2004 (1) TMI 434 - HC - Companies Law

Order Under Companies Act Exempt from Stamp Duty in West Bengal; Refunds Allowed for Previous Payments.

The HC determined that an order under section 394(1) of the Companies Act, 1956, does not qualify as a 'conveyance' or 'instrument' under the Indian Stamp ... Sanction of a Scheme of Amalgamation - condonation of the delay in filing appeal - ‘conveyance’ and an ‘instrument’ under the Indian Stamp Act - Whether in view of the provisions of sub-section (2) of section 394 an order under sub-section (1) sanctioning a Scheme of Amalgamation or Arrangement is liable to be stamped under the Indian Stamp Act - HELD THAT:- While dealing with the submissions of the respective parties, it has to be kept in mind that the question as to whether an order under section 394 of the Companies Act, 1956, amounted to a ‘conveyance’ and, therefore, liable to payment of stamp duty, arose in an application filed before the learned Company Judge for sanction of a Scheme of Amalgamation. As will appear from the trend of decisions cited by Mr. S.N. Mukherjee, the consistent view of this Court has been that the transfer of assets and liabilities of the transferor company to the transferee company was by operation of law in view of the provisions of sub-section (2) of section 394 of the aforesaid Act, and apart from complying with the provisions of sub-section (2) of section 394, nothing further was required to be done in order to complete the transfer of liabilities and assets from the transferor company to the transferee company. The entire exercise appears to have been influenced by the decision of the Supreme Court in the case of Ruby Sales & Services Pvt. Ltd. [1993 (10) TMI 348 - SUPREME COURT] and that of the Bombay High Court in the case of Li Taka Pharmaceutical Ltd.[1996 (2) TMI 369 - HIGH COURT OF BOMBAY] referred to and relied upon by the learned Company Judge in answering the question referred to hereinabove. The entire fabric of the judgment of the learned Company Judge has been woven around the said two decisions and the concept of the order u/s 394 being a ‘conveyance’ and an ‘instrument’ was tailored to fit the said two decisions. In our view, the moot question which falls for consideration in these appeals is not whether an order u/s 394 is a ‘conveyance’ or an ‘instrument’, but as to whether in view of the provisions of sub-section (2) of section 394 an order under sub-section (1) sanctioning a Scheme of Amalgamation or Arrangement is liable to be stamped under the Indian Stamp Act. The facts of both the two aforesaid cases are completely distinguishable from the facts of matters generally relating to orders u/s 394(1) of the Companies Act, 1956. Even if the order u/s 394(1) is to be taken to be a ‘conveyance’ or an ‘instrument’ the transfer of assets and liabilities effected thereby is purely by operation of law which on account of section 2(d) of the Transfer of Property Act also excludes the operation of section 6(e) thereto. Notwithstanding the definition of the expression ‘instrument’ in section 2(14) of the Indian Stamp Act, the unamended provisions of the Indian Stamp Act in relation to such definition and the definition of ‘conveyance’ and/or ‘instrument’ does not apply to an order u/s 394(1) of the Companies Act for the purpose of stamp duty. We agree with the view expressed by the Division Bench of this Court in New Central Jute Mills Co. Ltd. [1959 (2) TMI 12 - HIGH COURT OF CALCUTTA] that the transfer of assets and liabilities from the transferor company to the transferee company takes place by virtue of sub-section (2) of section 394 without any further act or deed. We are, therefore, inclined to agree with the submissions made on behalf of the appellants in these appeals that the learned Company Judge erred in importing the concept of transfer as explained in the case of Ruby Sales & Service’s (P) Ltd. (supra ) and Li Taka Pharmaceutical Ltd. (supra) to the case of amalgamation and/or compromise governed simply by the provisions of sub-section (2) of section 394 of the Companies Act, 1956. In our view the transfer of assets and liabilities of the transferor company to the transferee company takes place on an order being made under sub-section (1) of section 394 by operation of sub-section (2) thereof. The judgment and order of the learned Company Judge in the case of Gemini Silk Limited v. Gemini Overseas Limited [2002 (8) TMI 772 - HIGH COURT OF CALCUTTA], and the directions contained therein are accordingly set aside and the department is directed to draw up and complete the orders passed u/s 394(1) of the Companies Act, 1956, as if the judgment of the learned Company Judge in Gemini Silk Limited v. Gemini Overseas Limited, had not intervened. In the event any orders u/s 394(1) have been stamped consequent upon the decision rendered in the case of Gemini Silk Limited v. Gemini Overseas Limited, the parties will be entitled to apply for and to obtain refund of such stamp duty in accordance with law. The appeals are accordingly allowed. There will, however, be no order as to costs. ISSUES PRESENTED AND CONSIDERED 1. Whether an order of a Company Court sanctioning a scheme of reconstruction/amalgamation under section 394(1) of the Companies Act is a 'conveyance' or an 'instrument' within the meaning of the Indian Stamp Act and therefore liable to stamp-duty. 2. Whether, having regard to subsection (2) of section 394, the transfer of assets and liabilities effected by a sanctioning order is by operation of law and thus falls outside the scope of transfers (inter vivos) that attract stamp duty under the Indian Stamp Act and the Transfer of Property Act. 3. Whether decisions from other jurisdictions or under differently amended stamp statutes (notably decisions where local stamp acts were amended to include such orders) are determinative for the unamended Indian Stamp Act as applicable in the relevant State. ISSUE-WISE DETAILED ANALYSIS Issue 1: Is a s.394(1) sanction order a 'conveyance' or an 'instrument' under the Indian Stamp Act? Legal framework: The Indian Stamp Act defines 'conveyance' and 'instrument' (including documents by which rights or liabilities are created, transferred or recorded). Section 394(1) authorises a Company Court to sanction schemes; subsection (3) provides effect on filing with Registrar. Precedent treatment: Various authorities were cited at bar: (a) High Court and Full Bench decisions addressing the vesting effect of statutory vesting/vesting-order provisions in company law; (b) Supreme Court decisions and High Court rulings under other States' stamp statutes where amendments expressly included court orders under the definition of 'conveyance' or where consent decrees were held to operate as conveyances because the parties so agreed. Interpretation and reasoning: The Court emphasises that the dispositive question is not semantic classification of the order as a document but whether the statutory scheme effects transfer by operation of law. Where local stamp legislation has been amended to include orders under section 394 within the definition of 'conveyance' (or where a consent decree itself expressly operates as a conveyance), those decisions rest on particular statutory or factual bases and are not directly transposable to an unamended Indian Stamp Act as applied in the State under consideration. An order which merely sanctions a scheme and whose operative effect is prescribed by statute does not, for that reason alone, import liability under the general definitions in the Stamp Act absent express inclusion or distinctive factual circumstances (e.g., parties agreeing that the decree itself shall operate as conveyance). Ratio vs. Obiter: It is ratio that an order under s.394(1) is not, per se, rendered a 'conveyance' or 'instrument' attractable by stamp duty under the unamended Indian Stamp Act merely because it effects transfer under company-law machinery. Observations about distinguishability of decisions under amended stamp laws or consent-decree facts are ratio to the extent they explain non-applicability; detailed discussions of particular foreign clerical definitions are ancillary. Conclusion: An order under s.394(1), in the absence of express statutory inclusion in the Stamp Act or special factual recital that the order itself is to operate as conveyance, is not to be treated as a 'conveyance' or 'instrument' attracting stamp-duty under the unamended Indian Stamp Act applicable in the State. Issue 2: Does s.394(2) effect transfers by operation of law thereby excluding application of provisions governing transfer inter vivos (and stamp consequences)? Legal framework: Subsection (2) of section 394 provides that where an order under section 394 provides for transfer of property or liabilities, then by virtue of the order that property shall be transferred to and vest in, and those liabilities shall become the liabilities of, the transferee company; property may be freed from charges if so directed. Transfer by operation of law is recognised under the Transfer of Property Act (section 2(d)), and section 6(e) (prohibiting certain transfers of tenancy etc.) is inapplicable to transfers by operation of law. Precedent treatment: Several High Court decisions and a Supreme Court decision had recognised that vesting orders under predecessor company-law provisions effect transfers by operation of law and that no further formal conveyance is necessary. Conversely, other decisions dealing with consent decrees or where local stamp acts were amended treat orders as conveyances because of express statutory language or party agreement. Interpretation and reasoning: The Court holds that subsection (2) plainly prescribes transfer by virtue of the order itself - i.e., transfer by operation of law. That legislative mechanism excludes the necessity of further acts or deeds to effect vesting. The statutory operation, not an independent act of parties, effects the vesting. Given this statutory operation, the general concept of inter vivos transfers (which the Indian Stamp Act targets when defining 'conveyance') does not capture transfers effected purely by operation of law under section 394(2). The Court further notes that decisions which treated sanctioning orders as instruments/conveyances relied upon distinct statutory amendments or consent-decree language and therefore do not govern the present statutory matrix. Ratio vs. Obiter: Ratio that transfers under s.394(2) occur by operation of law and thereby fall outside the scope of transfers requiring conveyancing formalities under the Transfer of Property Act; consequently, absent explicit stamp-act inclusion, such transfers are not stampable as conveyances/instruments under the unamended Stamp Act. Conclusion: Transfers under s.394(2) are by operation of law and do not require independent conveyance instruments; therefore, they do not attract stamp-duty as 'conveyances' or 'instruments' under the Indian Stamp Act in the absence of express legislative provision to that effect. Issue 3: Effect of contrasting decisions arising under differently amended stamp statutes or from consent decrees - are they binding here? Legal framework: The applicability of precedent depends on similarity of statutory language and factual matrix; where a State's stamp act expressly includes court orders under company-law vesting provisions, that statutory fact is decisive in those decisions. Precedent treatment: Decisions from jurisdictions whose stamp statutes were amended to include orders under section 394 (or equivalent) were relied upon by the Company Judge; decisions where consent decrees expressly provided that the decree itself shall operate as conveyance were also relied upon. Interpretation and reasoning: The Court distinguishes those authorities because they rest on either (a) express amendment of the local stamp law to include vesting orders within the definition of conveyance/instrument or (b) parties' express agreement that the decree itself operate as conveyance. Absent such features in the unamended Indian Stamp Act as applied, those authorities do not govern. Thus the Company Judge erred in generalising those decisions to the unamended statutory context before the Court. Ratio vs. Obiter: Ratio that precedents founded on different statutory amendments or distinctive factual recitals are distinguishable and do not control interpretation of the unamended Stamp Act applicable here. Conclusion: Authorities based on amended local stamp statutes or consent-decree facts are distinguishable; they do not support a general rule that s.394(1) orders are stampable under the unamended Indian Stamp Act. Remedial and consequential conclusions 1. The question for determination is whether, in view of s.394(2), a s.394(1) sanction order is liable to stamp duty; the statutory scheme effects transfer by operation of law and thus an order of sanction, absent express statutory inclusion or special factual agreement, is not to be treated as a conveyance/instrument subject to stamp-duty under the unamended Indian Stamp Act applicable in the State. 2. The earlier judgment that treated such sanction orders as conveyances/instruments liable to stamp-duty is set aside. Orders under s.394(1) are to be completed and engrossed without demand for stamp-duty under the unamended Indian Stamp Act; parties who have paid stamp-duty pursuant to the prior view are entitled to seek refunds in accordance with law. 3. No order as to costs was directed; operative compliance may be acted upon immediately on usual undertakings.