* The Court held that the role of court in proceedings under section 394 of the Companies Act is merely supervisory in nature and the order passed is based on the consent and voluntary act of the parties involved.
* Accordingly, even in the absence of specific entry for such orders in the stamp duty schedule, the court orders are covered within the ambit of the definition of ‘conveyance’, which has a wide meaning and is not confined to specific instruments mentioned in the stamp duty schedule.
* The Court relied on the Supreme Court’s decision in the matter of Hindustan Lever Ltd. vs. The State of Maharashtra and mentioned that some States (e.g., Maharashtra, Karnataka, Gujarat, Andhra Pradesh, etc.) have amended theirstamp duty laws to include a specific entry for court orders passed under section 394 of the Companies Act. However, such amendments do not introduce a new levy and only been made with a view to set at rest doubts as regards inclusion ofthe court orders in the definition of ‘conveyance.’
* The Court also laid down that in the transactions for merger involving the transfer of assets as well as liabilities, only the value of net assets (i.e. assets minus liabilities) should be considered for the purpose of levy of stamp duty payment.
* With respect to the notification no. 13 dated 25 December 1937, that provides for stamp duty exemption on certain transactions among holding and subsidiary companies, the Court held that this notification is still applicable in Delhi even if these notifications are not specifically adopted by Legislative Assembly of Delhi. Therefore, nostamp duty is payable if the transaction is covered under the said Notification.
Conclusion
* The applicability of stamp duty on the court order approving the scheme of arrangement has been a keenly disputed issue for a considerable period of time. Initially, companies used to take a position that the court orders are not “conveyance” as defined under the stamp duty law, therefore no stamp duty is payable on the same.
* In order to overcome the above contention, some of the States amended their stamp duty provision and included a specific entry for court orders passed under section 394 of the Companies Act. Consequent to such amendments, companies started taking a position that stamp duty is payable only in the States that have a specific entry for the court orders.
* In the judgment of Hindustan Lever Limited, the Supreme Court laid down that the court order is a conveyance and therefore, subject to stamp duty. Since this judgment was in the context of Bombay Stamp Act (which was amended later to include specific entry for the court orders), certain companies continued to take the position that this judgment is not applicable to the States that do not have any specific entry.
* With the DELHI TOWERS LIMITED judgment, even the small window for a contrary interpretation (i.e. stamp duty is only payable if there is specific entry in the stamp duty schedule) has been closed. It is now clear that the liability to pay stamp duty will arise on all the court orders for approving the scheme of arrangement if the same involves transfer of property.
* Registrar of Stamps in different States would be aware of this legal development. Therefore, it may be difficult to escape the stamp duty liability in future for schemes of arrangements (including amalgamations and demergers).
* Accordingly, companies may be required to assess and deposit the liability of stamp duty in the states where the court order is passed. The computation of stamp duty payable and the registration of court orders (particularly, if it involves transfer of assets located in multiple States) can be a cumbersome and time consuming process. This is for the reason that the stamp duty will be payable either on the on the value of net asset transferred at the rates prescribed for such orders (if any) or for conveyance in the absence of the specific entry. Further, differential stamp duty may be payable in the other States where the property transferred is located (if the court order is taken to such States).
