1. The question arising for decision in this reference relates to the stamp duty payable on a certain form filed with the Registrar under Section 104 of the Indian Companies Act.
2. By an agreement between the Madura Mills, Limited, Madura, and Harveys, Limited, Tuticorin, it was agreed that 20,000 fully paid-up shares in the Madura Mills should be allotted to the Harveys in consideration of an allotment by the latter to the former of 1,000 fully paid-up shares of Harveys as well as of an agreement to do ginning for the Madura company at a specified rate for a period of ten years. It is stated that the original arrangement was only oral, but its substance has been embodied in resolutipns recorded in the books of both the companies. Under Section 104 of the Indian Companies Act it is required that where a contract relating to the issue of shares fully paid up otherwise than in cash has not been reduced to writing, the company shall, within one month after the allotment, file with the Registrar the prescribed particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing. A statement embodying the above particulars was accordingly filed by the Madura Mills before the Registrar cm 29th August, 1933. There was also produced an agreement dated 26th March, 1933, bearing a twelve annas stamp.
3. The language of the agreement dated 26th August, 1933, is calculated to suggest that the allotment had not yet been made but was intended to be made in futuro. Similar language appears in some of the other papers also before us. This is scarcely reconcilable with the scheme of Section 104 of the Indian Companies Act, nor with the records in the case of what actually happened. The Collector's letter to the Board of Revenue shows that Harvey's shares were allotted on or before 1st August, 1933, and the Madura Mills shares were allotted on 2nd August, 1933. Mr. Duraiswami Aiyar therefore agreed that we might deal with the case on the footing that an allotment had in fact been made when the statements were filed before the Registrar. He nevertheless maintained that this makes no difference so far as the present question is concerned because he contended that the allotment of shares will not amount to a 'conveyance' within the meaning of the definition in Section 2, Clause (10) of the Stamp Act. There are other provisions made in the Stamp Act with reference to letters of allotment as well as share certificates. The question in the present case arises not with reference to the letter of allotment itself but as to the consideration for such allotment, when the allotment has been made as of shares fully paid up otherwise than in cash, Section 104 contemplates that the consideration for such allotment may be either a contract of sale or a contract for services or the consideration may be in other forms. The stamp duty payable will therefore vary according as the consideration consists of a sale of property or of an agreement of any other kind.
4. The Collector who referred the matter to the Board for opinion was apparently inclined to think that the reciprocal allotment must be regarded as amounting to a sale and therefore the transaction was liable to stamp duty as a conveyance. Before the Collector as well as before the Board, reliance seems to have been placed on the decision of the Lahore High Court in. Bhola Ram & Sons, Ltd. v. The Crown I.L.R.(1934) 15 Lah. 501 , in support of the argument that where a transaction does not amount to a conveyance but is merely an agreement to convey, the document does not require to be stamped as a conveyance. The facts in that case are not quite analogous to those of the present but there can be very little doubt as to the correctness of the general principle therein recognised. See also In re Swadeshi Cotton Mills Co., Ltd. (1932) 30 A.L.J. 394 . The Board's reference incidentally mentions another argument advanced before it on behalf of the party, namely, that there was no question of conveyance here, because the transaction did not relate to immovable property. There is no substance in that argument, as the Board themselves observe, because the definition of conveyance in the Stamp Act will apply as much to the transfer of movable as to the transfer of immovable property.
5. Before us, Mr. Doraiswami Aiyar puts his argument on two grounds. He contended that though the allotment was complete it did not by its very nature amount to a 'transfer of property' within the meaning of the definition of conveyance because the company cannot be regarded in any sense as the owner of its own shares, so that when it issues or allots shares it cannot be said to be transferring property. It is one thing to say that shares are property in the hands of a shareholder (e.g., Section 28 of the Companies Act), but it is a wholly different position when the share's are being for the first time issued by the company itself. Alternatively, he contended that even if there should be any possibility of regarding this transaction as in the nature of a 'sale' of shares, it would not amount to a 'conveyance' unless property has passed thereunder, that according to the definition of 'goods' in the Sale of Goods Act,, shares are 'goods', that under Section 4 of the Sale of Goods Act a 'contract of sale' is nothing more than an 'agreement to sell' until the property in the goods to be sold passes, and that under Section 18, where there is a contract of sale of 'unascertained' goods no property is transferred to the buyer unless and until the goods are ascertained. In the present case, at the time of the oral arrangement the particulars of which were filed before the Registrar, there had been no appropriation of any specified' shares in either company to the other company in pursuance of the allotment and he accordingly maintained that the transaction could amount to anything more than a mere 'agreement to sell' within the meaning of Section 4 of the Sale of Goods Act. Reliance was placed in this connection on the observations of the Judicial Committee in Maneckji Pestonji v. Wadilal Sarabhai & Co. : (1926)51MLJ1 In the view that we take on the first question, it does not seem to us necessary to express any opinion on the second.
6. On the first question, the learned Government Pleader did not dispute the proposition that a company cannot be regarded as holding its own shares. But he nevertheless suggested that there is nothing in regarding the company as owning the shares which it issues and in that sense it may be possible to bring the case within the definition of 'conveyance' in the Stamp Act. We find it difficult to follow this distinction. As we have already observed, it is no doubt true that in the hands of a shareholder, a share is property and when a shareholder exchanges his shares with another it may be possible to regard the transaction as amounting to a transfer whether by way of exchange or conveyance-Cf. Coats v. Inland Revenue Commissioners (1897) 2 Q.B. 423. But when the company is for the first time issuing shares, it seems to us that there is no question of property already possessed by the company being thereby transferred to the allottee. Whatever may be the exact nature of the right which the allottee acquires between the date of allotment and the date of the entry of his name in the register, it is difficult to regard the issue of the shares to him by allotment as amounting to a 'transfer of property' by the company to him. On this ground, we must hold that the contract of which the particulars were recorded in Form VII did not amount to a 'conveyance', and that Form VII was properly treated by the parties as an 'agreement'.