INTRODUCTION
A full bench of the Honorable Bombay High Court, in its recent judgment (given on March 31, 2016) in the case of the Chief Controlling Revenue Authority v. Reliance Industries Limited held that in a case of an amalgamation, where the registered offices of two companies are situated in two different states, the orders passed by the two high courts sanctioning the scheme are two instruments under which an amalgamation takes place though it pertains to the same scheme. Therefore, stamp duty had to paid in each of the states as per respective stamp rates and no rebate could be obtained in other state for the stamp duty paid in one state.
BACKGROUND
In a scheme of arrangement (i.e. merger, amalgamation, demerger etc) under Companies Act, where the registered offices of two companies are situated in two different states, each of the companies are required to make applications and file petitions in the High Courts of the respective states and obtain sanctions to the scheme.
Under the Stamp Act, the order of the High Court sanctioning the scheme is considered as an instrument of “conveyance” and hence stamp duty has to be paid on the said order.
In a scenario mentioned above, considering that there are two orders (i.e. one given by each of the High Courts) for the same scheme of arrangement, it was unclear whether separate stamp duty was required to be paid on the orders, in each of the states as per rates prevailing in the respective states, or whether only that amount of stamp duty which is higher between the stamp acts of both the states was to be paid and a credit / rebate could be obtained for the difference amount?
So, for example, if the stamp duty amount to be paid in the state of Maharashtra was Rs. 25 crores and in the state of Gujarat it was Rs. 10 crores, then, is the company required to pay an aggregate stamp duty of Rs. 35 crores, or whether only Rs. 25 crore was required to be paid as stamp duty and a rebate could be obtained to the extent of Rs. 10 crores?
FACTS OF THE CASE (IN BRIEF)
Reliance Petroleum Ltd (‘RPL’) having its registered office in Gujarat and Reliance Industries Ltd (‘RIL’) and having its registered office in Mumbai entered into a scheme of amalgamation under Companies Act, 1956 (‘Scheme’). As per the Scheme, the undertaking of RPL was transferred to RIL.
RPL and RIL filed petitions and application with the respective High Courts (i.e. Gujarat High Court and Bombay High Court) for sanctioning of the Scheme as per provisions of Companies Act, 1956.
The Bombay High Court passed an order on 7th June, 2002 sanctioning the Scheme and the Gujarat High Court passed an order on 13th September, 2002 sanctioning the Scheme.
On 16th October 2002, the orders of both the Courts were submitted for adjudication of stamp duty in the office of Superintendent of Stamp (Head quarters) Mumbai.
As the maximum stamp duty payable under the Bombay Stamp Act 1958 on an order sanctioning the Scheme of Amalgamation in the State of Maharashtra was Rs. 25 crores and as RIL had already paid stamp duty of Rs. 10 crores in the State of Gujarat, it was urged by it that it was entitled to remission/deduction/set off in the payment of stamp duty thereon to the extent of Rs. 10 crores and therefore, was liable to pay only Rs. 15 crores (being the balance amount) as stamp duty.
The aforesaid contention of RIL was rejected by the Superintendent of Stamp and it directed RIL to pay the entire amount of Rs. 25 crores as stamp duty.
RIL appealed before the Chief Controlling Revenue Authority (“CCRA”), who upheld the order of the Superintendent. RIL filed an application to CCRA to refer the case to Bombay High Court for opinion under Section 54 of the Bombay Stamp Act 1958, as it involved a serious and a substantial question of law. This application was rejected.
Against the order of CCRA, RIL filed a Writ petition before the Bombay High Court. The High Court remitted the matter back to CCRA to decide the reference application afresh after hearing the parties but CCRA once again rejected the reference application and against which RIL filed a writ petition before the Bombay High Court.
MAIN ISSUES
Whether a scheme sanctioned between the two companies under Companies Act is one and same document chargeable to stamp duty, regardless of the fact that the order sanctioning the scheme may have been passed by two different High Courts because of the registered offices of the two Companies are situated in two different states?
Whether in a scheme, compromise or arrangement sanctioned under Companies Act where registered office of the two companies are situated in two different States, the Company in state of Maharashtra is entitled for rebate under Section 19 in respect of the stamp duty paid on the said scheme in another State?
Whether for the purpose of Section 19 of the Act, the scheme/compromise/arrangement between the two Companies must be construed as document executed outside the state on which the stamp duty is legally levied, demanded and paid in another State?
RELEVANT LEGAL PROVISIONS OF THE BOMBAY STAMP ACT
Section 2(g) – Definition of “Conveyance”
“Conveyance” includes – (i) a conveyance on sale, (ii) every instrument, (iii) every decree or final order of any Civil Court, (iv) every order made by the High Court under Section 394 of the Companies Act, 1956 (in respect of amalgamation or reconstruction of companies, and every order made by the Reserve Bank of India under Section 44A of the Banking Regulation Act, 1949 in respect of amalgamation or reconstruction of Banking Companies);
Section 3 – Instrument chargeable with duty
“Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in Schedule I as the proper duty therefore respectively, that is to say – (a) every instrument mentioned in Schedule I, which not having been previously executed by any person, is executed in the State on or after the date of commencement of this Act; (b) every instrument mentioned in Schedule I, which not having been previously executed by any person, is executed out of the State on or after the said date, relates to any property situate, or to any matter or thing done or to be done in this State and is received in this State : Provided that ….. Provided further that… (1)…; (2)…. Section 2(i) : “executed” and “execution” used with reference to instruments mean “signed” and “signature”, Explanation:…..
Section 19 – Payment of duty on certain instruments [or copies thereof] liable to increased duty in Maharashtra State
“Where any instrument of the nature described in any article in Schedule-I and relating to any property situate or to any matter or thing done or to be done in this State is executed out of the State and subsequently such instrument or a copy of the instrument is received in the State – (a) the amount of duty chargeable on such instrument or a copy of the instrument shall be the amount of duty chargeable under Schedule-I on a document of the like description executed in this State less the amount of duty, if any, already paid under any law in force in India excluding the State of Jammu and Kashmir on such instrument when it was executed; (b) … (c) …”
MAIN CONTENTION OF RIL
Though there were two orders of the different High Courts sanctioning the Scheme, the Scheme was only a single document pursuant to which the conveyance took place and hence as RIL has already paid stamp duty in the state of Gujarat on the order of the Gujarat High Court, it was entitled to claim a set off pursuant to provisions of section 19 of the Bombay Stamp Act.
MAIN CONTENTION OF CHIEF CONTROLLING REVENUE AUTHORITY
Stamp duty was to be paid on the instrument and not on the transaction and in case of amalgamation it was the order which was required to be stamped and not the scheme. Where the registered offices are situated in two states and due to which there are orders of two courts on the same amalgamation scheme, each of the orders are executed in two states and it is not the case where only order is executed in Gujarat and the same order is brought to Mumbai. Rebate under section 19 can therefore not be availed.
COURT’S JUDGMENT
As per section 2(i) of the Bombay Stamp Act, the words “executed” and “execution” means signed and signature and Section 17 of the Bombay Stamp Act, 1958 provides for stamping of the instruments executed in the State. It was settled position in law that in terms of the scheme of the said Act, stamp duty is charged on ‘the instrument’ and not on ‘the transaction’ effected by ‘the instrument’. The order of the Bombay High Court would therefore be the instrument that was executed in Mumbai and as per section 3, every instrument executed in State of Maharashtra is chargeable to duty as per provisions of Bombay Stamp Act. Even if the Scheme may be the same, i.e., transaction being the same, if the scheme is given effect by a document signed in State of Maharashtra it is chargeable to duty as per the rates prescribed under Bombay Stamp Act.
Although the two orders of two different high courts are pertaining to same scheme they are independently different instruments and can not be said to be same document especially when the two orders of different high courts are upon two different petitions by two different companies. When the scheme of the said Act is based on chargeability on instrument and not on transactions, it is immaterial whether it is pertaining to one and the same transaction. The duty is attracted on the instrument and not on transaction.
Although the two orders of two different high courts are pertaining to same scheme they are independently different instruments and can not be said to be same document especially when the two orders of different high courts are upon two different petitions by two different companies. When the scheme of the said Act is based on chargeability on instrument and not on transactions, it is immaterial whether it is pertaining to one and the same transaction.
The Scheme of Amalgamation by itself cannot and does not result in transferring the property. It is the order of the Court that sanctions such a Scheme of Amalgamation results in transferring the property and it is therefore, this order alone would be an ‘instrument’, as defined by the Stamp Act, on which stamp duty is chargeable.
The instrument in question is the order executed by High Court of Bombay, which was executed in Mumbai and not outside Maharashtra. The order was not received in Maharashtra since it originated in Maharashtra. 8.6 Therefore, the ingredients of Section 19 of the Bombay Stamp Act were not complied and rebate could not be claimed for duty paid on the order (of the Gujarat High Court) in State of Gujarat by invoking Section 19 of the Act.
ANALYSIS AND COMMENTS
As the definition of conveyance includes an order sanctioning amalgamation (and not the scheme itself), the Honorable Bombay High Court held that where two different High Courts sanction the same scheme (which occurs where the registered office of twp companies is situated in different states), full amount of stamp duty has to be paid on orders of both Courts, as per the Stamp Acts of the respective states, without being eligible for any set off under section 19 (which applies only where an instrument is executed only in one state and is brought to the other state).
Court has given the judgment based on literal interpretation of the statute. There appears to be is a very big lacunae in the Stamp Act, because, unlike regular conveyances, in a scheme of arrangement, where the registered offices of the companies are situated in two different states, there are two instruments (Court orders) which are being created for the same conveyance transaction which are not “executed” by the parties themselves, but by operation of law (as per requirements under Companies Act).
With great respect to the judgment of the Bombay High Court, Stamp Act being a fiscal statute, the provisions have to be interpreted and implemented strictly, but, in our view, the provisions cannot be stretched the extent that the implementation cause undue hardship and burden on the payers under the garb of revenue. The incidence of payment of double stamp duty on the same instrument when the parties have executed only one instrument and the second is being created (or perhaps deemed to have been executed by the Court) due to operation of law and resultantly parties have to bear the burden, is not only burdensome but also defies logic.
The term “executed” under the Maharastra / Bombay Stamp Act is defined to mean “signed” and the Court seems to have taken an interpretation that as the order sanctioning amalgamation is signed by the courts in the respective states, multiple instruments are considered to have been executed in different states for the same transaction of conveyance. In this regard, it is pertinent to note that the definition of the term ‘Conveyance’ under the Maharastra / Bombay Stamp Act includes an “order” of the Court in respect of amalgamation and not any other document or “instrument” by which conveyance happens. Hence, while an instrument is executed, an order (in our view) cannot be considered to be “executed” under provisions of Stamp Act.
Corporates prefer amalgamation mode for transfer of business undertaking as a going concern primarily because of various benefits under Income Tax Act. But, if the incidence of stamp duty becomes a deterrent, then a slump sale mode of transfer would be considered, particularly in case of transfer between holding and wholly owned subsidiary.
Taking into consideration that the stamp duty has to be paid immediately after execution of instrument or on the next day and also taking into consideration that the Bombay High Court has treated the two orders on the same transaction as two distinct instruments, a question also arises that where one court sanctions the scheme and the other court rejects it and effectively there is no conveyance; in such case, will be the payer be entitled to a refund of stamp duty already paid?
The aforesaid judgment of the Bombay High Court caries authoritative value only in the State of Maharashtra, for the other states’ High Courts, the same is only persuasive and hence, it will be interesting to see the practice adopted by the stamp authorities in other states of India in so far as the arrangement does not require sanction of the Bombay High Court.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.