LexHINDUSTAN LEVER AND ANR. versus STATE OF MAHARASHTRA AND ANR.
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HINDUSTAN LEVER AND ANR.
A
v.
STATE OF MAHARASHTRA AND ANR.
NOVEMBER 18, 2003
[R.C. LAHOTI AND ASHOK BHAN, JJ.]
B
Companies Act, 1956-Sections 391 and 394-Bombay Stamp Act,
1958-Sections 2(i), 2{g) (iv), 3 and 34-High Court order sanctioning
scheme of amalgamation of two companies under the Companies Act-Levy C
of stamp duty by State on the High Court order-Competency of-Held, the
State is competent to levy under the Constitution of India since the order
sanctioning the scheme of amalgamation involves transfer of property from
transferor company to transferred company-Hence, the Order is an
'instrument' liable to transferee-Constitution of India-Seventh Schedule
List II; Entry 63 List Ill; Entry 44-Jndian Stamp Act, 1891,: Section 54.
D
Company Twas amalgamated with appellant-company. The scheme of
amalgamation between the two companies was sanctioned by High Court under
section 394 read with section 391 of the Companies Act, 1956. The State
sought to levy stamp duty on the High Court order under Section 2(g)(iv) of
the Bombay Stamp Act, 1958. The appellant filed a writ petition before High E
Court challenging the constitutional validity of section 2(g) (iv) of the Bombay
Stamp Act. High Court dismissed the writ petition.
In appeal, the appellants contended that the order of the High Court
certifying the scheme of amalgamation is not an 'instrument' under section F
2(i) of the Bombay Stamp Act, 1958 since it is a judicial order; that such
orders would become subject to interference by revenue authorities by making
it inadmissible in evidence if the same is not subjected to stamp duty; that
State Legislature is not competent to levy stamp duty on transfer of property;
that section 2(g)(iv) read with section 34 of the Bombay Stamp Act, which .
provides for the instrument not duly stamped inadmissible in evidence, are G
repugnant to Section 394 of the Companies Act and that State legislation
cannot prevail over Central legislation; and that State Legislature is imposing
a tax on the amalgamation of the companies in the guise of stamp duty and
encroached upon the field of Parliament under Entry 43 List I of the Seventh
685
H
686
SUPREME COURT REPORTS [2003] SUPP. 5 S.C.R.
A Schedule to the Constitution of India.
Dismissing the appeals, the Court
HELD: I.I. The scheme of amalgamation has its genesis in an agreement
between the prescribed majority of shareholders and creditors of the
B transferor company with the prescribed majority of shareholders and creditors
of the transferee company. The intended transfer is a voluntary act of the
contracting parties. The transfer has all the trappings of a sale. The High
Court, while exercising its power in sanctioning a scheme of amalgamation
under the Companies Act, 1956, has to examine as to whether the provisions
C of the statute have been complied with. Once the High Court finds that the
parameters set out in Section 394 of the Companies Act have been met, then
the High Court would have no further jurisdiction to sit in appeal over the
commercial wisdom of the class of persons, and give its approval, even if, in
the view of the Court, a better scheme could have been framed. Hence, the
scheme of amalgamation sanctioned by the High Court under section 394 of
D the Companies Act would be an 'instrument' within the meaning of Section
2(i) of the Bombay Stamp Act, 1958. 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. [694-B-C; 695-B-C; 698-G)
E
Miheer H. Mafat/a/v. Ma/at/al Industries Ltd., (1997) 1SCC579 and
Hindustan Lever Employees' Union v. Hindustan Lever Ltd and Ors., (1995)
Supp I SCC 499, relied on.
1.2. The function of the High Court, while sanctioning the compromise
or arrangement, is limited to oversee that the compromise or arrangement
F arrived at is lawful and that the affairs of the company were not conducted in
a manner prejudicial to the interest of its members or to public interest Once
these things are satisfied, the scheme has to be sanctioned by the High Court
as per the compromise arrived at between the parties. The transfer of assets
and liabilities takes effect by an order of the Court. The order also provides
G for passing of consideration from the transferee company to the shareholders
of the transferor company. The consideration for saExcerpt shown. Read the full judgment & AI analysis in Lexace.