Stamp duty chargeable on inter-state amalgamations

By Vivek Vashi and Shreya Ramesh, Bharucha & Partners
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In a recent reference to a full bench of Bombay High Court in Chief Controlling Revenue Authority v Reliance Industries Ltd, the levy of stamp duty in inter-state amalgamations and schemes, under sections 391 to 394 of the Companies Act, 1956, was considered.

Background

The assets and undertakings of Reliance Petroleum (RPL), registered in Gujarat, were transferred to Reliance Industries (RIL), registered in Maharashtra, by way of a scheme of amalgamation under sections 391 to 394 of the 1956 act. Pursuant to the scheme, company petitions were preferred before Gujarat High Court and Bombay High Court by RPL and RIL respectively, to seek the courts’ sanction of the scheme. The scheme received the approval and sanction of Bombay High Court on 7 June 2002 and Gujarat High Court on 13 September 2002.

Vivek Vashi
Vivek Vashi

RIL and RPL contended that stamp duty would not be payable on the sanctioning order of Bombay High Court, as the scheme took effect only upon the subsequent sanction granted by Gujarat High Court. RIL thus paid stamp duty of ₹100 million in Gujarat, and then contended that of the stamp duty of ₹250 million owed in Maharashtra, only the balance, i.e. ₹150 million, remained payable. In essence, RIL claimed a set-off under section 19 of the Bombay Stamp Act, 1958, for the amount of ₹100 million which was paid to the revenue authorities in Gujarat.

RIL’s contention was rejected by the revenue authorities, who instead directed that full stamp duty be paid in Maharashtra as well, in the amount of ₹250 million. A series of appeals ensued, leading up to the reference to the full bench of Bombay High Court under section 54 of the Bombay Stamp Act.

Key issues and findings

At the core of the reference was the issue of which document would be chargeable to stamp duty – the scheme of amalgamation or the high courts’ orders? On considering the Supreme Court’s decision in Hindustan Lever v State of Maharashtra and Bombay High Court’s decision in Li Taka Pharmaceuticals v State of Maharashtra, the full bench determined that a scheme of amalgamation is not a document chargeable to stamp duty. It was held that the “instrument” which creates rights or obligations, in terms of section 2(i) of the Bombay Stamp Act, would be the sanctioning orders of the high courts as, in the absence of these orders, the scheme would have no effect.

Shreya Ramesh
Shreya Ramesh

Given that stamp duty is chargeable on an “instrument”, rather than a transaction, the full bench expanded the scope of the line of previous decisions in holding that the orders of Bombay High Court and Gujarat High Court were to be treated as separate instruments, independently chargeable to stamp duty. Essentially, every order passed in distinct petitions for the sanction of schemes, filed by separate parties, must be dealt with as a separate instrument chargeable to stamp duty.

The full bench rejected the contention that a rebate of stamp duty was owed to RIL, namely, a set-off of the duty paid by RIL in Gujarat against the duty owed in Maharashtra. The full bench ruled that section 19 was not applicable to the facts of the case, as orders passed in different states relate to different petitions filed by companies, and cannot be said to be executed outside the state.

The contention by RIL and RPL that stamp duty was payable only upon the subsequent sanction of Gujarat High Court was rejected. On the contrary, the full bench found RIL in breach of the requirement of paying stamp duty before or at the time of execution, or, at the very least, on the following working day. Since the transaction did not fall within the ambit of section 4 of the Bombay Stamp Act, the submission that the order of Gujarat High Court was the “principal instrument” liable to stamp duty and the Bombay High Court order was merely incidental, was also rejected.

Impact

While the full bench order only considers inter-state amalgamations, the practice of charging stamp duty on separate orders may now be extended to multiple orders passed in respect of schemes of amalgamation even in intra-state transactions. The ruling may cause an unintended multiple levy of stamp duty on schemes of amalgamation in petitions filed by transacting companies registered in the same state.

It would also follow that in a scheme involving more than two companies, each company’s petition for the high court’s sanction will be independently liable to stamp duty. This ruling has undoubtedly extended the stamp duty liability and will have a potentially far reaching impact on levies.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Shreya Ramesh is an associate.

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