Bombay High Court clarifies stamp duty on composite amalgamations

Background of the Case

In a recent ruling, the Bombay High Court (“the Court”) decided on a writ petition filed by Schaeffler India Ltd¹ (“the Company”) challenging the validity of stamp duty levied on an NCLT sanction order approving a composite scheme of amalgamation involving multiple transferor companies. The dispute centred on whether stamp duty under the Maharashtra Stamp Act, 1958 could be computed by treating the amalgamation as separate transactions or whether duty was chargeable only on the NCLT order as a single instrument subject to the statutory cap.

Facts of the Case

• The Company implemented a composite scheme of amalgamation involving INA Bearings India Pvt. Ltd. and LuK India Pvt. Ltd. under Sections 230–232 of the Companies Act, 2013.
• Since LuK India fell within the jurisdiction of Tamil Nadu, the scheme was sanctioned by NCLT Chennai, while NCLT Mumbai sanctioned the composite scheme concerning the Company and INA Bearings through order dated 8 October 2018.
• Pursuant to the sanction, the Company lodged the NCLT Mumbai order for adjudication under the Maharashtra Stamp Act, 1958 to determine stamp duty liability.
• The stamp authorities treated the amalgamation as two distinct transactions and invoked Section 5 to levy stamp duty of INR 50 crore.
• The Company contended that stamp duty was payable only on the NCLT sanction order as a single instrument and that the statutory cap of INR 25 crore applied.
• After its departmental challenge failed, the Company filed a writ petition before the Bombay High Court challenging the levy.

Key Issues

1. Whether stamp duty on an amalgamation scheme is payable on the underlying transactions or only on the NCLT sanction order as an instrument.
2. Whether Section 5 of the Maharashtra Stamp Act, 1958 applies to a composite scheme involving multiple transferor companies.
3. Whether the NCLT Mumbai order could be treated as bringing the NCLT Chennai order into Maharashtra for stamp duty purposes.
4. Whether separate stamp duty could be levied for each amalgamation within a composite scheme.

Key Takeaways

1. Stamp Duty on Instrument vs Underlying Transactions

• The Court held that stamp duty under the Maharashtra Stamp Act, 1958 is chargeable only on the instrument, namely the NCLT sanction order, and not on the underlying scheme or commercial arrangement, reiterating the principle laid down by the Full Bench in Chief Controlling Revenue Authority vs Reliance Industries Ltd².
• It was clarified that a scheme of amalgamation by itself does not effect transfer of property; rather, it is the tribunal’s sanction order that operates as a conveyance and therefore attracts stamp duty.
• The Court rejected the revenue’s approach of examining the economic substance of the amalgamation to compute duty, holding that such an exercise goes beyond the statutory scheme.

2. Applicability of Section 5 of the Maharashtra Stamp Act, 1958

• The Court held that Section 5 applies only where an instrument relates to several distinct and independent matters, which cannot be conceived as part of one aggregate arrangement, and therefore could not be invoked in the context of a composite amalgamation scheme.
• Drawing persuasive support from the Gujarat High Court decision in Ambuja Cements Ltd. vs Chief Controlling Revenue Authority³, the Court observed that sanction orders under Sections 230–232 of the Companies Act, 2013 cannot be dissected into multiple taxable matters.
• Accordingly, the application of Section 5 to levy duty separately on the amalgamation of INA Bearings and LuK India was declared legally unsustainable.

3. Jurisdiction – NCLT Chennai vs NCLT Mumbai Orders

• The Court held that the stamp authorities in Maharashtra lacked jurisdiction to assess duty on the NCLT Chennai order, since stamp duty is levied on the instrument originating within the State, which in the present case was only the NCLT Mumbai order.
• Referring to the Full Bench ruling in Reliance Industries Ltd., the Court reiterated that orders passed by different tribunals or courts, even if relating to the same scheme, constitute independent instruments.
• It was further held that mere reference to the NCLT Chennai order in the NCLT Mumbai sanction order does not amount to receipt of that instrument in Maharashtra within the meaning of Section 19.

4. Composite Scheme & Statutory Cap under Article 25(da)

• The Court held that a composite scheme sanctioned by the NCLT remains a single integrated arrangement, and the amalgamation of multiple transferor companies cannot be artificially segregated into separate transactions merely to enhance stamp duty liability.
• Relying on the reasoning adopted in Reliance Industries Ltd, the Court observed that even if the scheme involves more than one company, the chargeability arises from the sanction order itself and not from the number of mergers embedded in the scheme. It concluded that treating each transferor company as a separate transaction amounted to an impermissible reconstruction of the scheme by the stamp authorities.
• Further, the Court held that stamp duty on the NCLT sanction order is governed by Article 25(da) of Schedule I of the Maharashtra Stamp Act, 1958, which prescribes a statutory maximum cap, and such cap applies irrespective of the number of companies involved in the amalgamation.
• It rejected the revenue’s contention that the cap could be applied separately to each alleged transaction, observing that the chargeable instrument remained a single sanction order.
• Therefore, the Court quashed the demand exceeding INR 25 crore and directed refund of the excess amount paid under protest.

Conclusion

In conclusion, the judgment of the Bombay High Court clarifies the legal position regarding levy of stamp duty on NCLT-sanctioned amalgamation schemes under the Maharashtra Stamp Act, 1958. The Court reaffirmed that stamp duty is chargeable on the sanction order as a single instrument and not on the underlying amalgamation transactions, thereby rejecting the revenue’s attempt to apply Section 5 to split a composite scheme into multiple taxable events. By setting aside the excessive levy and enforcing the statutory cap under Article 25(da), the ruling provides significant clarity on the treatment of composite amalgamations, jurisdictional limits of stamp authorities, and the interpretation of conveyance instruments in corporate restructuring matters.

Kretha Comments

This ruling reinforces a consistent jurisprudential trend that amalgamation schemes sanctioned by courts or tribunals constitute conveyance instruments for stamp duty purposes, and authorities cannot artificially bifurcate composite schemes to increase duty liability. The decision is significant for structuring multi-entity mergers, as it affirms that stamp duty exposure is governed by the instrument itself rather than the number of entities involved.

1. WRIT PETITION NO. 7496 OF 2023 ↩︎
2. 2016 SCC Onl Bom 1428 ↩︎
3. C/SR/1/2020 decided on 10/02/2023 by Gujarat High Court ↩︎