(First published on Linkedin)
In a noteworthy judgment, the Madhya Pradesh High Court has provided critical guidance on the interpretation of the Indian Stamp Act, particularly for corporate amalgamations involving multiple NCLT benches and immovable properties spread across different states. This ruling holds significant implications for companies engaging in cross-state transactions.
Background:
Recently, a major corporate entity found itself in a legal battle over the imposition of stamp duty in Madhya Pradesh. The National Company Law Tribunal (NCLT) benches in Mumbai and Allahabad had sanctioned the scheme of arrangement, as the registered offices of the involved companies were in Maharashtra and Uttar Pradesh, respectively. However, the properties in question were situated in Madhya Pradesh, leading to a complex situation regarding the applicability and timing of stamp duty.
Key Takeaways from the Ruling:
1. Constructive Receipt of Orders: The Madhya Pradesh High Court clarified that stamp duty becomes chargeable not merely when the NCLT order is physically brought into Madhya Pradesh but also when any act based on that order is carried out within the state—such as the execution of a mining lease. This concept of “constructive receipt” determines that the applicable law is the one in effect at the time such action is taken, not when the order is physically received.
2. Timing of Stamp Duty Adjudication: The timing of stamp duty payments across states was a crucial point in this ruling. If stamp duty is first adjudicated and paid in another state (like Uttar Pradesh), a set-off is available in Madhya Pradesh if MP’s duty is higher. However, if MP’s stamp duty is adjudicated first and no payment has been made in UP, no set-off is granted, emphasizing the importance of the sequence of payments.
3. Imposition on Immovable vs. Movable Properties: The Court confirmed that stamp duty should be restricted to immovable properties situated in Madhya Pradesh. Movable properties are not subject to stamp duty in MP, possibly because registered offices of the transferor and transferee companies were not in MP and therefore, no shares are issued within the state.
4. Penalty Application: The Madhya Pradesh High Court ruled that penalties for non-payment of stamp duty should be applied only to the stamp duty amount, excluding any additional cess.
Disclosure Obligations Under SEBI LODR Regulation 30: Separately, it would be interesting to see the rationale as to why this order of the Madhya Pradesh High Court was not disclosed by the listed entity which was the petitioner in this case, under Regulation 30 of the SEBI LODR Regulations.