Stamp Duty is a state subject in India. While some of the States in India have enacted their own Stamp Acts others have adopted the Indian Stamp Act, 1899 [ISA] with their state amendments. Stamp Duty is levied on Instrument(s). The term instrument is covered under the definition of Conveyance in ISA and it has also been given a separate definition under ISA. “Conveyance” includes a conveyance on sale and every instrument by which property, whether moveable or immoveable is transferred inter vivos and which is not otherwise specifically provided for by Schedule I1. “Instrument” includes every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded2. As per Section 394(2) of the Companies Act, 1956 when an order passed by a High Court under Section 394(1) of the Companies Act 1956, provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to and become the liabilities of, the transferee company; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. Since there is no specific mention of the order of High Court passed under section 394(1) in the ISA as an instrument to be stamped and the fact that the High Court confirms the scheme of merger and a major role is played by the stakeholders of the transferor and transferee companies to approve the scheme of merger, led to the question that whether such an order is required to be stamped. Although High Courts in India have led to contrary views with regards to payment of Stamp Duty on such an order but the Supreme Court of India has held that an order under Section 394(1) is liable for payment of Stamp Duty.
SOME OF THE IMPORTANT JUDICIAL PRONOUNCEMENTS FOR PAYMENT OF STAMP DUTY ON HIGH COURT ORDER IN CASE OF MERGERS ARE AS FOLLOWS
In the case of Li Taka Pharmaceuticals Ltd. vs State of Maharashtra And Other3 the following observations were made by Hon’ble Bombay High Court:
An order under section 394 is founded or based upon compromise or arrangement between the two companies of transferring assets and liabilities of one company to another company known as “transferor-company” and that order is an “instrument” as defined under section 2(1) of the Bombay Stamp Act which includes every document by which any right or liability is transferred.
In the case of Hindustan Lever & Anr vs State of Maharashtra & Anr4, also know as Hindustan Lever Case, the following observations were made by Hon’ble Supreme Court of India:
This definition of instrument is not amended by the Maharashtra Act of 17 of 1993. The word “Instrument” is defined to mean, every document by which any right or liability is, or purports to be created, transferred, limited, extended, extinguished or recorded, but does not include bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of shares, debenture proxy and receipt. The recital in the scheme of amalgamation as well as the order of the High Court under Section 394 of the Companies Act, declares, that, upon such order of High Court the undertaking of the transferor company shall stand transferred to the transferee company with all its movable, immovable and tangible assets to the transferee company without any further act or deed………... Thus the amalgamation scheme sanctioned by the Court would be an “instrument” within the meaning of Section 2(i). By the said “instrument” the properties are transferred from the transferor company to the transferee company, the basis of which is the compromise or arrangement arrived at between the two companies.
In the case of Madhu Intra Ltd v. Registrar of Companies5 the Division Bench of Hon’ble High Court of Calcutta made the following observations:
Even if the order under Section 394 is to be taken to be a ‘conveyance’ or an ‘instrument’ the transfer of assets and liabilities effected thereby is purely by operation of law which on account of Section 2(d) of the Transfer of Property Act also excludes the operation of Section 6(e) thereto. Notwithstanding the definition of the expression ‘instrument’ in Section 2(14) of the Indian Stamp Act, the unamended provisions of the Indian Stamp Act in relation to such definition and the definition of ‘conveyance’ and/ or ‘instrument’ does not apply to an order under Section 394 of the Companies Act for the purpose of stamp-duty
In our view, the transfer of assets and liabilities of the transferor company to the transferee company takes place on an order being made under Sub-section (1) of Section 394 by operation of Sub-section (2) thereof.
In February 2012 the Hon’ble High Court of Calcutta made the following observations in the case of Emami Biotech Limited and Others…..
By sanctioning of amalgamation scheme, the property including the liabilities are transferred as provided in Section 394 of the Companies Act and on that transfer instrument, stamp duty is levied. It, therefore, cannot be said that the State Legislature has no jurisdiction to levy such duty.
It must be respectfully observed in the context that in the light of the judgment in Hindustan Lever, the view expressed in Madhu Intra does not hold good. The judgement in Madhu Intra did not notice the Supreme Court pronouncement in Hindustan Lever. If the Division Bench of this court had noticed Hindustan Lever and had still rendered the opinion in Madhu Intra, it would have been binding on the company Judge of this court. But in Madhu Intra not noticing Hindustan Lever and it being apparent that the question has been answered otherwise by the Supreme Court, it is the Supreme Court view that has to be followed.
EXEMPTION FROM PAYMENT OF STAMP DUTY
A Circular was issued in the year 1937 vide which exemption was granted on payment of Stamp Duty when there is an amalgamation/merger between Holding and Subsidiary Company. The Hon’ble Delhi High Court in the case of Delhi Towers Limited vs GNCT of Delhi6 decided on 4th December, 2009 made the following observation with regards to the aforesaid Circular:
“My attention has also been drawn by the counsel appearing for the petitioners to the contents of a notification on 16.1.1937 and published in the Gazette of India 1937 as Part I Page 78. Under the said notification, it was notified that in exercise of the powers conferred by Clause A of Section 9 of the Indian Stamp Act, the Governor General in Council was pleased to remit the stamp duty chargeable under Articles 23 and 62 of Schedule I to the said Act on instruments evidencing transfer of property between companies limited by shares as defined in the Indian Companies Act including where the transfer takes place between a parent company and a subsidiary company, one of which is the beneficial owner of not less than 90% of the issued share capital of the other. In view of the contents of the aforesaid notification, even if it is assumed that the provisions of Articles 23 or 62 of Schedule I of the said Act are attracted to the facts of the present cases, yet in view of remission granted to a case where transfer takes place between a parent company and a subsidiary company, one of which is the beneficial owner of not less than 90% of the issued share capital of the other, no stamp duty would be leviable on such instrument conveying- transfer of property between such companies.
In view of the aforesaid remission granted, no stamp duty would be leviable in any case to the transfer of assets between the transferor and the transferee companies when the transferor company is a 100% subsidiary of the transferee company which is the parent company......”
PRESENT SCENARIO WITH REGARDS TO PAYMENT OF STAMP DUTY IN VARIOUS STATES
Some of the States like Maharashtra, Gujarat, Karnataka, Rajasthan etc which have enacted their own Stamp Acts have made specific provisions with respect to payment of Stamp Duty on Order of the High Court under Section 394 in their Acts/Schedules, while some other states like Madhya Pradesh, Andhra Pradesh etc which have adopted the Indian Stamp Act, 1899 have made state amendments to levy Stamp duty on the High Court Order. The remaining states which neither have their own Stamp Act nor have they made any State Amendment in the adopted Indian Stamp Act, 1899, levy Stamp duty as per the decision of High Court, if any, covering their states, or follow the decision of Supreme Court as laid down in the case of Hindustan Lever.
The law relating to payment of Stamp Duty on the Order of High Court in case of Merger lacks uniformity in India and levy of Stamp Duty will depend upon the Stamp Duty Law of the Concerned State. Also in cases where the Transferor Company has its assets in different states things may get more complicated. The method of arriving at the figure of Stamp Duty also varies from State to State. Nonpayment of Stamp Duty can cause legal hurdles at the time of registration of properties in the name of Transferee Company. Payment of Stamp Duty is an important aspect to be considered before going in for a merger especially in those cases where the asset of the Transferor Company poses a significant value.