Andhra HC (Pre-Telangana)
M/S Gvk Power And Infrastructure ... vs The District Registrar Of Assurances, ... on 6 July, 2017
Author: A.Ramalingeswara Rao
Bench: A.Ramalingeswara Rao
THE HONBLE SRI JUSTICE A.RAMALINGESWARA RAO
Writ Petition No. 5399 of 2008
06-07-2017
M/s GVK Power and Infrastructure Limited, Rep. by its Director Mr. S. Bhupal and 2 others Petitioners
The District Registrar of Assurances, Red Hills, Hyderabad and 2 others ---Respondents
Counsel for the Petitioners:Sri L. Venkateshwar Rao
Counsel for the Respondents: GP for Revenue
<Gist :
>Head Note :
? Cases referred:
1. (1963) II Comp.L.J 61
HONBLE SRI JUSTICE A. RAMALINGESWARA RAO
Writ Petition No. 5399 of 2008
Order:
The second petitioner company filed a Company Petition No.64 of
2007 under Sections 391 and 394 of the Companies Act, 1956, seeking
sanction and confirmation of the scheme of arrangement as consented by
the shareholders of the first petitioner company. This Court, by order
dated 20.07.2007, sanctioned the scheme of arrangement. It is also
stated that the scheme of arrangement was sanctioned by the High Court
of Delhi in Company Petition No.123 of 2007 dated 03.09.2007. While
so, the first respondent issued a notice dated 02.11.2007 to the first
petitioner company stating that he is liable to pay a stamp duty of
Rs.1,47,28,890/- at 2% of the value of shares involved in the scheme of
arrangement under Article 20(d) of Schedule I-A of the Indian Stamp Act.
The first petitioner submitted a reply on 27.11.2007 stating that the
scheme of arrangement does not involve any transfer of shares, but only
an exchange of shares. The first respondent vide his letter dated
17.12.2007 informed the petitioners that the explanation submitted by
them on 24.11.2007 is not acceptable and they were asked to pay
requisite stamp duty on or before 31.12.2007. A remainder was issued on
08.01.2008. Again a reply was submitted by the petitioners. In spite of
the same, when the first respondent issued a notice on 04.02.2008, the
present Writ Petition was filed challenging the same.
Learned counsel for the petitioners submits that the scheme of
arrangement does not come within the definition of amalgamation or
merger as there was no fresh allotment of shares consequent to the
merger of company, and the two companies remained as it is. He further
submitted that there are different situations contemplated under Sections
391 and 394 of the Companies Act, but the legislature wanted to collect
stamp duty in respect of the market value involved in the transfer of
shares covered by amalgamation and merger under Section 394 of the
Companies Act.
Learned Government Pleader appearing on behalf of learned
Advocate-General submitted that the value of the shares involved in
exchange can be independently subjected to stamp duty without there
being a case of amalgamation or merger.
The rationale and purpose of the scheme reads as follows:
2.1 GVKIL is a subsidiary of GVKPIL. As on December
31, 2006 GVKPIL owns 53.96% of the paid up share capital of
GVKIL. The balance paid up shareholding of GVKIL as on
December 31, 2006 is held as follows:
Name of the Shareholder %
Vintage Investments Limited, Mauritius 25.00
Golden Palm Limited, Mauritius 4.75
International Finance Corporation, Washington 10.00
Transmission Corporation of Andhra Pradesh
Limited (AP Transco) 3.22
Public Shareholders 3.07
Total: 46.04
2.2 For rationalizing the administrative structure of
GVKPILs group businesses and as an investor friendly gesture
GVKPIL is desirous of granting greater liquidity to the shareholders
of GVKIL whilst protecting their interests. To give effect to the
aforesaid objectives, this Scheme (as defined below) provides for
the transfer to GVKPIL of all equity shares in GVKIL held by the
shareholders of GVKIL other than GVKPIL, i.e., the other
shareholders (as defined below). In consideration of the aforesaid
transfer of equity shares in GVKIL to GVKPIL, the other
shareholders shall be entitled to receive equity shares in GVKPIL.
2.3 A reorganisation of the ownership structure of the two
group companies, pursuant to the aforesaid share transfers, by
making GVKIL a wholly-owned subsidiary of GVKPIL, would deliver
substantial benefits to GVKPIL, GVKIL and its shareholders by
aligning the interests of all shareholders in al single listed entity, will
eliminate areas of potential conflicts of interest and concerns about
related party transactions.
The consideration for transfer and vesting reads as follows.
In consideration of the transfer and vesting in GVKPIL of
the GVKIL shares in terms of Clause 6.1 hereinabove, on the share
issuance date to be fixed by the Board of Directors of GVKPIL or a
committee thereof, GVKPIL shall without any further application,
act or deed, issue and allot to the other Shareholders of GVKIL in
accordance with the provisions of Clause 8 hereof, equity shares in
GVKPIL in the ratio of 3 (three) equity shares in GVKPIL of Rs.10/-
each credited as fully paid up for every 40 (forty) equity shares of
Rs.10/- each credited as fully paid up held by such other
shareholder in GVKIL as on the record date.
Thereafter, the procedure for issue of shares to other shareholders is
mentioned. This Court, while sanctioning the said scheme of
arrangement, observed as follows.
On the question whether a meeting of the creditors of the
company, or any class of them, was required to be called for, Sri
V.S. Raju, learned counsel for the petitioner, would submit that the
present scheme of arrangement is between the transferor Company
and its members, that unlike a scheme of amalgamation where the
entire undertaking is transferred the present case does not involve
transfer of the undertaking of the transferor Company, that the
consequences, of the scheme of arrangement being sanctioned by
this Court, would only be that the transferee company and its
nominees would hold the entire issued, subscribed and paid up
capital of the transferor company and the shareholders of the
Transferor Company, to the extent of 46.04% of the paid up
capital, would cease to be members of the transferor company and
would, henceforth, be the members of the transferee company.
Learned counsel would submit that, since the transferor company
continues to exist, and as the rights of the creditors of the
transferor company is not affected in any manner, it was wholly
unnecessary for a meeting of the creditors of the transferor
company to be called for. I find considerable force in this
submission of the learned counsel. Firstly, the scheme of
arrangement, in the present case, is under Section 391(1)(b)
between the transferor company and its members. Leaving the
question, whether even in case of such a compromise a meeting of
the creditors is required to be called for when their rights may be
affected, open to be examined in an appropriate case, the facts of
the present case would justify not calling for a meeting of the
creditors of the company since, admittedly, they continue to remain
the creditors of the transferor company, the entire undertaking is
retained by the transferor company, none of the assets of the
transferor company are being transferred and all that will happen,
on approval of the scheme by this Court, is that a section of the
members of the transferor company will be allotted shares in the
transferee company in exchange for the shares held by them in the
transferor company.
A reading of the above scheme makes it clear that 46.04%
shareholders of GVKIL are allotted shares of GVKPIL in exchange for the
shares held by them in GVKIL. Thus, some shareholders of GVKIL become
shareholders of GVKPIL. There will be consequential adjustments in the
capital of the respective companies.
In the light of the above, whether the case falls under Article 20(d)
of Schedule I-A of the Indian Stamp Act should be seen.
Article 20(d) of Schedule I-A of the Indian Stamp Act reads as
follows:
20. Conveyance as defined
by Section 2(10) not being a sale,
charged under (No.47-A) or a
transfer charged or exempted under
(No.53).
(d) conveyance, so far as it
relates to amalgamation or merger
of companies under the order of
High Court under Section 394 of the
Companies Act, 1956. (Central Act 1
of 1956).
Two rupees for every one
hundred rupees or part thereof
of the market value of the
property, which is the subject
matter of such conveyance.
Explanation: For the purpose of the Clause (d) the market value of
the property shall be deemed to be the amount of total value of the
shares issued or allotted by the transferee company, either in exchange or
otherwise, and the amount of consideration, if any, paid for such
amalgamation or merger.
Provided that where an agreement to sell an immovable property is
stamped with the ad valorem stamp required for a conveyance on sale
under Article 47-A and a conveyance on sale in pursuance of such
agreement is subsequently executed, the duty on such conveyance on sale
shall be the duty payable under the article less the duty already paid under
Article 47-A subject to a minimum of five rupees.
It deals with the cases of amalgamation and merger only. The other
cases of compromise or arrangement coming under Section 394 of the
Companies Act does not fall within Article 20(d) attracting stamp duty
and in order to clarify the situation it is necessary to extract Section
394(1) of the Companies Act, which reads as follows.
394. Provisions for facilitating reconstruction and
amalgamation of companies. (1) Where an application is made
to the Court 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
Court-
(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 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 Court 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:
Provided that no compromise or arrangement proposed for
the purposes of, or in connection with, a scheme for the
amalgamation of a company, which is being wound up, with any
other company or companies, shall be sanctioned by the Court
unless the Court has received a report from the Company Law
Board, or the Registrar that the affairs of the company have not
been conducted in a manner prejudicial to the interests of its
members or to public interest: Provided further that no order for
the dissolution of any transferor company under clause (iv) shall be
made by the Court unless the Official Liquidator has, on scrutiny of
the books and papers of the company, made a report to the Court
that the affairs of the company have not been conducted in a
manner prejudicial to the interests of its members or to public
interest.
Thus, it is clear that the cases of amalgamation and merger are
different from the cases of arrangement. This issue came up for
consideration before the Division Bench of this Court in S.S. Somayajulu
v. Hope Prudhomme and Company Limited, Madras and their
Lordships were considering a similar provision occurring in Section 153-A
of the Indian Companies Act and observed as follows.
We shall now consider the liability of the first
defendant company. Section 153-A of the Indian Companies
Act, 1913, added by Section 83 of the Act (XXII of 1936),
makes provision for facilitating arrangements and compromise.
According to that section, under a scheme for the amalgamation
of any two or more companies, the whole or any part of the
undertaking or the property or liabilities of any company
concerned in the scheme referred to as the transferor
company can be transferred to another company called the
transferee company with the sanction of the Court. By this
method, one company in effect absorbs the other. The word
amalgamation has no definite legal meaning. It contemplates
a state of things under which two companies are so joined as to
form a third entity, or one company is absorbed into and
blended with another company. Amalgamation does not
involve the formation of a new company to carry on the
business of the old company.
In Corporation of the Royal Exchange Assurance
v. Walker (L.R.(1935) 1 Ch.D.567), a scheme of arrangement
was promoted by the directors of six electric lighting companies
under which their capital or at least 90 per cent., thereof was to
be acquired by a holding company would issue shares at par
value to the stockholders in exchange for their holdings. The
objects of the holding company were to control the policy of
the constituent companies to effect economies in
administration, and to carry on other business which might
advantageously be combined with that of the companies but
was beyond their powers. No transfer of the undertakings of
the constituent companies to the holding company was either
effected or intended, but the pooling of profits was suggested
as a future possibility. It was held by Justice Eve, which
decision was confirmed by the Court of Appeal, that the scheme
was not an amalgamation of the company with another
company within the Trustee Act, 1925, section 10, sub-section
(3)(c), in which the trustees of a settlement comprising a sum
of stock of one of the observations of Buckley, J., in In re
South African Supply and Cold Storage Co. (L.R.(1904) 2
Ch.D. 268, 287), to the following effect:
Now what is an amalgamation? An amalgamation
involves, I think, a different idea. There you must have the
rolling, somehow or other, of two concerns into one. You
must weld two things together and arrive at an amalgam-a
blending of two undertakings. It does not necessarily follow
that the whole of the two undertakings should pass-
substantially they must pass nor need all the corporators
be parties, although substantially all must be parties. The
difference between reconstruction and amalgamation is that,
in the latter is involved the blending of two concerns one
with the other but not merely the continuance of one
concern.
Exhibit B-19 recites that the assets and liabilities on
that day continue to remain those of D-2 company and not of
D-1 company. Having regard to the provisions of section 153-A
of the Indian Companies Act, and the principles aforesaid, and
the contents of Exhibit B-19, we have no doubt that in the
instant case there has been no amalgamation of the first and
second defendant companies.
In view of the clear language employed in Article 20(d) of Schedule
I-A of the Indian Stamp Act and Section 394(1) of the Companies Act,
this Court has no hesitation to hold that the impugned notice of demand
dated 04.02.2008 is beyond the power of the first respondent and is
accordingly set aside.
The Writ Petition is, accordingly, allowed. There shall be no order
as to costs.
As a sequel thereto, the miscellaneous petitions pending in this
Writ Petition, if any, shall stand closed.
____________________________
A.RAMALINGESWARA RAO, J
Date: 06.07.2017