Notice Sent By Company To Registrar In Form No. 5 Is Not An "Instrument" As Defined In Bombay Stamp Act: SC

The Supreme Court held that a notice sent by a Company to the Registrar in Form No.5 is not an “instrument” as defined under Section 2(l) of the Bombay Stamp Act, 1958.

The Court dismissed a civil appeal filed by the Maharashtra State against National Organic Chemical Industries Ltd., challenging the order of the Bombay High Court by which it allowed the writ petition of the said company and set aside the order of the Deputy Superintendent of Stamps.

The two-Judge Bench comprising Justice Sudhanshu Dhulia and Justice Prasanna B. Varale held, "Filing of Form No. 5 is only a method prescribed, whereby “notice” of increase in share capital or of members of a company has to be sent to the Registrar, within 30 days of passing of such resolution. The Registrar then has to record such increase in share capital or members, and carry out the necessary alterations in the articles. Stamp Duty is affixed on Form No. 5 as a matter of practical convenience because a company itself cannot carry out the alterations and record the increase in share capital in its Articles of Association. It is only the articles which are an instrument within the meaning of Section 2(l) of the Stamp Act and accordingly have been mentioned in Article 10 of Schedule-I of the Stamp Act."

Advocate Aniruddha Joshi appeared for the appellants while Senior Advocate Madhavi Divan appeared for the respondent.

Factual Background -

The respondent company was incorporated with an initial share capital of Rs. 36 crores and inn 1992, it increased its share capital to Rs. 600 crores and accordingly paid a stamp duty of Rs.1,12,80,000/- as per Article 10 of Schedule-I of the Bombay Stamp Act, 1958. The State/appellant amended Article 10 and introduced a maximum cap of Rs. 25 lakhs on stamp duty which would be payable by a company. Subsequently, the respondent passed a resolution for a further increase in its share capital to Rs. 1,200 crores and paid Rs. 25 lakhs as stamp duty when it filed its Notice in Form No.5, pursuant to Section 97 of the Companies Act, 1956. However, according to the respondent, this was done inadvertently as it was soon realised that stamp duty was not liable to be paid by them since the maximum stamp duty which was of Rs. 25 lakhs payable on Articles of Association (AOA) as per the provisions of the Stamp Act, had already been paid by them in 1992.

Consequently, the respondent wrote a letter seeking a refund of the payment of Stamp Duty of Rs. 25 lakhs but this request was turned down vide an order where it was stated that whenever the authorised share capital of a company is increased, stamp duty is payable on each such occasion at the time of filing of Form No. 5 and it is not a one-time measure. Aggrieved, the respondent filed a writ petition before the High Court challenging the aforesaid order and seeking refund of Stamp Duty of Rs. 25 lakhs with interest, paid by them inadvertently. The High Court concluded that Form No.5 is not an instrument as defined by Section 2 of the Stamp Act and that stamp duty can only be charged on AOA, where the maximum duty (Rs.25 Lakhs), payable as per the amendment has already been paid by the respondent. The High Court allowed the writ petition and directed the appellants to refund Stamp Duty of Rs.25 lakhs along with interest @ 6% per annum.

The Supreme Court after hearing the contentions of the counsel said, “Column 1 has to be construed as describing three situations or contingencies relating to Articles of Association, i.e., “where the company has no share capital or nominal share capital or increased share capital”. In cases where a company has no share capital it would have to pay no stamp duty and if a company is submitting its articles for the first time, stamp duty would be calculated as per the nominal share capital.”

The Court noted that the fact that the maximum cap of Rs. 25 lakhs would be applicable as a one-time measure and not on each subsequent increase in the share capital of a company is fortified directly by the Maharashtra Stamp (Amendment) Act, 2015 which amended the charging section for Articles of Association i.e., Article 10 of the Stamp Act.

“The effect of the 2015 amendment is that “increased share capital” has also been added in Column 2 and proper stamp duty shall be calculated, for either of the three situations, as per the share capital or increased share capital. This means that the cap will now be applicable on each individual increase. … We also do not agree with the appellant that stamp duty paid before the amendment cannot be taken into account”, it observed.

The Court added that it is true that the amendment does not have retrospective effect, however since the instrument ‘Articles of Association’ remains the same and the increase was initiated by the respondent after the cap was introduced, the duty already paid on the same very instrument will have to be considered and that it is not a fresh instrument which has been brought to be stamped, but only the increase in share capital in the original document, which has been specifically made chargeable by the Legislation.

Accordingly, the High Court dismissed the appeal, upheld the order of the High Court, and directed the appellants to refund Rs. 25 lakhs.

Cause Title- State of Maharashtra & Anr. v. National Organic Chemical Industries Ltd. (Neutral Citation: 2024 INSC 270)

Appearance:

Appellants: Advocates Aniruddha Joshi, Siddharth Dharmadhikari, AOR Aaditya Aniruddha Pande, Advocates Bharat Bagla, Sourav Singh, Aditya Krishna, Preet S. Phanse, and Adarsh Dubey.

Respondent: Senior Advocate Madhavi Divan, Advocates Aayush Agarwala, Anuj P. Agarwala, Bhumika Sharma, and AOR M/S. Pba Legal.

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