Introduction

A three judge bench of the Hon’ble Bombay High Court (Bombay HC) in a recent judgment in the matter of Chief Controlling Revenue Authority, Maharashtra State, Pune and Superintendent of Stamp (Headquarters), Mumbai v Reliance Industries Limited, Mumbai and Reliance Petroleum Limited, Gujarat1 has held that orders in case of a scheme of arrangement under Section 391 to 394 of the Companies Act, 1956 (Act) involving different High Courts in multiple states, are separate instruments in themselves. Accordingly, stamp duty would be payable on all the orders (and consequently, all the states) without the benefit of remission, rebate or set-off.

Brief facts

  • Reliance Industries Limited (RIL), having its registered office in Maharashtra and Reliance Petroleum Limited (RPL), having its registered office in Gujarat entered into a scheme of amalgamation under Sections 391 to 394 of the Act, pursuant to which the entire undertaking of RPL was proposed to be merged into RIL.
  • The Act requires the scheme of amalgamation to be approved by High Courts having territorial jurisdiction over the transferor company and the transferee company (in this case, Gujarat and Maharashtra respectively).
  • On 7 June 2002, the Bombay HC passed an order sanctioning the scheme (Bombay Order). On 13 September 2002, the Gujarat High Court passed an order sanctioning the scheme (Gujarat Order).
  • RPL paid stamp duty of INR 100 million on the Gujarat Order in the state of Gujarat.
  • On 16 October 2002, RIL submitted the Bombay Order for adjudication of stamp duty. It was contended that the maximum stamp duty payable under the Bombay Stamp Act, 1958 (Bombay Stamp Act) for the Bombay Order was INR 250 million, and since stamp duty of INR 100 million had already been paid on the Gujarat Order, RIL was entitled to a rebate in the stamp duty to the extent of INR 100 million. The revenue authorities rejected the submission and directed RIL and RPL to pay the entire stamp duty amount, i.e., INR 250 million on the Bombay Order.
  • RIL and RPL appealed against the adjudication order of the revenue authorities to the Chief Controlling Revenue Authority, Maharashtra (CCRA) who denied the appeal.
  • The CCRA while rejecting the appeal, filed a reference before the Bombay HC for its opinion under Section 54 of Bombay Stamp Act as it involved a substantial question of law.
  • The Bombay HC accepted the present reference and decided in favour of the Revenue Authorities.

Rationale

Relying on the judgement of the Supreme Court of India in Hindustan Lever v State of Maharashtra2, the Bombay HC reiterated the following fundamental principles relating to stamp duty:

  • Stamp duty is charged on an ‘instrument’ and not on the ‘transaction’ effected by the ‘instrument’.
  • If a transaction is not supported by the execution of an instrument, there cannot be a liability to pay stamp duty.
  • Although two orders of two different high courts are pertaining to the same scheme, they are independent and different instruments and cannot be said to be the same document. Since the scheme of stamp duty laws pertain to chargeability of instruments, it is immaterial whether it pertains to one and the same transaction.
  • The order sanctioning the scheme of arrangement is the chargeable instrument under stamp duty laws and not the scheme.
  • Orders passed by different high courts sanctioning the scheme of arrangement do not constitute several instruments used in a single transaction and the benefit of section 4 of Bombay Stamp Act will not be available.

Comment

Normally where an instrument is subject to stamp duty in more than one state, stamp duty laws provide a mechanism to claim rebate or remission of stamp duty paid in one state against stamp duty payable in another. However, this judgment clarifies that orders of different high courts in one amalgamation are separate instruments. Accordingly, stamp duty would be payable on all the orders (and consequently, all the states) without the benefit of rebate or remission. The judgment may result in adverse financial implications for market participants who have already filed scheme of arrangement in multiple states.

To avoid double incidence of stamp duty, companies proposing schemes of arrangement may consider shifting their registered offices to the same state, before filing the petitions for sanction.

Separately, the judgement also discusses Section 17 of the Bombay Stamp Act which states that all instruments that attract stamp duty should be stamped on the day of execution or the next working day following the execution. The Bombay HC has held that since the Bombay Order was passed on 7 June 2002, the stamp duty should have been paid on the same date (or the very next day) even though the Gujarat Order was passed much later on 13 September 2002. This might lead to undue hardship on the market participants, especially, if the other High Court refuses or delays providing its approval to the scheme of amalgamation.

Unless stayed or reversed on appeal, if filed before the Supreme Court of India, the revenue authorities across India may rely on this judgement to charge stamp duty on orders sanctioning the schemes of arrangement in their respective states.