Court approved merger schemes attract stamp duty in Delhi

A Delhi High Court ruling that stamp duty is payable on a court order approving the scheme of arrangement/amalgamation under Section 394 of the Companies Act has put corporates in Tamil Nadu in a tricky situation.

The Delhi High Court ruling on stamp duty pertained to merger of 15 subsidiary outfits with Delhi Towers Ltd., the parent company. Though the merger was approved by the Delhi High Court, the administration in the national capital territory of Delhi refused to accept the scheme of amalgamation without the payment of stamp duty.

Consequently, Delhi Towers Ltd. moved the Delhi High Court and argued that a scheme of amalgamation approved by the Court could not be covered under the definition of ‘conveyance’ under sub-section 10 of Section 2 of the Indian Stamp Act of 1899. Hence, it went on to argue, “it is not eligible to stamp duty”. The Delhi High Court, however, ruled otherwise.

This ruling assumes larger dimension especially in view of the fact that Delhi (unlike States such as Maharashtra, Gujarat, Karnataka, Rajasthan, Chhattisgarh, Madhya Pradesh and Andhra Pradesh) has not amended its stamp duty laws to include court order approving a scheme of amalgamation under Section 394 of the Companies Act in the definition of ‘conveyance’. Like Delhi, Tamil Nadu too has not made any amendments to its stamp duty laws to include court orders in amalgamation cases in the definition of ‘conveyance’. The issue of applicability of stamp duty on the court order approving the scheme of arrangement/amalgamation has been under intense debate. Initially, corporate India took the position that court orders (approving amalgamations) are not ‘conveyance’ under the definition of stamp duty law. Hence, it argued that stamp duty is not payable on them. Some States amended their stamp duty laws specifically to include court order (approving amalgamations) under the definition of ‘conveyance’. Consequently, corporates have taken the view that stamp duty is payable only in States that have made a specific amendment to include court orders in their stamp duty laws.