A cat among the pigeons

Stamp duty on mergers is par for the course, but a recent ruling significantly increases the burden

Vidur Bhatia reports

The question of whether stamp duty is payable on schemes of arrangement undertaken pursuant to sections 391-394 of the Companies Act, 1956, has been considered several times in courts across India. Such schemes are executed for transferring an entire undertaking, including its assets and liabilities, by way of an amalgamation of companies or a demerger of businesses.

The courts have deliberated on whether transfers by way of schemes of arrangement took effect purely by operation of law as per the provisions of the Companies Act – in which case they were outside the purview of stamp duty – or whether they were a voluntary act undertaken by parties and so had the trappings of a sale. Stamp duty, which is payable on an instrument that transfers property, is administered under the Indian Stamp Act, 1899, and various state laws.

STATUS QUO

In Hindustan Lever v State of Maharashtra (2003) the Supreme Court held that a transfer by way of a scheme is a voluntary act and is made effective by a court order. As such, it held that the court order sanctioning the scheme was the instrument on which stamp duty is to be paid. The decision was in the context of an amendment to the definition of the term “conveyance” in the Bombay Stamp Act, 1958, to include every order of the high court under section 394.

VIDUR BHATIA is an independent counsel in New Delhi. He was previously with Freshfields Bruckhaus Deringer in London, S&R Associates in New Delhi and at the Chambers of Gopal Jain, senior advocate. He can be contacted at vpbhatia@lawchamber.org.