Companies & Sectors
West Bengal stamp amendment makes mergers easier

Specification of the rate of duty on schemes of arrangements in the state now comes as a big relief. Not only will the stamp duty be lower than that applicable on a conveyance, but the issue of applicable/ applicability of stamp duty is now no longer ambiguous

West Bengal has a reason to cheer now! It was always an unclear position in the state when it came to payment of stamp duties on conveyance under a scheme of arrangement due to absence of specific entry in state’s schedule and as such there were always two schools of thoughts. In states like Maharashtra, Karnataka, Madhya Pradesh there was no complexity at all as the states’ schedule gave place to duty on scheme of arrangements. However, the position in West Bengal was always perplexed, more so after the decision rendered by the Division Bench in Emami Biotech & Others, wherein a scheme of arrangement u/s 394 of the Companies Act, 1956 was stampable as a conveyance inspite of absence of specific entry in the Schedule applicable in West Bengal under the Indian Stamp Act, 1899. Surely enough, a scheme of arrangement transferring assets and liabilities in favour of the transferee company would be regarded as an instrument, which is subject to payment of stamp duty; however, the concerning part is the applicable rate of stamp duty.

 

The West Bengal government has vide its notification no. 42L dated 8 January 2013, effective from 1 February 2013, has put the concern to rest by including an order u/s 394 of the Companies Act under the definition of conveyance and prescribing a differential rate of duty for the same.

 

Read: Stamp duty on scheme of arrangements in West Bengal: Mystery Solved!

 

The amendments made by the notification along with their implications are discussed here.
 

Indian Stamp (West Bengal Amendment) Act, 2012:
 

Definition of conveyance:

 

Now substituted to include the order by the court in respect of scheme of arrangements and reads as:

 

‘conveyance’ includes a conveyance on sale and every instrument and every decree of final order of any civil court or every order made by the high court under Section 394 of the Companies Act, 1956 in respect of amalgamation, merger, reconstruction or demerger of companies other than amalgamation, merger, reconstruction or demerger of two banking companies or a banking company with a non-banking financial company , by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by Schedule I or by Schedule I-A, as the case may be;” [emphasis supplied]
 

Amendment to Schedule IA:

 

Specific entry made so as to include scheme of arrangements under conveyance as Article 23A specifying that where there is a transfer of the immoveable property from the state of West Bengal under any scheme of amalgamation, merger, demerger or reconstruction except that between two banking companies or between a banking and an non-banking financial company, the rate of duty in such transfer will be higher of the following:

  1. An amount equal to 2% of the true market value of the immoveable property located in the state of West Bengal of the transferor company; or
  1. An amount equal to 0.5% of the aggregate of the market value of the shares issued or allotted, in exchange or otherwise, and the amount of consideration paid by such transferor company for such amalgamation.

Position in other states:
 

Maharashtra

 

The Supreme Court in Hindustan Lever Vs State of Maharashtra held that the foundation or the basis for passing an order of amalgamation is agreement between two or more companies. The intended transfer is a voluntary act of the contracting parties. The transfer has all the trappings of a sale. The court held that definition of ‘conveyance’ in the Stamp Act was an inclusive definition and includes within its ambit an order of the high court under Section 394 of the Companies Act. It is therefore subject to payment of stamp duty.

 

However, the above judgment is based on the definition of ‘conveyance’ and ‘instrument’ as appearing in the Bombay Stamp Act, hence, its applicability on the stamp laws of other states are always a matter of dispute.

 

Clause 25 (da) of Schedule 1 to Bombay Stamp Act enacted w.e.f. 1 January 2000 specifically includes the high court order approving a scheme of amalgamation, hence, there is no doubt in this state having differential rate of duty.

 

Even before such insertion, the high court had accepted that an order of amalgamation is liable to stamp duty as the same is in nature of a “conveyance”. The views of the said high court can be seen in Hanuman Vitamin Foods Pvt Ltd Vs. State of Maharashtra and Li Taka Pharmaceuticals. Vs State of Maharashtra & Ors. Thus, the insertion of the new clause regarding the amalgamation order in the Schedule was to avoid the confusion prevailing at that time and lay down the law of the land.
 

Delhi
 

Delhi Towers Vs GNCT of Delhi (date of decision: December 2009)

 

The Delhi High Court in this judgment relied on the Hindustan Lever & Anr Vs State of Maharashtra & Anr and in analyzing the nature of a scheme of amalgamation, held that an order of the high court approving a scheme of amalgamation would be liable to stamp duty even in the absence of an express inclusion of such orders within the definition of ‘conveyance’. 

 

It observed that the scheme of amalgamation has its genesis in an agreement between the prescribed majority of shareholders and creditors of the transferor company with the prescribed majority of shareholders and creditors of the transferee company. The Delhi High Court relied on the judgment and views of the Supreme Court in Hindustan Lever case and held that conveyance has within its ambit “order u/s 394 by the high court”.

 

Since, there is no differential rate of duty; hence, the duty as applicable on conveyance becomes applicable.
 

Uttar Pradesh

 

The Allahabad High Court has also accepted such position at paragraph 27 of a judgment delivered in 2006 on a clutch of writ petitions in Hero Motors Vs The State of U.P. that an order sanctioning a scheme of arrangement of merger or demerger is both an ‘instrument’ and a ‘conveyance’ within the meaning of the applicable Stamp Act. Since, there is no differential rate of duty; hence, the duty as applicable on conveyance becomes applicable.

 

A comparison chart on the rate of duties in few states:

 

Maharashtra

25 (da):

10% of the aggregate of the market value of the shares issued or allotted in exchange or otherwise and the amount of consideration paid for such amalgamation.

Gujarat

20 (d):

Subject to maximum of Rs10 crore,

(i) an amount equal to 1%, of the aggregate amount comprising of the market value of share issued or allotted in exchange of or otherwise, or the face value of such shares, whichever is higher and the amount of consideration, if any, paid for such amalgamation, or

(ii) an amount equal to 1%, of the true market value of the immovable property situated in the state of Gujarat of the transferor company.

Whichever is higher;

Karnataka

(on amalgamation)

20 (4) (i):

2% on the market value of the property of the transferor company, located within the state of Karnataka and transferred to the transferee company; or an amount equal to 1% of the aggregate value of shares issued or allotted in exchange, or otherwise and in case of a subsidiary company, shares merged (or cancelled) with parent company and in addition, the amount of consideration if any, paid for such amalgamation; -whichever is higher

Karnataka

(on demerger)

20 (4) (ii):

2% on the market value of the property  of the transferor company, located within the state of Karnataka, and transferred to the resulting company; or an amount equal to 1% of the aggregate value of shares issued or allotted to the resulting company and in addition, the amount of consideration if any, paid for such demerger or reconstruction; whichever is higher

 

Impact of the amendment:

 

The much baffling issue in light of the judicial pronouncements in the state has now been settled and colonized. The controversies due to the decisions rendered in Gemini Silk Vs Gemini Overseas on 8 August, 2002 and Madhu Intra Ltd Vs Registrar of Companies in 2006 wherein the courts had held that the scheme of arrangement is by operation of law and therefore, not liable to stamp duty, are no more relevant and the situation now comes to a mend.

 

Specification of the rate of duty on schemes of arrangements now comes as a big relief as not only will the stamp duty be lesser than that applicable on a conveyance (presently 7%), but also the settlement of the issue on the applicable/ applicability of stamp duty settles the ambiguity and ongoing litigations in relation to the same. Therefore, there is no further need to wait for judicial pronouncements to determine the stamping issues.

 

After various conflict and controversies, it seems that once again the halt position of mergers in the state will begin due to the clarity brought in by the government.

 

Other stories by Aditi Jhunjhunwala

 

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Nifty, Sensex will continue to weaken: Tuesday Closing Report

Nifty may try to bounce back but may get stalled at 5,820

 
The market closed in the red for the third straight day following the pullout of the DMK from the ruling UPA led coalition government at the Centre. A statement by the RBI in its mid-quarter policy review that, “headroom for further monetary easing remains quite limited” added to the gloom among investors. The Nifty may try to bounce back but may get stalled at 5,820.
 
The National Stock Exchange (NSE) recorded a turnover of 72.30 crore shares and advance-decline ratio of 343:1176.
 
The market opened in the positive on hopes that the Reserve Bank of India (RBI) will cut key policy rates in its mid-quarter monetary policy review in order to boost growth. Markets across Asia, which were firm in morning trade, also boosted risk appetite among domestic investors. On the other hand, US markets were down around 0.50% in overnight on Cyprus’ plan to tax bank depositors in return for a bailout package from the European Union.
 
Back home, the Nifty opened 25 points higher at 5,860 and the Sensex resumed trade at 19,346, a gain of 53 points over its previous close. Buying support from realty, auto and banking stocks lifted the benchmarks to their intraday highs in initial trade itself. At the highs the Nifty went up to 5,864 and the Sensex rose to 19,379.
 
However, profit booking at higher levels led the market gradually lower in subsequent trade. Meanwhile, the RBI in its policy review announced a 25 basis point cut in the repo rate while keeping the cash credit ratio (CRR) unchanged at 4%. Almost at the same time, a news flash about the DMK withdrawing support to the UPA-led government at the Centre saw the market plunge into the negative.
 
The political developments led the market to its intraday low around 11.30am with the Nifty dropping to 5,724 and the Sensex tumbling to 18,939. But finance minister P Chidambaram’s assurance that the government was stable despite the DMK’s withdrawal of support helped the indices recover from their lows. The indices were range-bound in noon trade.
 
Meanwhile, faced with mounting criticism in Cyprus and a hostile reaction from the global markets, the Eurozone finance ministers have decided to ease the conditions of a bank levy for small savers, which was agreed last Saturday as part of a 10 billion euro ($13 billion) bailout for the debt-stricken nation.
 
The market continued to trade sideways till the end of the trading session wherein investors brushed aside the 25 bps repo rate cut by the central bank but were worried about the political instability arising today.
 
The market closed in the red on the back of the political developments at the Centre, which overshadowed the RBI’s rate cut. The Nifty settled 89 points (1.53%) down at 5,746 and the Sensex dropped 285 points (1.48%) but managed to end trade a tad above the 19,000-mark at 19,008.
 
Among the broader indices, the BSE Mid-cap index declined 1.37% and the BSE Small-cap index tanked 1.57%. 
 
The rout in the market saw all sectoral indices settling lower. The top losers were BSE Realty (down 3.63%); BSE Capital Goods (down 2.69%); BSE Metal (down 2.59%); BSE PSU (down 2.08%) and BSE Power (down 1.99%).
 
Six of the 30 stocks on the Sensex closed in the positive. The main gainers were GAIL India (up 1.96%); Bajaj Auto (up 1.17%); Sun Pharmaceutical Industries (up 0.74%); ITC (up 0.44%) and Maruti Suzuki (up 0.16%). The key losers were BHEL (down 5.05%); Bharti Airtel (down 4.74%); Sterlite Industries (down 4.15%); Jindal Steel & Power (down 3.96%) and Mahindra & Mahindra (down 3.45%).
 
The top two A Group gainers on the BSE were—Coromandel Industries (up 6.25%) and IPCA Laboratories (up 3.20%).
The top two A Group losers on the BSE were—Muthoot Finance (down 9.26%) and Lanco Infratech (down 6.96%).
 
The top two B Group gainers on the BSE were—Biopac India Corporation (up 20%) and Bharatiya Global Infomedia (up 19.84%).
The top two B Group losers on the BSE were—Bilcare (down 19.96%) and Manappuram Finance (down 19.94%).
 
Of the 50 stocks on the Nifty, seven ended in the green. The key gainers were GAIL India (up 2.65%); Bajaj Auto (up 1.59%); Ranbaxy Laboratories (up 1.37%); Lupin (up 0.94%) and Sun Pharma (up 0.67%). The main losers were BHEL (down 5.06%); Bharti Airtel (down 4.39%); DLF (down 4.09%); Reliance Infrastructure (down 3.91%) and Sesa Goa (down 3.77%).
 
Markets in Asia closed mostly higher as Monday’s sell-off saw investors picking up stocks at lower levels. Meanwhile, media reports indicated that the Cypriot parliament the levy on bank deposits, a condition for an EU bailout to the debt-ridden nation.
 
The Shanghai Composite advanced 0.78%; the Jakarta Composite gained 0.50%; the KLSE Composite advanced 0.35%; the Nikkei 225 jumped 2.03%; the Straits Times rose 0.47%; the Seoul Composite climbed 0.53% and the Taiwan Weighted settled 0.35% higher. Bucking the trend, the Hang Seng lost 0.19%.
 
At the time of writing, the CAC 40 of France was down 0.80%; the DAX of Germany fell 0.60% and UK’s FTSE 100 was trading 0.36% lower. At the same time, the US stock futures were marginally in the red.
 
Back home, foreign institutional investors were net buyers of equities totalling Rs506.01 crore on Monday whereas domestic institutional investors were net sellers of stocks amounting to Rs459.89 crore.
 
Pharmaceutical major Elder Pharmaceuticals today said it has inked a joint venture agreement with Japan's Kose Corporation to manufacture and sell cosmetics in India. Kose will hold 60% stake in the JV, which will be named Kose Elder (India) Pvt Ltd, while Elder will hold the balance 40% stake. The stock declined 1.41% to settle at Rs303.50 on the NSE.
 
Subex, a provider of business service systems for communication service providers, has been selected by Libyan telecom operator Almada, to provide it with its ROC revenue assurance and fraud management solutions. With this deal, the company has made its first foray into the country. Subex gained 1.29% to close at Rs11.75 on the NSE.
 
Asian Paints has entered the kitchen space by acquiring a majority stake in the Sleek Group that has a significant presence in the kitchenware segment. In a filing with the exchanges, the company said that its board has approved acquisition of 51% stake in the Sleek Group. Asian Paints declined 1.97% to settle at Rs4,904.10 on the NSE.
 

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2G spectrum case: Delhi court summons Bharti Airtel chief Sunil Mittal, others

Besides Mittal and Ruia, the court issued summons against Asim Ghosh, who was the then managing director of accused firm Hutchison Max Telecom Pvt Ltd and former telecom secretary Shyamal Ghosh for 11th April

A Delhi court on Tuesday summoned as accused chairman-cum-managing director of Bharti Airtel Sunil Bharti Mittal, Essar Group promoter Ravi Ruia and five others in a case relating to alleged irregularities in allocation of additional spectrum to Airtel and Vodafone during the NDA regime.

 

Besides Mittal and Ruia, the court issued summons against Asim Ghosh, who was the then managing director of accused firm Hutchison Max Telecom Pvt Ltd and former telecom secretary Shyamal Ghosh for 11th April.

 

The CBI in its charge-sheet had only named Shyamal Ghosh and three telecom firms Bharti Airtel, Hutchison Max Telecom Pvt Ltd (now known as Vodafone India) and Sterling Cellular (now known as Vodafone Mobile Service), but Mittal, Ruia and Asim Ghosh were not arrayed as accused in the case by the agency.

 

Special CBI judge OP Saini issued summons against Mittal, Ruia, who was then a director in Sterling Cellular, and Asim Ghosh saying they were “prima facie in control of affairs of the respective companies”.

 

“I also find that at the relevant time, Sunil Bharti Mittal was chairman-cum-managing director of Bharti Cellular, Asim Ghosh was managing director of Hutchison Max Telecom Pvt Ltd and Ravi Ruia was a Director in Sterling Cellular, who used to chair the meetings of its board. In that capacity they were/are prima facie in control of affairs of the respective companies.

 

“As such they represent the directing mind and will of each company and their state of mind is the state of mind of the companies,” Special CBI judge OP Saini said.

 

“They are/were ‘alter-ego’ of their respective companies. In this fact/situation, the acts of the companies are to be attributed and imputed to them. Consequently, I find enough material on record to proceed against them also,” he said.

 

Ruia is also facing trial in a case arising out of the probe into the 2G spectrum allocation scam.

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