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Inter-co property transfer liable to stamp duty: HC

Our Legal Correspondent

CHENNAI, Jan. 24

IN an order which would greatly assist the financial crisis-ridden State Governments', the Calcutta High Court has held that transfer of property, movable and immovable and including shares, from one company to another is liable to payment of stamp duty.

This question, which had been the subject matter of litigation in various courts, has now been clearly answered by Mr Justice Girish Chandra Gupta, who ruled: "I hold that an order sanctioning a scheme of reconstruction or amalgamation under Section 394 (of the Companies Act) is covered by the definition of the words `conveyance' and `instrument' under the Indian Stamp Act and therefore liable to stamp duty.''

In his elaborate order quoting several Indian and English case-laws, the Judge directed the Registrar of Companies not to take on record an order sanctioning a scheme until the same had been duly stamped. "The department of this Court is directed to engross the final order sanctioning a scheme under Section 394 of the Companies Act on an appropriate stamp paper and thereafter the order should be placed for final signature.''

This was an application filed in the Court for confirmation of a scheme of amalgamation between Gemini Silks Ltd (petition No 1) and Gemini Overseas Ltd (petitioner No 2). The assets and properties of petitioner No 1 including movable, immovable, rights and powers of every description together with liabilities were sought to be transferred to the petitioner No 2 in consideration of petitioner No 2, the transferee issuing to the shareholders of the transferor company (being petitioner No 1), one equity share of Rs 10 each credited as fully paid up for every 15 fully paid up equity shares of Rs 10 each held by the shareholders of the transferor company (petitioner No 1).

The question was whether stamp duty was payable in a case of transfer like this. The State of West Bengal was added as a party to this application. A large number of applications for sanction of scheme of reconstruction or amalgamation were subsequently tagged with this application in order to hear submissions on the common question raised in these cases.

The Judge said that an answer to this issue largely depended upon the answer to the question as to whether such an order amounted to a conveyance within the meaning of the provisions of the Stamp Act.

Quoting some of the orders of the apex court, the Judge held that an order sanctioning a scheme of reconstruction or amalgamation had its genesis in an agreement between the shareholders of the transferor and the transferee companies; the intended transfer was a voluntary act of the contracting parties; the transfer had all the trappings of a sale; the transfer was effected by an order of the Court; and that the order of the Court was an instrument by which the transfer was affected. Once the order was held to be an instrument, the irresistible conclusion was that it was a conveyance.

On behalf of another petitioner, its counsel contended that the Companies (Court) Rules 1959 and Forms prescribed thereunder including Form 42 had statutory force. The Companies Act, 1956 came into force after the Indian Stamp Act, 1899. The Companies Act was a later enactment and in the even of any inconsistency, the latter would prevail. An order sanctioning scheme of compromise or amalgamation could provide for transfer of assets without any further act or deed. As such no stamp duty was liable to be paid on such order. Declining to accept this contention, the Judge observed that Section 394 of the Companies Act did not provide that an order sanctioning a scheme was not liable to be stamped. The provision for transfer of assets without any further act or deed did not mean more than that a formal document was not necessary in order to effectuate the transfer. But that did not mean that if the order sanctioning scheme itself was an instrument, the same would not attract stamp duty.

Holding that an order sanctioning a scheme of reconstruction or amalgamation was covered by the definition of the words `conveyance' and `instrument' under the Indian Stamp Act and therefore liable to stamp duty, the Judge directed that no copy of the order (sanctioning a scheme of amalgamation) should be issued without complying with the aforesaid direction. However, remission of stamp duty shall be available in the case of a transfer envisaged under the notification No 1 dated January 16, 1937 of the Central Board of Revenue.

The cases covered by the said notification shall therefore form an exception to the aforesaid direction issued to the Registrar of Companies as well as the department of this Court.

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