The Companies Act, 2013 (“CA 2013”), and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“2016 Rules”), allow companies to jointly or separately file an application for merger or amalgamation before the National Company Law Tribunal (“NCLT”). However, companies with registered offices in two different States must file two separate applications (unless a specific exemption has been obtained to file a joint petition) as the scheme will have to be approved by the two NCLTs having jurisdiction over the companies.

Filing of separate applications before different NCLTs can have implications in relation to the stamp duty that is payable for the transaction. An order approving a scheme of merger or amalgamation passed under the Companies Act, 2013 (“CA 2013”), is classifiable as “conveyance” under Section 2(10) of the Indian Stamp Act, 1899 (“Stamp Act”), and is therefore chargeable for stamp duty.[1]

The stamp duty payable for ‘conveyance’ depends on the relevant entry in the respective State’s Schedule of the Stamp Act. For instance, in Haryana, the stamp duty payable on a merger order is 1.5% (subject to a maximum of INR 7 crore) of the market value of the property or the consideration amount that has been set forth in the scheme, whereas in Maharashtra, the stamp duty payable is 10% of the aggregate market value of the shares issued or allotted, and the consideration paid.

Therefore, when a joint application is filed before the NCLT, the order sanctioning the scheme is liable to be stamped as per the applicable rate of the relevant State. However, as illustrated above, when the companies concerned have their registered offices in two different States, two separate applications for the same scheme of amalgamation will have to be filed before the respective NCLTs, resulting in two orders being passed by the respective NCLTs for the same scheme.

An important question that arises here is whether both orders arising out of the same transaction would be liable to be stamped, or if paying stamp duty on just one order — specifically in the State where the stamp duty is higher — would suffice.

This issue has been dealt with by the Bombay High Court in Chief Controlling v. Reliance Industries Ltd.[2],wherein two orders sanctioning the same scheme had been passed in Gujarat and Maharashtra. An issue arose before the Hon’ble High Court on whether the lower stamp duty of INR 10 crore payable in Gujarat could be adjusted against the higher stamp duty of INR 25 crore payable in Maharashtra, since both the orders related to the same transaction.

The Hon’ble High Court answered the issue in the negative by opining that as per the scheme of the Stamp Act, an instrument is chargeable to stamp duty and not the transaction. The execution of the instrument is the taxable event, and not the transaction, making the underlying transaction immaterial for determining the stamp duty payable. The two orders pertaining to the same scheme are separate, independent instruments and cannot be considered as the same document.

Moreover, this would result in treating one of the NCLT orders as a ‘principal instrument’, which is untenable under law.

Further, the differential duty provision outlined in the Schedule of the Stamp Act does not directly pertain to the aforesaid scenario, as it is only applicable when an order is executed outside a State, relating to a property or action intended within that State, and is subsequently received in the State. In the aforesaid scenario, the two independent orders are already in two different States, and the stamp duty shall be payable in the respective States. 

The Hon’ble High Court accordingly concluded that even if the scheme/ transaction is the same, in case the scheme is given effect by way of a document signed in Maharashtra, it shall be subject to stamp duty as per the provisions of the Schedule. Hence, the company cannot plead any adjustment basis prior stamp duty paid in another State.  

The principle governing stamping is that it is the instrument concerned which is liable to be stamped and not the underlying transaction. Accordingly, it is clear that in cases where the transferee and the transferor companies have their registered offices in two different States, two orders shall be passed by the respective NCLTs, resulting in two different instruments that are liable to be stamped under the respective schedules of the Stamp Act.

The same is bound to result in a significant increase in the stamp duty payable by the concerned companies. Therefore, the abovementioned considerations must be kept in mind before filing an application for merger or amalgamation, to assess the stamp duty liability. There is a school of thought which argues that stamping of two NCLT orders approving a single scheme amounts to charging double duty. However, this comes from a flawed understanding that duty is payable on a transaction (i.e., transfer of assets through the scheme in this case). The provisions of the Stamp Act make it clear that it is the instrument, through which a transaction is consummated, that is liable to be stamped. Even in the example above, if only one NCLT sanctions the scheme, it will not come into effect unless the other NCLT also issues an order sanctioning it. Hence, it is only logical that separate duty is paid on each instrument that facilitates the scheme’s approval.

[1] Ambuja Cement Ltd. v. Collector of Stamps, 2024 SCC OnLine Del 7710, para 9; Delhi Towers Ltd. v. G.N.C.T. of Delhi, (2010) 159 Comp Cas 129, paras 86.

[2] 2016 SCC OnLine Bom 1428, paras 20-21, 26, 28, 32.