Partly allowed

Aia Engineering Limited v. State of Gujarat

Gujarat HC19 Aug 2019SCA/18494/2015

Case brief

AI extract

What is this about?

This writ petition challenged orders imposing stamp duty based on a market value calculated using a post-split share face value. The court held that Section 39 could not be invoked without prior market value determination under Section 32A or impounding under Section 33, quashing the orders and remanding the matter.

What did the court decide?

The orders dated 17.05.2011 of the Collector and 06/12/2015 of the CCRA were quashed and set aside; the matter remanded to the Collector for fresh consideration.

Aia Engineering Limited Vs State of Gujarat — Writ and Judicial Review | Gujarat HC (2019)

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C/SCA/18494/2015 ORDER

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

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R/SPECIAL CIVIL APPLICATION NO. 18494 of 2015

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=========================================================== AIA ENGINEERING LIMITED

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Versus

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STATE OF GUJARAT & 2 other(s)

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================================================================ Appearance:

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MR. MIHIR JOSHI, LEARNED SENIOR ADVOCATE for SINGHI AND CO(2725) for the Petitioner(s) No. 1

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MR. DHAWAN JAYSWAL, AGP, (1) for the Respondent(s) No. 1,2,3

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================================================================

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CORAM: HONOURABLE MR.JUSTICE A.Y. KOGJE

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Date : 19/08/2019 ORAL ORDER

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[1] This petition under Article 226 of the Constitution of India is filed by the petitioner company to challenge the order dated 06/12.10.2015 passed by the Chief Controlling Revenue Authority, Stamp Duty, Gujarat (for short “CCRA”) in Appeal No.34 of 2011. By the aforesaid order, the CCRA had confirmed the order dated 17.05.2011 by the Collector and Additional Superintendent of Stamps and further prayer for direction to refund the excess stamp duty of Rs.2,63,619/- alongwith interest. The subject matter pertains to the amalgamation scheme sanctioned by the High Court which was the instrument for the purpose of levy of stamp duty based on transfer of assets and shares from the transferor company to transferee company.

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[2] Learned advocate for the petitioner submits that in Company Petition No.24 of 2009 filed for sanction of scheme of amalgamation of “Reclamation Welding Limited” and “Paramount Centrispun Castings Private Limited” with the petitioner company, the scheme came to be sanctioned by

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C/SCA/18494/2015 ORDER

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order dated 08.05.2009. Upon the sanctioning of the scheme for amalgamation, the petitioner filed an application on 01.07.2009 before the Collector seeking adjudication for proper stamp duty payable on the order dated 08.05.2009. In response to the application, a letter dated 05.11.2009 was addressed to the petitioner by the Collector, calling upon the petitioner to furnish certain details. The details called for were pertaining to the share price at Mumbai Stock Exchange and the petitioner company and the relevant forms issued by Registrar of Companies etc. to which the petitioner furnished the details on 14.11.2009.

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[2.1] It is submitted that as the application of the petitioner was under Section 31 of the Gujarat Stamp Act, 1958 (for short “the Act”), the petitioner expected the Collector however, instead of adjudicating the proper stamps to be utilized, the Collector straightway proceeded to issue a notice under Section 39(1) (b) of the Act. It is submitted that question under Section 39(1)(b) arises only after invoking Section 33 of the Act and before invoking Section 33 of the Act, the Collector is obliged to determine the market value of the property which is the subject matter of conveyance under Section 32A of the Act. In the instant case, without following the procedure as contemplated under the provisions of the Act, the Collector has proceeded as if the adjudication has taken place, determination has taken place and thereafter, the instrument being impounded was subjected to proceedings under Section 39(1)(b) of the Act.

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[2.2] It is further submitted that even in arriving at stamp duty leviable, the respondent-Collector has committed an error as

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C/SCA/18494/2015 ORDER

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the market value of the shares which would be transferred upon the amalgamation was erroneously considered by the Collector by directly applying market price of the petitioner company existing on the appointed date with the Bombay Stock Exchange at the rate of Rs.1530 per share with face value of Rs.10/-. However, in doing so, the Collector has failed to consider the scheme sanctioned by the High Court where the face value of the share was determined at Rs.2/- each and therefore, there has to be proportionally reduction in the value of the share having face value of Rs.10/- by bringing it down five times. Meaning thereby, the correct market value of the shares of face value of Rs.2/- as compared to market value of a share with face value of Rs.10/- being 1530 should come to Rs.306/-. It is submitted that the correct stamp duty payable in respect of amalgamation order dated 08.05.2009 would be 3,36,430 shares. By Rs.306/- average market value of the share which would be Rs. 10,29,47,580/- towards which the correct stamp duty payable is Rs.10,29,476/-.

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[2.3] It is submitted that the Collector thereafter, passed an order dated 17.05.2011 holding the market value of 3,36,430 shares at Rs.1530 per share at Rs. 51,47,37,900/- and directed payment of stamp duty of Rs. 51,47,379/- and penalty of Rs.20,000/-.

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[2.4] The petitioner preferred an appeal No.34 of 2011 under Section 53(1) of the Act before the CCRA and at that time has deposited the requisite pre-deposit as per Section 53(1)(b) of the Act. It is submitted that the CCRA also failed to consider the case of the petitioner and upheld the order of the Collector. It is submitted that the CCRA ought to have considered the

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C/SCA/18494/2015 ORDER

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submission of the petitioner that the Collector had no jurisdiction to invoke provisions of Sections 33 and 39 of the Act in respect of the instrument which had been filed by the petitioner for adjudication under Section 31 of the Act. It is submitted that even the penalty was not justified as the application for adjudication was filed on 01.07.2009, whereas show-cause notice dated 17.04.2010 was issued assuming that the application for adjudication was filed on 18.11.2009.

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[3] As against this, learned Assistant Government Pleader supporting the orders of the authority submitted that pursuant to the order passed by the High Court , approving the scheme of amalgamation, the appointed date is fixed of 01.04.2008. The petitioner company is a transferee company and the shares of the petitioner company having a face value of Rs.10/which was traded in the stock market at an average price of Rs.1530/-. The petitioner company has sub-divided the share of face value of Rs.10/- to Rs.2/- per share by passing Resolution in Board meeting dated 16.09.2008, which is subsequent to the date of appointed date as fixed by the High Court vide its order dated 08.05.2009. the authority has rightly calculated the market price of the share as per the prevailing face value of Rs.10/-, that on the appointed date, the market price of Rs.1530/- were traded in the Bombay Stock Exchange and National Stock Exchange. The petitioner company is calculating the market price by sub-dividing the face value of Rs.2/- against the face value of Rs.10/-, for the 67286 shares having face value of Rs.10/- and applying market price of Rs.306/- against the 3,36,430 shares is not admissible considering the calculation of proportionate ratio of share as on the appointed date as fixed by the High Court, which was

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calculated by the authority is rightful calculation made in consonance with the provisions of the Act.

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[3.1] It is submitted that the petitioner has contended that the nominal amount allotted is of Rs.6,72,860 (336430 * Rs.2/-). It is submitted that following calculation was made in accordance with the provisions of the law. According to the order passed by this Court, the allocation of shares is to be made in proportion of five shares of Rs.2/- (face value) of transferee company (petitioner company) against the 1 (one) share of (Rs.100/- face value) of the transferor company-Reclamation Welding Limited). The authorized capital of transferor company (Reclamation Welding Limited) as on 31.03.2008 is 2,24,286 equity shares each of Rs.100/-, total comes to Rs.22,42,860/-. Out of which 1,57,000 shares of the petitioner company (AIA Engineering Limited) is deducted, from which remains 67,286 equity shares (2,24,286 – 1,57,000 = 67286). As per the allocation of the share ratio fixed by the High Court, the total share to be issued comes to 3,36,430 equity shares to the transferee company (67,286 * 5= 3,36,430). That the calculation of the market price on the price showing the trading in the market price is of Rs.1530/- in BSE and NSE stock exchange. Therefore, 3,36,430 issued shares to be multiplied with share price of Rs.1530/-comes to total market price of Rs.51,47,37,900/- (3,36,430 (shares) * Rs1530/- = Rs.51,47,37,900/-) Therefore, the stamp duty attracts as per Article 20(d) is chargeable at 1% of market value comes to Rs.51,47,379/- as a deficit stamp duty and after adding penalty of Rs.25,000/- as per Section 39(1)(b) of the Act, the deficit stamp duty is to be collected as per the order passed by the Collector and Additional Superintendent of Stamps dated

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17.05.2011, which is just and reasoned order passed by the authority.

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[3.2] It is submitted that the Collector was within his jurisdiction to issue a notice under Section 43(1) of the Act for recovery of the deficit stamp duty and therefore, had issued show-cause notice dated 16.10.2015 and thereafter, giving an opportunity of hearing to the petitioner has passed the impugned order.

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[4] The court has considered the rival submissions of the parties and perused the documents placed on record. That a Company Petition No.24 of 2009 was filed for sanction of scheme of amalgamation by which two companies “Reclamation Welding Limited” and “Paramount Centrispun Castings Private Limited” being the transferor company were to be amalgamated with the petitioner transferee company. The appointed date as per the scheme was 01.04.2008 and as on the appointed date, the petitioner had a face value of Rs.10/- per share which were being traded in the market at price of Rs.1530/-. The scheme sanctioned by the High Court and the provisions of Clause 2 of the scheme provided for the share capital which reads as under:-

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“ 2 Share Capital

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The Authorized, Issued, Subscribed and Paid-Up Share Capital of the Transferor Companies and the Transferee Company as on Date are as follows:-

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2.1 The Authorised Share Capital of Reclamation is Rs.2,30,00,000/- (Rupees Two Crore Thirty Lacs Only) divided into 2,30,000 equity shares of Rs.100/- each. The Issued, Subscribed and Paid-up Share Capital of Reclamation is Rs.2,24,28,600/- (Rupees Two Crores Twenty Four Lacs Twenty Eight Thousand Six Hundred only) divided

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C/SCA/18494/2015 ORDER

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into 2,24,286 equity shares of Rs.100/- each fully paid up.

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2.2 The Authorised Share Capital of Paramount is Rs.1,37,00,000/- (Rupees One Crore Thirty Seven Lacs Only) divided into 1,15,000 equity shares of Rs.100/- each and 22,000 Cumulative Redeemable Preference Shares of R.100/- each. The Issued, Subscribed and Paid-up Share Capital of Paramount is Rs.1,14,44,200/- (Rupees One Crore Fourteen Lacs Forty Four Thousand Two Hundred only) divided into 1,14,442 equity shares of Rs.100/- each fully paid up.

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2.3 The Authorised Share Capital of Transferee Company I.,e. AIA is Rs.46,00,000,000/- (Rupees Forty Six Crores Only) divided into 23,00,00,000 equity shares of Rs.2/each. The Issued, Subscribed and Paid-up Share Capital of AIA is Rs.18,79,67,880/- (Rupees Eighteen Crores Seventy Nine Lacs Sixty Seven Thousand Eight Hundred Eighty only) divided into 9,39,83,940 equity shares of Rs.2/- each fully paid up.”

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[5] Clause 4 provides for transfer of undertakings which reads as under:-

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“4. Transfer of Undertakings

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4.1 With effect from the Appointed Date and subject to provisions of the Scheme in relation to the mode of transfer and vesting, the Undertakings of the Transferor Companies shall, without any further act, instrument, deed, matter or thing, be transferred to and be vested in and be deemed to be transferred to and vested in the Transferee Company as a going concern so as to become as and from the Appointed Date, the estate, assets, rights, title, interest and authorities of the Transferee Company, pursuant to Section 394(2) of the Act, subject however, to all charges, liens, mortgages, if any, then affecting the same or any part thereof, provided always that the Scheme shall not operate to enlarge the scope of security for any loan, deposit or facility created by or available to the Transferor Companies which shall vest in the Transferee Company by virtue of the amalgamation and the Transferee Company shall not be obliged to create any further or additional security therefor after coming into effect of this Scheme or otherwise except in case where the required security has not been created and in such case if the terms thereof require, the Transferee Company will create the security in terms of the

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C/SCA/18494/2015 ORDER

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issue or arrangement in relation thereto. Similarly, the Transferee Company shall not be required to create any additional security over assets acquired by it under the Scheme for any loans, deposits or other financial assistance availed/to be availed by it.”

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[6] Clause 11 provides of issue and allotment of shares and clause 11(c) which is relevant for the purpose of this case reads as under:-

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“11(c) the Transferee Company shall without any further application, act, instrument or deed, issue and allot to the equity shareholders of Reclamation (other than the equity shareholders mentioned in sub-clause (a) above) whose names are recorded in the Registrar of Members of Reclamation (the “Members”), on a date (hereinafter referred to as “Record Data”) to be fixed by the Board of Directors of the Transferee Company or a committee of such Board of Directors, equity shares of Rs.2/- (Rupees Two Only) each credited as fully paid up in the ratio of 5 (Five) equity equity of the face value of Rs.2/- (Rupees Two Only) each in the Transferee Company for every 1 (One) equity shares of the face value of Rs.100/- (Rupees One Hundred Only) each held in Reclamation.”

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[7] The issue pertains to only one of the transferor namely “Reclamation Welding Limited” and it is not in dispute that as on 31.03.2008, the authorized capital of “Reclamation Welding Limited” is 2,24,286 equity shares of Rs.100/- each, out of which 1,57,000 shares were held by the petitioner company and therefore, deducting those shares 67,286/- equity shares were required to be transferred. The Collector considering the aforesaid correctly, arrived at a conclusion that the equity shares of the transferee company would be 3,36,430 shares. However, it cannot be said that the Collector was correct in considering the market price of each share at Rs.1530/-. Thereby total value of the equity shares was calculated at Rs.51,47,37,900/-. At that stage, it would be necessary for the Collector to consider that one share of the transferee company

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C/SCA/18494/2015 ORDER

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having market value of Rs.1530/- was having face value of Rs.10/- each and as provided under the scheme face value of each was Rs.2/- and therefore, the market value of share with face value of Rs.10/- when compared with the market value with face value of Rs.2/-, the market value will have to be considered by bringing down the face value of share of Rs.10/by five times. Correspondingly, the market value prevailing on the appointed day will also have to be brought down five times. Therefore, the market value of 3,36,430 shares at Rs.306/- comes to Rs.10,29,47,580/-.

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[8] The contention raised by the petitioner ought to have been addressed by the Collector as well as CCRA when the petitioner contended that “share” has been defined in Section 2(46) of the Companies Act, 1956 to mean a share in the share capital of a company, which in turn would mean that it would represent contribution of a shareholder towards the share capital of the company or an interest of a shareholder in the company measured by a sum of money. Therefore, a share of a face value of Rs.10/- would represent an interest in the company to the extent of Rs.10/- whereas a share of a face value of Rs.2/- would represent an interest in the company to the extent of Rs.2/-. Hence, a share of a face value of Rs.10/or its market value cannot be equated with a share of a face value of Rs.2/- or its market value. In other words, the market value of a share of a face value of Rs.10/- cannot be considered as being the same as the market value of a share of a face value of Rs.2/-. In the present case, on 01.04.2008, the petitioner’s shares were of a face value of Rs.10/- and were therefore being traded in the stock exchanges as shares of a face value of Rs.10/- and the market value of the shares was

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determined by market forces on this basis and with this underlying assumption. However, before the Scheme was put forth, the shares of the petitioner has been split thereby creating shares of a face value of Rs.2/- instead of Rs.10/-. The Scheme was also on the basis that the shares of the petitioner had a face value of Rs.2/- and the share exchange ratio was also determined on that basis. Hence, in order to determine the correct stamp duty payable, what was required to be determined in the first instance was the market value, as on the appointed date or as on 01.04.2008, of each share of a face value of Rs.2/-. Since, in actual fact, shares of a face value of Rs.2/- were not in existence as on the appointed date and were therefore not being traded on the Stock Exchanges as such, the correct method of determining the market value, as on the appointed date, of each share of a face value of Rs.2/would be to divide the average market value, as on that date, of each share of a face value of Rs.10/- by five since the value of such shares would fall by about five times upon splitting.

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[9] Considering the first contention of the petitioner of straightway invoking Section 39(1)(b) of the Act. Section 39 is Collector’s powers to stamp instrument’s impounded and Section 39(1)(b) provides where the Collector is of the opinion that the instrument is chargeable with duty and is not duly stamped, he is required payment of proper duty or amount required to make up the same. This Court is of the view that for invoking Section 39(1), the instrument has either to be impounded under Section 33 of the Act or the Collector has received the same under Section 37(2) of the Act. In the present case, an application has been filed by the petitioner under Section 31 of the Act for adjudication as to be proper

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stamps. A letter dated 05.11.2009 issued by the Collector was also in exercise of his powers under Section 31(2) of the Act and thereafter, there does not appear to any exercise under Section 32A of the Act which provides for determination of market value of the property which is the subject matter of such conveyance. Section 32A(3) empowers the Collector to require the party liable to pay duty, to make payment of such amount as is required to make up the difference between the amount of duty determination under the sub-section and the amount of duty already paid. However, there has to be determination under Section 32A(1) of the Act and an opportunity of hearing under Section 32A(2) of the Act. When this exercise does not appear to have undertaken by the Collector and when no order under Section 33 of the Act of examining and impounding of the document, there is no question of invoking Section 39(1) of the Act. On this issue, therefore, it would be appropriate to relegate the case back to the first authority i.e. the Collector and Additional Superintendent of Stamps, Gujarat State for considering the case of the petitioner afresh. The aforesaid order dated 17.05.2011 of the Collector and order dated 06/12.10.2015 of the CCRA are ordered to be quashed and set aside. The amount deposited for preferring the appeal shall continue as deposit to be appropriated upon final adjudication by the Collector upon the remand of this order.

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[10] With the aforesaid, the present petition stands partly allowed .

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(A.Y. KOGJE, J)

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SIDDHARTH

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Aia Engineering Limited v. State of Gujarat

Case brief

What is this about?

What did the court decide?

Aia Engineering Limited v. State of Gujarat

Case brief

What is this about?

What did the court decide?

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