By TIOL News Service

MUMBAI, APR 05, 2016: THE issue is: Whether in a scheme of arrangement sanctioned under Section 391 and 394 of the 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. The answer is NO.

Facts of the case

The Reliance Industries Limited (Respondent no.1) and Reliance Petroleum Limited, Jamnagar Gujarat (Respondent no.2) entered into a scheme of amalgamation under Sections 391 & 394 of the Companies Act 1956. Since the registered offices of these companies were in two different states i.e., Maharashtra and Gujarat respectively, order sanctioning the scheme was obtained from two High Courts. In 2002, both the High Courts sanctioned the scheme and the orders were submitted for adjudication of stamp duty in the office of Superintendent of Stamp, Mumbai (the Applicant no.2). The Respondent no.1 had paid stamp duty of Rs.10 crores in the State of Gujarat on the Gujarat High Court order and during the adjudication proceedings, it was urged that the maximum stamp duty payable under Article 25 (da) of schedule-1 of Bombay Stamp Act 1958 for order sanctioning the Scheme of Amalgamation in the State of Maharashtra was Rs.25 crores, so the Respondent No. 1 was liable to pay only the balance stamp duty of Rs 15 crores in Maharashtra. This argument was rejected and the Applicant No. 2 directed the Respondent no.1 to pay the entire amount of Rs 25 crores as stamp duty.

The appeal before the Chief Controlling Revenue Authority, Maharashtra State was dismissed and the matter went to the High Court through writ petition. The matter was remanded to Applicant No. 2 and it was again rejected and directed the Respondent No. 1 to deposit the stamp duty.

It was argued that first order of the Bombay High Court sanctioning the Transferee's Scheme would not constitute an instrument or a conveyance, unless and until the Gujarat High Court had sanctioned the Scheme on the Transferor Company's Application. In other words, would be no transfer or vesting of property in the transferee company would have taken place before the scheme was sanctioned by the Gujarat High Court order. Accordingly stamp duty was payable on the sanctioned scheme (read with the two orders) in Gujarat and the remaining stamp duty was payable in Maharashtra subject to a rebate u/s 19 for duty already paid in Gujarat.

It was argued on behalf of the applicants that all instruments as per the scheme of Bombay Stamp Act 1958, covered under schedule-1 thereof are chargeable with stamp duty. In other words, instrument in question i.e., the order passed by the Bombay High Court as provided under Section 2g(iv), was liable to duty under Article 25(da) of schedule-1 of the Bombay Stamp Act 1958. The applicants also submitted that as per section 17 of the Bombay Stamp Act every document chargeable with duty under the Act is required to be charged with duty at the time of execution and therefore, the order dated 7.6.2002 is required to be stamped with duty as per the situation and circumstances on the day of its execution as per the Stamp Act. It was also submitted that the stamp duty payable was on the instrument and not on the underlying transaction.

The crux of the dispute was that whether the scheme of arrangement between the parties which has been sanctioned by the court is the instrument or the order of the court sanctioning the scheme is the instrument as parties are ad-idem that stamp duty is payable on an instrument.

Reasoning

1. The Court referred the decision of Hindustan Lever the apex court wherein it was held that the order of the court was liable to stamp duty as it resulted in transferring the property and that the order of the court which results in transfer of the property would be an instrument as it includes every document. Further, it referred the judgment in Li Taka Pharmaceuticals Ltd. & Anr. Vs. State of Maharashtra , where it was held that as the scheme of arrangement or amalgamation has no effect or force unless or until it was sanctioned by the court, it is the order sanctioning the scheme that would be an instrument under Section 2(l). Hence, the order dated 7th June 2012 passed by this court will be the instrument as defined.

2. The Order dated 7.6.2002 as stated earlier would be the instrument and that was executed in Mumbai, i.e., in Maharashtra. As per Section 3(a) of the Bombay Stamp Act, 1958 every instrument executed in State of Maharashtra is chargeable to duty. The Order dated 7.6.2002 whereby assets of Respondent no.2 transferor company are transferred to the Respondent no.1-Transferee company, is the instrument upon conjoint reading of section 2(g), (l) and 3 of the Bombay Stamp Act. As per the Scheme of the said Act, instrument is chargeable to duty and not the transaction and therefore 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 rates provided in Schedule I. As per the Scheme of the Act, the taxable event is the execution of the instrument and not the transactions. If a transaction is not supported by execution of an instrument, there cannot be a liability to pay duty. Therefore, essentially the duty is leviable on the instrument and not the transactions. Although the Scheme may be same, the Order dated 7.6.2002 being conveyance and it being an instrument signed in State of Maharashtra, the same is chargeable to duty so far as State of Maharashtra is concerned. Therefore it was obligatory on the part of the Respondent no.1-transferee to approach stamp Authority and pay the stamp duty on execution of Order by this Court.

3. Although the two orders of two different high courts are pertaining to same scheme they are independently different instruments and cannot 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 the transaction. Therefore, the contentions of the respondents that the Scheme of Amalgamation would be an instrument within the meaning of Section 2(l) of the said Act, is not legally sustainable.

4. The instrument in question is the order dated 7.6.2002 executed by High Court of Bombay. The order is already in Mumbai and executed in Mumbai. It is not executed outside Maharashtra. The order dated 7.6.2002 is not received in Maharashtra since it originated in Maharashtra. Therefore, the ingredients of Section 19 are not complied. Respondent no.2-transferee while paying duty on the order dated 7.6.2002 of the Bombay High Court cannot claim rebate for duty paid on order dated 13.9.2002 in State of Gujarat by invoking Section 19 of the Act.

5. The Respondent No. 2 - Transferor Company has not paid any stamp duty on the order passed by this court either in the State of Gujarat or in the State of Maharashtra at the time when the aforesaid application dated 16th October, 2002 was submitted with the Superintendent of Stamps, Mumbai. Therefore, the respondent no.1 – Transferee Company was liable to pay full stamp duty on the order dated 7th June, 2002 passed by this Court in the State of Maharashtra inasmuch as on this order, no stamp duty was ever paid by anybody either in the State of Gujarat or in the State of Maharashtra.

6. Regarding the rebate of duty claimed u/s 19, the Court held that Section 19 has no applicability because the instrument in question is the order dated 7.6.2002 executed by High Court of Bombay. The order is already in Mumbai and executed in Mumbai. It is not executed outside Maharashtra. The order dated 7.6.2002 is not received in Maharashtra since it originated in Maharashtra. Therefore, the ingredients of Section 19 are not complied. Respondent no.2-transferee while paying duty on the order dated 7.6.2002 of the Bombay High Court cannot claim rebate for duty paid on order dated 13.9.2002 in State of Gujarat by invoking Section 19 of the Act.

(See 2016-TIOL-661-HC-MUM-MISC)