Judicial Insight: Supreme Court’s Landmark Verdict on the Stamp Duty on Increased Share Capital

The Hon’ble Supreme Court of India (“Supreme Court”) in the recent case of State of Maharashtra and Anr. Vs. National Organic Chemical Industries Ltd., dated April 05, 2024, examined Article 10 of Schedule I of the Bombay Stamp Act, 1958 (“Stamp Act”), along with Sections 31(2), 94 and 97 of the Companies Act, 1956 (“Companies Act”). The Supreme Court in this landmark case has held that when the maximum duty payable on the authorised share capital of a company is paid as prescribed under the applicable stamp laws, no additional duty is payable for subsequent increase in the share capital, unless the law specifically requires payment of additional stamp duty. Further, the Supreme Court also stated that the form submitted with the registrar of companies (“RoC”), to notify the increase in the authorised share capital of a company is not an instrument for the purpose of levying stamp duty. The judgment, which has considerable implications for the corporate entities, interprets the relationship between general and special laws, regarding the Articles of Association (“AoA”), and delves into the concept of ‘instrument’ under the Stamp Act.

Facts Of The Case

National Organic Chemical Industries Ltd. (“Respondent Company”) was incorporated with an initial share capital of INR 36,00,00,000 (Indian Rupees Thirty-Six Crores). In 1992, the Respondent Company increased its share capital to INR 6,00,00,00,000 (Indian Rupees Six Hundred Crores) and accordingly paid a stamp duty of INR 1,12,80,000 (Indian Rupees One Crore Twelve Lakhs Eighty Thousand) as per Article 10 of the Schedule I of the Stamp Act. Consequently in 1994, the State of Maharashtra amended the said Article and introduced a maximum cap of INR 25,00,000 (Indian Rupees Twenty-Five Lakhs) on the stamp duty for the companies increasing their authorised share capital.

Subsequently, the Respondent Company increased its authorized share capital to INR 12,00,00,00,000 (Indian Rupees Twelve Hundred Crores) and accordingly paid INR 25,00,000 (Indian Rupees Twenty-Five Lakhs) as the stamp duty. The Respondent Company also duly filed Form No. 5 with the RoC, in accordance with the provisions of Section 97 of the Companies Act. However, the Respondent Company sought a refund once they realized that the stamp duty was not liable to be paid by them, since the maximum stamp duty which was of INR 25,00,000 (Indian Rupees Twenty-Five Lakhs) payable on the AoA as per the provisions of the Stamp Act, had already been paid by them in 1992. However, the application for refund was rejected by the Deputy Superintendent of Stamps.

The Respondent Company challenged the rejection order of the Deputy Superintendent of Stamps before the Bombay High Court. The Hon’ble Bombay High Court allowed the writ petition and directed the State of Maharashtra to refund the stamp duty along with an interest of 6% (Six Percent) per annum to the Respondent Company. Unsatisfied with the said order of the Bombay High Court, the State of Maharashtra and the Deputy Superintendent of Stamps preferred an appeal before the Supreme Court.

Issues To Be Decided

The issues before the Supreme Court were as follows:

1. Whether the notice sent to the RoC in Form No.5 is an ‘instrument’ as defined under Section 2(l) of the Stamp Act; and
2. Whether the maximum cap on the stamp duty is applicable every time there is an increase in the share capital or is it a one-time measure.

Decision Of The Supreme Court

The Supreme Court agreed with the view taken by the Allahabad High Court in the case of New Egerton Woollen Mills, In re and held that the purpose of Form No. 5 is only to notify the RoC regarding the increase in the authorised share capital of a company and that only the AoA of a company is an instrument liable to be assessed for the stamp duty, as per the meaning of ‘instrument’ provided in Section 2(l) of the Stamp Act and the same has been accordingly mentioned in Article 10 of Schedule-I of the Stamp Act.

Further, the Supreme Court upheld the decision of the Bombay High Court and directed the appellants of the present case to refund INR 25,00,000 (Indian Rupees Twenty-Five Lakhs) paid by the Respondent Company, along with interest at the rate of 6% (Six Percent) per annum, within 6 (six) weeks of the decision. The Supreme Court reiterated that the Companies Act being a specific law, prevails over the Stamp Act, which is a general law concerning the AoA. The Supreme Court clarified that as per Section 31 of the Companies Act, any increase in a company's authorised share capital shall remain valid as if it were a part of the original AoA when initially stamped and that the amended AoA should not be viewed as a new instrument.

Based on the aforementioned factors and the fact that the Respondent Company passed the resolution to increase its the authorized capital after the 1994 amendment, the Supreme Court ruled that the stamp duty payment on the AoA made by the Respondent Company in 1992 must be considered when calculating the duty for the increased authorized capital. Therefore, the Supreme Court determined that the Respondent Company is not liable for any additional duty on the increased authorized capital as it had already paid the maximum duty under the Stamp Act.

Conclusion

The Supreme Court's decision provides a detailed analysis of the interplay between the Stamp Act and the Companies Act. The Supreme Court through this case highlighted that the Companies Act, being a special legislation, shall always override the provisions of the Stamp Act, which is a general legislation, particularly regarding the stamp duty evaluation for increase in authorised share capital of a company. This is in line with the legal principle of Generalia Specialibus Non-Derogant, which states that special laws should prevail over the general ones.

The Supreme Court’s emphasis on defining an ‘instrument’ under the Stamp Act is crucial. By determining that Form No. 5 does not meet the definition provided in the Stamp Act, the Supreme Court has limited the stamp duties applicable on AoA. This clarification has significant implications for companies looking to boost their share capital, providing clear guidelines on stamp duty rules. Additionally, the ruling of the Hon’ble Supreme Court reiterated the judiciary's responsibility to interpret fiscal and taxing laws carefully, and to ensure that the laws align with the legislative intentions.