Stamp Duty on orders of amalgamation

Failure to pay stamp duty where it is mandatorily required to be paid makes an instrument inadmissible as evidence.

Amongst the veracity of the Court orders being passed across; one has to ensure whether an order sanctioning a scheme of amalgamation or demerger under section 394 of the Companies Act would also be subject to charge under the Stamp Act!

It is pertinent to note that under the stamp duty statutes, stamp duty is mandatorily required to be paid on instruments of conveyance. In addition of being inadmissible as evidence, an instrument not adequately stamped can either be held in custody, i.e., impounded, or calls for a penalty.

Gemini Silk Ltd. V. Gemini Overseas Ltd. [2003] 114 Camp. Cas. 92 (Cal.) was one amongst the cases where the judgment was rendered that the stamp duty would be payable on the scheme of amalgamation or demerger. The argument in support of the Petitioner's claim for exemption in stamp duty was that the transfer of any property upon a sanction of the scheme under the Companies Act, was by operation of law and not a mere agreement between the companies concerned. The Court dealt with the argument by observing that schemes of amalgamation or demerger were nothing more than agreements between consenting parties that depended on the volition of the parties and persons connecting with them and there was nothing involuntary about them, it was observed that a transfer by operation of law would be where the parties to the transaction had no role to play and the transaction could have been completed without any of the parties seeking the court's approval.

Opinions expressed by different High Courts in cases such as Gemini Silk Ltd. V. Gemini Overseas Ltd. [2003] 114 Camp. Cas. 92 (Cal.); Li Taka Pharmaceuticals Ltd v. State of Maharashtra & Others, 1997 , etc. emphasize that nothing in order should be construed as exempting the concerned company from the liability to pay stamp duty. The Culcutta High Court had expressed a contradictory view in Madhu Intra Ltd v. Registrar of Companies, 2006 stating that that an order under Section 394 was not liable to stamp- duty. However, The Division Bench took a contrary view on account of the fact that in the consent decree itself it had been indicated that the same was to operate as a 'conveyance'.

Section 2(10) of the Indian Stamp Act, 1899, has dened conveyance to include a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos. Further, the term “instrument” has also been dened under section 2(14) of the Act to include Stamp Duty on orders of amalgamation every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded.

The states such as West Bengal, Rajasthan, Maharashtra, Karnataka, Gujarat, Madhya Pradesh, Chhattisgarh and Andhra Pradesh have specically included a court order approving a scheme of amalgamation under the denition of “conveyance” under the relevant schedules/acts providing stamp duty rates.

In this context, we can also have a look at the nature of an order approving the scheme of amalgamation. Section 394(2) of the Companies Act, 1956, provides that by virtue of an order of the court under section 394(1) of the Companies Act, all the property rights and liabilities of the transferor company shall be transferred to and vest in the transferee company. Accordingly it can be treated as an instrument effecting as legal and equitable transfer of the property from the transferor company to the transferee company.

An order sanctioning a Scheme of amalgamation or demerger under Section 394 of the Companies Act, 1956 gets t into the words 'instruments' and 'conveyance' within the meaning of the Stamp Act applicable in respective state and is accordingly liable to stamp duty.