Double stamp duty charged on scheme of amalgamation

In its recent judgment in the amalgamation matter of Reliance Industries (RIL) and Reliance Petroleum (RPL), Bombay High Court ruled for double payment of stamp duty in cases of amalgamation of two companies whose registered offices are situated in different states.

RIL and RPL, with registered offices in Maharashtra and Gujarat, respectively, applied to Bombay High Court and Gujarat High Court, respectively, for approval of the scheme of amalgamation between themselves under sections 391-394 of the Companies Act, 1956. Both courts approved the amalgamation. RIL paid stamp duty of ₹100 million in Gujarat on the Gujarat High Court order and demanded set-off/rebate of up to ₹100 million in adjudication proceedings before the Superintendent of Stamp (SOS), Mumbai, who rejected the argument and levied a full stamp duty of ₹250 million separately on the Bombay High Court order.

Bombay High Court then ruled that where different high courts are involved in sanctioning a scheme of amalgamation under sections 391-394, each such order is amenable to full stamp duty in the respective state and stamp duty in one state cannot be set off or taken as rebate against payment of stamp duty in another state because: (i) it is settled position in law that stamp duty is charged on “the instrument” and not on “the transaction” effected by the instrument, relying on the Supreme Court’s judgment in Hindustan Lever & Anr v State of Maharashtra & Anr (2003); and (ii) although orders of different high courts pertain to same scheme, they cannot be said to be same document.

The court observed that: (i) it is the state legislature which imposes and prescribes the rates of stamp duty; and (ii) the words “executed” and “execution” represent signed and signature under the stamp law and not completion of anything to be done as per contents of the document.

The stamp laws of around seven states have an entry relating to stamping of a court order sanctioning a scheme of amalgamation. However in states where a similar entry is missing, stamping of such orders will largely depend on the definition of “conveyance”. In this context, one may rely on Delhi High Court’s observation in Delhi Towers Limited v Government of the National Capital Territory of Delhi (2009):

“Merely because the legislature has not amended the existing statutory provision as applicable to Delhi to specifically include transfer of property under an order approving a scheme of amalgamation in the definition of conveyance, it is of no consequence at all. The same does not amount to exclusion from applicability of the Indian Stamp Act and chargeability to stamp duty thereon. The statutory definition of ‘conveyance’ under Sub-section 10 of Section 2 is an inclusive definition of wide import which cannot be confined to specific instruments mentioned in the statute … The statute does not provide any exception to the definition of ‘instrument’ or ‘conveyance’.”

Bombay High Court also observed that: “the purpose and the object as to why both, the Transferor and the Transferee company, have to obtain the Order from the Court sanctioning the Scheme of Amalgamation, is that, such a Scheme of Amalgamation must bind the dissenting members, as also, all the creditors of both the Companies and not just for the purpose of effecting transfer of property, assets etc.”. This appears to clarify that the location of property of the companies involved in the scheme will not determine stamping of court order.

Another implication of the order is that while other high courts involved in the scheme of amalgamation have not yet approved it, the high court order which has approved the scheme is liable to be stamped at the full rate. Although in the instant case, as recorded in the judgment by Bombay High Court, the order of Bombay High Court did not depend on a favourable order by Gujarat High Court, its observation in the following words will raise some interpretation issues: “once it has passed the order, the transfer in issue though had taken place in terms of the provisions of the Companies Act ‘only’ and only on account of the order of the Bombay High Court, such a transfer will take effect from the date the Hon’ble Gujarat High Court passes an order sanctioning the Scheme. In other words, after the Hon’ble Gujarat High Court passes an order sanctioning the Scheme on account of the order of this Hon’ble Court, the transfer in issue will take place.”

As the law stands, where companies are situated in different states, they will need to approach their respective high court to pursue a scheme of amalgamation, and as per the instant case, they will need to pay full stamp duty on one such order without any confirmation that the other high court will approve the scheme. The court’s analysis will apply only in states where the stamp laws have similar entries leaving doubts for states which don’t have them. Not allowing a rebate or set-off on such orders may defeat the commercial wisdom of the scheme, and the parties may need to deliberate other structuring options even if the route under sections 391-394 would have been the preferred one.

Darshan Upadhyay is a partner and Manendra Singh is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.