IN THE HIGH COURT OF DELHI CA No. 466/2008 in Company Petition No. 50/2003 Judgment reserved on : 9th September, 2009 Date of decision: December, 2009 Delhi Towers Ltd. ... Petitioner through: Mr. P.V. Kapur, Sr. Adv. with Mr. Deepak Diwan, Mr. Sumit Garg and Ms. Chetna Gulati, Advocate VERSUS G.N.C.T. Of Delhi ....Respondents through: Mr. Rohit Madan and Mr. Aditya Madan, Advocates CORAM: HON'BLE MS. JUSTICE GITA MITTAL 1.Whether reporters of local papers may be allowed to see the Judgment? 2.To be referred to the Reporter or not? 3.Whether the judgment should be reported in the Digest? GITA MITTAL, J 1. By this judgment I propose to decide an application being CA No. 466/2008 filed by the Delhi Towers Ltd. The applicant is aggrieved by refusal of the authorities of the Government of NCT of Delhi to accept the scheme of amalgamation approved by this court in exercise of jurisdiction under section 394 of the Companies Act, 1956 without payment of stamp duty. 2. Factual narration 2.1 The essential facts, necessary for the adjudication are noticed hereafter. Fifteen transferor companies incorporated under the provisions of the Companies Act, 1956, engaged in the business of real estate, proposed to merge with the “Delhi Towers Limited”, also incorporated under the same statute (hereafter referred to as 1 the transferee company/applicant). These transferor companies are stated to be hundred per cent subsidiaries of Delhi Towers Limited, the transferee company and were stated to be engaged in the same line of business. 2.2 In order to reap benefits from the integration of management activities ; reduction of overall administrative costs ; synergy of operations; improvement of business prospects and economies of scale with reduction of costs in the overall interest of business, these companies proposed a scheme of amalgamation whereby the undertakings of the transferor companies, would with effect from the transfer date, be transferred to and vest in the transferee company, pursuant to the provisions of section 394 of the Companies Act, 1956. 2.3 Delhi Towers Limited (the transferee company) and Suraj Construction & Estates Pvt. Ltd. and one of the 15 transferor companies, were registered at Delhi and having their registered offices at Delhi. Consequently, these sixteen companies had filed a Company Petition No.50/2003 under sections 391 and 394 of the Companies Act, 1951 seeking approval of a proposed scheme of merger of the transferor companies with the transferee company. The proposed scheme of amalgamation was approved by the court by an order passed on 19th March, 2003 after recording the statutory compliances. 2.4 The scheme of amalgamation is stated to have become effective on 28th March, 2003 on filing of the certified copy of the 2 order with the Registrar of Companies, NCT of Delhi and Haryana. In terms of para 2.1 of the Scheme of Amalgamation, all the “undertakings” of Suraj Construction & Estates Pvt. Ltd. and other 14-the Transferor Company, without further act, deed or thing, stood transferred to and vested in or are deemed to be transferred or vested in the Transferee Company with effect from the Transfer Date/appointed date i.e. w.e.f. 15th November, 2002 and the estate and interest of the transferor companies stood deemed to have been merged/amalgamated with the Delhi Towers Ltd. Para 2.2 of the Scheme defines the term “undertakings(s) of the Transferor Companies” to include : “(i) All the properties, movable or immoveable, real and personal, corporate and incorporeal, in possession, present and contingent of whatsoever nature and all rights, powers, licenses, quota rights, trade marks, cash and bank balances, benefits and privileges of the Transferor Companies as on the Transfer date. (ii) All the liabilities, duties and obligations, including charges, liens and mortgages of the Transferor Companies as on the Transfer Date.” 2.5 A prayer of the applicant for substituting a revised schedule relating to four of the transferor companies was granted on 19th March, 2008 whereby a correction of the order dated 26th March, 2003 was allowed and the corrected revised schedules were taken on record. 2.6 The applicant contends that upon the scheme becoming 3 effective, it made an application to the Tehsildar, Vasant Vihar, Kapashera, New Delhi having jurisdiction over the properties of company, on 19th May, 2007 to effect mutation of the same in its records in favour of the transferee/applicant company. Despite repeated requests, the Tehsildar of the Government of NCT of Delhi has not effected the mutation of the properties in favour of the transferee company under the Scheme of Amalgamation. It is urged, that the stamping authorities are not accepting the scheme of amalgamation without payment of stamp duty thereon. The present application has been filed at the instance of the Delhi Towers Limited – the transferee company for this reason Rival contentions 3. Contentions of the applicant 3.1 The primary contention of the applicant-transferee company is, that upon an order being passed by the company court approving the scheme of amalgamation/merger, the assets of the transferor companies vested in the transferee company by operation of law and that nothing further is required to be done. It has been urged at great length, that a scheme which is sanctioned in exercise of power under Sections 391 to 394 of the Companies Act, 1956 is not in the nature of an order accepting a compromise under Order 23 of the Code of Civil Procedure, but having regard to the statutory scheme, is something beyond. In this behalf, reliance is placed on the provisions of Section 394(4) of the Companies Act, 1956. The 4 submission is that such scheme of amalgamation is not covered under the definition of “conveyance” under sub-section 10 of section 2 of the Indian Stamp Act, 1899 and therefore is not exigible to stamp duty. In support of these submissions, Mr. P.V. Kapoor, learned senior counsel appearing for the applicant has placed reliance on the pronouncement of the Apex Court reported at AIR 1970 SC 1051 J.K. (Bombay) Private Limited Vs. M/s New Kaiser-I-Hind Spinning & Weaving Company Limited & Ors. and the pronouncement of this court reported at (1983) 53 Comp.Cas. 926 (Delhi) In Re: Telesound India Limited (Para 12). Reliance is also placed on judicial pronouncement reported at (2004) 9 SCC 438 Hindustan Lever & Anr. vs. State of Maharashtra & Anr.; AIR 1970 SC 1041 J.K. (Bombay) Private Limited Vs. M/s New Kaiser-I-Hind Spinning & Weaving Company Limited & Ors.; AIR 2005 SC 2206 Bharat Petroleum Corporation Limited Vs. P. Kesavan & Another; (1983) 53 Company Cases 926 (Delhi) In re: Telesound India Limited; AIR 1999 SC 3335 T.K. Lathika Vs. Seth Karsandas Jamnadas; AIR 1968 SC 623 Income Tax Officer, Tuticorn vs. J.S. Devinatha Nadar etc.; (2008) 4 SCC 720 at 735 Government of Andhra Pradesh vs. P. Laxmi Devi; AIR 2005 SC 2520 Administration of the Specified Undertaking of the Unit Trust of India Vs. Garware Polyster Limited; 112 (2004) DLT 627 Hotline Hol Celdings Private Limited & Ors.; 2001 (1) Bom CR 261 Sadanand S. Varde & Ors. Vs. State of Maharashtra & Ors.; AIR 1956 Andhra Pradesh 161 In Reg. Putta Ranganayakullu & Ors.; AIR 5 1955 SC 25 Edward Mills Co. Ltd., Beawar & Ors. vs. State of Ajmer & Anr.; AIR 1960 SC 1312 M.G. Desai & Anr. vs. State of Bombay; (1948) 18 Company Cases (1) (Cal) entitled Sailendra Kumar Ray Vs. Bank of Calcutta Limited; (2006) 130 ComCas 510 (Cal) Madhu Intra Limited & Anr. Vs. Registrar of Companies & Ors. 3.2 A further submission is, that the legislative intent is apparent from the fact that Maharashtra, Gujarat, Karnataka, Rajasthan, Chattisgarh, Madhya Pradesh and Andhra Pradesh are the only seven states which have included the order approving a scheme of amalgamation passed under section 394 of the Companies Act, 1956 in the definition of “conveyance”. 3.3 It is pointed out, that under sub section 15 of Section 2 of the Indian Stamp Act, 1899, the legislature has specifically included a final order effecting a partition passed by the revenue authority or by the civil court and an award passed by the civil court directing partition under the definition of “instrument of partition”. However, there is no mention of transfer of rights under a scheme of amalgamation propounded and approved under the provisions of Sections 391 to 394 of the Companies Act, 1956. 3.4 The primary submission on behalf of the petitioner is that the legislation has not included a transfer by an approved scheme of amalgamation under section 391-394 of the Companies Act under the definition of either 'conveyance' or 'instrument' unlike the specific amendments including the same by some other states. The legislative intent therefore is to exclude them from the purview of 6 stamping. The contention of the applicant is that such an order has not been included in the definition of “Conveyance” in the Indian Stamp Act(applicable to the state of Delhi), and therefore is not chargeable to stamp duty for this reason as well. 3.5 It is urged on behalf of the petitioner, that the provisions of the Bombay Stamp Act have been amended to incorporate clause (iv) in its sub-section (g) of Section 2 whereby an approved scheme of amalgamation have been covered under the definition of conveyance. Consequently, the pronouncements relied upon by the respondents of the Supreme Court in Hindustan Lever & Anr. vs. The State of Maharashtra & Anr. and Ruby Sales & Services Pvt. Ltd. concerned with construing the provisions of the 'Bombay Act' can not even guide, let alone bind, adjudication in the present case. 3.6 The petitioner also places reliance on two notifications dated 16th January, 1937 and 25th December, 1937 to contend that an approved scheme of amalgamation would stand exempted from levy of stamp duty because of the remission granted by both these notifications. 4. Respondents contentions 4.1 It is contended that no amendment to the statutory provision is necessary and that the transfer of property upon approval of a scheme of amalgamation is covered under the existing definition of conveyance under the Indian Stamp Act and chargeable to stamp duty. 7 4.2 The Government of NCT of Delhi has filed a reply on record contending that the mutation proceedings cannot be proceeded with for the reason that the applicable stamp duty on the scheme of amalgamation has not yet been deposited. It has further been submitted that in similar cases, appropriate stamp duty has been charged from the incumbents seeking such transfer in the revenue records and that mutation can be effected only upon the applicant depositing stamp duty in accordance with law. 4.3 Mr. Aditya Madan, learned counsel for the respondents has placed reliance on the pronouncements reported at (2004) 9 SCC 438 Hindustan Lever & Anr. vs. State of Maharashtra & Anr.; 1992 (1) Bom.C.R. 568 : MANU/MH/04531992 State of Maharashtra vs. M.S. Builders (Pvt.) Ltd. & Ors.; AIR 1997 Bom 7 Li Taka Pharmaceuticals Ltd. v. State of Maharashtra & Ors.; AIR 1973 Mad. 1 : MANU/TN/0308/1973 entitled the Chief Controlling Revenue Authority, Board of Revenue, Madras vs. R. Thirthalu; C.I.T., A.P. vs. Taj Mahal Hotel Secunderabad reported at (1971) 3 SCC 550: AIR 1972 SC 168 in support of his contentions. 4.4 An objection based on legislative competence of the Parliament to legislate on the issue is taken. It is contended that in view of constitutional scheme of separation of powers, only the legislative assembly of Delhi is competent to legislate on the issue. For this reason the notification of 1937 have no application. 5. Statutory provisions 5.1 So far as the legislation in Delhi is concerned, there is no 8 special enactment relating to stamp duty. The Indian Stamp Act, 1899 continues to hold the field. 5.2 “Conveyance” is statutorily defined under sub-section 10 of section 2 of the Indian Stamp Duty Act as follows:- “2(10)“conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule I .” The expression “instrument” is defined under sub section 14 of Section 2 of the Indian Stamp Act, 1899 in the following manner:- “instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded” 5.3 It is noteworthy that the definition of 'conveyance' under section 2(g) of the Bombay Stamp Act came to be amended by a Maharashtra Act No. 27/1985 which was brought into force on 10th December, 1985. 5.4 Inasmuch as the several judicial pronouncements relied upon by both parties are in context of the statutory position under the Bombay Stamp Act, the unamended definition of the expression 'conveyance' as against the amended definition thereunder deserves to be adverted to and reads as follows:- 9 Unamended provision Amended provision "2(g) "Conveyance" includes a conveyance on sale and every instrument by which property, whether moveable or immoveable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule 1;" "(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, in respect of amalgamation of companies; by which property, whether movable or immovable, or any estate or interest in any property is transferred to, or vested in, any person, inter vivos, and which is not otherwise specifically provided for by Schedule I." Section 2(g)(iv) of the Bombay Stamp Act thus specifically includes every order made under section 394 of the Companies Act, 1956 in the definition of conveyance under section 2(g) which thereupon is chargeable to stamp duty. 6. Nature and impact of an order approving a proposed scheme of amalgamation under section 394 of the Companies Act 6.1 The first question which arises for consideration before this court, is as to whether an order passed by the company court in exercise of jurisdiction under Section 394 of the Companies Act, 1956 approving a scheme of amalgamation proposed by the parties, is 10 covered under the definition of “conveyance” under sub section 10 of section 2 of the Indian Stamp Act, 1899 and therefore exigible to stamp duty. 6.2 In order to answer this question, a fundamental issue has been raised, that an order sanctioning a proposed scheme of amalgamation or arrangement under section 394 of the Companies Act is not a conveyance or a transfer of property by an act of parties and that such an order of a sanction of the scheme results in the transfer of the property by operation of law. Mr. P.V. Kapur, learned senior counsel for the petitioner, submits that therefore such scheme would not be chargeable to stamp duty under the provisions of the Indian Stamp Act, 1899. It is therefore first necessary to examine the nature and impact of an order passed under section 394 of the Companies Act. 6.3 Sanction of the scheme of amalgamation is effected under Section 394 of the Companies Act, 1956 which provides as follows:- “394. Provisions for facilitating reconstruction and amalgamation of companies (1) Where an application is made to the [Tribunal] 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 [Tribunal]- (a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and (b) that under the scheme the whole or any part of the undertaking, property or liabilities of any 11 company concerned in the scheme (in this section referred to as a "transferor company") is to be transferred to another company (in this section referred to as "the transferee company"); the [Tribunal] may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or 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 for any person; (iii) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; (iv) the dissolution, without winding up, of any transferor company; (v) the provision to be made for any persons who, within such time and in such manner as the Court directs dissent from the compromise or arrangement; and (vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out: (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order; that property shall be transferred 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 12 Registrar for registration. If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to [five hundred rupees]. (4) In this section- (a) "property" includes property rights and powers of every description; and "liabilities" includes duties of every description; and (b) "Transferee company" does not include any company other than a company within the meaning of this Act; but "transferor company" includes any body corporate, whether a company within the meaning of this Act or not.” 6.4 The nature of the proceedings for approval of a scheme of amalgamation under the Companies Act, 1956 are best described in a judgment of this court reported at (1983) 53 Company Cases 926 (Delhi) In re: Telesound India Limited in the following terms:- “12. Amalgamation of a company with another or an amalgamation of two companies to form a third is brought about by two parallel schemes of arrangements entered into between one company and its members and the other company and its members and the two separate arrangements bind all the members of the companies and the companies when sanctioned by the court. Amalgamation is, therefore, an absorption of one company into another or merger of both to form a third, which is not a mere act of the two companies or their members but is brought about by virtue of a statutory instrument and to that extent has statutory genesis and character, and to that extent it is distinguishable from a mere bilateral arrangement to merge or join in a common endeavor, an undertaking or enterprise [J. K. (Bombay) P. Ltd. v. New Kaiser-i-Hind Spg. & Wvg. Co. Ltd. [1970] 40 Comp Case 689 (SC)]. Once the court sanctions the amalgamation, the amalgamation is made effective and binding by 13 virtue of statutory power, inter alia, by the transferor to the transferee-company of the whole or any part of the undertaking, property rights and liabilities of the transferor-company by virtue of the provisions of s. 394 of the Act, which are intended to facilitate the process of amalgamation : Sailendra Kumar Ray v. Bank of Calcutta Ltd. [1948] 18 Comp Case 1 (Cal). The expression "property" and "liabilities", which can be transferred on amalgamation, under s. 394(1) have been defined in very wide terms by sub-s. (4)(a) of that section, so as to include "rights and powers of every description" and "duties of every description" respectively. The expression "property" would, therefore, be wide enough to include rights under a contract, including a contract of tenancy. These are co-extensive with the property and right which the transferor- company has in relation to its assets, but could not be wider than what the transferor-company was entitled to enjoy. The rights, property, as indeed the liabilities of the transferor-company, become the rights, property and liabilities of the transferee-company by virtue of the order of vesting made by the court consequent on amalgamation. It is neither an assignment of right or property, nor an assignment of property by the company. It is the transfer of rights, property and liabilities along with the company itself and it is only as a result of confusion of thought that it could be described as an assignment by the company to another person, which is independent and distinct from the company. Such a notion ignores the peculiar position of amalgamation in company law and its true legal incident. It is for historical reasons that the device of amalgamation was built into the company law for facilitating the merger of companies, inter alia, with a view to help restoration of sick units to health, better, more effective and economical management of the corporate sector to ensure continued production, increased employment avenues and generation of revenues. Section 72A of the I.T. Act is one of the incentives for this kind of absorption of one company into another. On amalgamation the transferor-company merges into the transferee- company shedding its corporate shell, but for all purposes remaining alive and thriving as part of 14 the larger whole. In that sense the transferor- company does not die either on amalgamation or on dissolution without winding-up under sub-s. (1) of s. 394. It is not wound up because it has merged into another. Winding-up is unnecessary. It is dissolved not because it has died, or ceased to exist, but because for all practical purposes, it has merged into another forming part of one corporate shell. The dissolution is the death of its independent corporate shell, because a company cannot have two shells. It is, therefore, dissolved because the independent shell or corporate name is superfluous. The company in its essence means its members, who compose it, the assets, property and rights that it had, its liabilities, its undertaking, business or other activity. It is not synonymous with the shell or name. On amalgamation and consequential dissolution all these attributes continue to live as part of a larger entity. The only part that dies is the shell and the name. It is unlike the death of a natural person and yet in a larger and deeper sense the same. It is unlike it, because a natural person, as ordinarily understood, does not survive the death in any physical form. The transferor-company, however, does survive, in that there is a continuity even after dissolution of its members, its assets, undertaking, etc. The estate of a natural person continues in the hands of the successor for a limited period. In a larger and a deeper sense even a natural person survives his physical death in the continuation of a being, which is supposed to merge in the wider cosmic whole. That, however, is an area of study of life after death, or what is sometimes described as life after life, where the process is of a different dimension and defies description and is, in any event, too deep and wide for the narrow compass of this judgment. The analogy, therefore, between the death of a natural person and dissolution without winding-up is inappropriate.” 6.5 These observations were relied on by this court in a recent judgment reported at 112 (2004) DLT 627 Hotline Hol Celdings Private Limited & Ors. wherein it was held as follows:- 15 "Amalgamation is, therefore, an absorption of one company into another or merger of both to form a third, which is not a mere act of the two companies or their members