On September 23 2011 the Ministry of Corporate Affairs issued the Companies (Central Government's) General Rules and Forms (Amendment Rules) 2011. The new rules amend Form 5 of the Companies Act 1956, which is used to detail any notice of consolidation, division or increase in share capital or increase in the number of members by a company (under Sections 95, 97, 94A(2) or 81(4), respectively).
Under the amendment, in the State of National Capital Territory of Delhi, the payment of stamp duty for an increase of authorised capital (as payable when filing Form 5) has been made optional. These rules came into effect on September 25 2011.
The amendment is in line with the April 11 2011 judgment of the Delhi High Court in SE Investments Limited v Union of India. In the said judgment, the court held that in the absence of an express provision in the Indian Stamp Act 1899 (as applicable for the state of Delhi) that permitted the levy of stamp duty on an increase in authorised share capital, the registrar of companies would not be able to levy such stamp duty on a company in the absence of any amendments made to that effect.
SE Investments Limited had questioned the authority and competence of the registrar of companies and the Delhi Collector of Stamps to levy and collect stamp duty on the increased authorised share capital under the Indian Stamp (Delhi Amendment) Act 2007.
After discussing the law with respect to interpretation of a fiscal statute and the relevant provisions of the Stamp Act, the court held that:
"a statute authorizing the levy of stamp duty is in the nature of a fiscal statute inasmuch as it provides for involuntary exaction of money. This cannot be done except by the authority of law. The provisions of a fiscal statute admit of strict construction. In the absence of an express provision in the Act permitting levy of stamp duty on the increase in authorised share capital, it is not possible to legally sustain the impugned demand."
The court set aside the order of the Registrar of Companies that had insisted on payment of stamp duty, as there was no legal basis for such levy.
As such, following an increase of authorised share capital of a company within the State of National Capital Territory of Delhi, proof of payment of stamp duty for an increase in the authorised share capital need not be submitted when filing Form 5. Therefore, not only has payment of stamp duty been made optional (under the amended Form 5), but in light of the above judgment it appears to be not payable at all.
For further information on this topic please contact Neha Goyal or Vikas Goel at Singhania & Partners LLP by telephone (+91 11 4153 1000), fax (+91 11 4153 1001) or email ([email protected] or [email protected]).