Friday, February 17, 2012

Calcutta High Court: Stamp Duty on Mergers/Demergers


We have earlier discussed the peculiar issues that have arisen on whether schemes of arrangement in the form of mergers and demergers are liable to stamp duty in states where the Indian Stamp Act applies or where there is no specific entry for levying stamp duty on such transactions. In relation to several states such as Delhi, Tamil Nadu and Uttar Pradesh, the relevant High Courts have held that schemes would be liable to stamp duty as a “conveyance” despite the lack of a specific entry. These courts seem to have drawn principles from the Supreme Court’s judgment in Hindustan Lever v. State of Maharashtra (2004) 9 SCC 438.
The state of West Bengal was, however, an outlier as the law there developed in a different direction. In our earlier post (link above), we had summarized as follows:
The development of case law in West Bengal has been somewhat mixed. A single judge of the Calcutta High Court held in Gemini Silk Limited v. Gemini Overseas Limited, 2003 53 CLA 328, that an order sanctioning a scheme of amalgamation under section 394 is covered by the definition of “conveyance” under the Indian Stamp Act and therefore liable to stamp duty. That was the case even though “conveyance” was not defined to expressly include an order of amalgamation. Subsequently though, a Division Bench of the Calcutta High Court adopted a contrary view in Madhu Intra Limited v. Registrar of Companies, (2006) 130 Comp. Cas. 510, where it was held that an order of amalgamation was not subject to stamp duty, because it did not fall within the definition of a “conveyance”; moreover even if such an order were to be taken as a “conveyance” or an “instrument” the transfer of assets and liabilities effected thereby is purely by operation of law. The Division Bench even went to the extent of expressly setting aside the order and judgment of the single judge in the Gemini Silk case.
In an interesting development, a single judge of the High Court at Calcutta has last week decided in Re Emami Biotech and Others that stamp duty is payable on schemes of arrangement involving transfers even in the state of West Bengal. This is despite the holding of the division bench in Madhu Intra to the contrary. The reasons are elaborated in the judgment:
It must be respectfully observed in the context that in the light of the judgment in Hindustan Lever, the view expressed in Madhu Intra does not hold good. The judgement in Madhu Intra did not notice the Supreme Court pronouncement in Hindustan Lever. If the Division Bench of this court had noticed Hindustan Lever and had still rendered the opinion in Madhu Intra, it would have been binding on the company Judge of this court. But in Madhu Intra not noticing Hindustan Lever and it being apparent that the question has been answered otherwise by the Supreme Court, it is the Supreme Court view that has to be followed.
The single judge in the Emami Biotech case expresses the background rationale for the ruling as follows in the first paragraph of the judgment:
Considering the stage of the proceedings, the primary issue which has arisen at the behest of the court may be premature; yet the matter is of some importance and it is necessary that an unsavoury practice is immediately arrested. The issue does not appear to be res integra, yet the petitioners insist that there is much to say in support of the continuing practice in this State for veritable sales and transfers of immovable properties to be concluded without offering any stamp duty to the State. Equally, this apparently cash-starved State is to blame for not being alive to its interest and insisting on the payment of stamp duty on the transfer of properties pursuant to the sanction of any scheme of amalgamation or demerger under the Companies Act, 1956. There can be no suspense as to how the question should be answered and the more conventional form needs to be eschewed to pronounce, at the outset, that stamp duty would be payable on transfers effected pursuant to any scheme of amalgamation or demerger under the Companies Act since that is the law of the land as recognised by the Supreme Court in the year 2003.
This judgment appears to create some uncertainty regarding the law in West Bengal on whether stamp duty is payable on transfer of properties through an order of court sanctioning a scheme of arrangement. Although this judgment quite clearly lays down the legal position, the existence of a division bench ruling in Madhu Intra to the contrary will continue to cause anxiety to litigants in the state. Ultimately, it boils down to whether the transfer occurs by operation of law or through contract (as a transfer inter vivos); the prevailing wisdom suggests that it is the latter.
At a broader level, such jurisprudential debates are not confined to India or to stamp duty. There continues to be inconsistencies among courts in different jurisdictions as to whether a scheme derives its efficacy from an order of court (a view adopted by courts in Australia and Singapore) or from the statute (a view adopted by the English courts). A discussion of this issue can be found in: Anil Hargovan, “The source of efficacy for creditors’ schemes of arrangements in England, Australia and Singapore” 31 The Company Lawyer 199 (2010).

No comments: