SKP Business Alert
Volume 8 Issue 2 |
Stamp duty pertinent to mergers

A full judge bench of the Bombay High Court, in its recent decision in Chief Controlling Revenue Authority vs. Reliance India Limited (RIL)[1], clarified the applicability of stamp duty in inter-state amalgamations.
 
Facts of the case
  • RIL, having its registered office in Mumbai, and Reliance Petroleum Ltd (RPL), having its registered office in Gujarat, entered into a scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956.
  • Therefore, both parties filed a company petition before their respective High Courts (i.e. Bombay High Court and Gujarat High Court) for the sanction of their amalgamation scheme.
  • The Bombay High Court and the Gujarat High Court sanctioned the scheme through different orders in 2002.
  • Pursuant to the orders passed by both the High Courts, RIL paid a stamp duty of INR 100 million in Gujarat based on the order passed by the Gujarat High Court. Given that the maximum stamp duty of INR 250 million was payable in Maharashtra on the amalgamation, RIL contended that it only needed to pay INR 150 million.
  • The revenue authorities in Maharashtra refused to provide the set-off sought by RIL. After a series of appeals, the revenue authorities in Maharashtra referred the matter to the Bombay High Court to decide on the legality of the issue.
It was argued (by RIL) that the document which creates the rights or obligations constitutes an ‘instrument’ under the stamp law. Hence, the scheme sanctioned by the court is an instrument and not a court order sanctioning the scheme. Accordingly, the parties were liable to pay stamp duty on the sanctioned scheme along with the two court orders as an instrument. Therefore, it was argued that they were entitled to seek rebate of stamp duty paid in one state against stamp duty to be paid in another.
 
Stamp duty is chargeable on the instrument of conveyance of properties. Stamp duty being state-subjective differs on the definition of ‘conveyance’ from state to state. There was no uniformity in state laws concerning the chargeability of stamp duty on Court orders. However, the orders of the Bombay High Court in Li Taka Pharmaceuticals Ltd vs State of Maharashtra[2] followed by the Supreme Court in Hindustan Lever vs State of Maharashtra (2004) 9 SCC 438 made it clear beyond doubt that the Court order sanctioning the scheme of amalgamation is an ‘instrument’ chargeable with stamp duty. This also followed the amendment by some states in their respective stamp laws. With the payment of stamp duty on instruments, the question of set-offs, remissions and deductions arise with respect to stamp duty on the order of one High Court against the stamp duty payable on the order of another High Court in cases where the registered office of the transferee and transferor companies are situated in different states.

 
In the case of Reliance India Ltd, the full judge bench of Bombay High Court held as follows:
  • The scheme of amalgamation settled between two companies is not an instrument chargeable with stamp duty. Rather, the of the High Court sanctioning the scheme of amalgamation is an instrument chargeable with the requisite stamp duty.
  • If the registered office of the transferor and transferee companies in different the liability to pay stamp duty arises in both states.
  • Although the Court orders sanctioning the scheme pertains to the are Court orders constituting .
  • Consequently, no set-off of stamp duty can be claimed against the stamp duty paid of one High Court in the state against the order of another High Court.

[1] Civil Reference No. 1 of 2007 in Writ Petition No. 1293 of 2007 in Reference Application No. 8 of 2005
[2] AIR 1997 Bom 7
SKP's comments
The principle that stamp duty is chargeable on Court order is once again affirmed and also extended in the case of inter-state amalgamations. However, separate stamp duty payments on both Court orders and the disallowance of set-off of stamp duty will have huge cost implications involving inter-state amalgamations. This judgment should have been progressive, clarifying that although there are two court orders, the scheme is one and the same. However, unless the scheme is approved by both the High Courts, it does not transfer and vest the property in the transferee company.

Therefore, the scheme should comprise orders of both the Courts. In the scenario of a scheme not meeting the approval of another High Court, there is uncertainty about the payment of stamp duty on the unilateral order passed by the other High Court. There is a need to bring in an amendment to stamp laws for providing set-off of duty paid in the larger interest of the economy. If not, such disallowances would burden parties with needless constraints of costs in merger activities.
SKP
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