Recently, the Calcutta High Court has, in the case of Indorama India Private Limited v. Collector of Stamp Revenue, Kolkata (WPO No. 3281 of 2022 with WPA No.22339 of 2022, decision dated July 12, 2023), examined the issue of appropriate rate of stamp duty payable on a scheme of demerger, in which none of the immovable properties of the transferor company are located in the State of West Bengal.

In the instant case, the writ petitioner had challenged the imposition of stamp duty at the rate of 7% (seven percent) under Article 23 of Schedule IA ("Schedule IA”) of the Indian Stamp Act, 1899 (as per West Bengal amendment) ("Stamp Act”), instead of 0.5 per cent specified under Article 23A.

In analysing the issue, the Court noted the contents of Article 23A of Schedule IA, description portion of which provided as such:

23A. Conveyance, 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, executed on the basis of decree or final order of any Civil Court or every order made by the Tribunal under section 394 of the Companies Act, 1956 (1 of 1956), as defined by section 2(10), not being a transfer charged or exempted under No. 62, on the market value of the property which is the subject-matter of the conveyance, when the property of the transferor company located in the State of West Bengal is transferred to the transferee company by way of such amalgamation, merger, re- construction, or demerger of companies under the decree of final order of any Civil Court or every order of the Tribunal under section 394 of the Companies Act, 1956:

                                                                                                                                 (emphasis supplied)

The aforesaid provision was noted by the Court to observe that, the contents of Article 23A would only be applicable only if there are properties of the transferor located in West Bengal, which are transferred to the transferee company in the process of amalgamation/merger/reconstruction/ demerger. In other words, where the transferor company has no property situated within the State of West Bengal, the order sanctioning the scheme would not be subject to stamp duty under Article 23A of Schedule IA.

To analyse as to what would be the appropriate article/ rate of stamp duty payable on such a scheme, the Court noted the definition of ‘conveyance’ appearing under Section 2(10) of the Stamp Act and noted that the definition takes within its purview every instrument and every decree or order of civil court or tribunal in respect of amalgamation, merger, reconstruction or demerger (other than between two banking companies or a banking company with a non-banking financial company) by which property, whether movable or immovable, or any estate or interest in any property is transferred to, or vested in any other person inter vivos and which is not otherwise specifically provided for by Schedule I.

This prompted the Court to conclude that, the conveyance, on demerger, of property lying outside West Bengal would be excluded from Article 23A but included in Article 23 of Schedule IA of the Stamp Act, dealing with conveyance.

For arriving at the aforesaid conclusion, the Court also sought to find support from the language of the provision, which inter alia included within its purview any document, “other than document of amalgamation of contiguous land”, which was deemed enough to conclude that amalgamation is one of the transactions contemplated by Article 23.

Our observation:

The upshot of the decision that, where the transferor company has no property situated in the State of West Bengal, could still be subjected to payment of stamp duty basis property situated anywhere in India, fails to take note of the decision of the Division Bench of Calcutta High Court rendered in the case of SBPL Infrastructure Ltd v. State of West Bengal [MAT 593 of 2018, decided on September 24, 2018], where the Court was pleased to note that, as Schedule IA is a state amendment, it cannot have extra-territorial operation. It was specifically observed by the Division Bench that, it was not permissible for State to charge stamp duty in accordance with Article 23 of Schedule IA for conveyance in respect of properties situated outside State. Holding otherwise would militate against Article 245 of the Constitution of India, which extends protection to a Parliamentary legislation purporting to have extra territorial operation, but not to any state legislation.

Whilst one may argue that the decision is per incurium for its failure to take note of the observation of the Division Bench, until a declaration as such, the decision may continue to hold sway. Considering the Kolkata bench of NCLT has jurisdiction over the companies having their registered offices in State of Bihar, State of Jharkhand, State of West Bengal and Union Territory of Andaman & Nicobar Islands, this decision would have unintended consequence of exposing numerous parties to a scheme to increased stamp duty implication, especially where the transferor companies have no immovable property within the State of West Bengal.

Please find attached a copy of the judgment.

This update has been contributed by Arka Majumdar (Partner) and Juhi Wadhwani (Senior Associate).

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