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JSA successfully represented Tata Power’s Mundra Ultra Mega Power Plant (4150 MW) before APTEL against illegal denial of capital cost of over Rs. 100 Crores and annual operational cost by 3.75% on account of installation of Flue Gas Desulphurisation (FGD)

On 22.06.2020, Central Electricity Regulatory Commission (CERC) allowed additional capital cost and recurring operational cost to be incurred by Tata Power on account of retrofitting of FGD, to meet the revised emission norms prescribed by Ministry of Environment, Forests and Climate Change, Government of India. While CERC allowed the capital cost and operating cost, it denied capital cost to the tune of over Rs. 100 Crores and recurring operation cost by approx. 3.75%.

Tata Power challenged CERC’s Order before APTEL. APTEL vide its Judgment dated 14.05.2024 held that CERC’s deduction is illegal and bereft of any reasoning, despite furnishing of relevant documents and submissions being advanced by Tata Power. Consequently, CERC’s Order was set aside with directions to CERC to consider this issue afresh and pass necessary orders within 3 months.

APTEL’s Judgment dissuades Regulatory Commissions from passing orders without considering relevant material and promotes principles of restitutive relief in Change in Law matters.

Our Litigation Team Comprised Joint Managing Partner – Amit Kapur, Partner – Abhishek Munot, Partner – Kunal Kaul and Senior Associate – Samikrith Rao Puskuri.

Tags Central Electricity Regulatory Commission, JSA, Leading Law Firm, Leading Lawyers, Tata Power

JSA Prism | Dispute Resolution | May 2024

Please click here to download the Prism as PDF.

Delhi High Court refuses to interfere with order under Section 16 of the Arbitration Act; holds that order must shock the conscience for interference under writ jurisdiction

In the recent decision of Oriel Financial Solutions Private Limited v. Bestech Advisors Private Limited[1], the Hon’ble High Court of Delhi (“Delhi HC”) refused to interfere with an order by which the petitioner’s application under Section 16 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) had been rejected. The Delhi HC reasoned that since the impugned order was not so perverse so as to shock the conscience of the court, no interference was warranted in the exercise of writ jurisdiction.

Brief Facts

In an arbitral proceeding, Oriel Financial Solutions Private Limited (“Petitioner”) had filed an application under Section 16 of the Arbitration Act on the ground that the dispute was non-arbitrable since the contract in question was void ab initio.

By an order dated February 1, 2024 (“Impugned Order”), the arbitrator dismissed the Petitioner’s application, holding that the ground raised by the Petitioner required detailed examination of evidence and the application could not be decided on basis of the limited documents and evidence on record.

The Petitioner challenged the Impugned Order before the Delhi HC under Article 227 of the Constitution of India.

Issue

The issue before the Delhi HC was whether interference with the Impugned Order, which was passed in an arbitral proceeding, was warranted in the exercise of writ jurisdiction.

Findings

The Delhi HC noted that in the case of SBP & Company v. Patel Engineering Limited[2] , the Hon’ble Supreme Court of India (“Supreme Court”) deprecated the proposition that any order passed by an arbitral tribunal could be corrected by High Courts in exercise of their writ jurisdiction. The Delhi HC also applied the case of Deep Industries Limited v. Oil & Natural Gas Corporation[3] , where the Supreme Court held that interference under writ jurisdiction should be restricted to orders which are patently lacking in inherent jurisdiction. Accordingly, the Delhi HC refused to interfere with the Impugned Order, holding that it was not so perverse so as to shock the conscience of the court.

Conclusion

As observed by the Supreme Court in Rohtas Industries Ltd. v. Rohtas Industries Staff Union[4] , High Courts have expansive and extraordinary powers under writ jurisdiction, which can affect any person and be available for any purpose. However, certain restraints on use of these extraordinary powers have been spelt out, and those restraints should not be ignored, except where “the monstrosity of the situation or other exceptional circumstances” so demand.

One such restraint formulated by courts over the years is that while exercising writ jurisdiction, High Courts must be extremely circumspect in interfering with orders passed in arbitral proceedings. The circumstances in which such interference may be warranted are quite limited and fairly well settled.

As summarised by the Supreme Court in Navayuga Engineering Company v. Bangalore Metro Rail Corporation[5], interference with orders of arbitrators would be warranted under Articles 226 and 227 of the Constitution of India only in 2 (two) scenarios – either “in cases of exceptional rarity or cases which are stated to be patently lacking in inherent jurisdiction”.

Other decisions of the Supreme Court provide guidance as to when these grounds can be invoked:

As per the decision in Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Limited[6], interference on basis of the first ground, i.e., that of ‘exceptional rarity,’ may be warranted in cases where “one party is left remediless under the statute or a clear “bad faith” [is] shown by one of the parties”.
As per the decision in Punjab State Power Corporation v. EMTA Coal Limited^[7], interference on basis of the second ground, i.e., that of ‘patent lack of inherent jurisdiction,’ would be warranted in cases that require “no argument whatsoever – it must be the perversity of the order that must stare one in the face”.

Therefore, the circumstances in which orders passed by arbitrators can be interfered with in the exercise of writ jurisdiction are quite limited and fairly well settled. In the case at hand, the Petitioner’s challenge to the Impugned Order did not fall within either of the said limited circumstances. As such, in our view, the rejection of such a challenge was not only in consonance with applicable precedent, but also aligned with the larger objective of ensuring minimal judicial interference with the arbitral process.

This Prism has been prepared by:

Divyam Agarwal
Partner

Aniket Aggarwal
Senior Associate

For more details, please contact [email protected].

[1] 2024:DHC:2390

[2] 2005 (8) SCC 618

[3] 2020 (15) SCC 706

[4] (1976) 2 SCC 82

[5] 2021 SCC OnLine SC 469

[6] (2022) 1 SCC 75

[7] (2020) 17 SCC 93

Tags Delhi High Court, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates

JSA secures 5-year electricity duty exemption for UltraTech Cement Limited’s captive coal mine

JSA successfully represented UltraTech Cement Limited (“UTCL”) before Hon’ble Madhya Pradesh High Court at Jabalpur in securing exemption from payment of Electricity Duty for 5 years for its captive coal mine.

To promote industrialization, the State of Madhya Pradesh granted a 5-year exemption to new High-Tension consumers, from payment of Electricity Duty if a new connection was taken on or before 03.03.2019 (cut-off date).

While UTCL completed all formalities (including laying and handing over the electricity supply line) before the cut-off date for securing a new connection, the line was charged by the distribution licensee and supply given to UTCL only after the cut-off date. The exemption was denied because of this delay in charging.

UTCL challenged this denial of exemption before the Energy Secretary, Govt. of Madhya Pradesh (being the appellate authority under the MP ED Act, 2012) on the ground that UTCL’s obligations were completed within the cut-off date and charging of line was not necessary to qualify as a ‘consumer’. However, no exemption was granted. UTCL then approached Hon’ble Madhya Pradesh High Court.

Hon’ble Madhya Pradesh High Court held that UTCL’s captive coal mine qualifies for the exemption since:

The line was handed over to the distribution licensee before deadline. There is no role thereafter to be played by UTCL.
As per MP ED Act read with the Electricity Act, 2003, UTCL had attained the status of a ‘consumer’ after its line was connected with the works of a licensee for purpose of receiving electricity.
The Notification applied to ‘new HT consumers’, and it did not stipulate that electricity supply ought to be started to qualify for exemption.

This Judgment clarifies that supply of electricity is not sine qua non to qualify as a ‘consumer’ under the ED Act read with Electricity Act. The decision of the HC could provide relief to several other entities who are dealing with delay on part of the licensee, due to which fiscal benefits are being denied.

Our Litigation Team Comprised Lead Partner – Abhishek Munot, Partner – Kunal Kaul and Senior Associate – Samikrith Rao Puskuri.

Tags JSA, Leading Law Firm, Leading Lawyer, Ultratech Cement

JSA Brief | April 2024

This edition of the JSA Brief showcases JSA authored articles, updates & newsletters and achievements such as deals and events in all practice area over the preceding month (April 2024).

To read further details, click here or refer to the below document.

For more details, please contact [email protected]

*In case the document is not visible on the device you are using, please click the link above.

Tags Articles, Deal Making, Events, JSA, JSA Prism, Legal Updates, Newsletters, Publications, Recognitions

JSA Prism | Dispute Resolution | May 2024

Please click here to download the Prism as PDF.

Supreme Court: For the parties to be referred to arbitration, there must be a specific and conscious incorporation of an arbitration clause from another contract

In NBCC (India) Limited vs. Zillion Infraprojects Pvt.Ltd.[1], the Supreme Court has held that a general reference in a contract (“Contract 1”) to a separate contract (“Contract 2”) would not incorporate the arbitration clause contained in Contract 2 for resolution of disputes that arise under Contract 1. In view of this judgment, if the parties want to incorporate an arbitration clause from another contract, they should ensure that there is a specific reference in Contract 1 to the arbitration clause contained in Contract 2.

Brief Facts

NBCC (India) Limited (“NBCC”) and Zillion Infraprojects Pvt. Ltd. (“Zillion”) entered into a contract (“NBCC Contract”) for construction of Weir with Allied Structures across river Damodar.
The NBCC Contract provided that:
- All terms and conditions as contained in the tender (“DVC Contract”) issued by Damodar Valley Corporation (“DVC”) to NBCC would apply mutatis mutandis except where these were expressly modified by NBCC (clause 2).
- The redressal of disputes between the NBCC and Zillion would only be through civil courts at Delhi (clause 7).
The DVC Contract contained an arbitration clause.
When disputes arose between Zillion and NBCC under the NBCC Contract, Zillion referred the dispute to arbitration in terms of the arbitration clause contained in the DVC Contract. Zillion filed a petition under Section 11 of the Arbitration & Conciliation Act, 1996 (“Arbitration Act”) praying for appointment of an arbitrator.
Though NBCC objected to the appointment of an arbitrator on the ground that no arbitration clause existed under the NBCC Contract, the Delhi High Court held that an arbitration clause existed between the parties (as per the DVC Contract) and appointed an arbitrator.
NBCC challenged the judgment passed by the High Court before the Supreme Court.

Issue

The issue before the Supreme Court was whether by referring to the DVC Contract, the parties had also incorporated the arbitration agreement contained in the DVC Contract to the NBCC Contract.

Findings and Analysis

The Supreme Court reiterated the following law relating to incorporation of an arbitration clause by reference:
- Section 7(5) of the Arbitration Act provides for a conscious acceptance of the arbitration clause from another document by the parties, before such arbitration clause could be read as a part of the contract between the parties. Reference in terms of Section 7 (5) of the Arbitration Act should be such that shows the intention to incorporate the arbitration clause contained in the document into the contract.
- When parties enter into a contract, making a general reference to another contract (for execution, performance etc.) would not have the effect of ipso facto incorporating the arbitration clause from that contract. Arbitration clause from another contract can be incorporated only by a specific reference to such arbitration clause.
- Where the contract provides that the standard form of terms and conditions of (i) an independent trade or professional institution; or of (ii) one of the parties to the contract will bind them or apply to the contract, such standard form of terms and conditions including any provision for arbitration in such standard terms and conditions, will be deemed to be incorporated by reference. The court held that such cases (where standard terms and conditions are incorporated) are ‘single-contract’ cases and not ‘two-contract’ cases (as in the present case).

On facts, the Supreme Court set aside the High Court’s judgment and held that no arbitration clause existed between NBCC and Zillion because:
- Clause 7 in the present case used the word “only” before the words “be through civil courts having jurisdiction of Delhi alone” and therefore, the intention of the parties was to give jurisdiction to only courts at Delhi (and not to submit to arbitration).
- Zillion’s argument that clause 7 only modified the jurisdiction of court from Calcutta (as in the DVC Contract) to Delhi but did not have the effect of modifying the arbitration agreement contained in the DVC Contract was rejected.

Conclusion

The parties would have to be careful in drafting their contracts and if the intention is to be bound by an arbitration clause contained in another contract, the parties should ensure that a ‘specific’ reference is made to incorporate the arbitration clause of the other contract. As stated in the judgment, this principle should not apply in cases where standard terms and conditions are incorporated (in which case, the arbitration clause is deemed to be specifically incorporated).

This Prism has been prepared by:

Dhirendra Negi
Partner

Pragya Chauhan
Partner

For more details, please contact [email protected].

[1] 2024 INSC 218

Tags Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Supreme Court

JSA successfully represented foreign directors and an authorised signatory of an Indian JV entity in contempt of court proceedings before the Bombay High Court

By a judgment of 26 April 2024, a single judge of the Bombay High Court dismissed a contempt petition filed by a company against an Indian JV company for failing to deposit certain amounts with the Court registry within the period prescribed in the order of the court (“Order”). The Order also stated that the JV company’s right to file a statement of defence or counter claim in pending arbitration proceedings with the applicant company was conditional upon the deposit being made. The deposit was not made, and the entity’s right of defence in the arbitration was lost.

The contempt petition, filed by the applicant company, was admitted and show cause notices were issued to the directors and the authorised signatory of the Indian JV entity. At the final hearing of the contempt petition, the directors and authorised signatory of the Indian JV entity contended, amongst other things, that –

Given the non-compliance with the Order, a contempt petition was filed and subsequently admitted; and show cause notices were issued to the directors and the authorised signatory of the Indian JV entity. In the contempt proceedings, the directors and authorised signatory of the Indian JV entity contended that there was no wilful disobedience of the Order since –

the Indian JV entity was in a precarious financial condition and did not have the requisite funds to comply with the Order.
amounts available with the Indian JV entity during the concerned period were expended to meet legitimate expenses, including tax dues and staff salaries.
the Indian JV entity had expected to recover substantial amounts from its creditors to comply with the Order, but no amounts were recovered on account of the COVID-19 pandemic.
the Order was self-operating and provided for drastic consequences for non-compliance, which had in fact taken place.

The Hon’ble High Court observed that in the face of the self-operative clause in the Order for adverse consequences upon failure to make the deposit, such an order could not be the basis for initiating contempt proceedings, and the consequences of the failure to deposit had been suffered and execution proceedings were being faced by the Indian JV entity. The Hon’ble Court also took into consideration the financial crunch suffered by the JV entity, the closure of its business, and the impact of the Covid-19 pandemic and the lockdowns. It concluded that while the fact that the Order could not be obeyed was made out, the court was not inclined to hold that there was wilful disobedience of the order. Accordingly, the contempt petition was dismissed.

Our Disputes Team Comprised Lead Partner – Farhad Sorabjee, Partner – Shanaya Cyrus Irani and Principal Associate – Siddhesh Pradhan.

Tags Joint Venture, JSA, Leading Law Firm, Leading Lawyers

Challenges of change and judiciary: Key learnings from SC judgement in GIB case

The GIB case has brought to fore a larger critical issue at a juncture when the National Litigation Policy is under review, the need for a holistic and informed adjudication by courts. This becomes critical in cases involving challenges to scientific, economic, social or environmental policies; or decisions with significant public implications.

Please click here to read the full article by Amit Kapur, published in The Economic Times – ET Energy World.

Tags ESG, JSA, Leading Law Firm, Leading Lawyers, National Litigation Policy

JSA successfully represents Resolution Professional of Smaaash Entertainment Private Limited before the Ld. NCLAT, New Delhi, dismissing the appeal filed by FGAPL against the order of the Ld. NCLT, Mumbai; thereby cancelling and annulling the Deed of Assignment of executed by the ex-promoters for the brand “SMAAASH”

JSA successfully represents Resolution Professional of Smaaash Entertainment Private Limited before the Ld. NCLAT, New Delhi

JSA successfully represented Mr. Bhrugesh Amin (Resolution Professional of Smaaash Entertainment Private Limited) in an appeal before the Ld. National Company Law Appellate Tribunal, New Delhi (“NCLAT”), wherein the Ld. NCLAT upheld the order dated 22.11.2023 (“Impugned Order”) passed by the Ld. National Company Law Tribunal, Mumbai (“NCLT”) cancelling and annulling the Deed of Assignment dated 19.04.2022 executed by the ex-promoters for the brand “SMAAASH” (“Deed of Assignment”).

By the Deed of Assignment, the erstwhile promoters of Smaaash Entertainment Private Limited (“Corporate Debtor”), assigned the brand name “SMAAASH” in favour of Fun Gateway Arena Private Limited (“FGAPL”) at a paltry consideration of Rs. 1.5 Crores, merely 18 days before commencement of CIRP. The said consideration was not paid to the Corporate Debtor and was set-off against an antecedent debt owed by the Corporate Debtor to its related party, being AHA Holdings Private Limited. On 22.11.2023, the Ld. NCLT vide its Impugned Order inter-alia held that:

The assignment of brand name “SMAAASH” (being the most valuable asset of the Corporate Debtor) by the erstwhile promoters of the Corporate Debtor in favour of FGAPL is a fraudulent transaction and the same was executed to scuttle the CIRP process.
The assignment of brand name “SMAAASH” is an undervalued and fraudulent transaction within the look-back period under the IBC.
Accordingly, NCLT directed cancellation and annulment of Deed of Assignment and the erstwhile promoters of the Corporate Debtor are injuncted from using the brand name “SMAAASH” in any manner.

Being aggrieved by the Impugned Order, FGAPL challenged the same before the Ld. NCLAT. The Ld. NCLAT while dismissing the appeal, upheld the Impugned Order and noted that the Impugned Order continues to remain operative.

Our Disputes Team Comprised Partner – Varghese Thomas, Dheeraj Nair, Kunal Kaul, and Fatema Kachwalla, Senior Associate – Avni Sharma, and Associate – Virgil Braganza.

Our Banking and Finance Team Comprised Partner – Tirthankar Datta, Aditi Sehgal and Associate – Ciol Kumar

Tags CIRP, JSA, Leading Law Firm, Leading Lawyers, Nclat

JSA Prism | Dispute Resolution | April 2024

Please click here to download the Prism as PDF.

An arbitral tribunal has the power to implead a non-signatory to arbitration proceedings under Section 16 of Arbitration Act

A single bench of the Bombay High Court (“Bombay HC”) has in Cardinal Energy and Infra Structure Private Limited & Anr. v. Subramanya Construction and Development Co. Limited & Ors.[1] held that the power to implead a non-signatory to an arbitration proceeding vests in an arbitral tribunal on the basis of the group of companies doctrine laid down in Cox and Kings Limited v. SAP India Private Limited & Anr[2] (“Cox and Kings”).

Brief Facts

Subramanya Construction and Development Company Limited (“SCDCL”, respondent no. 1) and Prakruthi Infrastructure and Development Company Limited (“PIDCL”, respondent no. 2) entered into a memorandum of understanding (“MoU”) with Swan Energy Limited (“Swan”, respondent no. 3). The MoU contained an arbitration agreement. Disputes arose between the parties leading to the issuance of a notice invoking arbitration by SCDCL and PIDCL against Swan. Pursuant to an application filed by SCDCL and PIDCL against Swan under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the Bombay HC appointed a sole arbitrator to adjudicate the disputes arising out of the MoU.

The parties filed their respective pleadings before the arbitral tribunal. In the Statement of Defence filed by Swan, a preliminary objection was raised alleging that Cardinal Energy and Infra Structure Private Limited (“Cardinal”, petitioner no. 1) and Pegasus Energy and Infrastructure Private Limited (“Pegasus”, petitioner no. 2) (together referred to as the “Petitioners”) were necessary parties without whom the claim was not maintainable since the Petitioners had performed an aspect of the contract.

Given the averment made in the Statement of Defence, SCDCL and PIDCL filed an application under Order 1 Rule 10 of the Code of Civil Procedure, 1908 (“CPC”) to implead the Petitioners as respondents to the arbitration proceedings. Swan opposed the application on the ground that the arbitral tribunal did not have the power to direct impleadment of the Petitioners and that this could have only been done by the referring court. The parties, including the Petitioners, were heard by the arbitral tribunal. After considering the submissions made, the arbitral tribunal passed an ‘order’ / ‘award’ allowing the application (“Impugned Award”).

Aggrieved by this decision, the Petitioners filed a petition under Section 34 of the Arbitration Act challenging the Impugned Award before the Bombay HC.

Issue

Whether the arbitral tribunal could have of its own accord allowed the impleadment of the Petitioners who were non-signatories to the arbitration agreement without such a power being expressly endowed upon it by the referral court at the time of reference.

Findings and Analysis

The Bombay HC dismissed the petition and inter alia held as follows:

In Cox and Kings, the Supreme Court has held that when at a referral stage, impleadment of a non-signatory to the arbitration agreement is raised, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement. The Supreme Court has considered the arbitral tribunal to be the appropriate forum to determine the issue as to joinder of a non-signatory to an arbitration agreement.
The arbitral tribunal has the power to decide whether the non-signatory is bound by the arbitration agreement and to implead the non-signatory if answered in the affirmative.
The applicability of the group of companies doctrine is not excluded merely by there being no prayer for impleadment of a non-signatory in the Section 11 application.
Despite the arbitral tribunal not having the specific power to consider an application for impleadment and/or the power of a civil court under Order 1 Rule 10 of the CPC, the Cox and Kings judgment has changed the law with respect to impleadment of non-signatories on the basis of the group of companies doctrine and has left the issue to be determined by an arbitral tribunal.
The Supreme Court in National Insurance Company Ltd. v. Boghara Polyfab Private Limited[3] has referred to issues which the Chief Justice or his designate is bound to decide, including whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Arbitration Act is a party to such an agreement. However, the same does not preclude the arbitral tribunal from deciding the issue of impleadment of a non-signatory to an arbitration agreement, particularly when the issue is not before the referral court.
In the present case, the Arbitral Tribunal was justified in determining the issue of whether the Petitioners as non-signatories to the arbitration agreement could be impleaded as parties to the arbitration.
The decision of the arbitral tribunal in an application under Section 16 of the Arbitration Act can always be challenged in a petition under Section 34 of the Arbitration Act after the final award has been passed. The Impugned Award was not in the nature of a final determination since it would be open to the Petitioners to lead evidence on the issues framed and invite a final adjudication by the arbitral tribunal.

Conclusion

This judgement clarifies the position that an arbitral tribunal has inherent powers under Section 16 of the Arbitration Act to implead a non-signatory / third party to an arbitration proceeding on the basis of the ‘group of companies’ doctrine. This is even in the absence of a specific prayer for impleadment of a non-signatory before a referral court. The judgment gives effect to the decision of the Supreme Court in Cox and Kings to reduce judicial intervention and leave issues including in respect of the impleadment of non-signatory parties to be decided by an arbitral tribunal.

This Prism has been prepared by:

Farhad Sorabjee
Partner

Shanaya Cyrus Irani
Partner

Siddhesh Pradhan
Principal Associate

Meher
Mistri
Associate

For more details, please contact [email protected]

[1] Comm Arbitration Petition (L) No. 2603 of 2024

[2] 2023 INSC 1051

Tags Arbitration Act, Bombay High Court, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Supreme Court

JSA Prism | Dispute Resolution | April 2024

Please click here to download the Prism as PDF.

Supreme Court holds that stamp duty is not payable on every increase in the authorized capital of a company if the prescribed maximum duty is already paid

The Supreme Court of India (“Supreme Court”) in its recent judgement State of Maharashtra & Anr., Vs National Organic Chemical Industries Limited [1], has held that once the maximum duty payable on the authorised share capital of a company is paid, as prescribed under the relevant stamp laws, no additional duty is payable for subsequent increase in the share capital, unless the law specifically requires payment of additional stamp duty. The Supreme Court further clarified that the form filed with the registrar of companies (“RoC”), notifying the increase in the authorised share capital of a company is not an instrument for the purpose of levying stamp duty. This judgement of the Supreme Court is significant since it settles the law that, if the state laws do not expressly provide for stamping every increase in the authorized capital, then no additional duty is payable for increase in the authorized capital, if the maximum prescribed duty has been paid earlier.

Brief Facts

In 1992, National Organic Chemical Industries Limited (“NOCIL”) paid a stamp duty of INR 1,12,80,000 (Indian Rupees one crore twelve lakh eighty thousand) after it increased its share capital from INR 36,00,00,000 (Indian Rupees thirty-six crore) to INR 600, 00,00,000 (Indian Rupees six hundred crore) under the Bombay Stamp Act, 1958 (“Stamp Act”)[2]. In 1994, the State of Maharashtra amended[3] the Stamp Act, introducing a cap of INR 25,00,000 (Indian Rupees twenty-five lakh) for companies increasing the authorised share capital. NOCIL subsequently increased its authorised share capital to INR 1,200 crore (Indian Rupees one thousand two hundred crore) inadvertently paying INR 25,00,000 (Indian Rupees twenty-five lakh) as stamp duty. NOCIL had also filed Form No.5[4] with the RoC as required under the Companies Act, 1956 (“CA 1956”). NOCIL sought refund which was rejected by the Deputy Superintendent of Stamps. NOCIL challenged this before the Bombay High Court which allowed the writ petition and directed the State of Maharashtra to refund the stamp duty plus interest. Against the said order, the State of Maharashtra and Deputy Superintendent of Stamps preferred an appeal before the Supreme Court.

Contentions

The State of Maharashtra contended that the stamp duty was payable every time a company increased its share capital and filed Form No.5[5] with the RoC. The State of Maharashtra further contended that the instrument liable to tax is Form No. 5 filed for increase in authorised capital. Section 14A of the Stamp Act was relied upon to contend that any material or substantial alteration in the character of an instrument requires a fresh stamp duty according to its altered character. It was further contended that the stamp duty paid earlier cannot be taken into consideration since the earlier payment was made in 1992 and the amendment imposing a cap on duty payable was introduced subsequently, in 1994.

NOCIL contended that the stamp duty was only payable on the article of association (“AoA”), which alone is the instrument referred to Article 10 of Schedule-I of the Stamp Act; and the filing of Form No. 5 to the RoC was merely to notify the increase in share capital, and the form is not an instrument under the Stamp Act. It was further contended that increase in the share capital of a company does not materially or substantially alter the character of the AoA in order to fall within Section 14A of the Stamp Act. Reliance was placed on Section 31 of the CA 1956 to contend that any alterations made to the AoA are valid and are to be taken as if originally contained therein.

Decision of the Supreme Court

The Supreme Court by relying on the view taken by Allahabad High Court in New Egerton Wollen Mills[6], held that filing of Form No. 5 is only for intimating the RoC about the increase in the share capital. The instrument as per Section 2(1) of the Stamp Act, that is liable to be assessed for stamp duty is the AoA as mentioned in Article 10 of Schedule-I of the Stamp Act.

The Supreme Court while dealing with the interplay between Section 14A of the Stamp Act and Section 31 of the CA 1956, held that CA 1956 being a special law and Stamp Act being a general law with regard to AoA, the special law will override the general law, in case of conflict. The Supreme Court clarified that in terms of Section 31 of the CA 1956, any increase in the share capital of the company shall be valid as if it were originally there when the AoA was first stamped; and that the amended AoA cannot be considered as a fresh instrument.

In view of the above and considering that the resolution to increase the authorised capital was passed by NOCIL after the amendment in 1994 was introduced, the Supreme Court held that stamp duty paid by NOCIL on the AoA in 1992 will have to be taken into account, while calculating the duty payable on the increased authorised capital. The Supreme Court further held that no additional duty is payable by NOCIL on the increased authorised capital, since the maximum duty payable under the Stamp Act had already been paid. Consequently, the Supreme Court dismissed the appeal; and directed the State of Maharashtra to refund the stamp duty with interest.

Conclusion

The judgement reiterates the position of law that taxing / fiscal statutes must be interpreted strictly. The judgement also affirms the proposition that a codified law overrides common practices, in as much as, it is clarified that the practice of stamping Form No. 5 does not make it an instrument and the actual instrument liable to be assessed for duty is the AoA as stated in Article 10 of Schedule 1 to the Stamp Act.

Subject to the state specific laws, the benefit based on this judgement can be availed by the companies not only for mere increase in authorized capital, but also during restructuring such as mergers.

This Prism has been prepared by:

Vinod Kumar
Partner

Srinivasan M.D
Partner

Sai Barath
Associate

For more details, please contact [email protected]

[1] Judgement dated April 5, 2024 in Civil Appeal No.8821 of 2011.

[2] The stamp duty payable on articles of association at that point in time was INR 1000 (Indian Rupees five thousand) for every INR 5,00,000 (Indian Rupees five lakh) or part thereof.

[3] The amendment to Article 10 of Schedule-I of the Stamp Act was introduced vide notification dated August 2, 1994.

[4] Form No. 5 of the Companies (Central Government’s) General Rules & Forms, 1965 is the prescribed form of notice, which has to be sent under Section 97 of the CA 1956. Under Section 64 of the Companies Act, 2013 read along with Rule 15 of the Companies (Share Capital and Debentures) Rules 2014, there is a requirement for the company to notify the RoC in Form SH-7 regarding the increase in the authorized share capital of the company.

[6] 1899 SCC Online All 22