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2014 DIGILAW 465 (KAR)

Bill Forge Private Limited v. State of Karnataka

2014-04-11

K.L.MANJUNATH, RAVI MALIMATH

body2014
Judgment :- 1. The writ petitioner in 30203/2006 is a private limited Company registered under the Indian Companies Act, 1956 carrying on the business in manufacturing components for automobiles. It obtained a credit limit from 4th respondent bank by depositing the original title deeds pertaining to immoveable properties. Thereafter a request was made for additional credit limit. The same was granted on deposit of title deeds. The State brought about an amendment to the Karnataka Stamp Act by Act No. 7/2006 with effect from 1-4-2006. By virtue of the Explanation to Article 6 of the schedule, the respondent-bank is demanding the stamp duty on the deposit of title deeds for the purpose of creation of security in respect of the credit facility given to the petitioner. It is the case of the petitioner that it is not liable to pay any stamp duty on deposit of title deeds. That the impugned amendment is not sustainable in law and liable to be set aside. Therefore it filed writ petition No.1C203/2006 seeking for a declaration that the impugned legislation namely, Act No.7/2006 in so far as adding an Explanation to Article 6 in the schedule to the principal Act is unconstitutional, void and consequently to issue a writ of mandamus to restrain the respondent State and their officers from enforcing or giving effect to the provisions of the impugned amendment. It was contended by the petitioners that a similar attempt was made to levy duty in respect of such transactions which were the subject matter of litigation which ultimately ended in the Judgment dated 22-11-1973 rendered by the Full Bench in the case of MURUGHARAJENDRA COMPANY vs. CHIEF CONTROLLING REVENUE AUTHORITY reported in (1974)1 KAR,LJ 177. The Hon'ble Full Bench held that a letter that was the subject matter of the Judgment which had been construed as a mortgage deed and liable to duty under Article 6 to the Schedule to the Act was not one such and therefore no duty was required to be paid on such a letter. That in the present case also, there is no mortgage deed and as such there is no instrument and hence the petitioners are not liable to pay stamp duty. That the amendment is in violation of the very definition of instrument as it occurs in Section 2(l)(j) of the Karnataka Stamp Act. That in the present case also, there is no mortgage deed and as such there is no instrument and hence the petitioners are not liable to pay stamp duty. That the amendment is in violation of the very definition of instrument as it occurs in Section 2(l)(j) of the Karnataka Stamp Act. That what is sought to be subjected to duty in view of the explanation that is added is on a note or letter or the memorandum which is not even an instrument within the meaning of Section 2(l)(j) of the Act. Therefore the amendment in so far as it relates to the introduction of explanation to Article 6 requires to be declared as unconstitutional. The learned Single Judge was of the view that there was no liability fastened on the petitioner. Whether the liability is created or not in respect of a particular transaction is essentially dependent on the fact situation, nature of the transaction and the nature of the instrument as to whether it can be presumed as an instrument or otherwise and so forth. The learned Single Judge was also of the view that there was no need to examine the Full Bench Judgment of this Court. That the petitioner not being a person on whom the liability is sought to be fastened in respect of a transaction prior to the date of the amendment, it is not necessary to examine such questions. That no arguments were addressed with regard to the legislative competence or being violative of any provisions of the Constitution. With these reasoning the learned Single Judge dismissed the writ petition. Aggrieved by the said order, the petitioner has filed writ appeal No.1412/2012. 2. The writ petitioners in writ appeal No. 4195/2009 is a software company. It has the benefit of credit facility with the bank. An enhanced loan was sought for to the existing credit limit already granted on the same immoveable property which was offered earlier as a continuing guarantee. That in view of the amendment to the Karnataka Stamp Act, the petitioner was asked to pay the stamp duty on the transaction Under these circumstances, the petitioner filed the instant writ petition No.12723/2007 seeking to strike down and declare as unconstitutional and void the explanation to Article (6) in the Schedule to the Stamp Act and other consequential reliefs. That in view of the amendment to the Karnataka Stamp Act, the petitioner was asked to pay the stamp duty on the transaction Under these circumstances, the petitioner filed the instant writ petition No.12723/2007 seeking to strike down and declare as unconstitutional and void the explanation to Article (6) in the Schedule to the Stamp Act and other consequential reliefs. The learned Single Judge by the impugned order was of the view that the intention of the Legislature was a blatant act to nullify the effect of the Full Bench Judgment of this Court as well as the Apex Court wherein it was held that a transaction of the nature involved in the present petition, would attract stamp duty, notwithstanding the judicial pronouncements to the contrary. Therefore this being frowned upon by the Supreme Court, such a legislation could not be upheld or permitted to remain on the Statute book. Accordingly, the explanation to Article 6 of the Schedule to the Karnataka Stamp Act, 1957 as incorporated by amendment Act 7/2006, was declared as unconstitutional, void and the same was struck down as ultra vires. Aggrieved by the same, the State has filed writ appeal No.4195/2009 and WA. No. 314/2010. 3. Since both the appeals arise out of the orders passed by the respective learned Single Judges concerning the very same issue at challenge, namely, the constitutional validity of the explanation to Article 6 of the schedule to the Stamp Act, at the request of learned counsels, both the appeals are taken up for consideration together. The parties would be referred as per their rank before the learned Single Judge. 4. The prayer made in the writ petitions were to challenge the constitutional validity of Act 7/2006 by virtue of which an explanation was inserted to Article 6 of the schedule to the Karnataka Stamp Act, 1957 with effect from 1.4.2006. 5. Article 6 along with explanation reads as follows:- "[Art.6. 4. The prayer made in the writ petitions were to challenge the constitutional validity of Act 7/2006 by virtue of which an explanation was inserted to Article 6 of the schedule to the Karnataka Stamp Act, 1957 with effect from 1.4.2006. 5. Article 6 along with explanation reads as follows:- "[Art.6. Agreement relating to deposit of title deeds, dawn or pledge], that is to say, any instrument evidencing an agreement relating to.- (1) the deposit of title deeds or instruments constituting or being evidence of the title w any property whatever (other than a marketable security), where such deposit, has been made by way of security for the repayment of money advanced or to be advanced by way of loan or an existing or future debt; (if such loan or debt is repayable on demand from the date of instrument evidencing agreement the 0.1 per cent on the loan or debt amount subject to a maximum of Rs.50,000/- but not less than Rs.500/-) [Explanation For the purpose of clause (1), notwithstanding anything contained [in any law for the time being in force or] order of any authority, any letter, note memorandum or writing relating to the deposit of title deeds whether written or made either before or at the time when or after the deposit of title deeds is effected, and whether it is in respect of the security for the first loan or any additional loan or loans taken subsequently, such letter, note, memorandumor writing shall, in the absence of any separate agreement or memorandum of agreement relating to deposit of such title deeds, be deemed to be an instrument evidencing an agreement relating to the deposit of title deeds] (2) xxxxx The contention of the petitioners is that the explanation to Article 6 is unconstitutional. That the additional loan is sanctioned by the bank on the strength of the renewal Setter given to it. It is not supported by any documents nor with any agreement. In the absence of such specific agreements, the letter given to the Bank is now deemed to be an instrument in terms of the explanation and therefore it attracts stamp duty. It is not supported by any documents nor with any agreement. In the absence of such specific agreements, the letter given to the Bank is now deemed to be an instrument in terms of the explanation and therefore it attracts stamp duty. It is therefore contended that the duty is payable only in respect of an instrument which creates a right or interest in a property That the full Bench Judgment of this Court in the case of MURUGHARAJENDRA COMPANY vs. CHIEF CONTROLLING REVENUE AUTHORITY reported in 1974 (1) KLJ 177 held that these documents are not chargeable to stamp duty. Therefore in order to overcome the Judgment of the Full Bench the amendment is brought about. Therefore such an amendment is unsustainable. It is further contended that the amendment is contrary to the definition of instrument. 6. Instrument is defined in Section 2(j) as follows:- "(j) Instrument' includes every document [and record created or maintained in or by an electronic storage and retrieval device or media] by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded; It includes every document by which any right or liability is purported to be created or transferred etc. Therefore any document which creates a liability and evidences an agreement relating to deposit of title deeds by way of scheme for repayment of money advanced would be an agreement relating to deposit of title deeds. Section 58 of the Transfer of Property Act deals with the mortgage by way of title deeds. Section 59 provides that when the principal money secured is Rs.100/- or upwards the mortgage other than the mortgage by way of deposit of title deeds itself can be effected only by the registered instrument. In other words, the mortgage by deposit of title deeds can be created by a mere delivery of the documents and it does not require any writing. Therefore Section 59 contemplates that in case of any documents other that the creation of mortgage by way of title deeds, the same has to be reduced into writing which requires registration. Under these circumstances it was contended that the amendment runs contrary to the aforesaid statutory provisions imposing the obligation to pay the stamp duty on such transactions. Therefore Section 59 contemplates that in case of any documents other that the creation of mortgage by way of title deeds, the same has to be reduced into writing which requires registration. Under these circumstances it was contended that the amendment runs contrary to the aforesaid statutory provisions imposing the obligation to pay the stamp duty on such transactions. It is contented that the stamp duty is payable only on the instruments as set out in Section 3 which is a charging Section and the instrument has to be necessarily in writing and if it does not carry any writing, no stamp duty is payable. That by virtue of the explanation the liability to pay stamp duty at the rate prescribed is therefore illegal. 7. The amendment has been brought about by virtue of an explanation. That the explanation indicates the manner in which the clause has to be understood and to clarify any doubts that would arise out of the provisions of law. Even though an explanation cannot prevail over an enactment, however, in a case of inconsistency, the explanation that is sought to be provided, would necessarily have to be taken into consideration to clarify the inconsistency. The legislative competence to enact the explanation has not been questioned. Therefore, the said issue need not be gone into. However, so far as the explanation is concerned, it cannot be said that it is either inconsistent or ultra vires the Act. What is sought for by virtue of the explanation is to charge a stamp duty on the transactions as mentioned therein. Therefore, the legislature intended to change the charge on the stamp duty of other documents. It is for these reasons that the explanation is added to clear the doubt with regard to such documents. Therefore, when the legislative competence is not questioned and when the explanation is riot inconsistent with the Act or ultra vires the Act, no other grounds exists to declare it to be unconstitutional. 8. The further contention of the petitioners is that the explanation has been brought about to negate the full bench judgment. We have considered the contentions as well as the full bench judgment. We are of the considered view that the explanation does not result in negating the judgment of the full bench. In law, the legislature is empowered to change the basis on which a particular judgment has been rendered. We have considered the contentions as well as the full bench judgment. We are of the considered view that the explanation does not result in negating the judgment of the full bench. In law, the legislature is empowered to change the basis on which a particular judgment has been rendered. When such basis of the judgment has been amended by virtue of offering an explanation, it is incorrect to state that the judgment has been negated. On the contrary the judgment still holds the field and is still applicable. It is also incorrect to hold that the judgment of the full bench would have to be applied to render the explanation as bad in view of the legislative competence and that the explanation is just, fair and reasonable. The basis on which the judgments have been rendered could be amended within the legislative competence. 9. The Hon'ble Supreme Court in the case of S.R. BHAGWAT v. STATE OF MYSORE reported in (1995) SCC 16 held as follows:- "The principle which emerges from these authorities is that the Legislature can change the basis on which a decision is given by the Court and thus change the law in general which will affect a class of persons and events at large. It cannot, however, set aside the individual decision inter-parties and affect their rights and liabilities alone. Such an act on the part of the Legislature amounts to exercising the judicial power of the State and to functioning as an Appellate Court or Tribunal". 10. The Constitution Bench of the Supreme Court in the case of SHRI PRUTHV1 COTTON MILLS LTD., AND ANOTHER vs. THE BROACH BOROUGH MUNICIPALITY AND OTHERS reported in 1969 (2) SCC 283 , dealing with validating statues in general held as follows:- "When a legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. The most important condition of course, is that the Legislature must possess the power to impose the tax for, if it does not, the action must ever remain ineffective and illegal. The most important condition of course, is that the Legislature must possess the power to impose the tax for, if it does not, the action must ever remain ineffective and illegal. Granted legislative competence, it is not sufficient to declare merely that the decision of the Court shall not bind for that is tantamount to reversing the decision in exercise of judicial power which the Legislature does not possess or exercise. A Court's decision must always bind unless the conditions on which it is based are so fundamentally altered that the decision could not have been given in the altered circumstances. Ordinarily, a court holds a tax to be in validly imposed because the power to tax is wanting or the statute or the rules or both are invalid or do not sufficiently create the jurisdiction. Validation of a tax so declared illegal may be done only if the grounds of illegality or invalidity are capable of being removed and are in fact removed and the tax thus made legal. Sometime this is done by providing for jurisdiction where jurisdiction had not been properly invested before. Sometimes this is done by re-enacting retrospectively a valid and legal taxing provision and then by fiction making the tax already collected to stand under the reenacted law. 11. The Hon'ble Supreme Court in the case of GOVERNMENT OF ANDHRA PRADESH vs. HINDUSTAN MACHINE TOLLS reported in AIR 1975 SC 2037 dealing with the power of the State Legislature to pass legislations which would have the effect of annulling the judgment of the Court held thus: "The power of the Legislature to pass a law postulates the power to pass it prospectively as well as retrospectively, the one no less than the other. Within the scope of its legislative competence and subject to other constitutional limitations the power of the Legislature to enact laws is pienary" "The State legislature, it is significant, has not overruled or set aside the judgment of the High Court. It has amended the definition of 'house' by the substitution of a new Section 2(15) for the old section and it has provided that the new definition shall have retrospective effect, notwithstanding anything contained in any judgment, decree or order of any Court or other authority. It has amended the definition of 'house' by the substitution of a new Section 2(15) for the old section and it has provided that the new definition shall have retrospective effect, notwithstanding anything contained in any judgment, decree or order of any Court or other authority. In other words, it has removed the basis of the decision rendered by the High Court so that the decision could not have been given in the altered circumstances. If the old Section 2(15) were to define 'house' in the manner that the amended Section (15) does, there is no doubt that the decision of the High Court would have been otherwise. In fact, it was not disputed before us that the buildings constructed by the respondent meet fully the requirements of Section 2(15) as amended by the Act of 1974." 12. The Hon'ble Supreme Court in the case of BAKHTAWAR TRUST AND OTHERS vs. M.D.NARAYAN AND OTHERS reported in 2003(5) SCC 298 held as follows:- "'The intention of the Legislature in enacting a particular statute is immaterial in terms of the question relating to its validity. The intention of the legislature in passing of a particular statute is beyond the pale of judicial review. In the present matter, the supposedly nebulous intention of the legislature to defeat the judicial process, is therefore, outside the bounds of the Court's consideration." "The test of judging the validity of the impugned amending and Validating Act is, whether the legislature enacting the validating Act has competence over the subject-matter, whether by validation, the said legislature has removed the defect which the Court had found in the previous laws; and whether the validating law is consistent with the provisions of Part III of the Constitution." "The validity of any statute may be assailed on the ground that it is ultra vires the legislative competence of the legislature which enacted it or it is violative of Part III or any other provision of the Constitution. It is well settled that Parliament and State Legislature have plenary powers of legislation within the fields assigned to them and subject to some constitutional limitations can legislate prospectively as well as retrospectively. This power to make retrospective legislation enables the legislature to validate prior executive and legislative Acts retrospectively after curing the defects that led to their invalidation and thus makes ineffective judgments of competent courts declaring the invalidity. This power to make retrospective legislation enables the legislature to validate prior executive and legislative Acts retrospectively after curing the defects that led to their invalidation and thus makes ineffective judgments of competent courts declaring the invalidity. A validating Act may even make ineffective the judgments and orders of competent courts provided it, by retrospective legislation removes the cause of invalidity or the basis that had led to those decisions. Thus it is open to the legislature to alter the law retrospectively, provided the alteration is made in such a manner that it would no more be possible for the court to arrive at the same verdict. In other words, the very premise of the earlier judgment should be uprooted, thereby resulting in a fundamental change of the circumstances upon which it was founded". "Where a legislature validates an executive action repugnant to the statutory provisions declared by a court of law, what the legislature is required to do is first to remove the very basis of invalidity and then validate the executive action. In order to validate an executive action or any provision of a statute, it is not sufficient for the legislature to declare that a judicial pronouncement given by a court of law would not be binding, as the legislature does not possess that power. A decision of a court of law has a binding effect unless the very basis upon which it is given is so altered that the said decision would not have been given in the changed circumstances ". Based on the aforesaid Judgments and in view of the facts circumstances of the case, we have no hesitation to hold that the explanation to Article-6 to the Schedule to the Karnataka Stamp Act is valid and intra vires. The legislature is competent to enact such a law and its competency has not been questioned in these proceedings. By the amendment the aim and object of the Act is sought to be achieved. Such an object is within the power of the legislature. Moreover, what is being questioned is only the explanation. Article 6 is not under question. We are also of the view that there was no intent of the legislature nor could it be inferred that there was an attempt to negate the Judgments of this Court or otherwise. Such an object is within the power of the legislature. Moreover, what is being questioned is only the explanation. Article 6 is not under question. We are also of the view that there was no intent of the legislature nor could it be inferred that there was an attempt to negate the Judgments of this Court or otherwise. We are of the view that the law laid down by this Court has not been negated. Infact, that is the law and it continues as on date, The explanation cannot be said to negate the judgment of this Court. Under these circumstances, when the legislative competency has not been questioned, when the explanation offered does not suffer from any vices of being contradictory or inconsistent with the Act and when it does not offend any judgment of the Courts, we do not find any ground that could render the explanation as being unconstitutional or ultravires. For the aforesaid reasons, writ appeals Nos.4195/2009 and 314/2010 are allowed. The order dated 7-7-2009 passed by the learned Singe Judge in writ petition No.12732/2007 and writ petition No.9553/2007 is set aside. The writ petitions are dismissed. Writ appeal No.1412/2006 is dismissed. The order dated 9-8-2006 passed by the learned single Judge in writ petition No.10203/2006 is affirmed. The constitutional validity of the explanation to Article 6 in the Schedule to the Karnataka Stamp Act, 1957, (Karnataka Act 7/2006) is upheld.