Stamp duty on merger, an illegal circular

A merger or amalgamation between two companies had to be earlier sanctioned by a high court under the Companies Act, 1956, and is now to be approved by the National Company Law Tribunal (NCLT) under the Companies Act, 2013. In 1993, the State of Maharashtra amended the Bombay Stamp Act, 1958 to include an order of high court under section 394 of the Companies Act, 1956 in the definition of conveyance and for the first time, these orders became liable to stamp duty This was challenged before the Supreme Court unsuccessfully in Hindustan Lever Ltd. v State of Maharashtra (2004) 9 SCC 438. After Maharashtra, the States of Andhra Pradesh, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Rajasthan and West Bengal followed suit and made amendments to their respective stamp duty laws and orders of amalgamation or merger became liable to stamp duty in these States.

The State of Tamil Nadu was an exception and did not amend its stamp laws till 2013 when a new Tamil Nadu Stamp Act, 2013 was enacted, which is now awaiting the assent of the President of India. Stamp duties come under Concurrent List of the Constitution, and once there is a Parliamentary enactment, a State enactment has to get assent of the President under Article 254(2) of the Constitution of India. Thus, till the Tamil Nadu Stamp Act, 2013 receives the assent of the President, an order of the high court sanctioning amalgamation or merger will not be subjected to stamp duty. In this background, it was surprising, if not shocking, for the Inspector General of Registration to issue a circular on November 20, 2018 declaring that amalgamation schemes sanctioned by the high court/NCLT will be liable to stamp duty as a conveyance under Article 23 of the Indian Stamp Act, 1899 applicable in Tamil Nadu. This circular refers to a judgment of the Delhi High Court which had observed that even if the Stamp Act had not been amended, the order of merger would still be liable to stamp duty The circular also refers to another decision of a single judge of the Calcutta High Court in Gemini Silk Mills Ltd. v Gemini Overseas Ltd, rendered in 2003. The Inspector General of Registration does not mention that this very judgment was overruled in 2004 by a Division Bench of the Calcutta High Court in Madhu Intra Ltd. v Registrar of Companies 130 Comp Cas 510 (Cal). It is also unfortunate that the Inspector General of Registration has omitted reference to two judgments of the Madras High Court which have categorically held that an order of amalgamations will not be liable to stamp duty.

In T.T.Krishnamachari & Co v The Joint Sub-Registrar, [2009] 2 MLJ 245, the Madras High Court followed the later Calcutta High Court decision and held that mergers and amalgamations, whether ordered by the high court or by the BIFR, would not be liable to stamp duty. This order was passed in 2008. Six years later, the issue came up again before the Madras High Court in Srinidhi Industries Ltd. v Sub-Registrar, (decision dated 18.11.2014 in WP 4128 of 2010). Following the T.T. Krishnamachari decision, the high court once again held that the orders of amalgamation will not be liable to stamp duty. These two judgments are binding on the Inspector-General of Registration and he has no power to issue any circular contrary to the decision of the Madras High Court. In East India Commercial Company v The Collector of Customs, AIR 1962 SC 1893, the Supreme Court pointed out that a decision of a high court is binding on all authorities within that State and they cannot act contrary to such decision. Thus, the circular that has been recently issued in November, 2018 is illegal and cannot be sustained. There can be no stamp duty on mergers and amalgamations until the stamp law obtains Presidential assent After such assent, Tamil Nadu, can always levy stamp duty on amalgamations and mergers like other States that have made similar amendments. It is inexplicable how a circular can be issued to demand stamp duty on judicial orders approving an amalgamations or merger when the very law passed by the Tamil Nadu Legislature on the same subject is pending Presidential assent. Finally, Article 265 of the Constitution mandates that no tax shall be levied or collected except by the authority of law. The word law means a legislation passed either by the Parliament or the respective State Legislatures. It has been repeatedly held that notifications and circulars cannot impose a levy of tax. Illegality apart, the circular does not set out the value to be adopted, the rate of stamp duty or the ceiling limit, if any. In view of the binding judgments of the Madras High Court, the circular that directs orders of amalgamation will not be registered without payment of stamp duty has to be withdrawn immediately. It will be a sad day if the statutory authorities within the State start issuing circulars and guidelines completely contrary to the judgments of the high court, the Supreme Court and the Constitution of India.

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