(Delivered by Viswanatha Sastri J.)
This is a reference under S. 60 of the Indian Stamp Act by the learned District Munsif of Sattur raising two questions with reference to the stamp duty chargeable on two documents filed in his Court. These documents have been marked for purposes of identification as A-2 and A-3. The facts that have led up to this reference are these. The Pudukottah Benefit Fund Ltd., a company carrying on chit fund business in as many as 114 branches scattered throughout the southern districts of this Province, got into financial difficulties and was ordered to be wound up by an order of this Court dated 12-1-1948 in O.P No. 190 of 1947, a petition filed by the creditors of the company. By its order dated 16-11-1948 in O.P No. 301 of 1948 this Court sanctioned a scheme of arrangement under S. 153-A of the Companies Act. The order of this Court provided that for the purpose of carrying out the said scheme the Official Liquidators of the Pudukottah Benefit Fund Ltd. should transfer its assets and liabilities to another limited company the Central Finance Syndicate Ltd., Erode, styled in the order as the transferee company. Clauses 1 to 4 of the scheme approved by this Court in its order in O.P No. 301 of 1948 were in these terms:—
(1) The Central Finance Syndicate Ltd., Erode, the proposed transferee company, shall take over by transfer the whole of the undertaking and the property of the Pudukottah Benefit Fund Ltd. and be liable for all the liabilities of the said Pudukottah Benefit Fund Ltd.
(2) The said Syndicate will conduct and run not only the chits discontinued prior to liquidation but will continue the business in the same manner as the Pudukottah Benefit Fund Ltd. would have done but for the intervention of the liquidation proceedings.
(3) The said Syndicate will float a number of joint stock companies for taking over the assets and liabilities of each branch or group of branches of the Pudukottah Benefit Fund Ltd. and to carry on the business as before of each such branch or group of branches.
(4) The said Syndicate shall and hereby undertake to pay the creditors from time to time within two years at least a minimum of eight annas in the rupee in full satisfaction of the debts due to them from the assets received from the newly formed companies and also by sale or transfer of the assets.
Pursuant to the scheme and the order of this Court approving of it, the Official Liquidators transferred the assets and liabilities of the Pudukottah Benefit Fund Ltd. to the Central Finance Syndicate Ltd., Erode under a deed of indenture dated 10-1-1949 referred to as A-2 in the order of reference. The Central Finance Syndicate Ltd., Erode floated joint stock companies in some of the places where the branches of the Pudukottah Benefit Fund Ltd., had been functioning, for the purpose of taking over the assets and liabilities of those branches. The Sahayanidhi (Virudhunagar) Ltd. was one such company and the assets and liabilities of the Virudhunagar branch of the Pudukottah Benefit Fund Ltd., were transferred to it by the Central Finance Syndicate Ltd. under a deed of indenture dated 4-2-1929 referred to as A-3 in the order of reference. The assets so transferred consisted mostly of book debts and promissory notes of persons who had bid at the auctions and taken the chit money with a liability to pay future instalments of subscriptions. The Sahayanidhi (Virudhunagar) Ltd., instituted suits for the recovery of money due on promissory notes executed by the subscribers and O.S No. 59 of 1949 out of which this reference arises was one of such suits. In the course of this suit, the question of the proper stamp duty payable on the documents referred as A-2 and A-3, the deeds of transfer of assets and liabilities effected by the Official Liquidators in favour of the Central Finance Syndicate Ltd., and by the Central Finance Syndicate Ltd., in favour of the Sahayandidhi (Virudhunagar) Ltd., arose for consideration. The two documents have each of them been stamped with a stamp of Rs. 15 as composition-deeds under Art. 22 of the Stamp Act. The questions that have been referred to us by the learned District Munsif are—
(1) Whether the transfer by the Official Liquidators in favour of the Central Finance Syndicate Ltd., Erode, dated 10th January 1949 requires to be stamped under the Stamp Act and if so under what Article of the Stamp Act?
(2) Whether the transfer deed executed on the 4th February 1949 by the Central Finance Syndicate Ltd., Erode, in favour of the Sahayanidhi (Virudhunagar) Ltd., is properly stamped and if not what is the proper duty leviable on this document?
The learned District Munsif expressed the opinion that the deed of indenture A-2 dated 10-1-1949 by which the Official Liquidators transferred the assets and liabilities of the Pudukottah Benefit Fund Ltd., to the Central Finance Syndicate in consideration of the latter agreeing to pay eight annas in the rupee to the creditors of the Pudukottah Benefit Fund Ltd., in pursuance of the order of this Court sanctioning the scheme, was a composition deed liable to stamp duty under Art. 22 of the Stamp Act (Sch. I-A, Art. 18 of the Act as amended in Madras). With regard to the transfer A-3 dated 4-2-1949 by which the assets and liabilities of the Virudhunagar branch of the Pudukottah Benefit Fund were transferred by the Central Finance Syndicate to the Sahayanidhi (Virudhunagar) Ltd., the learned District Munsif was of the opinion that it was a conveyance chargeable to stamp duty under Art. 23 of Schedule I of the Stamp Act. At the same time he wanted the opinion of this Court on the said two matters.
Before considering the terms and stipulations in the two deeds of transfer referred to as A-2 and A-3, we would like to refer to S. 153-A of the Companies Act which has been enacted with a view to facilitate arrangements and compromises between a company and its creditors or shareholders which involve a transfer of its assets and liabilities to other companies as part of such arrangement. If any such scheme or arrangement is sanctioned by Court, the Court is empowered by the section to make provision by its order sanctioning the arrangement or any subsequent order, for the transfer of the assets and liabilities of a company in liquidation to another company, styled in the section as the transferee company. Where an order of Court made under the section provides for the transfer of the assets and liabilities of a company in liquidation to another company, the assets are, by virtue of that order, without more, transferred to and vest in the transferee company and the liabilities of the former company are also cast upon the transferee company. Under the ordinary law of contracts, while assets are assignable, liabilities under contracts or duties arising thereunder are not assignable but the effect of S. 153-A is to some extent to override the ordinary law. There is not only a vesting of assets and property but also the imposition of a liability to discharge the debts of the transferor company as a result of the order of Court passed under S. 153-A. The physical handing over of the property and assets transferred would in many cases have to be effected by the Official Liquidators who are in possession of the assets and properties of the company under liquidation and S. 153-A(1) clause (a) of the Companies Act empowers the Court to pass an order directing such transfer or delivery of assets to the transferee company. The title of the transferee company to the property and assets transferred as the result of the order of Court under S. 153-A is derived from and by the force of the order of the Court itself. The transfer of assets and liabilities sanctioned by the Court under S. 153-A might be in favour of another company in existence or under formation and awaiting incorporation as a company. Cl. 3 of the scheme approved by this Court provides that the Central Finance Syndicate Ltd., the transferee company, might float other joint stock companies for taking up the assets and liabilities of the several branches of the Pudukottah Benefit Fund Ltd. The transfer of the assets and liabilities of the Virudhunagar branch of the Pudukottah Benefit Fund Ltd., to the Sahayanidhi (Virudhunagar) Ltd., under the transfer deed referred to as A-3 is a transfer authorised and provided for by the order of this Court approving Cl. 3 of the scheme. It therefore follows that by reason of the order of this Court in O.P No. 301 of 1948 the Central Finance Syndicate Ltd., and the Sahayandihi (Virudhunagar) Ltd., would be entitled to the assets and be subject to the liabilities of the Pudukottah Benefit Fund Ltd. and the Virudhunagar branch of the Pudukottah Benefit Fund Ltd.
We have, however, to deal not with the effect of the order of this Court sanctioning the arrangement, but with the liability to stamp duty of the documents referred to as A-2 and A-3 which are in form transfers of assets and liabilities by act of parties though carried out pursuant to the order of Court. These two documents cannot be regarded as vouchers passed by the parties in token of their having carried out the terms of the Court's order. The Stamp Act subjects to duty instruments falling within the description of documents specified in schedule I and for fixing the duty payable, the substance of the documents should be looked into. It is not possible therefore to accept the contention of the plaintiff that these documents merely incorporated the terms and conditions of the order passed by this Court and therefore they do not require to be stamped as independent transfer of property. The document referred to as A-2 purports not only to carry out the terms of this Court's order but goes much further. There is an undertaking on the part of the transferee company to pay a sum of Rs. 24750 to the Official Liquidators on a charge of the assets transferred. There are also covenants entered into by the transferee company to pay arrears of salary due to the staff and arrears of rent. These obligations are part of the consideration for the transfer under A-2 according to the terms of the document. The question is now whether these arrangements could not be effected otherwise than by the execution of a document like Ex. A-2, but is, whether, when a document like A-2 has been duly executed, it is a conveyance as defined by S. 2, clause (10) and Art. 23 of the Stamp Act. The position is the same with reference to the document referred to as A-3 which admittedly goes further than the Court's order and embodies as part of the bargain between the parties terms and conditions which are not found in the Court's order. The transferee agrees to pay as part of the consideration and as a first charge on the assets a sum of Rs. 1000 towards the liquidation expenses and another sum of Rs. 500 for the goodwill, such as it was, and all arrears of rents and salaries payable by the defunct branch of the Pudukottah Benefit Fund Ltd. The definition of the expression “conveyance” in S. 2 clause (10) of the Stamp Act is in these terms:
“Conveyance includes a conveyance on sale and every instrument, by which property, whether moveable or immoveable, is transferred inter vivos and which is not otherwise specifically provided for by schedule I.”
The documents referred to A-2 and A-3 ex facie purport to transfer moveable property in the shape of book debts and promissory notes and the consideration for such transfer is partly in the shape of a cash payment and partly in the shape of covenants entered into by the transferee. We are therefore of the opinion that these two documents fall within Art. 23 of the schedule I and are to be stamped as such.
It is suggested on behalf of the plaintiff that these documents could be viewed as deeds of compositions within the meaning of Art. 22 of Schedule I of the Act. Composition is an arrangement to which a debtor and his creditors are parties whereby the creditors agree to accept in full satisfaction of their debts something less than or something different from that which may be claimed by them as of right. In the present case, it is difficult to apply the language of Art. 22 of schedule I of the Stamp Act to the deeds of transfer referred to as A-2 and A-3. For one thing, the debtors are not parties and secondly the transfer is made pursuant to an order of Court sanctioning a scheme of arrangement entered into between the creditors and the company. The deeds of transfer themselves purported to be mere transfers of property by the Official Liquidators in the one case and by the Central Finance Syndicate in the other case in favour of other companies. We do not consider, therefore that it is possible to treat these transfers as deeds of composition within the meaning of Art. 22.
The plaintiff, however, does not require these documents to be admitted in evidence in the Court of the District Munsif. In the view we have taken of the effect of S. 153-A of the Companies Act, the plaintiff can establish his title to recover the book debts of the Virudhunagar branch of the Pudukottah Benefit Fund on the basis of the order of this Court approving the scheme of arrangement. Therefore, the learned District Munsif is not called upon to decide the question of the proper stamp duty payable upon these documents and also the penalty leviable on them. Under S. 38(2) of the Stamp Act, he has to send the documents to the Collector who has to levy the proper duty and the penalty in respect of these documents. It is therefore unnecessary for us to indicate the amount of the stamp duty leviable on these two documents. That will be a matter to be dealt with by the Collector when the documents are sent to him.
We answer the reference in the manner above indicated.
N.R.R