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2016 (4) TMI 482 - BOMBAY HIGH COURT

2016 (4) TMI 482 - BOMBAY HIGH COURT - TMI - Amalgamation Scheme - Whether a scheme sanctioned between the two companies under Section 391 and 394 of the Companies Act is one and the same document chargeable to stamp duty regardless of the fact that order sanctioning the scheme may have been passed by two different High Courts by virtue of the fact that the Registered Office of the two companies are situated in different States? - Held that:- A scheme settled by two companies is not a document c .....

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of the Companies Act will be the instrument chargeable to stamp duty.

Whether the instrument in respect of amalgamation or compromise or scheme between the two Companies is such a scheme, compromise or arrangement and the orders sanctioning the same are incidental as the computation of stamp duty and valuation is solely based on the scheme and scheme alone? - Held that:- The orders of the court, sanctioning a Scheme of amalgamation are not just incidental orders even in accordance wit .....

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two Companies are situated in two different States, the Company in State of Maharashtra is entitled for rebate under Section 19 in respect of the stamp duty paid on the said scheme in another State? - Held that:- The answer to this question will be in the negative for the reasons set out in detail herein above.

Whether for the purposes of Section 19 of the Act, the scheme/compromise/arrangement between the two Companies must be construed as document executed outside the state on which .....

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ed:- 31-3-2016 - S.C.DHARMADHIKARI, K.R.SHRIRAM AND B.P.COLABAWALLA,J For The Petitioner : Mr.A.A.Kumbhakoni, Sr.Advocate and Special Counsel with Mr.A.B.Vagyani, Govt. Pleader with Mr.Shardul Singh. Mr.V.N.Sagare AGP & Ms.Tintina Hazarika i/by Shri Sunil Y.Kale, Law officer For The Respondent : Dr.Milind Sathe, Senior Advocate with Ms.Melane D'souza i/by Junnarkar and Associates JUDGMENT :- ( Per : K.R.SHRIRAM,J) 1 The Reliance Industries Limited (respondent no.1) and Reliance Petroleum .....

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order from the court sanctioning the Scheme of Amalgamation is that, such a scheme of amalgamation must bind the dissenting members, as also, all the creditors of both the companies. As per the Scheme, from the appointed date, the assets/undertakings of the transferor company, viz., respondent no.2 was to, without any further Act, instrument or deed, stand transferred to and vested in or deemed to have been transferred to and vested in the transferee (respondent no.1) company, pursuant to the p .....

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2 in Gujarat High Court for sanctioning the arrangement in the Scheme of Amalgamation. This court passed an order under Section 394 of the Companies Act 1956 on 7.6.2002 sanctioning the scheme and the Gujarat High Court passed an order on 13.9.2002 sanctioning the scheme. 2 On 16.10.2002, Respondent no.1 submitted the order dated 7.6.2002 passed by this court along with the order dated 13.9.2002 passed by the Gujarat High Court for adjudication of stamp duty in the office of Superintendent of St .....

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duty payable under Article 25 (da) of schedule-1 of Bombay Stamp Act 1958 for order sanctioning the Scheme of Amalgamation in the State of Maharashtra was ₹ 25 crores and since respondent no.1 had already paid stamp duty of ₹ 10 crores in the State of Gujarat on the order of sanction of scheme passed by the Gujarat High Court, the respondent no.1 was entitled to remission/deduction/set off in the payment of stamp duty thereon to the extent of ₹ 10 crores and therefore, the res .....

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ent no.1 filed an application to the applicant no.1 to refer the case to Bombay High Court for opinion under Section 54 of the Bombay Stamp Act 1958 as it involved a serious and a substantial question of law. This application was rejected. Against this order, the respondent no.1 filed a Writ petition being Writ Petition No.591 of 2006 before this Court. By an order dated 22.2.2006 this court remitted the matter back to the applicant no.1 to decide the reference application afresh after hearing t .....

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the date of deposit of the balance amount of deficit stamp duty by respondent no.1. 6 The following questions therefore, have been referred to this court under Section 54 of the Bombay Stamp Act 1958 :- 1. Whether a scheme sanctioned between the two companies under Section 391 and 394 of the Companies Act is one and same document chargeable to stamp duty regardless of the fact that order sanctioning the scheme may have been passed by two different High Courts by virtue of the fact that the Regi .....

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of the two companies are situated in two different States, the Company in state of Maharashtra is entitled for rebate under Section 19 in respect of the stamp duty paid on the said scheme in another State ? 4. Whether for the purpose of Section 19 of the Act the scheme/compromise/arrangement between the two Companies must be construed as document executed outside the state on which the stamp duty is legally levied, demanded and paid in another State ? 7 This being the background of the matter, .....

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rate of such levy is excluded from this Entry 44. This power to prescribe the rate of such levy is divided between the Parliament and the State Legislature. The rates of stamp duty can be prescribed by the Parliament under Entry 91 of List I and by the State Legislature under Entry 63 of List II of the VII Schedule. Entry 91 of List I covers rates of stamp duty in respect of Bills of Exchange, Cheques, Promissory Notes, Bills of Lading, Letters of Credit, Policies of Insurance, Transfer of Shar .....

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risdiction and powers of the Supreme Court (including contempt of such Court), and the fees taken therein; person entitled to practice before the Supreme Court. 78 Constitution and organisation (including vacations) of the High Courts except provisions as to officers and servants of High Courts; persons entitled to practice before High Courts". Entry 91 relates to rates of stamp duty in respect of certain instruments which do not cover an instrument or a document with which we are concerned .....

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be reproduced : "26. Legal, medical and other professions". "44. Stamp duties other than duties or fees collected by means of judicial stamp, but not including rates of stamp duty". There is no dispute that the Act was enacted under Entries 77 and 78 in List 1. It is equally clear that the words "persons entitled to practice" would include determining or prescribing the qualifications and conditions that a person should possess and satisfy before becoming entitled t .....

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t II. (See 6. N. Mohindroo v.- The Bar Council of Delhi & Others(1). From the entries the following scheme with regard to persons entitled to practice will appear to emerge; (1) The Parliament has the exclusive power under Entry 77 and Entry 78 in List I to prescribe, inter alia, the qualifications and conditions on the fulfillment of which persons would be entitled to practice before the Supreme Court or the High Courts. Any fee which may be payable by such persons before they can claim to .....

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ther it is a part of the conditions prescribed by s. 24 of the Act which an advocate must satisfy before he becomes entitled to practice If the requirement of the payment of such a duty is a condition precedent to the conferment on a person of the privilege of audience and representing suitors before the Supreme Court and the High Courts any legislation relating to it would be within the competence of the Parliament. If, however,, it is purely a taxation measure then it would fall within Entry 4 .....

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ion is not intended to be comprised in the main subject in which "it might on an extended construction be regarded as included but is treated as a distinct matter for the purpose of legislative competence". Even under the residually power a. legislation conferred by Art. 248 the Parliament can only impose that tax which is not mentioned in either List III or List II. Thus, it is the State Legislature, which has legislative power to impose stamp duty, as also, prescribe the rates of sta .....

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argeable under this Act, and as applied to any other instruments, chargeable under the law in force in the State when such instrument was executed or, where several persons executed the instrument at different times, first executed. Section 2(g) : Conveyance includes - (i) a conveyance on sale, (ii) every instrument, (iii) every decree or final order of any Civil Court, (iv) every order made by the High Court under Section 394 of the Companies Act, 1956 (in respect of amalgamation or reconstruct .....

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om 1.4.1003 Section 2(i) : executed and execution used with reference to instruments mean signed and signature , [Explanation - The terms signed and signature also include attribution of electronic record as per section 11 of the Information Technology Act, 2000] Section 2(l) : instrument 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, .....

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es an agreement in writing to make such a disposition and where any such disposition has not been made in writing any instrument recording whether by way of declaration of trust or otherwise, the terms of any such disposition. Section 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 therefore respectively, that is to .....

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t, whether certified to be a true copy or not and whether a facsimile image or otherwise of the original instrument on which stamp duty is chargeable under the provisions of this section, shall be chargeable with full stamp duty indicated in the Schedule I if the proper duty payable on such original instrument is not paid ] [Provided further that] no duty shall be chargeable in respect of - (1) any instrument executed by or on behalf of, or in favour of, the Government in cases, where, but for t .....

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ection 4 : Several Instruments used in single transaction of (development agreement) sale, mortgage or settlement (1) Where, in the case of any development agreement, sale, mortgage or settlement, several instruments are employed for completing the transaction, the principal instrument only shall be chargeable with the duty prescribed in Schedule-I for the conveyance, (development agreement) mortgage or settlement, and each of the other instruments shall be chargeable with a duty of (one hundred .....

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ment so determined shall be the highest duty which would be chargeable in respect of any of the said instruments employed. Section 17 : Instruments executed in the State - All instruments chargeable with duty and executed by any person in this State shall be stamped before or at the time of execution [or immediately thereafter ] [ or on the next working day following the day of execution ] : [Provided that, the clearance list described in Articles 19, 20, 21, 22 or 23 of Schedule I may be stampe .....

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d relating to any property situate or to any matter or thing done or to be done in this State is executed out of the State and subsequently [such instrument or a copy of the instrument is ] received in the State - (a) the amount of duty chargeable on such instrument [or a copy of the instrument] shall be the amount of duty chargeable under Schedule-I on a document of the like description executed in this State less the amount of duty, if any, already paid under any law in force in India excludin .....

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me when it became chargeable with the higher duty ; and (c) the provisions contained in clause (b) of the proviso to subsection (3) of section 32 shall apply to such instrument [or a copy of such instrument] as if such were an instrument executed or first executed out of this State and first received in this State when it became chargeable to the higher duty aforesaid, but the provisions contained in clause (a) of the said proviso shall not apply thereto. Article 25 : CONVEYANCE (not being a tra .....

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56 : Section 390. In sections 391 and 393- (a) the expression company means any company liable to be wound up under this Act ; (b) the expression arrangement includes a reorganization of the share capital of the company by the consolidated of shares of different classes, or by the division of shares into shares of different classes or, by both those methods ; and (c) unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured credit .....

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conducted in such manner as the court directs. (2) If a majority in number representing three-fourth in value of the creditors, or class of creditors, or members, or class of members, as the case may be present and voting either in person or where proxies are allowed [under the rules made under section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the .....

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s relating to the company such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like] (3) An order made by the court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company is .....

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n application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the court thinks fit, until the application is finally disposed of Section 394. (1) Where an application is made to the court under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the court- (a) that the compromise or arrangement .....

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nctioning the compromise or arrangement or by a subsequent order, make provision for allot any of the following matters : (i) the transfer to the transferee company of the whole or any part of the undertaking property or liabilities of any transferor company ; (ii) the allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement are to be allotted or appropriated by that company to or .....

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on shall be fully and effectively carried out : [Provided that no compromise or arrangement proposed for the purposes of or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the court unless the court has received a report from the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. Provided further that no .....

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erred to and vest in, and those liabilities shall be transferred to and become the liabilities of the transferee company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within [thirty] days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. If def .....

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a company within the meaning of this Act or not. 10 It was submitted on behalf of the respondents as under :- (i) Under section 2(l), only a document which creates right or obligations constitutes an instrument . (ii) Moreover an instrument could be chargeable to duty as a Conveyance under sec.2(g), only if it is a document by which property, whether movable or immovable, or any estate or interest in any property is transferred to, or vested in, any other person. (iii) In respect of a Scheme of .....

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scheme sanctioned by the court would be an instrument within the meaning of section 2(i). By the said instrument the properties are transferred from the transferor co. to the transferee company......... The Court in that judgment also referred to the English judgment in Sun Alliance Insurance's case : (1971) 1 All ER 135 and observed It was further held that the order of the court was liable to stamp duty as it resulted in transferring the property and that the order of the court which resul .....

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t order of this Hon'ble Court sanctioning the Scheme on the Transferee Company's Application, would not constitute an instrument or a conveyance, unless and until the Gujarat High Court had sanctioned the Scheme on the Transferor Company's Application. This is because the Scheme would become effective & operative and the property would stand transferred and vested from the transferor to the transferee, only on the Gujarat High Court making the second order sanctioning the Scheme. .....

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hat is the instrument and not the orders. (vi) Alternatively if pursuant to sanction by the Gujarat High Court, both court orders are treated as multiple instruments for giving effect to the same transfer/transaction, the last order/the order passed in the case of the transferor company would be the principal instrument in relation to which stamp duty had to be computed. In any event in such a circumstance sec.4(2) entitles the parties to determine for themselves which of the instruments shall b .....

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different states, the transaction of amalgamation is a single transaction contained in several instruments and transferee company is entitled to determine as to which of those instruments be deemed to be the principle instrument ? (viii) In fact the Revenue had in previous Inter state amalgamation levied stamp duty only on the order of the transferor company. (ix) Moreover in Intra State amalgamations the revenue had always levied stamp duty on only one of the orders as the principal instrument. .....

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section 17 of the Bombay Stamp Act every document chargeable with duty under the Act is required to be charged with duty at the time of execution and therefore, the order dated 7.6.2002 is required to be stamped with duty as per the situation and circumstances on the day of its execution as per the Stamp Act. It was also submitted that the stamp duty payable was on the instrument and not on the underlying transaction. 12 On the stand of the respondent no.1 that they are entitled to a rebate on t .....

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en executed in the State prior to payment of stamp duty of ₹ 10 crores in Gujarat, the question of taking benefit of section 19 does not arise. It was also submitted that section 19 provides for contingency in which instrument is executed outside the State and then brought into the State. In this case as the instrument is the order dated 7.6.2002 passed by this court within the State of Maharashtra, the question of being brought into the State did not arise. Hence, section 19 is not applic .....

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2(g)(iv) has held that the transfer is effected by an order of the Court and the order of the Court sanctioning the scheme of amalgamation is an instrument which transfers the properties and would fall within the definition of Section 2(l) of the Bombay Stamp Act, which includes every document by which any right or liability is transferred. By the said instrument the properties are transferred from the transferor to the transferee company. Paragraph 38 of the Judgment reads as under :- As discus .....

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uties or fees collected by means of judicial stamps. Along with this, Entry 63 of List II empowers the State Legislature to prescribe rates of stamp duty in respect of documents other than those specified in the provisions of List I, that is to say, rates of stamp duty in respect of Bill of Exchange, cheques, promissory notes, Bill of landing, letter of credit, policies of insurance, transfer of shares, debentures, proxies and receipts. By sanctioning of amalgamation scheme, the property includi .....

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o stamp duty as it resulted in transferring the property and that the order of the court which results in transfer of the property would be an instrument as it includes every document. Paragraphs-23, 24 & 25 of the Hindustan Lever (supra) reads as under :- 23. Point as to whether the stamp duty was leviable on the Court order sanctioning the scheme of amalgamation was considered at length in Sun Alliance Insurance Ltd. Vs. Inland Revenue Commissioners 1971 (1) All England Law Reports 135. Th .....

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because London has still to cause the name of Sun Alliance to be entered on to the register as the holder of the shares. The registration of the transferee occurs in every case where a transfer is executed, and merely perfects the title of the transferee. The same thing occurs in the case of registered land, where one finds a transfer and subsequent registration. I have therefore come to the conclusion that by the court order the shares were transferred to Sun Alliance, or, to use the words of s .....

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chaser, or any other persons on his behalf and on his direction. 25. The Court further considered as to whether the order of the judge is an 'instrument' executed in any part of the United Kingdom for the purposes of Section 14(4) of the Stamp Act, 1891; it was held that it was an instrument executed in the United Kingdom within the meaning of Section 14(4) of the Stamp Act 1891. It was further held that order of the Court was liable to stamp duty as it resulted in transferring the prope .....

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defined under Section 2(l) of the Bombay Stamp Act which includes every document by which any right or liability is transferred. 17 Therefore, as the scheme of arrangement or amalgamation has no effect or force unless or until it was sanctioned by the court, it is the order sanctioning the scheme that would be an instrument under Section 2(l). Hence, the order dated 7th June 2012 passed by this court will be the instrument as defined. 18 Section 3(a) of the Bombay Stamp Act, 1958 provides for ch .....

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struments executed in the State. This section makes it clear that any instrument chargeable with duty executed in the State is required to be stamped before or at the time of execution or immediately thereafter or on the next working day following the day of execution. Considering all the provisions above, the transferee- respondent no.1 in any event was bound to pay the necessary duty as it stood on the date of execution, i.e., 07/06/2002, the date of passing of Order by this Court. Here it is .....

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t, paid part of the stamp duty in the State of Gujarat on the Order passed by Hon'ble High Court of Gujarat which was passed couple of months after the order passed by this Court. Had the Respondent no.1-transferee fulfilled its obligations in Law, the settling of any question of Law would have never arisen. 19 Section 3 of the said Act is a charging section and provides for charging stamp duties. As quoted above, section 2 of the said Act defines the terms Conveyance [2(g)], Executed and Ex .....

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whereby assets of Respondent no.2 transferor company are transferred to the Respondent no.1-Transferee company, is the instrument upon conjoint reading of section 2(g), (l) and 3 of the Bombay Stamp Act. As per the Scheme of the said Act, instrument is chargeable to duty and not the transaction and therefore even if the Scheme may be the same, i.e., transaction being the same, if the scheme is given effect by a document signed in State of Maharashtra it is chargeable to duty as per rates provid .....

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te of Maharashtra is concerned. 21 Although the two orders of two different high courts are pertaining to same scheme they are independently different instruments and can not be said to be same document especially when the two orders of different high courts are upon two different petitions by two different companies. When the scheme of the said Act is based on chargeability on instrument and not on transactions, it is immaterial whether it is pertaining to one and the same transaction. The duty .....

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or registration ; The transfer of any property or any interest in any property on account of such amalgamation, takes place pursuant to the Order passed by the Court sanctioning the Scheme of amalgamation. This aspect is clear in view of sub-section 2 of section 394 of the Companies Act, which specifically states that, by virtue of an Order issued under Section 394(1), the property of the Transferor Company gets transferred to and vests in the Transferee company. Thus, the instrument, which effe .....

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lt in transferring the property. It is the Order of the Court that sanctions such a Scheme of Amalgamation results in transferring the property and it is therefore, this Order alone would be an 'instrument', as defined by the said Act, on which stamp duty is chargeable. Therefore, the contentions of the respondents that the parties were liable to pay stamp duty on the sanctioned Scheme (read with the two Orders) is not correct and cannot be accepted. 24 The provisions of Section 391 r/w. .....

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roperty, assets etc. Apart from the aforesaid legal aspect of the matter, as a matter of fact, in as much as the present case is concerned, the chronology of events separately submitted by the applicants when considered demonstrates that the first Order sanctioning the Scheme, was issued by this Court on 7th June 2002 and the order states as under :- AND THIS COURT DOTH ORDER that with effect from the Appointed Date, the Assets/Undertakings of the Transferor Company (as defined in the Scheme of .....

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erate after the scheme was also sanctioned by the Hon'ble Gujarat High Court. By this Order dated 7.6.2002 of this Court itself, it could be considered that the transfer was effected and therefore the said Order of this Court is the 'order made by the High Court under Section 394 of the Companies Act 1956.............. as contemplated by Section 2(g) (iv) of the said Act. For the same reason the order dated 7.6.2002 of this Court is the 'instrument', as contemplated by the provis .....

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oder sanctioning the Scheme of Amalgamation by the High Court of Gujarat at Ahmedabad and upon receipt of the files and documents in respect of Transferor Company from the Registrar of Companies, Gujarat, the Registrar of Companies, Maharashtra, Mumbai shall place and register with him on the files and documents kept by him in relation to the petitioner company and shall consolidate the files of the Transferor Company and the petitioner company accordingly. That part of the order of this court .....

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This is the step contemplated by the provisions of subsection 3 of section 394 of the Companies Act. 25 The aforesaid part of the order of this court will have to be considered from the point of view of 'effective date' read with clauses 23,24 and 27, as contemplated by the Scheme of Amalgamation. Thus, the transfer in issue though has taken place in terms of the provisions of the Companies Act only and only on account of the order of this court, such a transfer will take effect from th .....

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ble in the State of Gujarat), only the order dated 13th September, 2002 of the Hon'ble Gujarat High Court, as is clear from Exhibit '4' to the affidavit filed on behalf of the 1st respondent. The Collector and Additional Superintendent of Stamps, Gujarat State, Gandhinagar, only on the order passed by the Hon'ble Gujarat High Court has imposed a stamp duty of ₹ 10 crores. Admittedly, the respondents have not paid any stamp duty on the order of this Hon'ble court, which .....

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in the State of Gujarat or in the State of Maharashtra at the time when the aforesaid application dated 16th October, 2002 was submitted with the Superintendent of Stamps, Mumbai. Therefore, the respondent no.1 - Transferee Company was liable to pay full stamp duty on the order dated 7th June, 2002 passed by this Court in the State of Maharashtra inasmuch as on this order, no stamp duty was ever paid by anybody either in the State of Gujarat or in the State of Maharashtra. 28 The contention of t .....

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. It is obvious that the instrument in issue does not fall in the first three categories viz. Development Agreement, Sale or Mortgage. This also answers that issue raised by the respondents as mentioned in paragraph- 10(vii) above. 30 As regards the fourth category viz. 'settlement' is concerned, the instrument in issue does not even fall in this category. The term 'settlement' is defined by Section 2(t) of the said Act as under :- Section 2(t) : settlement means any non-testamen .....

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y of declaration of trust or otherwise, the terms of any such disposition. This definition demonstrates that 'settlement' contemplated by the provisions of the said Act is not and cannot cover the Scheme of Amalgamation whereby two Companies are amalgamated in terms of Section 391 r/w. Section 394 of the Companies Act. Section 4 of the said Act has no application at all to the facts of this case. 31 Apart from the aforesaid aspect, as set out in detail in the aforesaid paragraphs, we hav .....

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State; and (iii) subsequently received in the State of Maharashtra. The instrument in question is the order dated 7.6.2002 executed by High Court of Bombay. The order is already in Mumbai and executed in Mumbai. It is not executed out side Maharashtra. The order dated 7.6.2002 is not received in Maharashtra since it originated in Maharashtra. Therefore, the ingredients of Section 19 are not complied. Respondent no.2-transferee while paying duty on the order dated 7.6.2002 of the Bombay High Cou .....

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the order, which is the instrument in issue on 7th June, 2002. The respondents were required to pay the stamp duty in that regard atleast immediately on the next working day following 7th June, 2002. The Hon'ble Gujarat High Court passed the order only on 13th September, 2002. The respondents were therefore, required to pay the requisite stamp duty much before passing of the Order by the Hon'ble Gujarat High Court on 13th September, 2002. Had the respondents acted strictly in accordance .....

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n 'instrument', is not correct, as is apparent from the definition clause itself. It is pertinent to note that, in first place, the definition of the term 'instrument' is an inclusive definition and is not an exhaustive definition, as such. Moreover, the term 'instrument', as defined, will also include, in addition to a document which 'creates right or obligation', a document, which 'purports to create, transfer, limit, extend, extinguish or record' any ri .....

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ent High Courts by virtue of the fact that the Registered Office of the two companies are situated in different States? Ans. A scheme settled by two companies is not a document chargeable to stamp duty. An order passed by the Court sanctioning such a Scheme under Section 394 of the said Act, which effects transfer is a document chargeable to stamp duty. In case if the Registered Offices of the two Companies are situated in two different States, requiring such Orders, sanctioning the Scheme to be .....

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