The Supreme Court (“SC”), vide its judgement dated April 5, 2024, in the case of State of Maharashtra and Another v. National Organic Chemical Industries Limited [2024 SCC OnLine SC 497], has held that stamp duty is not required to be paid on every individual increase in the authorised share capital of the company and the maximum cap as provided under the law is applicable as a one-time measure.

Facts

National Organic Chemical Industries Limited (“Respondent”) was incorporated with an initial authorised share capital of INR 36 crores. In 1992, it increased its authorised share capital to INR 600 crores and accordingly paid a stamp duty of INR 1,12,80,000 as per erstwhile Article 10 (Articles of Association of a company) of Schedule-I (Stamp duty on Instruments) of the Bombay Stamp Act, 1958 (“Stamp Act”) which provided for a stamp duty of INR 1,000 for every INR 5,00,000 or part thereof on the Articles of Association (“AoA”) of a company where the company has no authorised share capital or nominal share capital or increased share capital.

Subsequently in 1994, the State of Maharashtra (“Appellant”) amended Article 10 of the Stamp Act and introduced a maximum cap of INR 25 lakhs. Thereafter, the Respondent passed a resolution for a further increase in its authorised share capital to INR 1,200 crores and paid INR 25 lakhs as stamp duty when it filed its notice in Form No. 5 (Notice of consolidation, division, etc. or increase in share capital or increase in number of members) pursuant to Section 97 (Notice of increase of share capital or of members) of the Companies Act, 1956 (“Companies Act”). However, according to the Respondent, this was done inadvertently as it was soon realised that stamp duty was not liable to be paid by it since the maximum stamp duty of INR 25 lakhs payable on AoA as per the provisions of the Stamp Act had already been paid by them in 1992. Consequently, the Respondent wrote a letter to Deputy Superintendent of Stamps, Maharashtra (“DSS”), seeking a refund of INR 25 lakhs.

DSS rejected the request stating that whenever the authorised share capital of a company is increased, stamp duty is payable on each such occasion at the time of filing Form No. 5 and it is not a one-time measure. Aggrieved, the Respondent filed a writ petition before the Bombay High Court (“Bombay HC”) challenging the aforesaid order and seeking refund of stamp duty with interest. The Bombay HC concluded that Form No. 5 is not an instrument as defined by Section 2 (Definitions) of the Stamp Act and that stamp duty can only be charged on AoA, where the maximum duty, payable as per the amendment, has already been paid by the Respondent. The Bombay HC allowed the writ petition and directed the Appellant to refund stamp duty of INR 25 lakhs along with interest @ 6% per annum.

Aggrieved by the order of the Bombay HC, the Appellant filed an appeal in the SC.

Issues

• Whether the notice sent to the Registrar of Companies (“RoC”) in Form No. 5 is an “instrument” as defined under Section 2(l) of the Stamp Act.

• Whether the maximum cap on stamp duty is applicable every time there is an increase in the authorised share capital or it is a one-time measure.

Arguments

Contentions of the Appellant:

The Appellant contended that Form No. 5 records or purports to record the right or extension of the right of a company to increase its authorised share capital as recorded in its AoA and thus would be considered as an ‘instrument’ under the Stamp Act.

The Appellant submitted that every time a company increases its authorised share capital, it is a separate taxing event and stamp duty is liable to be paid irrespective of whether the maximum amount payable under the Stamp Act has previously been paid. The Appellant stated that increase in the authorised share capital of the Respondent, from INR 600 crores to INR 1,200 crores, materially altered the character of the AoA. It also relied on Section 14A (Alterations in instruments how to be charged) of the Stamp Act to contend that any material or substantial alteration in the character of an instrument requires a fresh stamp duty according to its altered character.

The Appellant also contended that the maximum cap or upper ceiling of INR 25 lakhs was introduced after the payment of stamp duty of INR 1,12,80,000/-. Therefore, the stamp duty paid earlier cannot be taken into consideration in any case.

Contentions of the Respondent:

The Respondent submitted that it was only the AoA of a company which is chargeable to stamp duty under Article 10 of the Stamp Act. Form No. 5, which is being contended by the Appellants to be a separate instrument, is completely alien to the Stamp Act as it serves a very limited purpose of giving notice to the RoC that a company has increased its authorised share capital beyond its current authorised share capital. It was also argued that increase in the authorised share capital of a company does not materially or substantially alter the character of the AoA so as to fall within the ambit of Section 14A of the Stamp Act. The Respondent referred to Section 31 (Alteration of articles by special resolution) of the Companies Act to submit that any alterations made to the AoA are valid and are to be taken as if originally contained therein.

The Respondent, through a catena of judgements, also submitted that fiscal statutes have to be construed strictly and in case of any ambiguity in the charging provision, the same has to be resolved against the department.

Observations of the SC

The SC observed that any increase in the authorised share capital by a company is neither required to be confirmed by the court, as per Section 94(2) (Power of limited company to alter its share capital) of the Companies Act, nor does the RoC exercise any discretion, provided that Form No. 5 is duly filed. The SC stated that filing of Form No. 5 is only a method prescribed, whereby “notice” of increase in authorised share capital of a company has to be sent to the RoC, and the RoC has to record such increase in authorised share capital and carry out the necessary alterations in the AoA.

With respect to the first issue, the SC noted that the 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 authorised share capital in its AoA. It is only the AoA which is an instrument within the meaning of Section 2(l) of the Stamp Act and accordingly has been mentioned in Article 10 of Schedule-I of the Stamp Act.

The SC observed that the Companies Act provides for the origin, purpose and scope of articles. In this regard, the Companies Act is the special law and the Stamp Act is the general law, and in case of conflict between two laws, the general law must give way to the special law.

The SC referred to the case of M. Swaminathan v. Chairman and Managing Director [1987 SCC OnLine Mad 438], where the Madras High Court had held that Section 31(2) of the Companies Act was introduced with the intention to confer validity on any alterations to the AoA as if they were originally contained therein. Therefore, any increase in the authorised share capital of the company also shall be valid as if it were originally there when the AoA were first stamped. The SC also noted that there is no concept of a company having new AoA and thus, Section 14A of the Stamp Act would not be of any help to the Appellant.

In respect of the second issue, the SC added that Article 10 of Schedule-I of the Stamp Act provides that stamp duty is to be charged on AoA, inter alia, on increase in the authorised share capital of a company. Thus, in spite of Section 31(2) of the Companies Act, stamp duty will be payable on increased authorised share capital. If there is no specific provision for charging the increase, then no stamp duty is payable for any increase in the authorised share capital of a company. The SC referred to the case of S.E. Investments Limited v. Union of India [2011 SCC OnLine Del 1867], wherein the Delhi High Court held that “in the absence of a specific provision that permits the levy of stamp duty on the increase in authorized share capital, it would not be open to the respondents to insist upon the petitioner having to pay stamp duty for the increased authorized share capital.”. The SC noted that the Stamp Act is in the nature of a fiscal statute which has to be interpreted strictly. The SC observed that the ceiling of INR 25 lakhs in Article 10 of Schedule-I of the Stamp Act is applicable on AoA and the increased authorised share capital therein, and 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 SC also made a reference to the Maharashtra Stamp (Amendment) Act, 2015 which amended Article 10 of Schedule-I of the Stamp Act and added the words “increased share capital” which meant that the cap will now be applicable on each individual increase. The SC observed that the amendment made in 1994 does not have a retrospective effect, however since the instrument ‘AoA’ remains the same, and the increase was initiated by the Respondent after the cap was introduced, the duty already paid on the AoA will be considered. It is not a fresh instrument which has been brought to be stamped, but only the increase in authorised share capital in the original document, which has been specifically made chargeable by the legislation.

Decision of the SC

The SC dismissed the appeal and upheld the order of the Bombay HC and directed the Appellant to refund INR 25 lakhs paid by the Respondent along with interest @ 6% per annum.

VA View:

Through this notable judgement, the SC has provided clarity regarding the payment of stamp duty on increases in authorised share capital. The SC has provided consistency in the calculation of stamp duty by carefully examining established legal principles and statutory provisions, and correctly ruled that the stamp duty is not required to be paid on every individual increase in the authorised share capital of the company and is subject to the maximum cap as provided under the law.

The SC further noted that the amendment made in 1994 does not have a retrospective effect, however since the instrument ‘AoA’ remains the same, and the increase in authorised share capital in this case was initiated after the cap was introduced, the duty already paid on the increased authorised share capital in the AoA will be considered.

While penning down the judgment, SC also reinforced the established legal principle that a special act prevails over a general act. The SC held that the Companies Act is the special law and the Stamp Act is the general law concerning the AoA.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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