We are pleased to release a regulatory alert which summarizes the recent judgement of Bombay High Court (“HC”) in case of Reliance Industries Limited (“RIL”) wherein HC ruled that order passed by the jurisdictional HC sanctioning such Scheme of Amalgamation (“Scheme”) is an instrument chargeable to stamp duty, and not the Scheme under section (“u/s”) 394 of the Companies Act, 1956 (“the Act”). It is the Order which effects the transfer and vesting of property, and hence is an instrument chargeable to stamp duty.
Accordingly, if the Registered Offices (”RO”) of the companies (involved in the Scheme) are situated in different states, and the Scheme is required to be approved by two different HC, then the order of each jurisdictional HC would be the instrument chargeable to stamp duty in the respective states.
As per the HC order, given that the HC orders are separate instruments chargeable to stamp duty, no rebate in respect of stamp duty paid on a HC order in one state would be available in the other state.
Historically, where there are multiple states involved in a single restructuring (merger/ demerger), companies have taken a view that rebate/ credit of stamp duty should be available across states. This limits the stamp duty impact in restructuring.
The said ruling may have a significant impact on restructuring costs for companies located in various states, especially where Bombay jurisdiction is also involved, and may also influence the views on inter-state rebate, which are adopted by other states. Interestingly, there is no significant reference to the concept of ‘Effective Date’, wherein the property/ assets are vested on merger, only once orders of all jurisdictional HCs are filed. Before this date, the Scheme cannot be given effect legally, and hence there is a requirement for all orders to be considered together, for the property/ assets to be vested in the transferee company.
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