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CASE NO.: Appeal (civil)  8232 of 1996 Appeal (civil)  8231 of 1996 Appeal (civil)  9237 of 1996 Appeal (civil)  10208 of 1996

PETITIONER: Hindustan Lever & Anr.                                           

RESPONDENT: State of Maharashtra & Anr.                                      

DATE OF JUDGMENT: 18/11/2003

BENCH: R.C. Lahoti & Ashok Bhan.

JUDGMENT: J U D G M E N T

BHAN, J.

       Civil Appeal Nos. 8232 of 1996, 8231 of 1996, 9237 and 10208 of 1996  arising from a common judgment of the High Court involving the same  question of law are taken up for disposal together.  Illustrative facts are taken  from Civil Appeal No. 8232 of 1996.

       Tata Oil Mills Co. Ltd. (Transferor Company) was incorporated on  10.12.1917 under the Companies Act, 1913. Hindustan Lever Ltd. (Transferee  Company) was incorporated under the same Act on 17.10.1933. The scheme of  amalgamation of transferor company with the transferee company was  formulated and approved by the Board of Directors of respective companies on  19.3.1993.  On 3.3.1994 the scheme of amalgamation of the transferor  company with the transferee company was sanctioned with certain  modifications by a Single Judge of the High Court.  Appeal filed against the  judgment and order of the Single Judge was rejected by the Division Bench on  18.5.1994.  Special leave petition against the above judgment of the Division  Bench was dismissed by this Court on 24.10.1994.  This judgment is reported  in Hindustan Lever Employees’ Union Vs. Hindustan Lever Ltd. & Ors.,  1995 Suppl. (1) SCC 499.

       The drawn up order of amalgamation of transferor company with  transferee company was approved by the High Court on 24.11.1994.  On  presentation of the certified copy of the Court’s order the Registrar of  Companies, Maharashtra issued a certificate amalgamating the two companies.          In view of the stamp duty sought to be levied on the order of  amalgamation passed under Section 394 of the Companies Act, 1956  (hereinafter referred to as "the Act") the appellant filed writ petition in the  Bombay High Court challenging the constitutional validity of the provisions of  Section 2(g)(iv) of the Bombay Stamp  Act, 1958 (hereinafter referred to as  "the Stamp Act").  By the impugned order the Division Bench of the High  Court has dismissed the writ petition.  The validity of Section 2(g)(iv) of the  Stamp Act has been upheld.  Section 2(g) of the Stamp Act which defines  "Conveyance" reads:

"2.  In this Act, unless there is anything repugnant in  the subject or context.-

               xxx             xxx

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(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, 1956 in  respect of amalgamation or reconstruction of  companies; and every order made by the  Reserve Bank of India under Section 44A of  the Banking Regulation Act, 1949 in respect of  amalgamation or reconstruction of Banking  companies by which property, whether movable or immovable,  or any estate or interest in any property is transferred  to, or vested in, any other person, inter vivos, and  which is not otherwise specifically provided for by  Schedule I;

Explanation.- An instrument whereby a co-owner of  any property transfers his interest to another co- owner of the property and which is not an instrument  of partition, shall, for the purposes of this clause, be  deemed to be an instrument by which property is  transferred inter vivos; "

       It would be seen that conveyance includes a conveyance on sale as well  as every instrument.   Clause (g)(iii) was added by the Maharashtra Act No. 27  of 1985 which came into operation w.e.f. 10.12.1985.  It provides that  conveyance includes every decree or final order of any civil court.  Clause (g)  (iv) was added by the Maharashtra Act No. 17 of 1993 which came into  operation w.e.f. 1.4.1993.

       Section 2(g)(iii) came up for interpretation before this Court in the case  of Ruby Sales and Services (P) Ltd. & Anr. Vs. State of Maharashtra & Ors.,  1994 (1) SCC 531.  It was held that the definition of "conveyance" and  "instrument" starts with the expression "includes" which shows that the  definition is very wide which would include a consent decree as well.  That the  sub-clause (iii) of Section 2(g) was introduced out of abundant caution and it  does not mean that the consent decree was not otherwise covered by the  definition in Section 2 (g) or 2(l) of the Stamp Act.  That there was no  particular pleasure in merely going by the label but what is decisive is the  terms of the document.  It was clear from the terms of the consent decree that it  is also an instrument under which the property has been transferred by one  person to another.   It was observed:

"There is no particular pleasure in merely going by  the label but what is decisive is by the terms of the  document.  It is clear from the terms of the consent  decree that it is also an "instrument" under which  title has been passed over to the appellants/plaintiffs.   It is a live document transferring the property in  dispute from the defendants to the plaintiffs.

Thus the position becomes clear that the  consent decree falls under the definitions of  "conveyance" as well as "instrument"."   

       By Act No. 17 of 1993, the Legislature has added Section 2(g)(iv) to   include every order passed by the High Court under Section 394 of the  Companies Act in respect of amalgamation of the companies.  Section 394 of

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the Companies Act reads:

"394. Provisions for facilitating reconstruction  and amalgamation of companies. \026 (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 \026

(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 windingup, 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 woundup, 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,

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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.)

(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 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\026   (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."                                 [Emphasis supplied]

       The issue which is debated before us is: (1) whether the State  Legislature had the legislative competence to impose stamp duty on the order  of amalgamation passed by a court? and  (2) whether an order sanctioning a  scheme of  amalgamation under Section 394 read with Section 391 of the  Companies Act, 1956, is liable to be stamped in accordance with the  provisions of the Bombay Stamp Act in its application in the State of  Maharashtra?    

     Section 394 provides that application and order of amalgamation  under Section 394 is based on compromise or arrangement which has been  proposed for the purpose of amalgamation of two or more companies.  The  amalgamation scheme, which is an agreement between the companies is  presented before the Court and the Court passes an appropriate order  sanctioning the compromise or arrangement. The foundation or the basis for   passing an order of amalgamation is agreement between two or more  companies.  Under the Scheme of amalgamation, the whole or any part of the  undertaking, properties or liability of any company concerned in the scheme is  to be transferred to the other company. The company whose property is  transferred would be the transferor company and the company to whom  property is transferred would be considered as the transferee company.  The  scheme of amalgamation has its genesis in an agreement between the  prescribed majority of shareholders and creditors of the transferor company  with the prescribed majority of shareholders and creditors of the transferee  company.  The intended transfer is a voluntary act of the contracting parties.  

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The transfer has all the trappings of a sale.  The transfer is effected by an order  of the Court. The proposed compromise or arrangement is subject to  verification by the Court as provided therein. First is that the scheme of  compromise or arrangement proposed for the purposes of amalgamation or in  connection therewith, shall not be sanctioned 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 interest of its  Members or to public interest and; secondly that the order of resolution of  transfer of company shall not be made unless official liquidator on scrutiny of  the books and papers of the Company makes a report to the Court that the  affairs of the company had not been conducted in a manner prejudicial to the  interest of its members or to public interest.

       By virtue of provisions of section 391 of the Companies Act a scheme  sanctioned by the Court is statutorily binding on all its shareholders and  creditors including those who dissented from or were opposed to the scheme  being sanctioned.   Since by law a procedure has been prescribed by which  every shareholder and creditor in the absence of individual agreement, gets  bound by the scheme, which would otherwise be necessary to give its validity,  the two provisos have been introduced casting a duty on the Court to satisfy  itself that the affairs of the company were/are not being conducted in a manner  prejudicial to the interest of its members or to the public interest.   The basic  principle underlying these provisos is none other than the broad and general  principle inherent in any compromise or settlement entered into between the  parties, the same being that it should not be unfair, contrary to the public  policy, unconscionable or against the law.  There is no adjudication as such.  Any  modification proposed by the Court in the scheme is also subject to its  being accepted by the transferor and the transferee company.  If any one of  them objects to the modifications suggested by the Court then the scheme  would not be sanctioned.  The scheme would be sanctioned only if there is an  acceptance to the modification proposed by the Court to the scheme by the  transferor as well as transferee company.  On acceptance of the same it gets  incorporated in the compromise or arrangement arrived at between the two  companies.  Modification in the scheme becomes a part of the compromise or  arrangement arrived at between the parties.          While exercising its power in sanctioning a scheme of agreement, the  Court has to examine as to whether the provisions of the statute have been  complied with.  Once the Court finds that the parameters set out in Section 394  of the Companies Act have been met then the Court would have no further  jurisdiction to sit in appeal over the commercial wisdom of the class of persons  who with their eyes open give their approval, even if, in the view of the Court  better scheme could have been framed.  This aspect was examined in detail by  this Court in Miheer H. Mafatlal  Vs.  Mafatlal Industries Ltd.,  1997 (1)  SCC 579.  The Court laid down the following broad contours of the  jurisdiction of the company court in granting sanction to the scheme as  follows:-

1.      The sanctioning court has to see to it that all the  requisite statutory procedure for supporting such a  scheme has been complied with and that the  requisite meetings as contemplated by Section  391(1)(a) have been held.

2.      That the scheme put up for sanction of the Court  is backed up by the requisite majority vote as  required by Section 391 sub-section (2).

3.      That the meetings concerned of the creditors or  members or any class of them had the relevant  material to enable the voters to arrive at an  informed decision for approving the scheme in  question.  That the majority decision of the  concerned class of voters is just and fair to the

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class as a whole so as to legitimately bind even  the dissenting members of that class.

4.      That all necessary material indicated by Section  393(1)(a) is placed before the voters at the  meetings concerned as contemplated by Section  391 sub-section (1).

5.      That all the requisite material contemplated by the  proviso of sub-section (2) of Section 391 of the  Act is placed before the Court by the applicant  concerned seeking sanction for such a scheme and  the Court gets satisfied about the same.

6.      That the proposed scheme of compromise and  arrangement is not found to be violative of any  provision of law and is not unconscionable, nor  contrary to public policy.  For ascertaining the  real purpose underlying the scheme with a view to  be satisfied on this aspect, the Court, if necessary,  can pierce the veil of apparent corporate purpose  underlying the scheme and can judiciously X-ray  the same.

7.      That the Company Court has also to satisfy itself  that members or class of members or creditors or  class of creditors, as the case may be, were acting  bona fide and in good faith and were not coercing  the minority in order to promote any interest  adverse to that of the latter comprising the same  class whom they purported to represent.

8.      That the scheme as a whole is also found to be  just, fair and reasonable from the point of view of  prudent men of business taking a commercial  decision beneficial to the class represented by  them for whom the scheme is meant.

9.      Once the aforesaid broad parameters about the  requirements of a scheme for getting sanction of  the Court are found to have been met, the Court  will have no further jurisdiction to sit in appeal  over the commercial wisdom of the majority of  the class of persons who with their open eyes have  given their approval to the scheme even if in the  view of the Court there would be a better scheme  for the company and its members or creditors for  whom the scheme is framed.  The Court cannot  refuse to sanction such a scheme on that ground as  it would otherwise amount to the Court exercising  appellate jurisdiction over the scheme rather than  its supervisory jurisdiction.  It is the commercial  wisdom of the parties to the scheme who have  taken an informed decision about the usefulness  and propriety of the scheme by supporting it by  the requisite majority vote that has to be kept in  view by the Court.  The Court has neither the  expertise nor the jurisdiction to delve deep into  the commercial wisdom exercised by the creditors  and members of the company who have ratified  the scheme by the requisite majority.   Consequently the Company Court’s   jurisdiction  to that extent is peripheral and supervisory and  not appellate.  The Court acts like an umpire in a  game of cricket who has to see that both the teams

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play their game according to the rules and do not  overstep the limits.  But subject to that how best  the game is to be played is left to the players and  not to the umpire.  The supervisory jurisdiction of  the Company Court can also be culled out from  the provisions of Section 392.  Of course this  section deals with post-sanction supervision.  But  the said provision itself clearly earmarks the field  in which the sanction of the Court operates.  The  supervisor cannot ever be treated as the author or  a policy-maker.  Consequently the propriety and  the merits of the compromise or arrangement have  to be judged by the parties who as sui juris with  their open eyes and fully informed about the pros  and cons of the scheme arrive at their own  reasoned judgment and agree to be bound by such  compromise or arrangement.

Two broad principles underlying a scheme of amalgamation which have  been brought out in this judgment are:  1.      That the order passed by the Court amalgamating the company is  based on a compromise or arrangement arrived at between the  parties; and 2.      That the jurisdiction of the company court while sanctioning the  scheme is supervisory only, i.e., to observe that the procedure set  out in the Act is met and complied with and that the proposed  scheme of compromise or arrangement is not violative of any  provision of law, unconscionable or contrary to public policy.   The Court is not to exercise the appellate jurisdiction and examine  the commercial wisdom of the compromise or arrangement  arrived at between the parties.  The role of the court is that of an  umpire in a game to see that the teams play their role as per rules  and do not overstep the limits.  Subject to that how best the game  is to be played is left to the players and not to the umpire.   

Both these principles indicate that there is no adjudication by the court on the  merits as such.

In Hindustan Lever Employees Union case (supra) it has been held by  this Court that Section 394 casts an obligation on the Court to be satisfied that  the scheme of amalgamation or merger was not contrary to the public interest;  the basic principle of such satisfaction is none other than the broad and general  principle inherent in any compromise or settlement entered between the parties  that it should not be unfair or contrary to public policy or unconscionable or  that the scheme should not be a device to evade the law.

The term "instrument" has been defined in Section 2(l) of the Bombay  Stamp Act 1958 which  is as under:-

"  "instrument" includes every document by which  any right or liability is, or  purports to be, created,  transferred, limited, extended, extinguished or  recorded, but does not include a bill of exchange,  cheque, promissory note, bill of lading, letter of  credit, policy of insurance, transfer of share,  debenture, proxy and receipt;"          This definition of instrument is not amended by the Maharashtra Act of  17 of 1993.     The word "Instrument" is defined to mean, every document by  which any right or liability is, or purports to be created, transferred, limited,  extended, extinguished or recorded, but does not include bill of exchange,  cheque, promissory note, bill of lading, letter of credit, policy of insurance,  transfer of shares, debenture proxy and receipt.  The recital in the scheme of

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amalgamation as well as the order of the High Court under Section 394 of the  Companies Act, declares, that, upon such order of High Court the undertaking  of the transferor company shall stand transferred to the transferee company  with all its movable, immovable and tangible assets to the transferee company  without any further act or deed.  Sub-section 3 of Section 394 provides that the  certified copy of the Order of the Court has to be presented before the Registrar  of companies within 30 days for registration. And in default any officer of the  company, who is in default, becomes liable to be punished and fined, which  may extend up to Rs.500/-.  Section 391 (3) provides that an order made by the  court under sub-section (2) of Section 391 shall not have effect till a certified  copy of the order has been filed with the Registrar.  On presentation of the  certified copy of order, the Registrar of the Company certifies that the  transferor company stands amalgamated with the transferee company along  with all its assets and liabilities.    Thus the amalgamation scheme sanctioned by  the Court would be an "instrument" within the meaning of Section 2(i).   By  the said "instrument" the properties are transferred from the transferor  company to the transferee company,  the basis of which is the compromise or  arrangement arrived at between the two companies.  

       Mr. Anil B. Diwan and. Mr. Andhyarajuna, learned senior counsels have  appeared for the appellants in these appeals.  The submissions made by them  are on the similar lines.         It was contended by the learned counsels appearing for the appellants  that an order of amalgamation under Section 394 is not an order simplicitor of  transfer of property by an act of parties with imprimatur of the Court.  It is an  order made by the Court after judicial scrutiny and transfer of the property  under such an order would not be an act of parties to which the Court puts its  seal of approval. Stamp duty can be levied on "documents" or "instruments".  The Order of the Court in exercise of its judicial functions is not "a document"  or an "instrument". Once the Court passes an order or a decree, it is required to  be implemented or executed as such.  The same cannot be subjected to stamp  duty otherwise the orders passed by the Courts would become subject to  interference by the revenue authorities and would not be admissible in  evidence unless  the stamp duty is paid.

It is difficult to subscribe the view propounded by the learned counsels  for the appellants.  As stated earlier, the order of amalgamation is based on a  compromise or an arrangement arrived at between the two companies.  No  individual living being owns the company.   Each shareholder is the owner of  the company to the extent of his share holding.  By enacting Sections 391 to  394 a method has been devised to give effect to the will of the prescribed  majority of shareholders/ creditors. Even in the absence of individual  agreement by all the shareholders and creditors the decision of the majority  prescribed in Section 391 (2) binds all the creditors and the shareholders.  The  Scheme after being sanctioned by the Court binds all its creditors, members  and shareholders including even those who were opposed to the scheme being  sanctioned.   It binds the company as well.  While exercising its power in  sanctioning the scheme of amalgamation, the Court is to satisfy itself that the  provisions of statute have been complied with. That the class was fairly  represented by those who attended the meeting and that the statutory majority  was acting bona-fide and not in an oppressive manner.  That the arrangement is  such as which a prudent, intelligent or honest man or a member of class  concerned and acting in respect of the interest might reasonably would take.   While examining as to whether the majority was acting bona-fide the Court  would satisfy itself to the effect that the affairs of the company were not being  conducted in the manner prejudicial to the interest of its members or to public  interest. The basic principle underlying such a situation is none other than the  broad and general principle inherent in any compromise or settlement entered  into between the parties the same being that it should not be unfair, contrary to  public policy and unconscionable or against the law.           Orders passed by the Court resulting in transferring the rights in property  have been subjected to levy of stamp duty in several situations.  It is there from  the date of  the inception of the Indian Stamp Act 1899.   Section 2 (m) of the  Indian Stamp Act 1899 defines "instrument of partition" to mean any

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instrument whereby co-owners of any property divide or agree to divide such  property in severalty, and includes also a final order for effecting a partition  passed by any revenue authority or any Civil Court and an award by an  arbitrator directing a partition.  This provision specifically provide that any  final order effecting partition by any Court, Revenue Authority or award made  by the Arbitrator directing partition would be an instrument of partition.   

       This Court in Purshottam H. Jadve and Ors. Vs. V.B. Potdar, 1966 (2)  SCR 353, considered as to whether an award made by the Industrial Tribunal  could be considered as an instrument.  After considering the relevant  provisions of the law it was held that the word "instrument" would include   awards made by the Industrial Tribunal.   In the case of  The Commissioner of Inland Revenue  Vs. G. Anous &  Co. & Anr. (1891) \026 Vol. XXIII  Queen’s Bench Division 579, considered as  to what interpretation has to be placed upon the expression "conveyance on  sale"  with regard to Section 70 of the stamp Act, 1899 and held:-          "The term conveyance on sale includes every  instrument and every decree or order of any Court or  of any commissioners, whereby any property upon  the sale thereof is legally or equitably transferred to  or vested in the purchaser or any other person on his  behalf or by his direction."     

       The Court held that the thing, which is made liable to stamp duty is the  "instrument". It is not a transaction of purchase and sale, which is struck at, it  is the "instrument" whereby the purchase and sale are affected which is struck  at.  It is the "instrument" whereby any property upon the sale thereof is legally  or equitably transferred and the taxation is confined only to the instrument  whereby the property is transferred.   If a contract of purchase or sale or a  conveyance by way of purchase and sale, can be, or is, carried out without an  instrument, the case would not fall within the Section and no tax can be  imposed.   Taxation is confined to the instrument by which the property is   transferred legally and equitably transferred.

       Point as to whether the stamp duty was leviable on the Court order  sanctioning the scheme of amalgamation was considered at length in Sun  Alliance Insurance Ltd.  Vs. Inland Revenue Commissioners  1971 (1) All  England Law Reports 135.   The point which arose for determination as to  whether the stamp duty was payable on the order of the Judge sanctioning the  scheme of arrangement under Section 206 of the Companies Act, it was held:-

" It follows that it is the court order that effects the  transfer; and this is nonetheless so because the scheme  is not operative until an office copy has been  delivered to the Registrar of Companies for  registration, for the court order itself ordered that to  be done and the Act so provides; nor because London  has still to cause the name of Sun Alliance to be  entered on to the register as the holder of the shares.   The registration of the transferee occurs in every case  where a transfer is executed, and merely perfects the  title of the transferee.  The same thing occurs in the  case of registered land, where one finds a transfer and  subsequent registration. I have therefore come to the  conclusion that by the court order the shares were  transferred to Sun Alliance, or, to use the words of s.  54, by that order property was transferred to a  purchaser."

       Expression "conveyance on sale" as provided in Section 54 of the Stamp  Act, 1891 is similar to Section 2 (g) of the Bombay Stamp Act.  The  expression "conveyance on sale" as defined in the said Section includes every  instrument, and every decree or order of any Court or any Commissioner,

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whereby any property, or a estate or interest in any property, upon the sale  thereof was transferred  or vested in the purchaser, or any other persons on his  behalf and on his direction.  

The Court further considered as to whether the order of the judge is an  ’instrument’ executed in any part of the United Kingdom for the purposes of  Section 14(4) of the Stamp Act, 1891; it was held that it was an instrument  executed in the United Kingdom within the meaning of Section 14(4) of the  Stamp Act 1891. It was further held that order of the Court was liable to stamp  duty as it resulted in transferring the property and that the order passed by any  Court which results in transfer of property would be an instrument as it  includes every document.

Section 391 (2) of the Companies Act, 1956 provides as follows:   "391(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 court, be binding on all the  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 Court unless the  Court is satisfied that the company or any other  person by whom an application has been made under  sub-section (1) has disclosed to the court, 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."

       Section 394 (2) of the Companies Act, 1956 provides that the properties  and liabilities of the transferor company stand transferred to the transferee  company by virtue of an order of court.  The statutory form of an order under  Section 394 (2) of the Companies Act provides for three different Schedules in  order to incorporate therein the properties transferred.  It would be useful to  take notice of the statutory form of an order under Section 394 (2) of the  Companies Act.   

"THE COMPANAIES (COURT) RULES, 1959 FORM NO. 42                     (See rule 84)

Upon the above petition and application coming on for further  hearing on\005 upon reading etc, and upon hearing, etc.

THIS COURT DOTH ORDER          (1) That all the property, rights and powers of the  Transferor company specified in the first, second and third parts  of the Schedule hereto and all other property, rights and powers of  the transferor company be transferred without further act or deed  to the transferee company and accordingly the same shall pursuant

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to section 394(2) of the Companies Act, 1956, be transferred to  and vest in the transferee company for all the estate and interest of  the transferor company therein but subject nevertheless to all  charges now affecting the same other than (here set out any  charges which by virtue of the compromise or arrangement are  cease to have effect); and

(2) That all the liabilities and duties of the transferor  company be transferred without further act or deed to the  transferee company and accordingly the same shall, pursuant to  section 394(2) of the Companies Act, 1956, be transferred to and  become the liabilities and duties of the transferee company ;and

(3) That all proceeding now pending by or against the  transferor company be continued by or against the transferee  company; and

       (4) That the transferee company do without further  application allot to such members of the transferor company as  have not given such notice of dissent as is required by clause\005.of  the compromise or arrangement herein the shares in the transferee  company to which they are entitled under the said compromise or  arrangement; and  

       (5) That the transferor company do within 14 days after the  date of this order cause a certified copy of this order to be  delivered to the Registrar of Companies for registration and on  such certified copy being so delivered the transferor company   shall be dissolved and the Registrar of Companies shall place all  documents relating to the transferor company , and registered with  him on the file kept by him in relation to the transferee company  and the files relating to the said two companies shall be  consolidated accordingly; and  

       (6) That any person interested shall be at liberty to apply to  the court in the above matter for any directions that may be  necessary. SCHEDULE Part I  (Insert a short description of the freehold property of the  transferor company )

Part II (Insert a short description of the  leasehold property of the  transferor company) Part III (Insert a short description of all stocks, shares, debentures and  other charges in action of the transferor company )"                                                  (Emphasis supplied)

       The transfer of assets and liabilities takes effect by an order of the Court.   The order also provides for passing of consideration from the transferee  company to the shareholders of the transferor company.  The consideration for  sale in a transaction like this is the shares.  The share exchange ratio is decided  on the basis of number of factors including the value of net assets of the  transferor and transferee company.  To arrive at this figure of net assets the  liabilities have to be set off against the gross value of the assets.  The share  value is fixed.  The properties belong to the company and the company belongs  to the shareholders.  Once the shareholders of the transferee company receive  the consideration it would be deemed as if the owner has received the  consideration.

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       Strong reliance was placed by the counsel for the appellants on the  judgment of this Court in M/s. General Radio and Appliances Co. Ltd. and  Ors Vs. M.A. Khader (Dead) By Lrs., 1986 (2) SCC 656.  Transferor- company had taken a premises on rent with the stipulation that the tenant  would not sublet the premises without the written consent of the landlord.   After sanctioning of the scheme for amalgamation by the Court, the tenanted  premises came to be transferred to the transferee company.  Landlord filed the  eviction suit.  The question before the Court was whether the amalgamation  amounted to transfer of tenant company’s right under the lease by way of  subletting and as such violative of the provisions of Section 10(ii)(a) of the  A.P. Buildings (Lease, Rent and Eviction) control Act as also the terms of the  rent agreement.  It was observed that the A.P. Act prohibited in specific terms  both subletting as well as transfer or assignment of the interest of the tenant.   By the order of amalgamation, the interest, rights of the transferor company in  all its properties including leasehold interest tenancy rights and possession  were transferred and vested in the transferee company voluntarily and the  transferor company was dissolved and ceased to be exist for all practical  purposes in the eye of law.  This amounted to contravention of Section 10  (ii)(a) of the A.P. Rent Act as well as of the terms of the said rent agreement  thereby making the transferee company liable to be evicted from the tenanted  premises.  Though, the court held that the transfer was voluntary but still to test  the argument and treating it to be involuntary it was observed that there was no  express provision in the A.P. Rent Act that in case of involuntary transfer or  transfer of rights by virtue of a scheme of amalgamation sanctioned by the  court under Section 394 of the Companies Act will not come within the  purview of Section 10(ii) (a) of the A.P. Rent Act, and, therefore, the  transferee company is required to be evicted.  Even in the case of involuntary   transfer or transfer of tenancy rights by virtue of scheme of amalgamation  sanctioned by the court by its order under Sections 391 and 394 of the  Companies Act the transfer will come within the purview of Section 10(ii) (a)  of the A.P. Rent Act.  It was observed that since the order of amalgamation had  been made on the basis of a petition filed by the transferor company it could  not be said that it was an involuntary transfer effected by the order of the  Court.  Instead of supporting the contention of the appellant this decision  indicates to the contrary as the Court held that order of transfer of property by  a scheme of amalgamation was not "involuntary" meaning thereby it was a  voluntary act by agreement between the parties.  In any case, the Court decided  the dispute between the parties in the context of specific provisions of the A.P.  Rent Act and would have no applicability to the point which is being examined  by the present case.

       A document creating or transferring a right is an instrument.  Can it be   said that an order effectuating the  transfer is a document?  The answer has  been given in the affirmative by this in Court in Haji Sk. Subhan Vs.  Madhorao, AIR 1962 SC 1230, wherein it was held that the question is  whether the word "document" includes a decree of the Court.   It was held that  there was no good reason why a decree of the court, when it affects the  proprietary rights and is in relation to them should not be included in this  expression.  This question more pointedly arose before this Court in Ruby  Sales and services (P) Ltd., (supra).  In that case in a suit for specific  performance the property was conveyed to the vendee by a consent decree.   The question arose whether the consent decree is an instrument and liable to be  stamped.  The consent decree contained a recital to the effect that "this decree  does operate as the conveyance from the defendants in favour of the plaintiffs  in respect of the said property more particularly described in exhibit A to the  plaint."  The Court held that "there is no particular pleasure in merely going by  the label but which is decisive is by the terms of the document.  It is clear from  the terms of the consent decree that it is also an "instrument" under which title  has been passed over to the appellant/plaintiffs.  It is a live document  transferring the property in dispute from the defendants to the plaintiffs."  The  aforesaid decree was based on an agreement between the parties.  So is the  case with an order under Section 394 of the Companies Act which is also  based on an agreement between the transferor company and the transferee  company.   

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Learned counsel for the appellants argued that the Ruby Sales and  services (P) Ltd., (supra)  was a case of consent decree  where the term of the  settlement was admittedly a conveyance, transferring property alone. That the  order passed by the High Court under Section 394 of the Companies Act  cannot be equated with a consent order.   This submission cannot be accepted.   The Court held that consent decree was an instrument.  It was not held to be an  instrument because it was a consent decree.  It was held to be an instrument  because it  conveyed the title in the property in dispute from the defendant to  the plaintiff.  It was held to be an instrument because it had the effect of  conveying the title and not because it was a consent decree.  Once this  definition is kept in view it would be  clear that consent or no consent when the  decree or order of the Court purports to transfer title in the property, it becomes  an instrument.  Court negatived the submission made, that, prior to  introduction of Section 2 (g)(iii) the consent decree was not included in the  definition of "conveyance" and "instrument" was negatived by observing  "it  appears to us that the amendment was made out of abundant caution and it  does not mean that the consent decree was not otherwise covered."  It clearly  shows that the Court was of the opinion that consent decree which purports to  convey the title in the property was in an instrument liable for stamp duty at all  times and it was only by way of abundant caution that the Legislature had  included the consent decree in the definition of the word "conveyance".

       In view of the aforesaid discussion, we hold that the order passed by the  Court under Section 394 of the Companies Act is based upon the compromise  between two or more companies. Function of the Court while sanctioning the  compromise or arrangement is limited to oversee that the compromise or  arrangement  arrived at is lawful and that the affairs of the company were not  conducted in a manner prejudicial to the interest of its members or to public  interest that is to say it should not be unfair or contrary to public policy or  unconscionable.    Once these things are satisfied the scheme has to be  sanctioned as per the compromise arrived at between the parties.  It is an  instrument which transfers the properties and would fall within the definition  of Section 2 (1) of the Bombay Stamp Act which includes every document by  which any right or liability is transferred.  The State Legislature would have  the jurisdiction to levy stamp duty under Entry 44, List III of the seventh  Schedule of the Constitution of India and prescribe rates of stamp duty under  Entry 63, List II.

       It was next contended that the impugned duty is not a duty upon  instrument but it is in reality a duty on transfer of property which the State  Legislature is not competent to impose.

       In  Welfare Association, A.R.P., Maharahstra & Anr. Vs. Ranjit P.  Gohil & Ors., 2003 (2) Scale 288,   it was held that there is a presumption that  the Legislature does not exceed its jurisdiction.  A statute should be construed  so as to make it effective and operative on the principle expressed in the  maxim "ut res megis valeat quam pereat". (It is better to validate a thing than  to invalidate it).  The burden of establishing that the Act is within the  competence of the Legislature, or that it has transgressed other constitutional  mandates is always on the person who challenges its vires.  That the fountain  source of legislative power exercised by the Parliament or the State Legislature  is not Schedule Seven; the fountain source is Article 246 and other provisions  of the Constitution.  The function of the three Lists in Seventh Schedule is  merely to demarcate legislative fields between Parliament and State  Legislatures  and not to confer any legislative power.  The several entries  mentioned in the three Lists are fields of legislation.  While exercising the  legislative competence of a Legislature in regard to a particular enactment with  reference to the entries in the various lists it is necessary to examine the pith  and substance of the Act and to find out if the matter comes substantially  within the item in the list.  The express words employed in an entry would  necessarily include incidental and ancillary matters so as to make the  legislation effective.  The scheme of the Act under scrutiny, its object and  purpose, its true nature and character and the pith and substance of the  legislation are to be focused at.

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       If the matter is within the exclusive competence of State Legislature, i.e.,  List II then the Union Legislature is prohibited to make any law with regard to  the same.  Similarly, if any matter is within the exclusive competence of the  Union, it becomes a prohibited field for the State Legislatures.  The concept of  occupied filed is relevant in the case of laws made with reference to entries in  List III.    The doctrine of covered field has to be applied only to the Entries in  List III.  This proposition of law is well settled in a number of decisions of this  Court including  State of A.P. & Ors. Vs. Mcdowell & Co. & Ors., 1996 (3)  SCC 709; State of Rajasthan & Ors. Vs. Vatan Medical & General Store &  Ors., 2001 (4) SCC 642 and Shri Krishsna Gyanoday Sugar Ltd. & Anr. Vs.  State of Bihar, 2003 (2) Scale 226.

       The relevant entries of the Constitution Schedule VII are as follows:

List II Entry 63:

" Rates of Stamp duty in respect of documents other  than those specified in provisions of List I with  regard to the rates of stamp duty."

List III Entry 44:

"Stamp duties other than duties or fees collected by  means of  judicial stamps but not including rates of  stamp duty"

List I Entry 91: "Rates of stamp duty in respect of Bill of Exchange,  cheques, promissory notes, Bill of landing, letter of  credit, policies of insurance, transfer of shares,  debentures, proxies and receipts."

List I Entry 43:

"Incorporation, regulation winding up of trading  corporation including banks insurances and finance  corporations but not including corporative societies."

List I Entry 44:

" Incorporation, Regulation and winding up of  corporations, whether trading or not with object not  confined to one state but not including universities."

List I Entry 97:

"Any other matter not enumerated in List II and List  III, including any tax not mentioned in either of any  those lists."

       Union under Entry 91 of List I can prescribe rates of stamp duty in  respect of Bill of Exchange, cheques, promissory notes, Bill of landing, letter  of credit, policies of insurance, transfer of shares, debentures, proxies and  receipts.  In exercise of power conferred by Entry 63 List II it is open for the  State Legislature to make amendment in the Act in regard to the rates of Stamp  duty in respect of documents other than those specified in provisions of List I.

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       As discussed above, the order passed under Section 394 is founded on  consent and this order is an instrument as defined under Section 2 (1) of the  Bombay Stamp Act.  The State Legislature would have the jurisdiction to levy  stamp duty under Entry 44 List III of the Seventh Schedule of the Constitution  and prescribes rate of stamp duty under Entry 63 List II.  It does not in any  way impinge upon any entry in List I.  Entry 44 of List III empowers the State  Legislature to provide for stamp duties other than duties or fees collected by  means of judicial stamps.  Along with this, Entry 63 of List II empowers the  State Legislature to prescribe rates of stamp duty in respect of documents other  than those specified in the provisions of List I, that is to say, rates of stamp  duty in respect of Bill of Exchange, cheques, promissory notes, Bill of landing,  letter of credit, policies of insurance, transfer of shares, debentures, proxies and  receipts.  By sanctioning of amalgamation scheme, the property including the  liabilities are transferred as provided in Section 394 of the Companies Act and  on that transfer instrument, stamp duty is levied.  It, therefore, cannot be said  that the State Legislature has no jurisdiction to levy such duty.    

Charging  Section, i.e., Section 3 of the Bombay stamp Act reads:

"3. Instrument chargeable with duty.  Subject to the provisions of this Act and the  exemptions contained in Schedule I, the following  instruments shall be chargeable with duty of the  amount indicated in Schedule I as the property duty  therefor respectively, that is to say \026

(a)     every instrument mentioned in Schedule I, which not  having been previously executed by any person, is  executed in the State on or after the date of  commencement of this Act; (b)     every instrument mentioned in Schedule I, which not  having been previously executed by any person, is  execute out of the State on or after the said date,  relates to any property situate, or to any matter or  thing done or to be done in this State and is received  in this State:

xxx                     xxx                     xxx"

The duty charged by the State Legislature is on the instrument and is on  the execution of the instrument.  The measure of charging stamp duty may be  fixed or ad-valoram which is to be determined by the Legislature. The basis for  computation of stamp duty can be determined by the State Legislature and it  may be on the basis of the market value of the property transferred or at a fixed  amount.

       In Himalaya House Co. Ltd. Vs. The Chief Controlling Revenue  Authority, & Anr.  AIR 1972 SC 899, it was observed:

"On a conspectus of these authorities it is, therefore,  apparent that in the exercise of powers conferred on  it by Entry 63 of List II and Entry 44 of List III, it  was open to the State Legislature not only to make an  amendment in the Act in regard to the rates of stamp  duty but also in regard to the mode of computation of  stamp duty.  In other words, it was open to the State  Legislature to lay down that the basis for computing  stamp duty shall not be the amount or value of the  consideration of the conveyance as set forth therein  but it shall be the market value of the property which  is the subject matter of conveyance."

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                               {Emphasis supplied}           Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 1997  was enacted whereby in Article 25 of the Schedule I of the Bombay Stamp  Act, 1958  Clause (da) and Explanation III were added with retrospective  effect prescribing the rates at which the duty was to be calculated and levied.   Vires of this provision of this Act were not challenged in the writ petition.  

       It was next contended that provisions of Section 2(g)(iv) read with  Section 34 of the Bombay Stamp Act which provides that the instrument not  duly stamped would be inadmissible in evidence are repugnant to Section 394  of the Companies Act and that the State Legislation cannot be prevail over the  provisions of the Companies Act.  It was also contended that in the guise of the  stamp duty the State Legislature is in reality imposing a tax on the  amalgamation of the companies and has therefore encroached on the field of  the Parliament  under Entry 43, List I of the Constitution.  We do not find any  substance in this submission as well.  Stamp duty is levied on the instrument  and the measure is the valuation of the property transferred.  There is no  question of encroachment on the field of Parliament under Entry 43, List I  of  the Constitution which empowers the Union to make laws re: incorporation,  regulation winding up of trading corporation including banks insurances and  finance corporations but not including corporative societies. The follow up  legislation under Entry 43 List I is totally different from the levy of stamp duty  and of prescribing rate of stamp duty on such documents.  The Bombay Stamp  Act does not provide for any Legislation with regard to incorporation,  regulation and winding up of corporations.  It only levies the stamp duty and  prescribes the rate of stamp duty in respect of documents by compromise or  arrangement.   

       Section 2 (g)(iv) of the Act does not in any way describe any alternate  procedure as compared to the one appearing in Section 394 of the Companies  Act, 1956.  The question of repugnancy of Section 2(g)(iv) of the Act visa-a-  vis Section 394 of the Companies Act, 1956 is therefore irrelevant.  Section  2(g)(iv) does not impinge or negate the judicial power because it merely  defines the word "conveyance" in regard to the order passed by the High Court  under Section 394 of the Companies Act,  the basis of which is consent and  voluntary act which ultimately result in transfer of property for consideration.  

       Under the Bombay Stamp Act conveyance includes any instrument by  which property, whether movable or immovable, or any estate or interest in  any property is transferred to, or vested in, any other person, inter vivos. The  word "inter vivos" has not been defined in the Act or in the General Clauses  Act. The meaning assigned to the word "inter vivos" in the Black’s Law  Dictionary, 6th Edn., is:

"Between the living; from one living person to  another.  Where property passes by conveyance, the  transaction is said to be inter vivos, to distinguish it  from a  case of succession or devise.  So an ordinary  gift from one person to another is called a "gift inter  vivos"

It was contended that since the transaction was not between the ’living  beings’ the same was not "inter vivos" as the transfer of property had not taken  place between the living beings.  We do not agree.  "Transfer of Property" has  been defined in Section 5 of the Transfer of Property Act, 1882 to mean an act  by which a living person conveys property, in present or in future to one more  other living persons.  Company or association or body of individual, whether  incorporated or not, have been included amongst the "living person" in this  Section.  It clearly brings out that a company can effect transfer of property.   The word "inter vivos" in the context of Section 394 of the Companies Act

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would include within its meaning also a transfer between two "juristic persons"  or a transfer to which a ’juristic person’ is one of the parties. The transaction  between a minor or a person of unsound mind with the other person would not  be recognised in law, though the same is between two living beings, as they are  not juristic persons in the eyes of law who can by mutual consent enter in a  contract or transfer the property.   The company would be juristic person  created artificially in the eyes of law capable of owning and transferring the  property.   Method of transfer is provided in law.  One of the methods  prescribed is dissolution of the transferor company by merger in the transferee  company along with all its assets and liabilities.  Where any property passes by  conveyance, the transaction would be said to be inter vivos as distinguished  from a case of succession or devise.   

No other point was urged.   

       For the reasons stated above, we do not find any merit in these appeals  and dismiss the same with no order as to costs.