Vinod Kothari & Company
Whether an order under section 394 of the Companies Act, 1956 would attract payment of stamp duty was an issue in dispute for a considerable period of time. The Delhi High Court has added to the controversy by delivering its judgment in the matter of Delhi Towers Ltd v. G.N.C.T. Of
Incidence of stamp duty is an important consideration in any amalgamation, merger or demerger. The Indian Stamp Act does not mention 'amalgamation' as a stampable article; nevertheless, the definition of 'conveyance' given in the Act covers any instrument which purports to transfer property inter vivos. Due of lack of legislative clarity on the subject, the opinions of High Court on the matter was different and each state was guided by its judicial precedent and the stamp legislation existing in the state.
There are opposite views on this one school of thought holding that the transfer of property in a scheme happens by way of vesting, pursuant to a court order, and therefore, cannot be regarded as an instrument. Another school of thought holds that the court merely puts its stamp of approval on what the parties desire, as a scheme of merger is framed by the parties, consented by the requisite majority and then taken to a court for passing orders to make it mandatory. If the parties did not consent to the transfer, there is no way the court could have imposed it. Hence, it is not a mandate of the court but the wish of the parties. Therefore, the transfer of property that happens in a merger is no different from a consensual transfer among parties.
The High Court of Bombay advocated the first school of thought whereas the Division Bench of Calcutta has ruled against it. The Supreme Court has put the seal of approval on the amendments in the Bombay Stamp Act specifically defining conveyance to include an order of court approving a merger.
Recently, the Delhi High Court while disposing an application CA No. 466/2008 filed by the Delhi Towers Ltd, has ruled that an order of the High Court under section 394 of the Companies Act, 1956 is covered under the definition of conveyance and hence subject to stamp duty. Along with the stamp duty issue, several other matters in connection therewith were raised and decided upon by the
Facts of the case:
In a scheme of amalgamation filed before the Delhi High Court, 15 companies engaged in the business of real estate (hereinafter referred to as the Transferor Companies), being the wholly owned subsidiaries of Delhi Towers Limited (hereinafter referred to as the DTL), proposed to merge with the DTL.
The scheme was approved by the Delhi High Court and an order was passed in this regard. Subsequently, DHL, being aggrieved by refusal of the authorities of the Government of NCT of Delhi to accept the scheme of amalgamation approved by this court in exercise of jurisdiction under section 394 of the Companies Act, 1956 without payment of stamp duty preferred an application before the Delhi High Court which ruled that stamp duty is payable on a court order approving the scheme of arrangement irrespective of a specific entry in the States stamp duty schedule for such orders.
Decision of the
High Court Delhi
The Delhi High Court relying on the judgment of the
This Court discussed the decision of Bombay High Court in Li Taka Pharmaceuticals Ltd. v. State of Maharashtra & Ors. AIR 1997 Bom and judgement of the Supreme Court in Hindustan Lever Employees' Union Vs. Hindustan Lever Ltd. & Ors., 1995 Suppl. (1) SCC 499.
The Supreme Court and High Court of Bombay have held that the amendment to the Bombay Stamp Act by the Maharashtra Act No. 27/1985 was only with a view to set at rest any doubts and to clarify and explicitly state what was already included in the unamended definition of conveyance. The definition of 'conveyance' in the Act was an inclusive definition. The amendments were held to be merely declaratory and by way of a clarification and that the same were not any new statutory provision.
If further concluded that the pronouncement of the
The decisions the
Honble Court relied upon:
The Court while arriving at the judgement has discussed and examined several issues in connection with mergers and amalgamations and based on precedents, has clarified the legal position in the respective areas.
Determining the nature of the Scheme
To bring out the nature of the proceedings for approval of a scheme of amalgamation under the Companies Act, 1956, the Court relied upon the judgment of this court reported at (1983) 53 Company Cases 926 (Delhi) In re: Telesound India Limited in the following terms- On amalgamation the transferor-company merges into the transferee- company shedding its corporate shell, but for all purposes remaining alive and thriving as part of the larger whole. In that sense the transferor- company does not die either on amalgamation or on dissolution without winding-up under sub-s. (1) of s. 394.
Determining the jurisdiction of company court
The Court while approving the scheme also determined the scope of enquiry and jurisdiction of the company court. Relying upon the pronouncement of the
Interpretation of inclusive definition of conveyance.
The expression "includes" appearing in statutory provisions has come up for interpretation repeatedly. It has been explained that the word "included" is generally used in the interpretation clause to enlarge the meaning of the words so as to make them to comprehend not only such things as they signify according to their natural import but also the things they are declared in the interpretation clause to be included. (Ref: (1899) AC 99, 105 Dilworth vs. Commission of Stamps).
The Division Bench of the Bombay High Court placed reliance on two pronouncements of the Supreme Court reported at CIT, A.P. vs. Taj Mahal Hotel, Secundarabad 1971 (3) SCC 550 and State of Tamil Nadu v. Pyare Lal Malhotra, (1976)1 S.C.C. 834 on interpretation of inclusive or explanatory statutory provisions and accepted the submission that the amendment incorporated by the Maharashtra Act No. 27/1985 to the definition of "conveyance" in section 2(g) is by way of a clarification and effectuated only in order to clarify what was accepted in the provisions as they existed prior to the amendment. The amendment therefore was by way of clarification of an ambiguous provision.
Valuation of scheme of amalgamation
The Court reiterated the authoritative decision of Bombay High Court in Li Taka Pharmaceuticals Ltd. v. State of Maharashtra & Ors, AIR 1997 Bom 7. which placed reliance on a pronouncement of the Bombay High Court reported at Hanuman Vitamin Foods Pvt. Ltd. vs. State of Maharashtra, 1992 (1) Bom CR 568. On the aspect of what stamp duty would be payable on an amalgamation scheme, the Court held as follows ;-
"32. In our view, it would be a question of fact what stamp duty would be payable by the party on an amalgamation scheme. It is not to be forgotten that by the amalgamation scheme, what is transferred is a going concern and not assets and liabilities separately. As a going concern, what is the value of the property is to be taken into consideration. Normally, that would be reflected in an amalgamation scheme by the shares allotted to the shareholders of the transferor-company. It cannot be said that the assets are separately transferred and liabilities are separately transferred by the amalgamation scheme. As such, by an amalgamation scheme, virtually a transferee-company in effect purchases the transferor-company for a specified sum which is paid in terms of the shares of the transferee- company to the shareholders of the transferor-company. For this purpose, what is to be kept in mind is that by sanctioning the amalgamation scheme, the court is sanctioning not a transfer of the assets or liabilities separately but the going concern is transferred which is valued at a particular amount and that valuation would be on the basis of share exchange ratio. ....
The Court thus held that in the transactions for merger involving the transfer of assets as well as liabilities, only the value of net assets (i.e. assets less liabilities) should be considered for the purpose of levy of stamp duty payment.
Notification no. 13 dated 25th of December, 1937
With respect to the notification no. 13 dated 25 December 1937, that provides for stamp duty exemption on certain transactions among holding and subsidiary companies, the Court held that this notification is still applicable in
The present ruling of the Delhi High Court is no doubt an important judgment and will change the face of mergers and acquisitions in times to come. So far as the legislation in