashtra? Held that:- Appeal dismissed. 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. Issues Involved1. Legislative competence of the State Legislature to impose stamp duty on the order of amalgamation passed by a court.2. Whether an order sanctioning a scheme of amalgamation under section 394 read with section 391 of the Companies Act, 1956, is liable to be stamped in accordance with the provisions of the Bombay Stamp Act.Detailed AnalysisLegislative Competence of the State LegislatureThe primary issue debated was whether the State Legislature had the legislative competence to impose stamp duty on the order of amalgamation passed by a court. The court held that the State Legislature has the jurisdiction to levy 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. The judgment emphasized that the order passed under section 394 of the Companies Act is based upon a compromise between two or more companies and is an instrument as defined under section 2(1) of the Bombay Stamp Act, which includes every document by which any right or liability is transferred.Liability of an Order Sanctioning a Scheme of Amalgamation to be StampedThe court examined whether an order sanctioning a scheme of amalgamation under section 394 read with section 391 of the Companies Act, 1956, is liable to be stamped in accordance with the provisions of the Bombay Stamp Act. The court concluded that the order of amalgamation is based on a compromise or arrangement arrived at between the two companies and thus qualifies as an 'instrument' within the meaning of section 2(1) of the Bombay Stamp Act. The court held that the transfer of assets and liabilities takes effect by an order of the Court, and such an order is liable to stamp duty as it results in transferring the property.Interpretation of 'Instrument' and 'Conveyance'The term 'instrument' has been defined in section 2(1) of the Bombay Stamp Act, 1958, to include every document by which any right or liability is created, transferred, limited, extended, extinguished, or recorded. The court referred to several precedents to establish that a court order effectuating the transfer of property is considered an 'instrument' and is subject to stamp duty. The court cited the case of Ruby Sales & Services (P.) Ltd. v. State of Maharashtra, where it was held that a consent decree, which transfers property, is an instrument liable to stamp duty.Jurisdiction of the Company CourtThe court reiterated that the jurisdiction of the company court while sanctioning the scheme is supervisory only. The court's role is to ensure that the statutory procedures are followed, and the scheme is not violative of any law, unconscionable, or contrary to public policy. The court does not exercise appellate jurisdiction to examine the commercial wisdom of the compromise or arrangement.Repugnancy and Encroachment on Legislative FieldsThe appellants argued that the provisions of section 2(g)(iv) read with section 34 of the Bombay Stamp Act are repugnant to section 394 of the Companies Act and that the State Legislature has encroached on the field of the Parliament under Entry 43, List I of the Constitution. The court dismissed this argument, stating that the Bombay Stamp Act does not provide for legislation regarding the incorporation, regulation, and winding up of corporations but only levies stamp duty on documents by compromise or arrangement.ConclusionThe court concluded that the order passed by the court under section 394 of the Companies Act is an instrument that transfers properties and falls within the definition of section 2(1) of the Bombay Stamp Act. The State Legislature has the jurisdiction to levy stamp duty on such orders. The appeals were dismissed with no order as to costs.