The full Bench of Bombay High Court in the case of Chief Controlling Revenue Authority v. Reliance Industries Limited (Civil Reference No 1 of 2007 in Writ Petition No 1293 of 2007 in Reference Application No 8 of 2005, decided on March 31, 2016), has ruled that orders of the jurisdictional High Court sanctioning amalgamation scheme under Section 391-394 of the Companies Act, 1956 is the “instrument” on which stamp duty is to be paid under the Bombay Stamp Act, 1958, and that the scheme of amalgamation settled by two companies itself cannot be an “instrument” as it has no force unless and until it is sanctioned by the court. In other words, if the registered offices of the two companies involved in a scheme of amalgamation are situated in different states and the scheme is required to be approved by two different high courts, then the order passed by each jurisdictional high court would be the instrument chargeable to stamp duty in the respective states.
In the aforesaid case, Reliance Industries Limited and Reliance Petroleum Limited (the respondents) were situated in Maharashtra and Gujarat respectively. The scheme of amalgamation between them was sanctioned by the Bombay and the Gujarat High Courts respectively, and stamp duty was paid in State of Gujarat on order of High Court of Gujarat. While paying stamp duty in the State of Maharashtra, the respondents claimed that they were entitled to take credit for the stamp duty already paid in the State of Gujarat.
The Bombay High Court held that “[As] per the scheme of the [Bombay Stamp Act, 1958], instrument is chargeable to duty and not the transaction and therefore even if the scheme may be the same, i.e., transaction being the same, if the scheme is given effect by a document signed in State of Maharashtra it is chargeable to duty as per rates provided in Schedule I [of the said Act].”
The Court further held that “Although the two orders of two different high courts are pertaining to same scheme they are independently different instruments and cannot be said to be same document especially when the two orders of different high courts are upon two different petitions by two different companies. When the scheme of the said Act is based on chargeability on instrument and not on transactions, it is immaterial whether it is pertaining to one and the same transaction. The duty is attracted on the instrument and not on transaction.”
The Court observed that it is the Order of the Court that sanctions such a scheme of amalgamation which results in transferring the property and assets, and therefore, such order alone would be an instrument on which stamp duty is chargeable.
Further, in respect of the companies situated in Maharashtra, pursuant to the aforesaid order, in a scheme, compromise or arrangement sanctioned under Section 391-394 of the Companies Act, 1956, no rebate (in respect of stamp duty paid on the said scheme in another state) will be available to the company in the State of Maharashtra, as the essential ingredients of Section 19 of the Bombay Stamp Act, 1958 are not fulfilled which is a pre-requisite to claim a rebate.
The above judgement reinforces the principle that stamp duty is payable on the instrument and not on the transaction per se. Hence, it is advisable for companies opting for a court approved merger to ensure that the registered office of the transferor and transferee company is situate at one jurisdiction.