Supreme Court - Daily Orders
Alembic Pharmaceuticals Ltd vs Chief Controlling Revenue Authority on 5 April, 2017
Author: R.K. Agrawal
Bench: R.K. Agrawal, Mohan M. Shantanagoudar
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REVISED
ITEM NO.11 COURT NO.9 SECTION IX
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Petition for Special Leave to Appeal (C) No.6174/2014
(Arising out of impugned final judgment and order dated 26/11/2013
in STR No.1/2012 passed by the High Court Of Gujarat At Ahmedabad)
ALEMBIC PHARMACEUTICALS LTD Petitioner(s)
VERSUS
CHIEF CONTROLLING REVENUE AUTHORITY Respondent(s)
(with interim relief and office report)
(For final disposal)
Date : 05/04/2017 This petition was called on for hearing today.
CORAM :
HON'BLE MR. JUSTICE R.K. AGRAWAL
HON'BLE MR. JUSTICE MOHAN M. SHANTANAGOUDAR
For Petitioner(s) Mr. Shekhar Naphade, Sr. Adv.
Mr. Saurav Agrawal, Adv.
Mr. Ashish Aggarwal, Adv.
Ms. Gurkamal Hora, Adv.
Ms. Tatini Basu,Adv.
For Respondent(s) Mr. Preetesh Kapur, Adv.
Ms. Hemantika Wahi,Adv.
Ms. Jesal Wahi, Adv.
UPON hearing the counsel the Court made the following
O R D E R
Leave granted.
The civil appeal is dismissed in terms of the signed order. Pending application, if any, stands disposed of. Signature Not Verified Digitally signed by (ASHA SUNDRIYAL) (CHANDER BALA) ASHA SUNDRIYAL Date: 2018.07.14
11:36:19 IST COURT MASTER COURT MASTER Reason: (Signed order is placed on the file.) 2 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4909 OF 2018 (Arising out of Special Leave Petition (C) NO. 6174 OF 2014) Alembic Pharmaceuticals Ltd. .... Petitioner(s) Versus Chief Controlling Revenue Authority .... Respondent(s) ORDER R.K. Agrawal, J.
Leave granted.
1) This instant petition has been preferred under Article 136 of the Constitution of India against the final judgment and order dated 26.11.2013 passed by the High Court of Gujarat at Ahmedabad in Stamp Reference No. 1 of 2012 whereby the High Court disposed off the Reference made by the Chief Controlling Revenue Authority, Gandhinagar by upholding the order dated 20.05.2011 passed by the Chief Controlling Revenue Authority-the respondent herein.
2) Alembic Pharmaceuticals Ltd.-the petitioner, is a company registered under the provisions of the Companies Act, 1956, which made a de-merger from the parent company known as Alembic Ltd. on 3 16.06.2010. The shares of the parent Company/demerged company i.e., Alembic Ltd. were listed on the Bombay Stock Exchange and National Stock Exchange and the price of the said shares as on the appointed dated i.e., 01.04.2010 was Rs. 50.05 per share. As such, the total market capitalization of the parent company/demerged company as on the appointed date i.e., 01.04.2010 was Rs.668,24,71,495/- which value represented the value of the parent company prior to demerger.
3) The petitioner herein made an application to pay stamp duty regarding demerger instrument under Section 31 of the Bombay Stamp Act, 1958 (in short ‘the Act’) before the office of the Collector (Stamp) & Additional Superintendent of Stamp, Gandhinagar, Gujarat stating that for levying the stamp duty the criteria of market value of shares will not apply owing to the reason that the equity shares of the petitioner herein were not listed on any stock exchange as on the appointed date i.e., 01.04.2010 and the market value of equity shares of the demerged company represents consolidated value of the entire company.
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4) Vide order dated 20.05.2011, the Collector & Additional Superintendent of Stamp held that the Deed of Amalgamation is in the nature of change of ownership and the market price of Rs. 668,24,71,496/- of the shares issued by the transferee-Company to its share holders being more than the market price of the transferred property of Alembic Ltd., the stamp duty of Rs. 6,68,24,715/- is applicable at 1%. The petitioner herein went in appeal before the Chief Controlling Revenue Authority, Gandhinagar which was dismissed vide order dated 30.11.2011. However, a Reference was made to the High Court on an application filed by the petitioner which got negated by the High Court while upholding the order dated 20.05.2011.
5) It was argued before this Court that the High Court erred in appreciating the fact that at arriving at the proper stamp duty, the value of the assets transferred to the resulting company would be relevant and not the value of shares of the demerged company which would be the value of shares based on assets remaining with such demerged company and is not the subject matter of transfer. The 5 reliance placed by the High Court on Article 20(d) of Schedule-I of the Act which provides for conveyance qua amalgamation or reconstruction of a company where valuation is done based on the market value of shares either of the transferor or transferee company is erroneous and does not apply in the present case. However, from the side of the respondent, it was submitted that this matter involves a pure question of law as to whether demerger of a company will be covered under the phrase “reconstruction” or not.
6) At the outset, we may mention here that the petitioner has not challenged the vires/validity of the provisions of Article 20(d) and Explanation III(b) of the said Act and only the applicability of the said provisions have to be considered in this matter.
7) The issue involved in the present matter is with respect to the deed of reconstruction or amalgamation under Section 394 of the Companies Act for appropriate stamp duty. As a result, the transferor company transferred 13,35,15,914 equity shares to the transferee company, being Alembic Pharma Limited on the appointed date i.e., 01.04.2010. When an application was made before the Additional Superintendent of Stamp under Section 31 of the Act, the relevant authority came to the conclusion that the petitioner-Company would be liable to pay stamp duty under Article 20(d) of the Act to the tune of 6 Rs. 6,68,24,715/- which was later affirmed by the appellate authority and by the High Court on a Reference.
8) Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation of scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or ‘amalgamation’ has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly ‘amalgamation’ does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended 7 with another, the amalgamating company loses its entity. The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But undoubtedly, when two companies amalgamate and merge into one, the corporate entity of the transferor company loses its entity from the date of amalgamation as it ceases to have its business. However, their respective rights or liabilities are determined under the scheme of amalgamation. The object of reconstruction is usually to reorganize capital or to compound with creditors or to effect economies. If the scheme involves the transfer of a company’s undertaking to another company, usually the transfer is brought about by allotment of shares to the shareholders of the transferor company, in satisfaction of the assets transferred.
9) In the above backdrop, it is pertinent to refer the order dated 24.01.2011 passed by the High Court in Company Petition No. 152 of 2010. On a careful perusal of the above said order, it has been found that the said petition was filed before the High Court in the form of Scheme of Arrangement in the nature of de-merger and transfer of the Pharmaceutical undertaking of Alembic Limited to Alembic Pharma limited and reorganization of share capital in the form of utilization of the Share Premium Account of Alembic Limited wherein all the property, rights and powers, liabilities and duties of the de-merged 8 undertaking were transferred to the Resulting Company-the petitioner Company. It was averred in the Scheme itself that on its taking effect, in consideration of the de-merger, the Resulting Company-the petitioner Company shall issue and allot to each shareholder of the demerged company 1 (one) equity share in the Resulting Company of the face value of Rs. 2/- each credited as fully paid up for every 1 (one) equity share of Rs. 2/- each fully paid up held by such member in the demerged Company and the assets and the liabilities of the demerged company being transferred to the resulting Company shall be at value appearing in the books of accounts of the demerged company as on the close of March 31, 2010.
10) In this view of the matter, it is pertinent to mention here Section 391 of the Companies Act, 1956 which reads as under:-
S. 391. Power to compromise or make arrangements with creditors and members.—(1) Where a compromise or arrangement is proposed—
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them;
The Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound-up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed under the rules made under Section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal be binding on all the 9 creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company:
Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the company or any other person by whom an application has been made under sub-Section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Sections 235 to 251, and the like.
(3) xxxxx (4) xxxxx (5) xxxxx (6) xxxxx” Section 391 of the Companies Act deals with the right of the companies to enter into a compromise or arrangement which covers reconstruction, merger, demerger and spinning of a unit by a company and the arrangement contemplated under Section 391 also includes reorganization of share capital of a Company.
11) In this background, it is apt to mention para 7 of the judgment passed by the High Court which reads as under:-
“In the case before us, there is no dispute that there has been demerger of the parent company into two companies and we find substance in the contention of Ms. Mehta, the learned Advocate appearing on behalf of the State that demerger comes within the purview of the word ‘reconstruction’ and the present case is not one of amalgamation of two companies….”
12) The High Court, in para 16 held as under:-10
“In this connection, although we find substance in the contention of Mr. Soparkar that in the case of reconstruction of a company, it is the transferee company which allots the shares and it is the value of its shares which is primarily relevant for the purpose of determining the consideration for transfer of the assets from the transferor company, at the same time, we cannot lose sight of the fact that the legislature is also within its province to enact in a taxing statute a provision compelling payment of a minimum amount of Stamp duty in a given transaction and in the process, if it decides that in case of either amalgamation or reconstruction, the minimum stamp duty payable should be at least 1% of the true market value of the immovable property situated in the State of the transferor company, the same cannot be interfered at the instance of a High Court unless it offends any other statutory provisions or is arbitrary. As it appears from the subsequent amendment with effect from March 15, 2013, there has been further amendment in the selfsame statute that the maximum stamp duty, at any rate, will not exceed twenty five crore rupees which was earlier fixed at Rs. 10 crore. Thus, the legislature is free to fix both maximum amount of stamp duty in a given type of transaction.”
13) The High Court further held in para 18.2 as under:-
Applying the aforesaid principle to the facts of the present case, we find that Article 20(d) of Schedule-I of the said Act according to our above interpretation provides that (1). An amount equal to 1% of the aggregate amount comprising of the value of the market value of shares issued or allotted in exchange of or otherwise, or of the face value of such shares, whichever is higher and the amount of consideration, if any, paid for the amalgamation or the reconstruction, as the case may be, is to be determined by taking aid of the Explanations, and, (2). also an amount of 1% of the market value of immovable property of the transferor situated in the State of Gujarat is to be determined, and the higher amount between (1) and (2) above subject to maximum of Rs. 10 crore as it then stood is the amount of the Stamp Duty payable. It appears that the authorities below by taking aid of the Explanation III held that on the appointed date viz., April 1, 2010 the value of the share was Rs. 50.05 and thus, the total market value of the shares was determined at Rs. 6,68,24,71,496 and 1% stamp duty was decided to be recovered. The plea of face value of Rs. 2/- per share was right rejected. The amount arrived at on the basis of clause (I) of Article 20(d) being higher than clause (ii), the former was right accepted.11
14) We have carefully perused the concerned provisions of the Companies Act, 1956 viz., Sections 391 to 394. On a perusal of the same and having regard to the facts of instant case, it is crystal clear that the present de-merger is a kind of arrangement or reconstruction which comes under the ambit of Section 391 to 394 of the Companies Act 1956. It is also very clear that it is nothing but a reconstruction for the purpose of reorganization of its paid up capital. In other words, it would mean an arrangement and/or reconstruction and therefore also, the provision of Article 20(d) and Explanation III (b) of the said Act would apply to the case of the petitioner herein.
15) In view of above discussion, we are of the considered view that High Court took the right view and held that Article 20(d) would attract here and negated the contention of the petitioner herein.
Hence, this petition is liable to be dismissed being devoid of merits. Accordingly, it is hereby dismissed with no order as to costs.
……..………………………………….J. (R.K. AGRAWAL) ……..………………………………….J. (MOHAN M. SHANTANAGOUDAR) NEW DELHI APRIL 05, 2017 12 ITEM NO.11 COURT NO.9 SECTION IX S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Petition for Special Leave to Appeal (C) No.6174/2014 (Arising out of impugned final judgment and order dated 26/11/2013 in STR No.1/2012 passed by the High Court Of Gujarat At Ahmedabad) ALEMBIC PHARMACEUTICALS LTD Petitioner(s) VERSUS CHIEF CONTROLLING REVENUE AUTHORITY Respondent(s) (with interim relief and office report) (For final disposal) Date : 05/04/2017 This petition was called on for hearing today. CORAM :
HON'BLE MR. JUSTICE R.K. AGRAWAL HON'BLE MR. JUSTICE MOHAN M. SHANTANAGOUDAR For Petitioner(s) Mr. Shekhar Naphade, Sr. Adv.
Mr. Saurav Agrawal, Adv.
Mr. Ashish Aggarwal, Adv.
Ms. Gurkamal Hora, Adv.
Ms. Tatini Basu,Adv.
For Respondent(s) Mr. Preetesh Kapur, Adv.
Ms. Hemantika Wahi,Adv.
Ms. Jesal Wahi, Adv.
UPON hearing the counsel the Court made the following O R D E R Arguments heard.
The Special Leave Petition is dismissed.
Reasons to follow.
(ASHA SUNDRIYAL) (CHANDER BALA)
COURT MASTER COURT MASTER