Is a merger order liable to Stamp Duty as conveyance if no immovable assets are involved? –An analysis based on the Ambuja Cements Judgment
An order approving a scheme of amalgamation passed under the Companies Act is classifiable as ‘conveyance’ irrespective of the nature of assets transferred.
The above is the view expressed by the Hon’ble High Court of Delhi in the recent case of Ambuja Cements Ltd. v. Collector of Stamps[1] (“Ambuja Case”). The Hon’ble Court, however, set aside the staggering stamp duty demand by applying exemption granted under notification number 13 of 25 December 1937 (“1937 December Notification”).
Facts
The brief facts of the case were that one Holderind Investments Limited, Mauritius (“Holderind”) held 55% of the shares in Ambuja Cements India Private Limited (“ACIPL”) in its own name and the remaining 45% of the shares through its another wholly-owned subsidiary Holcim (India) Private Limited (“Holcim”). It is noteworthy that ACIPL did not own any immovable property but only held shares of ACC Limited and Ambuja Cements Limited in dematerialized form.
Under a merger order[2] dated 14 November 2011 (“Merger Order”) passed under section 394 of the Companies Act, 1956 by the Hon’ble Delhi High Court, ACIPL was amalgamated into Holcim and ACIPL was dissolved without winding up. Share certificates, bearing the requisite stamps, were issued by the Board of Directors of Holcim. No stamp duty, however, was paid on the Merger Order.
The Collector of Stamps, Delhi by the impugned order dated 7 August 2014 affirmed imposition of a staggering stamp duty of more than Rs 200 Crores calculated @ 3% under Article 23 of Schedule IA of the Indian Stamp Act, 1899 as applicable in Delhi (“Act”) on the total value above of Rs. 7000 Crores and further imposed a penalty of Rs. 69,00,00,000 alleging that the ACIPL had failed to pay stamp duty on the Merger Order.
Arguments
A coordinate bench of the same High Court in Delhi Towers Ltd. v. GNCT of Delhi[3] (“Delhi Tower Case“) had settled the law that merely because the legislature had not amended the existing statutory provision as applicable to Delhi to specifically include transfer of property under an order approving a scheme of amalgamation in the definition of conveyance, it is of no consequence at all. Such orders are therefore liable to applicable stamp duty as ‘Conveyance’. The respondent mainly relied upon the Delhi Tower Case and confirmed the stamp duty demanded.
The petitioner sought to distinguish the Delhi Tower Case. According to them the Delhi Tower Case was applicable only in a merger scenario where immovable property was involved and since in their merger of ACIPL into Holcim only movable properties got transferred to Holcim, the Merger Order could not have been subject to stamp duty as conveyance. Notably, during the show cause stage the petitioner did not claim any exemption by relying on the 1937 December Notification, which they did only at the writ petition stage. The 1937 December Notification exempted, among others, an instrument evidencing transfer of property where the transfer took place between two subsidiary companies of each of which not less than 90% of the share capital was in the beneficial ownership of a common parent company.
The respondent, however, refuted the Petitioner’s arguments, asserting that the 1937 December Notification stood repealed since the Central Government vide GSR 894 dated 30 September 1958 had extended the Schedule IA of the Stamp Act of Punjab to the Union Territory of Delhi and since Schedule IA was made applicable to Delhi, the stamp duty has to be paid only as per Schedule IA which did not contain any Article remitting the stamp duty in terms of the 1937 December Notification.
The ruling
In the Delhi Tower Case, the Court had held that sanctioning a scheme of amalgamation under Section 394 of the Companies Act, 1956, was a voluntary act of the parties involved, with the Court merely exercising a supervisory role without ruling on the merits of the scheme. The Court further held that since the definition of ‘Conveyance’ begins with the word ‘includes’, it is broad in scope and not limited only to the specific instruments enumerated in the Act. The Court also examined the applicability of the 1937 December Notification. The question was whether the 1937 December Notification remained valid and binding after the Constitution of India came into effect. The Court held that, under Article 372(1) of the Constitution, all laws in force in India immediately before the commencement of the Constitution remain effective unless modified, repealed, or amended by a competent legislature or authority. As no subsequent law by Parliament or any state government has superseded the 1937 December Notification, the Court affirmed its continued validity.
The Court further relied upon the Delhi Tower Case to hold that an amalgamation order passed under Section 394 of the Companies Act, 1956, constitutes an “instrument” within the meaning of Section 2(10) of the Stamp Act and liable to duty as conveyance but in view of the 1937 Notification, no duty was leviable on the Merger Order.
Conclusion
Notably no transfer of immovable property was involved in the Ambuja Case. Only shares got transferred in the amalgamation. This fact was an important one and distinguishable vis-à-vis the Delhi Tower Case where the properties involved were mainly immovable properties. The Court, however, did not attach much importance to this crucial fact and went on to hold that orders approving a scheme of amalgamation were to be treated as conveyance regardless of absence of transfer of any immovables. The Court did not find any merit in this argument. The judgment though clears the uncertainty of whether to treat a merger order as conveyance or not if no immovables are involved, in the considered view of the author, the judgment may not apply in cases where movables other than demat shares are transferred as part of a scheme. The rationale may be explained by the following arguments:
(i) Every scheme of amalgamation or demerger contains a clause to the effect that all movables would be transferred by delivery and shares are also movable properties[4]; and
(ii) It is settled law that stamp duty is payable only and if only there is an instrument and in the case of a transfer by way of delivery, there is no instrument.
What follows from above is that if a scheme of amalgamation provides for transfer of movables by way of delivery, such movables would not get transferred by virtue of the order sanctioning the scheme but would get transferred when delivered physically. This means that no instrument will be involved by which the movables will get transferred. Consequently, the order approving the scheme would not qualify to be an instrument of conveyance and as such no stamp duty would be payable on the order sanctioning the scheme. If this is not the case then any clause in the schemes proposing transfer of movables by delivery would become ineffective and meaningless. The author would also like believe that the above line of argument should equally apply to transfer of demat shares for the reason that regardless of the form in which shares are issued or held, their nature would remain as movable by virtue of the fact that the Companies Act 2013/1956 declares unequivocally that shares are movable by nature.
One more aspect emerges from the Ambuja Case. The argument of the respondent that the 1937 December Notification got repealed on and from the day Schedule 1A became applicable to Delhi did not find favour with the Court. The Court simply went by the Delhi Tower Case to uphold the validity of the 1937 December Notification[5]. However, the Hon’ble Calcutta High Court, in the case of Emami Biotech Ltd. and others v. State of West Bengal[6] had upheld this logic to declare that any exemption provided under the Central Act would not be applicable in West Bengal because the State Legislature, through a deliberate legislative act, has removed Article 23—pertaining to the stamp duty on “Conveyance”—from Schedule I and incorporated it into Schedule IA of the Indian Stamp Act as applicable in West Bengal.
Thus, there is divergence of views on the same legal aspect between two High Courts. The end result now is that while in Delhi the merger orders would get exempted from stamp duty because of the 1937 December Notification, any such merger order would continue to be liable to stamp duty in West Bengal since the similar notification dated 16 January 1937 would not exempt such merger orders. This interpretational anomaly would continue so long as an authoritative pronouncement from the Hon’ble Supreme Court declares that the 16 January 1937 notification is equally valid and subsisting in West Bengal. Till then the like mergers in West Bengal will continue to suffer stamp duty implications.
[1] 2024 SCC OnLine Del 7710
[2] 2011 SCC OnLine Del 4724
[3] 2009 SCC OnLine Del 3888
[4] Section 82 of Companies Act 1956; section 44 of Companies Act 2013
[5] It is pertinent to note that, subsequent to the Delhi Tower Case, a reference petition was filed before the Hon’ble Delhi High Court by the Chief Controlling Revenue Authority (CCRA), Government of the National Capital Territory of Delhi, under Section 57 of the Act. One of the key questions before the Court was whether the judgment in the Delhi Tower Case was rendered per incuriam in light of the fact that the 1937 December Notification, which remitted stamp duty, was applicable to Schedule-I of the Act, stood repealed upon the extension of the Stamp (Punjab Amendment) Act, 1958, to Delhi as Schedule-IA of the Act will be applicable henceforth. However, Delhi High Court didn’t decide on this issue and the petition was ultimately dismissed on grounds of maintainability.
[6] 2012 SCC OnLine Cal 1425
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