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Supreme Court: The Companies Act supersedes the Stamp Act for the purpose of stamping of the Articles of Association of a company

Brief background of the case: 

In 1992, the Respondent company increased its share capital and accordingly paid the stamp duty as per Article 10 of Schedule-I of the Bombay Stamp Act, 1958 (hereinafter “Stamp Act”). 

In 1994, The Appellant State   amended Article 10 of the Bombay Stamp Act, 1958  and introduced a maximum cap of Rs.25 lakhs on the stamp duty which would be payable by a company.

Thereafter, the respondent further increased its share capital and paid a sum of Rs. 25 lakhs as stamp duty along with its Notice in Form No.5, pursuant to Section 97 of the Companies Act, 1956 (hereinafter “Companies Act”).

However, as the Respondent realised that they were not liable to pay any Stamp Duty since the maximum stamp duty payable on the Articles of Association as per the provisions of the Stamp Act, had already been paid by them in 1992, they sought a refund from the appellant No.2.

The appellant no.2, refused to refund and stated that the stamp duty is to be paid on each filing of Form No. 5 and it is not a one-time measure. Every time the authorised share capital of a company is increased, stamp duty is payable.

Aggrieved, the respondent filed a writ petition before the High Court for refund of the Stamp Duty along with interest.  

After hearing the parties, the High Court held, 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 Articles of Association, 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 herein to refund amount of the Stamp Duty along with interest to the Respondents herein.

The State appealed against this order before the Supreme Court.

Submissions before the Court: 

It was the case of the Appellants that stamp duty is liable to be paid every time a company increases its share capital, irrespective of whether the maximum amount payable under the section has already been paid. The appellants relied on Section 14A 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. 

And in any event, the maximum cap or upper ceiling of Rs. 25 lakhs was introduced after the payment of the previous Stamp Duty and as such the stamp duty paid earlier cannot be taken into consideration. 

The Respondents’ countered that as per Article 10, only the Articles of Association of a company are chargeable to Stamp Duty.  Form 5 serves a very limited purpose of communicating to the Registrar that a company has increased its share capital beyond the authorised share capital. 

The respondents submitted that increase in the share capital of a company does not materially or substantially alter the character of the Articles of Association so as to fall within Section 14A of the Stamp Act. According to the Respondents, as per Section 31 of the Companies Act, any alterations made to the Articles of Association are to be taken as if they are originally contained therein.  

The Respondents further 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.

The Courts observations and analysis:

The court opined that the Stamp Act authorises involuntary exaction of money and is in the nature of a fiscal statute, which has to be interpreted strictly.

Pertinently, the court answered 2 questions: 

  1. Whether the notice sent to the Registrar in Form No.5 is an “instrument” as defined under Section 2(l)? and 

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

The court answered the first question in negative and agreed with the stand taken by the full Bench of the Allahabad High Court and held that Form No. 5 is only filed whereby “notice” of increase in share capital or of members of a company is sent to the Registrar to record increase in share capital or members and to carry out the necessary alterations in the Articles. 

It is only the Articles of Agreement, 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.

As regards the second question, the Court pointed out that the Maharashtra Stamp (Amendment) Act, 2015 which amended the charging section for Articles of Association i.e., Article 10 of the Stamp Act fortified 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. 

The court averred that even though “increased share capital” is a part of Article 10, which column it has been placed is important:

“Column 1 of the Schedule describes the instrument on which stamp duty is to be levied whereas Column 2 prescribes the stamp duty payable.

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 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 Court rejected the contention of the Appellants that any increase in the share capital materially alters the character of the instrument, i.e., Articles of Association and as such, it requires a fresh stamp according to its altered character and needs to be charged as a separate instrument. The Respondents pointed out that the appellants have neither taken this plea while rejecting the request for the refund, nor before the High Court. 

The respondents relied upon Section 31(2) of the Companies Act, which provided that any alteration of the articles shall, subject to the provisions of this Act, be valid as if it were originally in the articles.  Any question whether an instrument has been materially altered or not is a question of fact. 

The Court observed that the present case deals with an instrument which is chargeable to Stamp Duty and has its origin in the Companies Act. It is the provisions of the Companies Act which provide the purpose and scope of the instrument. Thus, with regards to Articles of Association, the Companies Act is the special law, and the Stamp Act is the general law.

It is a settled law that in case of conflict between two laws, the general law must give way to the special law. 

The Court noted that the Legislature has specifically mentioned Articles of Association in Article 10 of Schedule-I of the Stamp Act, where stamp duty is to be charged inter alia on increase in the share capital of a company. Thus, in spite of Section 31(2) of the Companies Act stamp duty will be payable on increased share capital. This is however subject to the maximum, i.e., Rs. 25 lakhs. 

The Court disagreed with the Appellants contention that as the stamp duty was paid before the amendment, it cannot be taken into account.  While, the court agreed that the amendment does not have any retrospective effect, however since the instrument ‘Articles of Association’  is the same and the increase was initiated by the respondent after the cap was introduced, as the duty already paid on the very same instrument, it will have to be considered. 

It was not a fresh instrument which has been sought to be stamped, but only the share capital in the original document was increased, which has been specifically made chargeable by the Legislation.

The Court dismissed the appeal filed by the Appellants and upheld the order of the High Court directing the Appellants herein to refund the amount to the Respondents herein alongwith interest.  


C. A. NO.8821 OF 2011

State Of Maharashtra & Anr. 


National Organic Chemical Industries Ltd.

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