National Organic Chemical Industries Ltd & Anr. v. The State of Maharashtra & Ors.

Judgment

1. By this petition filed under Article 226 of the Constitution of India, the petitioner no.1 Company challenges the order dated 20.1.1998 rejecting the 2 petitioners(cid:25) refund application for the sum of Rs.25 lacs paid as stamp duty. That order has been passed by the Respondent no.2. The facts which are material and relevant for deciding this petition are that the petitioner no.1 (cid:19) National Organic Chemical Industries Ltd. is a public limited company incorporated under the provisions of the Companies Act. According to the averments in the petition, prior to 18th August,1992 the authorised share capital of the Petitioner no.1 Company was Rs.36,00,00,000/- (Rupees Thirty Six crores only) divided into 36,00,000 shares of Rs.100/- each. On 18th August, 1992, a special resolution was passed in the meeting of the shareholders of the petitioner no.1 Company and the authorised share capital was increased from Rs.36 crores to Rs.600 crores. At that time stamp duty of Rs.1,12,80,000/- (Rupees One crore Twelve lacs Eighty thousand only) was paid by the petitioner no.1 Company to the State Government on 25th August,1992. This stamp duty was paid because of the provisions of Article 10 of Schedule-I of the Bombay Stamp Act. At that time the provisions of Article 10 of Schedule-I of the Bombay Stamp Act read as under:- 3 (cid:28) 10. ARTICLES OF ASSOCIATION OF A COMPANY- Where the Company has no share capital or nominal share capital or increased share capital...... One Thousand Rupees for every 5,00,000 or part thereof.(cid:29)

2. On 2nd August,1994, the State Government issued a notification in exercise of its power under Clause (a) of Section 9 of the Bombay Stamp Act and by that notification, with effect from 1st August,1994 reduced the maximum duty chargeable on Articles of Association of a Company under Article 10 of Schedule-1 of the said Act to Rs.25,00,000/- (Rupees twenty five lacs only). The relevant part of that Notification dated 2nd August,1994 reads as under:- (cid:28) In exercise of the powers conferred by clause (a) of Section 9 of the Bombay Stamp Act,1958 (Bom.LX of 1958), the Government of Maharashtra, having satisfied that it is necessary to do so in the public interest, hereby reduces, with effect from the 1st August,1994, the maximum duty chargeable on Articles of Association of a Company under Article 10 4 of Schedule I to the said Act, to Rs.Twenty Five lakhs.(cid:29)

3. On 30th December,1994, the Petitioner no.1 Company again passed a Resolution increasing its authorised share capital from Rs.600 crores to Rs.1200 crores. The petitioner no.1 Company at that time again paid Rs.25 lacs as stamp duty. After paying the amount of Rs.25 lacs as stamp duty, the petitioner no. 1-Company realised that the payment was wrongly made. Therefore, the petitioner no.1-company addressed a letter dated 25th January,1995 to the authorities under the Bombay Stamp Act for refund of amount of Rs. 25 lacs, because according to the petitioners, maximum amount of stamp duty that can be recovered on Articles of Association of a Company as per the provisions of Article 10 of Schedule I of the Bombay Stamp Act which was in existence at that time was Rs.25 lacs. That request was rejected by letter dated 20.1.1998. The reason that was given is that the stamp duty is payable at the time of every increase of share capital. The present writ petition has been filed challenging that order, claiming direction to the 5 Respondents to refund the amount of stamp duty of Rs. 25 lacs, admittedly, paid by the petitioner no.1 Company, with interest.

4. The petition is opposed by the Respondents. It is not in dispute that Rs.1,12,80,000/- were paid as stamp duty on Articles of Association by the petitioner no.1 (cid:19) Company in the year 1992. It is also not in dispute that again an amount of Rs.25 lacs was paid by the petitioner no.1-company as stamp duty on 5th January,1995. According to the Respondents, however, the payment of Rs.25 lacs was not made under mistake by the petitioner no.1-company, but it was liable to make that payment, because according to the respondents, a notice is required to be filed in Form no.5 at the time of increasing the share capital, with the Registrar of Companies and it is an instrument on which stamp duty is payable under Article 10 of Schedule I of the Bombay Stamp Act. It is the case of the respondents that separately stamp duty is payable at the time of every increase in the share capital of the Company. 6

5. We have heard the learned Counsel appearing for both the sides at length. In order to understand

the controversy it is necessary, first, to have a look at the provisions of the Bombay Stamp Act. Section 3 of the Bombay Stamp Act is the charging section. The portion of Section 3 which is relevant for our purpose reads as under:- (cid:28) 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 proper 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 7 or to be done in this State and is received in this State:(cid:29) Perusal of the above provision of Section 3 shows that stamp duty is payable on instruments which are either executed in the State of Maharashtra or which are executed out of the State of Maharashtra but relate to the property situated in the State of Maharashtra, and the stamp duty is payable in the amount as indicated in Schedule-I. It is Article 10 of Schedule I which is relevant for deciding this petition. Before it(cid:25) s amendment, in the year 1992 there was no maximum limit upto which stamp duty was to be paid. By the notification dated 2nd August,1994, the position is changed. Article 10 of Schedule-I is amended by notification dated 2nd August,1994 as under:- Description of instrument Proper Stamp Duty 1 2

10. ARITCLES OF ASSOCIATION OF A COMPANY- Where the Company has no share capital or nominal share capital or increased share capital. One thousand rupees rupees 5,00,000 thereof, [subject to a maximum 25,00,000]. Rs. 8 By amendment dated 1.5.2001, figure of Rs.25,00,000/_ has been substituted by figure of Rs.50,00,000/-. It is clear that when the share capital of petitioner no. 1 Company was increased in the year 1992 from Rs.36 crores to Rs.600 crores, there was no maximum limit provided in Article 10 of Schedule I of the Bombay Stamp Act, therefore, the stamp duty was paid by the petitioner no.1-Company as per the then existing provision of the Bombay Stamp Act. But in December, 1995 when Rs.25 lacs were paid as stamp duty by the petitioner no.1-Company when it increased its share capital from Rs.600 crores to Rs.1200 crores Article 10 of Schedule-I was already amended and the maximum amount of stamp duty that could be recovered on Articles of Association of a Company was Rs.25 lacs. In paragraph (9) of its affidavit, the Respondents have stated thus:- I say that originally share capital is mentioned in the Articles of Association of the Company and same is required to be submitted to the Registrar (cid:28) 9 of Companies. Similarly when the Company increases its authorised share capital, the notice in the Form no.5 is being executed by the company for modifying the original share capital of the Company. Thus, the effect of Form No.5 is nothing but modification of the share capital and therefore, it is an instrument as defined in Section 2(1) of Bombay Stamp Act,1958. The instrument includes every written document. The Form No.5 in question is an instrument under which Article of Association of a Company has been modified.(cid:29) According to the respondents, thus the modification in the share capital is brought about by the notice given in Form no.5 and therefore, the notice in form no.5 is an instrument within the meaning of Bombay Stamp Act and therefore, every time when notice in Form no.5 is given for increasing share capital, stamp duty is payable, irrespective of the fact whether on earlier occasion amount in excess of maximum amount of stamp duty has been paid. In order to examine whether there is any substance in this submission or not, it is necessary to look into the provisions of the Companies 10 Act. Section 94 of the Companies Act lays down that a limited company having a share capital, may, if so authorised by its articles, increase its share capital by such amount as it thinks expedient. Sub-section (2) of Section 94 of the Companies Act is relevant which reads as under:- (cid:28) (2) The powers conferred by this section shall be exercised by the company in general meeting and shall not require to be confirmed by the Court.(cid:29) Thus, increase in the share capital, according to the above quoted provisions, is brought about by a Resolution of the Company. A notice is required to be given in relation to the increase of share capital under the provisions of Section 97 of the Companies Act. Sub-section (1) of Section 97 of the Companies Act is relevant which reads as under:- (cid:28) S.97. Notice of increase of share capital or of members-- (1) Where a company having a share capital, whether its shares have or have not been converted into stock, has increased its share capital beyond the authorised 11 capital, and where a company, not being a company limited by shares, has increased the number of its members beyond the registered number, it shall file with the Registrar, notice of the increase of capital or of members within thirty days after the passing of the resolution authorising the increase; and the Registrar shall record the increase and also make any alterations which may be necessary in the company(cid:25) s memorandum or articles or both.(cid:29) Perusal of the above quoted provision shows that a notice is required to be given by the company to the Registrar after it has increased its share capital and what is to be done by the Registrar after receiving the notice is to record the change in the record maintained by the Registrar. It is, thus, clear that the increase in the share capital of the Company is not brought about by the notice given under Section 97 of the Companies Act. What happens pursuant to the notice given under Section 97 of the Companies Act is that the change is recorded by the Registrar. As observed above, stamp duty is payable on an 12 instrument. The term instrument is defined by Section 2(l) of the Bombay Stamp Act, which reads as under:- 2(l) (cid:28) instrument(cid:29) includes every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt;(cid:29) It is clear from perusal of the definition of the term (cid:28) instrument(cid:29) that a document or writing which does not create a right or liability is not an instrument. Therefore, the notice that is to be given under Section 97 of the Companies Act to the Registrar will not amount to an instrument within the meaning of Bombay Stamp Act, whereas Articles of Association of a Company will be an instrument. Under Article 10 of Schedule I of the Bombay Stamp Act, which is quoted above, stamp duty is payable on Articles of Association of a company. Thus, if once a company 13 pays stamp duty on its Articles of Association which is either equal to or more than maximum stamp duty provided under Article 10 of Schedule I, then the Company will not be liable to pay any stamp duty when it passes resolution for increasing the share capital. In our opinion, our conclusion that under Article 10 of Schedule I of the Bombay Stamp Act stamp duty is payable on Articles of Association of a company is supported by the language used in Article 39 of Schedule I of the Bombay Stamp Act. Article 39 of Schedule I reads as under:- Description of instrument Proper Stamp Duty 1 2

39. MEMORANDUM OF ASSOCIATION OF A COMPANY- (a) if accompanied by articles of association under section 26 of the Companies Act, 1956, (I of 1956) (b) if not so accompanied. Two hundred rupees. The same duty as is leviable on Articles of Association Article 10 according to the share capital of the company. What is found in Column 2 with reference to Article 39 makes it clear that the stamp duty is leviable on 14 Articles of Association under Article 10 of Schedule I and not on notice in Form no.5 given under Section 97 of the Companies Act. In our opinion, as on the Articles of Association of the petitioner no.1-Company an amount of Rs.1,12,80,000/- was admittedly paid, when the petitioner no.1-company subsequently passed resolution for further increasing its share capital, no stamp duty was recoverable because the amount in excess of the maximum stamp duty recoverable under the Bombay Stamp Act was already paid as stamp duty on Articles of Association of the petitioner no.1- company. In their affidavit, the respondents have stated that the stamp duty becomes payable every time when there is increase in the share capital. In our opinion, stamp duty will be payable on the Articles of Association of a Company, if the Company has not already paid any amount either equal to or in excess of maximum amount of stamp duty payable under the Bombay Stamp Act on its Articles of Association. If a company has already paid either equal to or in excess of maximum amount of stamp duty payable under the Bombay Stamp Act then the Company will not be liable 15 to pay any more stamp duty on its Articles of Association. In our opinion, therefore, it is clear that an amount of Rs.25 lakhs which has, admittedly, been paid by the petitioner no.1-Company to the respondents, was wrongly paid. The respondents have no authority in Law to retain that amount.

6. In the result, therefore, the petition succeeds and is allowed. Rule is made absolute in terms of prayer clause (a) and (b) subject to the modification that the interest shall be payable at the rate of 6% per annum and not at the rate of 18% per annum as claimed in prayer clause (b). No order as to costs. (D.K.DESHMUKH, J.) (R.G.KETKAR, J.)