Bombay Stamp Act & Company Shares | Maximum Cap Applicable As 'One Time Measure', Not On Every Increase In Share Capital : Supreme Court

Observing that no stamp duty is to be paid on every individual increase in the share capital of the company, the Supreme Court held that if the 'Articles of Association' remained the same and the stamp duty was already paid on the increase in the share capital of the company, then the duty paid on the same very instrument will have to be considered for every subsequent individual increase in the share capital of the company. 

“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 effect of adding “increased share capital” is that stamp duty will be charged on subsequent increases in the authorised share capital, subject to the maximum cap. In other words, the ceiling of Rs. 25 lakhs in Column 2 is applicable on Articles of Association and the increased share capital therein, not on every increase individually. In case stamp duty equivalent to or more than the cap has already been paid, no further stamp duty can be levied.”, the Bench comprising Justices Sudhanshu Dhulia and PB Varale said.

Affirming the decision of the High Court, the Judgment authored by Justice Sudhanshu Dhulia clarified that if there is no specific provision for charging the stamp duty on the individual increase of the company's share capital, then no stamp duty is payable for any increase in the share capital of a company.

Background

In the present case, the appellant/Maharashtra State Govt. asked the respondent/company registered under the old Companies Act to again pay the stamp duty on the subsequent increase in the share capital of the company. The appellant reasoned that the notice sent by the company informing the Registrar of Companies about the subsequent increase in its share capital amounts to 'instruments' within the meaning of Section 2(l) of the Stamp Act, thus attracting the stamp duty.

On the very first increase in the share capital to 600 crores in 1992, the respondent company paid Rs. Rs.1,12,80,000/- as a stamp duty to the government under Article 10 of the Bombay Stamp Act, 1958. However, after an amendment in Article 10 of the Act, the maximum cap of the stamp duty was fixed at Rs. 25 Lakhs.

On a subsequent increase in its share capital to Rs. 1,200 crores, a stamp duty of 25 Lakhs was paid by the company to the government. However, it was soon realized that stamp duty was not liable to be paid by them since the maximum stamp duty which was Rs. 25 lakhs payable on Articles of Association as per the provisions of the Stamp Act, had already been paid by them in 1992. Consequently, the respondent wrote a letter to appellant No. 2/Superintendent of Stamp seeking a refund of the payment of Stamp Duty of Rs. 25 lakhs.

The request of the company was turned down by the government stating that the payment of the stamp duty on the increase in share capital is not a one-time measure but stamp duty is payable on each such occasion at the time of filing of Form No. 5 as per Section 97 of the Companies Act, 1956.

The High Court held in favor of the respondent/company directing the appellant/state to refund the stamp duty amounting to Rs. 25 Lakhs to the company. Following this, the state government approached the Supreme Court.

Supreme Court's Observation

At the outset, the court held that the respondent/company wouldn't be liable to pay the stamp duty on every occasion of increased share capital of the company.

“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 court observed.

On the point whether the cap of Rs. 25 Lakhs on the payment of the stamp duty would apply to each individual increase in the share capital, the court held that “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.”

The court held that the sending of notice in Form No. 5 as per Section 97 of the Companies Act can't be categorized as 'instruments' as it is a mandatory requirement adhered to by the company providing information to the Registrar about the increased share capital.

The court clarified that the notice sent in Form-5 intimating the Registrar about the increased share capital is not chargeable with stamp duty under the Stamp Act, 1958.

“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.”, the court said.

Conclusion

“We also do not agree with the appellant that stamp duty paid before the amendment cannot be taken into account. 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. 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.”, the court concluded while dismissing the appeal.

Accordingly, the appellants were directed to refund Rs. 25 lakhs paid by the respondent along with interest @ 6% per annum within 6 weeks from the date of Judgment.

Counsel For Appellant(s) Mr. Aniruddha Joshi, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Bharat Bagla, Adv. Mr. Sourav Singh, Adv. Mr. Aditya Krishna, Adv. Ms. Preet S. Phanse, Adv. Mr. Adarsh Dubey, Adv.

Counsel For Respondent(s) Ms. Madhavi Divan, Sr. Adv. Mr. Aayush Agarwala, Adv. Mr. Anuj P. Agarwala, Adv. Mrs. Bhumika Sharma, Adv. M/S. Pba Legal, AOR

Case Title: STATE OF MAHARASHTRA & ANR. Versus NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD.

Citation : 2024 LiveLaw (SC) 285

Click Here To Read/Download The Judgment