State of Maharashtra & Anr. v. National Organic Chemical Industries Ltd.
Case No.: Civil Appeal No. 8821 of 2011.
Date: April 05, 2024.
Court: Supreme Court of India.
Quorum: Hon’ble J. Sudhanshu Dhulia, J. Prasanna B. Varale.
Facts of the case:
National Organic Chemical Industries Ltd. (NOCIL) was originally incorporated with a share capital of Rs.36 crores. In 1992, it increased its share capital to Rs.600 crores and paid stamp duty of Rs.1,12,80,000 as per the Bombay Stamp Act, 1958. Subsequently, the Maharashtra government amended the Stamp Act in 1994, introducing a maximum cap of Rs.25 lakhs on stamp duty payable on the Articles of Association of a company. In 1997, NOCIL further increased its share capital to Rs.1,200 crores and paid Rs.25 lakhs as stamp duty, considering it the maximum cap. However, NOCIL soon realised that since the maximum of Rs. 25 lakhs had already been paid in 1992, no further stamp duty was payable. NOCIL sought a refund, which was rejected by the stamp authorities.
Legal issues:
1. Whether filing Form No.5 for increasing share capital under the Companies Act amounts to an ‘instrument’ requiring stamp duty under the Stamp Act?
2. Whether an increase in share capital materially alters the character of the Articles of Association, requiring fresh stamp duty?
3. Whether the maximum cap of Rs.25 lakhs on stamp duty is applicable each time the share capital is increased or a onetime measure?
Legal provisions:
1. Bombay Stamp Act, 1958
• Section 2(1) which defines the word ‘instrument.’
• Article 10 of Schedule I of the Act which discusses about Stamp duty on Articles of Association.
2. Companies Act, 1956
• Section 31 which discusses about the alteration of articles of association.
• Section 97 discusses about the notice for increase in share capital (Form No.5).
Contentions of petitioners:
The learned counsel for the petitioners argued that the notice filed in Form No.5 under Section 97 of the Companies Act for increasing a company’s share capital amounts to an ‘instrument’ as defined under Section 2(1) of the Bombay Stamp Act, 1958. They contended that Form No.5 records or purports to record the increase in share capital, which essentially extends the right of the company to have a higher capital as mentioned in its Articles of Association. Thus, it creates or transfers a right related to the share capital and falls within the definition of an ‘instrument’ under Section 2(1) of the Bombay Stamp Act, 1958.
The petitioners relied on the Supreme Court’s judgement in Hindustan Lever v. State of Maharashtra to argue that Form No.5, like a court order sanctioning an amalgamation scheme, is an instrument that affects the transfer of rights/liabilities. The petitioners submitted that when a company increases its share capital from Rs.600 crores to Rs.1,200 crores, it substantially alters the character of its Articles of Association which originally specified a lower share capital. They argued tat under Section 14A of the Stamp Act, any material alteration to an instrument requires fresh stamp duty according to the altered character of the instrument. Therefore, NOCIL should pay fresh stamp duty on the increased Rs.1,200 crore capital.
The appellants pointed out that the maximum cap of Rs.25 lakhs on stamp duty was introduced in 1994, after NOCIL had already paid Rs.1.12 crores in stamp duty in 1992 on its earlier capital increase. They contended that since this cap was not in existence in 1992, the payment cannot be considered towards this cap. They further asserted that the Rs.25 lakh limit applies individually to each instance of capital increase not cumulatively over the life of the Articles. Therefore, NOCIL was obligated to pay the maximum Rs.25 lakh stamp duty when it increased capital to Rs.1,200 crores.
Contentions of the respondent:
The learned counsel for the respondent argued that Form No.5 merely serves the limited purpose of giving statutory notice to the Registrar about the increase in capital already approved by the company via a resolution. It does not, by itself, create, transfer or extinguish any rights or liabilities. The respondents distinguished the Supreme Court’s judgement in Hindustan Lever, stating that a court order sanctioning an amalgamation scheme is very different from a mere statutory notice like Form No.5, on which the Registrar exercise no discretion.
The respondents relied on Section 31(2) of the Companies Act, which states that any alteration made to the Articles of Association shall be valid as if originally contained therein. They argued that an increase in share capital is merely an alteration to the Articles, which does not substantially change the character of the Articles so as to attract Section 14A of the Stamp Act. The respondents cited the Allahabad High Court judgement in New Egerton Woollen Mills to strengthen their argument that there is no concept of a company having ‘new’ Articles upon an increase in capital.
The respondents contented that the maximum cap of Rs. 25 lakhs introduced in 1994 applies to the entire Articles of Association, including any increases in share capital mentioned. Since NOCIL had already paid over Rs.25 lakhs in 19922 on the original Articles, they argue that no further stamp duty could be levied when the capital was increased later, as the cap had been exhausted on the same instrument. The respondents cited several Supreme Court judgements to argue that charging provisions under fiscal statutes like the Stamp Act must be construed strictly. Any ambiguity in language must be resolved in favour of the assessed and against the revenue authorities. They pointed out that Article 10 of Schedule I covers “Articles of Association…where the company has…increased share capital” under the same entry in Column 1. This indicates the cap in Column 2 applies to the entire Articles including increased capital, not separately on each increase. (For the column, refer the judgement attached below).
Analysis of the judgement:
The Supreme Court observed that Form No.5 is only a statutory notice informing the Registrar about the increase in capital already approved by the company. The Registrar merely records this increase and does not exercise any discretion, as long as the form is properly filled. The court stated that the Articles of Association is the only ‘instrument’ under the Stamp Act in this context. The Court agreed with the respondents that an increase in share capital does not substantially alter the character of the Article so as to attract fresh stamp duty under Section14A of the Stamp Act. The increase is validated retrospectivity without the concept of ‘new’ Articles coming into existence.
The Apex Court held that the cap is applicable on the entire Articles of Association, including any increased share capital therein, and not separately on each increase. The Court rejected the appellant’s argument that since the Rs. 25 lakh cap was introduced in 1994, after NOCIL’s 1992 payment of Rs.1.12 crores, the latter payment cannot be considered.
The Supreme Court’s analysis followed established principles of interpreting fiscal statutes and harmoniously reading the Stamp Act with the Companies Act. On the issue of Form No.5 being an instrument, the Court correctly distinguished it from court orders altering rights/liabilities, which was the context in the Hindustan Lever case relied upon by the appellants. Regarding increase in capital altering the Articles, the Court rightly gave precedence to Section 31(2) of the Companies Act, which is the special law governing companies. This validating provision indicated that an increase is not a material alteration requiring fresh stamping under the general Stamp Act.
The most significant part of the analysis is on the applicability of the Rs.25 lakh cap. By examining the language of Article 10 vis-a-vis the 2015 amendment, the Court logically concluded that the cap applied to the Articles in totality at any given point, rather than repeatedly on each increase. The Court’s refusal to apply the cap prospectively from 1994 while ignoring NOCIL’s past payment was also a pragmatic view, preventing excessive taxation on the same instrument.
Conclusion
Overall, the Court’s approach of strictly interpreting the charging provisions while harmonizing the two laws binding with established jurisprudence on fiscal statutes. It has provided welcome clarity on a vexed issue faced by companies. This judgement provides much-needed clarity on stamp duty on increased share capital. Companies can breathe easy, knowing the one-time cap applies, avoiding repetitive taxation.
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Judgement reviewed by Maria Therese Syriac.
