Supreme Court: Maximum Cap In Bombay Stamp Act Applies As One-Time Measure For Company Shares, Not On Every Increase In Share Capital

Supreme Court: Maximum Cap In Bombay Stamp Act Applies As One-Time Measure For Company Shares, Not On Every Increase In Share Capital

The Supreme Court has ruled that no stamp duty is required for each separate increase in a company's share capital. It emphasized that if the 'Articles of Association' remain unchanged and stamp duty was already paid for the initial increase in share capital, the duty paid on that instrument must be deemed sufficient for all subsequent individual increases in the company's share capital.

The bench, consisting of Justices Sudhanshu Dhulia and PB Varale, stated that in situations where a company lacks share capital, no stamp duty is required. For a company submitting its articles for the first time, stamp duty will be calculated based on the nominal share capital. The inclusion of "increased share capital" implies that stamp duty will be imposed on subsequent increments in the authorized share capital, subject to a maximum limit. Essentially, the ceiling of Rs. 25 lakhs in Column 2 applies to both the Articles of Association and the augmented share capital contained therein, not to each individual increase. If stamp duty equal to or greater than the limit has already been paid, no additional stamp duty can be imposed.

In this case, the appellant, the Maharashtra State Government, requested the respondent, a company registered under the old Companies Act, to pay stamp duty for the subsequent increase in the company's share capital. The appellant argued that the notice sent by the company to the Registrar of Companies regarding the subsequent increase in its share capital qualifies as 'instruments' under Section 2(l) of the Stamp Act, thereby necessitating stamp duty.

Upon the initial increase in share capital to 600 crores in 1992, the respondent company remitted Rs. 1,12,80,000/- as stamp duty to the government under Article 10 of the Bombay Stamp Act, 1958. However, subsequent to an amendment in Article 10 of the Act, the maximum cap for stamp duty was revised to Rs. 25 lakhs.

The government rejected the company's request, asserting that stamp duty on the increase in share capital is not a one-time obligation. Instead, stamp duty must be paid on each instance when filing Form No. 5, as stipulated by Section 97 of the Companies Act, 1956.

Following the High Court's ruling in favor of the respondent/company, ordering the appellant/state to refund the stamp duty of Rs. 25 lakhs to the company, the state government appealed to the Supreme Court.

The Supreme Court initially observed that the respondent/company would not be obligated to pay stamp duty on each instance of increased share capital of the company.

The court observed that the cap of Rs. 25 lakhs on stamp duty payment would not apply to each individual increase in the share capital of a company. This interpretation was supported by the Maharashtra Stamp (Amendment) Act, 2015, which amended Article 10 of the Stamp Act, specifying that the cap would be a one-time measure. Additionally, the court clarified that the 2015 amendment extended the cap to cover "increased share capital," indicating that the cap would apply to each individual increase in share capital.

The court determined that the submission of notice in Form No. 5 under Section 97 of the Companies Act does not qualify as 'instruments'. Instead, it is deemed a mandatory obligation fulfilled by the company to inform the Registrar regarding the increased share capital.

The court clarified that the notice dispatched in Form-5 to notify the Registrar about the augmented share capital is not subject to stamp duty under the Stamp Act, 1958.

“It is only the articles that are an instrument within the meaning of Section 2(l) of the Stamp Act and accordingly have been mentioned in Article 10 of Schedule-I of the Stamp Act," the court said.

In conclusion, the court disagreed with the appellant's argument that stamp duty paid before the amendment should not be considered. Although the amendment does not apply retrospectively, the duty already paid on the "Articles of Association" must be acknowledged, as the increase was initiated after the introduction of the cap. This does not entail stamping a new instrument but merely reflects the increased share capital in the original document, as mandated by the legislation. Consequently, the appeal was dismissed.

The appellants were directed to refund the Rs. 25 lakhs paid by the respondent, along with interest at a rate of 6% per annum, within six weeks from the date of the judgment.