The Hon’ble High Court of Calcutta vide its order dated February 8, 2012, in the matter of Emami Biotech Limited [2012] 18 taxmann.com 170 (Calcutta), has held that “an order sanctioning a scheme of amalgamation or demerger under Section 394 of the Companies Act, answers to the description of the words “instrument” and “conveyance” within the meaning of the Stamp Act applicable in this State and is, accordingly, exigible to stamp duty.”
Background : A Division Bench of Calcutta High Court in Madhu Intra Ltd. Vs. ROC 58 SCL 160, while deciding on whether in view of the provisions of sub-section (2) of Section 394 of theCompanies Act, 1956 (“Companies Act”) an order under sub-section (1) sanctioning a scheme of amalgamation or arrangement is liable to be stamped under the Indian Stamp Act, 1899 (“Stamp Act”) or not, held that “…. even if the order under section 394(1) is to be taken to be a ‘conveyance’ or an ‘instrument’ the transfer of assets and liabilities effected thereby is purely by operation of law which on account of section 2(d) of the Transfer of Property Act also excludes the operation of section 6(e) thereto. Notwithstanding the definition of the expression ‘instrument’ in section 2(14) of the Indian Stamp Act, the unamended provisions of the Indian Stamp Act in relation to such definition and the definition of ‘conveyance’ and/or ‘instrument’ does not apply to an order under section 394(1) of the Companies Act for the purpose of stamp duty.”
It was further held that “… In our view the transfer of assets and liabilities of the transferor company to the transferee company takes place on an order being made under subsection (1) of section 394 by operation of sub-section (2) thereof.”
Observation:
The Calcutta High Court, while deciding on the above referred case, did not take into consideration the Supreme Court judgment in the case of Hindustan Lever Vs. State of Maharashtra (2004) 1 CLJ 148 (SC) wherein the Supreme Court has categorically stated that the order passed by the court under Section 394 of the Companies Act is based on the compromise between two or more companies and the role of the court is limited to the extent of overseeing that the scheme is not prejudicial to the interest of its members or to public interest or unconscionable and once these things are satisfied, the scheme has to be sanctioned as per the compromise arrived at between the parties.
Contentions of Petitioners:
(i) Relying on Madhu Intra case, order sanctioning a scheme of amalgamation or demerger under Section 394 of the Companies Act is not exigible to stamp duty. (ii) Judgment of the Supreme Court in Hindustan Lever case should be read only in context of the issue that arose in that matter and more so against the backdrop of the amended provision of the Bombay Stamp Act, 1958. The same principle should not be applied in the present case since there is absence of a similar provision in the Stamp Act as applicable in the State of West Bengal.
(iii) Notification dated January 16, 1937, issued by Governor General-in-Council, providing for remission of stamp duty is applicable in the State of West Bengal, since it has not been altered or repealed or amended by any competent authority.
Observation of Court
The Calcutta High Court while upholding Hindustan Lever verdict, observed as under:
• Section 3 of the Stamp Act is the charging section, the operative words of which are that “the following instruments shall be chargeable with duty …” The word “instrument” in the Stamp Act is the genus of which, inter alia, conveyance, lease, mortgage-deed and the like as defined in Section 2 of the Stamp Act are species. The charging section operates on the instrument and instruments, as defined in the Stamp Act, can be of various kinds by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded.
• In view of the charging section, every instrument described therein is chargeable with duty of the amount indicated in the relevant schedule, subject to the provisions of the Stamp Act and the exemptions contained in the relevant schedule.
• Neither the Stamp Act nor the relevant schedule carves out any exception for orders sanctioning any scheme of merger or demerger under the Companies Act.
• In light of judgment in Hindustan Lever, the view expressed in Madhu Intra does not hold good. The judgment in “Madhu Intra” did not notice the Supreme Court’s 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.
However, since this Court, at that time, did not take into cognizance the “Hindustan Lever” judgment, it is the view of the Supreme Court that shall now be binding upon the State of West Bengal as a consequence of the present judgement.
JUDGEMENT:
Putting the controversy to rest, Hon’ble Court in the instant case has held that
- an order sanctioning a scheme of amalgamation or demerger under Section 394 of the Companies Act, answers to the description of the words “instrument” and “conveyance” within the meaning of the Stamp Act applicable in the State of West Bengal and is, accordingly, exigible to stamp duty,
- no property transferred pursuant to any scheme of amalgamation or demerger in the State of West Bengal would be effective unless appropriate stamp duty has been paid thereon, and
- the notification dated January 16, 1937 providing for remission of stamp duty is not applicable in the State of West Bengal.