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Satwinder SinghPartner, Vaish Associates Advocates
Central Council Member - ICSI
Compromise/ Arrangement/ Amalgamation
Other M&A Related Aspects
AGENDA
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Sale of undertaking
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Compromise/ Arrangement/ Amalgamation
Other M&A Related Aspects
AGENDA
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Sale of undertaking
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
1956 Act
Impact vis-à-vis other legislations
Chapter
Sections
Authority
Section 390-396A
Chapter V
High Court
Rules Company (Court) Rules, 1959
2013 Act
Chapter XV
Section 230-240
NCLT
Draft rules to Chapter XV(yet to be notified)
M&ACompromise/ Arrangement/ Amalgamation
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
TRANSITIONAL PROVISIONS:
Whether, pursuant to enactment of 2013 Act, the provisions of any other legislationswould require amendment to the extent of making reference to relevant 2013 Act,instead of 1956 Act?
Section 8 of the General Clause Act, 1897 provides the following:"8. Construction of references to repealed enactments –
(1) Where this Act, or any (Central Act) or regulation made after the commencement of thisAct, repeals and re enacts, with or without notification, any provision of a former enactment,then references in any other enactment or in any instrument to the provision so repealedshall, unless a different intention appears, be construed as references to the provision so re-enacted. ......”
The intent of section 8(1) of the General Clauses Act, 1897 would be that if there isany reference of a section of the 1956 Act (which has been repealed and re-enacted) in any other enactment (say, Income tax Act, like under section 2(18),2(19AA), 115JB, etc) or in any instrument, unless a different intention appears, beconstrued as references to the provision so re-enacted (i.e. corresponding notifiedsection of the Companies Act, 2013)
M&ACompromise/ Arrangement/ Amalgamation
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&ACompromise/ Arrangement/ Amalgamation
Legislative Changes
TRANSITIONAL PROVISIONS:
Transfer of matter/pending proceedings to the Tribunal from High Court onsuch date as may be notified by Central Government under Section 434(1)[2nd proviso to Section 465(1)]
Upon transfer of pending proceedings (pending before notified date) to Tribunal,the Tribunal may proceed to deal with such proceedings from the stage beforetheir transfer [Section 434 (1) (d)]
On a notified date (to be notified by Central Government), any appeal preferred to theAAIFR; or any reference made or enquiry pending to or before BIFR; or anyproceeding of whatever nature pending before the AAIFR; or the BIFR under theSICA immediately before the commencement of 2013 Act (“Pending proceedings”)shall stand abated
Fresh reference w.r.t abated Pending proceedings to be made to the Tribunal under the2013 Act within 180 days from the commencement of 2013 Act
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Compromise/ Arrangement/ Amalgamation
Other M&A Related Aspects
AGENDA
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Sale of undertaking
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Applicant to disclose following in the affidavit to NCLT:
all material facts related to the company;
investigation /proceedings against the company;
reduction of share capital included in the scheme;
details of corporate debt restructuring, if any
M&ACompromise/ Arrangement/ Amalgamation
Procedural Changes
Application(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Disclosure about Corporate Debt Restructuring:
creditor’s responsibility statement
safeguards for protection of other creditors
report by auditor that fund requirement as approved after CDR willconform to liquidity test
statement if company proposes to adopt CDR guidelines by RBI
valuation report of assets by registered valuer
M&ACompromise/ Arrangement/ Amalgamation
Procedural Changes
Application(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Annexure to Notice:
Explanatory statement Valuation report
In case of merger/demerger/slumpsale/reconstruction, additional documents:
Expert report on valuation Supplementary Accounting Statement
Last Accounts –31st March 2013
More than 6 months
M&ACompromise/ Arrangement/ Amalgamation
Procedural Changes
Contents of Notice
(Section 230/ 232)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Notice of the meeting required to be sent to:
all creditors/ members/ debenture-holders Central Government Income-tax authoritiesRBI SEBIROC Stock Exchanges OL CCI other sectoral regulators/authorities likely to be affected
M&ACompromise/ Arrangement/ Amalgamation
Procedural Changes
Service of Notice
(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
In person
Proxy
Postal Ballot
Adoption
Minimum10%Shareholding
Minimum 5%OutstandingDebt
ByRegulatoryAuthorities
Representations
30 Days
Objection
At least 90%of the valueof creditors
Dispensation
M&ACompromise/ Arrangement/ Amalgamation
Procedural Changes
Service of Notice
(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Court Order to be filed within 30 days of receipt of order Scheme to be effective from appointed date and not subsequent date Annual certification to RoC till the scheme is fully implemented
M&ACompromise/ Arrangement/ Amalgamation
Procedural Changes
NCLT Order(Section 230)
NCLT Order
Dividend in Cash
Option of conversion given
to Preference shareholders
Reduction of Share capital
Buyback of shares
Variation of Rights
Exit Offer
Takeover OfferFees on
Authorized Capital
Dividend in the form of
equity shares
OR
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Compromise/ Arrangement/ Amalgamation
Other M&A Related Aspects
AGENDA
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Sale of undertaking
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
70% Shares
Merger
Consideration in lieu of A’s
holding in B
Treasury Shares issued by A to be held by Trust on A’s behalf
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Treasury Shares (Section 232/233)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Transferee Company not to hold Treasury
Shares
Own name Own Behalf
On behalf of any of its Subsidiary
Name of Trust On behalf of
Associate Company
POTENTIAL ISSUE• Whether the bar on issuance of treasury shares will also apply to shares
issued to the trustee in respect of fractional entitlement ?
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Treasury Shares (Section 232/233)
Either
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Transferor Listed
Transferee Unlisted
Amalgamated Unlisted
Transferee company shall remain unlisted until it becomes a listedcompany
Shareholders opting to exit :
to be paid value of shares
value not to be less than as per SEBI valuation guidelines
Merger of listed company with unlisted company may have majortax implications, in as much as the amalgamated company would betreated as a company in which public is not substantially interested
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Merger of listed with unlisted company
(section 232)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Merger / Amalgamation of : Small Companies upto paid capital of Rs. 50 lakh and turnover upto
Rs. 2 crores Holding and WOS such other class as may be prescribed
Notice of the Scheme inviting objections to be sent to: ROC; OL; Persons affected by Scheme
Scheme to be approved by members holding 90% shares / by 90% value ofcreditors
Companies to file statement of solvency
POTENTIAL ISSUE
• Who would be regarded as “persons affected by scheme” ?
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Fast Track Mergers
(Section 233)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Foreign Company
Foreign Company
India
Notified Jurisdiction
Indian Company
Indian Company
1956 Act 2013 Act
RBI Approval may not be required
RBI Approval
mer
ger
mer
ger
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Cross Border Merger
(Section 234)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Foreign Company
Foreign Company
India
Notified Jurisdiction
Indian Company
Indian Company
1956 Act 2013 Act
RBI Approval
mer
ger
mer
ger
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Cross Border Merger
(Section 234)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Education
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Mergers of Charitable Companies (Section 8)
Section 8 company to merge with section 8 company only having similarobjects
Overrules Walvis Flour Mills Case wherein trading companies were mergedwith section 25 companies
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Majority Protection ?
Minority Protection ?
M&ACompromise/ Arrangement/ Amalgamation
Conceptual Changes
Minority Protection
(Section 235/ 236)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Compromise/ Arrangement/ Amalgamation
Other M&A Related Aspects
AGENDA
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Sale of undertaking
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Further issue of shares can be made to any person, other than existingshareholders, by passing special resolution, if the price is determined byvaluation report of a registered valuer, subject to such conditions as may beprescribed
Erstwhile provision conferring right of pre-emption on the existingshareholders after the expiry of two years from the date of incorporation or afterone year from the date of first allotment, whichever is earlier, has beendispensed with
M&AOther M&A
Related Aspects
Capital Restructuring
Further Issue of Capital
(Section 62)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Approving Authority – Tribunal
Key Conditions:
No arrears in repayment of deposits (or interest payable thereon)
Notice to CG, ROC, SEBI (listed company) and creditors – Representation within 3months, else deemed “no objection”
Accounting treatment to be in conformity with AS and auditors’ certificatecertifying such compliance
Power of Tribunal to dispense with requirement of consent of the creditor in caseof reduction of capital by way of either diminution in any liability in respect of theunpaid share capital or payment to any shareholder of any unpaid share capitalhas been withdrawn
M&AOther M&A
Related Aspects
Capital Restructuring
Capital Reduction
(Section 66)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Cooling period of 1 year applicable even in case of buy back by specialresolution
Route of buy-back from odd lots – withdrawn
Buy-back possible in case of following defaults, provided the defaults havebeen remedied, and 3 yrs have lapsed:
repayment of deposit/interest payable
redemption of preference shares/debentures
payment of dividend
repayment of any term loan or interest
* Section 69 & 70 -Notified
M&AOther M&A
Related Aspects
Capital Restructuring
Buyback(Section 68-70)*
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Capital Redemption Reserve A/c
Securities premium A/c
Free Reserves
No issue of bonus shares shall be made by capitalizing reservescreated by revaluation of assets
M&AOther M&A
Related Aspects
Capital Restructuring
Bonus Issue(Section 63)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Issue of redeemable preference shares for a period more than 20 yrs but upto 30years
ONLY for funding of specified infrastructure projects (viz., power generation,trading and distribution of power, transportation, telecommunication services,etc.); and
Subject to annual redemption of minimum 10% of such preference shares, atthe shareholders’ option to whom such preference shares are issued from 21st
year onward or earlier, on proportionate basis.
M&AOther M&A
Related Aspects
Capital Restructuring
Redemption of Preference Shares
(Section 55)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Inability to redeem any preference shares (or payment of dividend on suchshares)
Redemption by further issue of preference shares equal to the amount due onthe preference shares which have not been redeemed (including the dividendthereon) with the approval of: (i) 3/4th (in value) of preference shareholderswhose preference shares are due to be redeemed; and (ii) Tribunal.
Tribunal may order redemption of preference shares of dissenting preferenceshareholders forthwith
Certain class of companies (to be prescribed) and whose financial statementscomply with accounting standards to be prescribed for such class of companiesunder section 133 have been allowed to pay premium on redemption only outof profits of the company as against an option given to other companies to payout of profits or securities premium account
M&AOther M&A
Related Aspects
Capital Restructuring
Redemption of Preference Shares
(Section 55)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Compromise/ Arrangement/ Amalgamation
Other M&A Related Aspects
AGENDA
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Sale of undertaking
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&AOther M&A
Related Aspects
Contractual Arrangement
Sale of Undertaking(Section 180)
* Section 180-Notified
“Undertaking” shall mean an undertaking in which the investment of thecompany exceeds twenty per cent of its net worth as per the audited balancesheet of the preceding financial year or an undertaking which generates twentyper cent of the total income of the company during the previous financial year
The expression “substantially the whole of the undertaking” in any financialyear shall mean twenty per cent or more of the value of the undertaking as perthe audited balance sheet of the preceding financial year
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Guidelines to RDs/ROCs for Schemes u/s 391-394
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&AOther M&A
Related Aspects
Guidelines to RDs/ ROCs
Ministry of Corporate Affairs, Government of India (“MCA”) has issuedGeneral Circular No. 53 of 2011, with guidelines for the Regional Directors(“RDs”) and Registrar of Companies (“ROCs”), in the matter of scheme ofarrangement / amalgamation under section 391- 394
In order to streamline the procedure, guidelines along with timelines are issuedfor strict compliance.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&AOther M&A
Related Aspects
Guidelines to RDs/ ROCs
Timelines prescribed under the guidelines are as under
On receipt of notice from Court, RD should make an entry in register/ electronic form. Incase the petition is filed with ROC & same can be monitored directly from the system.
RD shall send mail to ROC within 3 days.
ROC should furnish his report online to RD within 7 days.
RD should then send a letter to local branch of Law Ministry / Assistant Solicitor Generalrequesting for nomination of an advocate.
RD should send a letter to Company within 5 days to provide material of valuation andChairman’s report and the same should be finalized within a week’s time thereafter.
The finalized affidavit be sent to Standing Counsel for signature and should not take morethan 5 days after which should be filed in Court registry.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&AOther M&A
Related Aspects
Issues to be examined by
RDs
Whether companies forming part of scheme are sensitive sectors categoriescompanies?
Whether any of the companies are listed on any STX ? If so, NOC from STX issubmitted?
Whether any NRI/foreign interest in the Companies?
Whether the companies or its directors have contravened any provisions of Act?
Whether the companies involved have been inspected u/s 209A?
Whether Valuation report submitted, if so share exchange ratio is as per reportand accounting principles?
Whether transfer of Employees and their interest is protected?
Whether Accounting Treatment clause is as per AS-14 and in tune withprovisions of section 211(3A)/ 211(3C) of the Act?
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&AOther M&A
Related Aspects
Issues to be examined by
RDs
Whether meeting of class of shareholders/creditors is conducted?
Whether details of related party transactions are furnished?
Whether consideration is made in cash other than of shares?
Whether provisions of buy back is attracted?
Whether any reduction of share capital is involved?
Whether authorized share capital of transferee company is sufficient?
Whether any foreign entity is involved and necessary approvals obtained?
Whether compliance of FEMA/RBI Guidelines has been done?
Whether any qualification has been made by Statutory Auditor?
Whether a listed company is merging with an unlisted company?
Whether the promoters holding in listed company is increased?
Whether the companies have come up with the schemes under principle of‘Single Window Clearance’, approval from High Court has been obtained?
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&AOther M&A
Related Aspects
Issues to be examined by
ROCs
Filing Position.
Investor Grievances.
Inspection / Investigation / Technical Scrutiny.
Pending Prosecution.
Furnishes comments on the scheme.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
Stamp Duty Issues – M&A Perspective
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp Duty Structure
Constitution of India
Power of Union
Government to prescribe rates
Entry 91
bills of exchange, cheque, promissory notes, bills of lading, letters of credit,
Polices of Insurance, Transfer of Shares, Debentures, Proxies and
Receipts
Power of State Government to prescribe rates
Entry 63
Stamp duty in respect of documents other than those specified in the
provisions of List I with regard to rates of stamp duty.
Concurrent list
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyIndian Stamp
Act, 1899
The Indian Stamp Act, 1899 is a Central Enactment
The States have the power to either adopt the Indian Stamp Act (withamendments, if any) or enact their own legislations governing the payment ofstamp duty on instruments.
States like Maharashtra, Gujarat, Rajasthan, Madhya Pradesh, Uttar Pradesh,Karnataka and Kerala have enacted their own Stamp legislations
States like Delhi have adopted the central enactment with amendments
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyLevying Stamp
Duty & Execution
Stamp Duty is leviable:
On the execution of an instrument (not on transactions)
Only on Instruments mentioned in the Schedules
At the rate prescribed in the Schedule by the particular State Government
Meaning of Execution:
Execution of a document essentially means “signed/ signature”
Document is complete in execution when all persons required to sign thedocument have signed it
Mandatory witness : Section 63(c) of the Indian Succession Act, 1925 -Will; Transfer of Property Act – Gift and Registration of Mortgage Deed
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyStamp Duty on
Share Certificates
Three important factors:
Whether Share Certificate is an instrument?Share certificate is an instrument which evidences title of the holder in the share(s)of the company
What is the place of execution of the Share Certificate?place of execution will be the place of the board meeting of the company whereShare Certificates are issued
What will be the rate of stamp duty?as prescribed in the State where the Share Certificates were issued.
Stamping process: To submit following documents with the collector of stamps,Sham Nath Marg 5, New Delhi: Specimen of share certificate Performa for payment of stamp duty MOA & AOA Form 2 & list of allottees & CTC of Board resolution and Form 32
Affix Court fee stamp not less than Rs. 5 on the covering letter and cancel the stamp
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyStamp Duty on
Share Certificates
Stamping process:
Deposit Rs. 5 with the authority for submission of above documents. A Challanwill be issued by the authority, submit this Challan with stamping officials andget a file number from them.
Stamping authorities will issue the challan in triplicate and payment order.
Submit the demand draft along with the three challans with SBI Tis Hizari/anyother designated branches.
Bank will acknowledge the challans and give two copies back.
Submit one copy of the acknowledged Challan with the stamping officials.
Authority will verify the Challan and issue the stamp duty paid order within next15 days.
Print the order number on the share certificate to be issued to the allottees.
Print the order number on the share certificate to be issued to the allottees.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyStamp Duty on
Debenture Certificates
Three important factors :
Whether Debenture Certificate is an instrument? The power to levy stamp duty on debentures vested with the Union
Legislature by the virtue of Entry 91 of the Union List. To be chargeable as instrument, the debenture must be a “marketable security”
What is the place of execution of the Debenture Certificate? The place of execution of Debenture Certificates will be the place of issuance of
such certificates.
What will be the rate of Stamp Duty applicable? The applicable rate on issuance of Debenture Certificates will be as
prescribed in the Indian Stamp Act. 0.05%per year of the face value of the debentures, subject to the maximum of
0.25% or rupees twenty five lakhs whichever is lower.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyOrder u/s 391-394 of Co. Act,
1956
Three important factors :
Whether an order u/s 391-394 is an instrument?
Observation of Apex Court in Hindustan Lever Vs. State of Maharashtra(2004)1CLJ148(SC):
“amalgamation scheme sanctioned by the Court would be an “instrument” within themeaning Section 2(1) of the Bombay Stamp Act. By the said “instrument” the properties aretransferred from the transferor company to the transferee company, the basis of which is thecompromise or arrangements arrived at between the two companies”.
“Section 394 provides that an application and order of amalgamation under section 394 isbased on compromise or arrangement which has been proposed for the purpose ofamalgamation of two or more companies. The amalgamation scheme, which is an agreementbetween the companies, is presented before the court and the court passes an appropriateorder sanctioning the compromise or arrangement. The foundation or the basis for passing anorder of amalgamation is the agreement between two or more companies. Under the scheme ofamalgamation, the whole or any part of the undertaking, properties or liability of anycompany concerned in the scheme is to be transferred to the other company. “
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyOrder u/s 391-394 of Co. Act,
1956
Whether an order u/s 391-394 is an instrument? Observation of Apex Court inHindustan Lever Vs. State of Maharashtra (2004)1CLJ148(SC):
“The company whose property is transferred would be the transferor-company and the companyto whom property is transferred would be considered as the transferee-company. The scheme ofamalgamation has its genesis in an agreement between the prescribed majority of shareholdersand creditors of the transferor-company with the prescribed majority of shareholders andcreditors of the transferee-company. The intended transfer is a voluntary act of thecontracting parties.”
that the order passed by the court under section 394 of the Companies Act is based upon thecompromise between two or more companies. The function of the court while sanctioning thecompromise or arrangement is limited to oversee that the compromise or arrangement arrived atis lawful and that the affairs of the company were not conducted in a manner prejudicial to theinterest of its members or to public interest that is to say it should not be unfair or contrary topublic policy or unconscionable. Once these things are satisfied the scheme has to be sanctionedas per the compromise arrived at between the parties..” It is an instrument which transfersthe properties and would fall within the definition of section 2(1) of the Bombay StampAct which includes every document by which any right or liability is transferred
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyOrder u/s 391-394 of Co. Act,
1956
Three important factors :
What is the place of execution of an order u/s 391-394 ?The place of execution of an order u/s 391-394 is where the particular HighCourt has passed the order.
What will be the rate of Stamp Duty applicable?The applicable rate of such instrument is different in different states. While certainstates like Karnataka and Maharashtra have inserted an order u/s 391-394 withinthe entry for the term “conveyance”, states like Delhi rely on the judgments passedby their respective High Courts which mandates payment of stamp duty on suchorders and classifies them as “conveyance”.
Crux - Hindustan Lever Vs. State of Maharashtra (2004)1CLJ148(SC) : The foundation or the basis for passing an order of amalgamation is the
agreement between two or more companies. The whole or part of the undertaking, properties or liability of the
company is to be transferred to the other company. The intended transfer is a voluntary act of the contracting parties
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyOrder u/s 391-394 of Co. Act,
1956
Descriptionof
Instrument
Proper stamp Duty
(ii) An amount equal to 0.7 percent of the aggregate of the market valueof the shares issued or allotted in exchange an amount equal to 0.7per cent of the aggregate of the market value of the shares issued orallotted in exchange or otherwise and the amount of considerationpaid for such amalgamation, whichever is higher:
Provided further that, in case of reconstruction of demerger the dutychargeable shall not exceed,----
• an amount equal to [5 per cent] of the true market value of theimmovable property located within the State of Maharashtratransferred by the Demerging Company to the Resulting Company;or
• an amount equal to 0.7 per centum of the aggregate of the marketvalue of the shares issued or allotted to the Resulting Company andthe amount of consideration paid for such demerger whichever ishigher.
Bombay Stamp Act,
1958
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyConversion of Sole Proprietor
into Partnership
Supreme Court in the case of Commissioner of Income-Tax, West Bengal v.Hind Construction Ltd.
Held that when the assessee made over its machinery to the partnership firm there wasno sale and the assessee did not derive any income.
Supreme Court in the case of Sunil Siddharthabhai Vs. CIT Ahmedabad,Gujarat
Held that when a partner hands over a business asset to the partnership firm as hiscontribution to its capital he cannot be said to have effected a sale
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyConversion of Sole Proprietor
into Partnership
No instrument of conveyance is required to be executed on conversion of soleproprietorship into partnership.
However, the stamp duty is payable on the instrument of Partnership as perStamp Act.
Stamp duty on partnership deed varies from State to State.
In terms of clause (c) of Article 47(1) of the Bombay Stamp Act, where theshare contribution is brought in by way of property excluding cash, the dutypayable on the instrument of partnership is as leviable on “conveyance”under clause (a), (b),(c) or (d) as the case may be of Article 25 of the BombayStamp Act on the market value of such property.
Relevant to check the rates of stamp duty on the partnership deed in the Stateswhere the immovable property is located, since many States have a provisionthat even if the instrument is executed outside the State, the said instrumentshall be subject to differential stamp duty when brought in the State.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyConversion of
Partnership into Part IX Co.
Section 575 of the Act provides for an automatic vesting of the property.
There is no transfer and no transferee.
All the property of the firm vests in the company on the date of registration.
No conveyance is necessary when a partnership is converted and registered as acompany.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyLeave and
License
Distinction between lease and licence is very fine and the nomenclature of thedocument does not determine whether the transaction is one of lease or licence.
Test laid down for determining whether a document is a lease or licence is tosee whether sole and exclusive occupation is given to the grantee, so as toamount to transfer of interest in the property.
Section 52 of Indian Easement Act, 1882 (No. V of 1882) is reproduced as under:
Where one person grants to another or to a definite number of other persons, aright to do, or continue to do in or upon the immovable property of the grantor,something which would, in the absence of such right, be unlawful and such rightdoes not amount to an easement or an interest in the property, the right is calleda license”
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyLeave and
License
The term Lease has been defined in Section 105 of the Transfer of Property Act,1882. The same has been reproduced hereunder for the sake of easy reference:
“Lease- A lease of immovable property is a transfer of a right to enjoy such property,made for a certain time, express or implied, or in perpetuity, in consideration of aprice paid or promised, or for money, a share of crops, service or any other thing ofvalue, to be rendered periodically or on specified occasions to the transferor by thetransferee, who accepts the transfer on such terms.”
It has been held by the Supreme Court in Associated Hotels of India Ltd. Vs.R.N. Kapoor (AIR 1959 SC 1262) that if a document gives only a right to use theproperty in a particular way or under certain terms while it remains in controland possession of the owner thereof, it will be a licence.
License does not create in favour of the licencee any estate or interest in theproperty.
If there is a transfer of interest in law and exclusive possession is given to thegrantee then it is a lease.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyAgreement to
sell
Agreement to sell per se chargeable to nominal stamp duty
However, if coupled with possession of property, then in major States almost90% of the stamp duty payable as on the conveyance, is payable upfront at thetime of execution of agreement to sell.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp DutyPractical
Issues
stamp duty is different in each of the states of India and there are a few stateswhere even the local lawyers are not well versed with the stamp duty attracted bydifferent documents.
changes to stamp duties may be announced by state governments at the time ofthe state budget or even otherwise.
In the case of many states, the updated stamp acts/schedules may not beavailable.
At times even the state government websites may not reflect the stamp dutyincidence accurately.
Many states provide for levying differential stamp duty should the document firstbe executed in another state with lower stamp duty but brought in to the formerstate. Where there are properties located in different States then there could bedifficulty in computation of Stamp Duty.
Different subject matter in one instrument.
Many instruments executed pursuant to one transaction.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
M&A Stamp Duty Conclusion
Stamp duty is a very important factor in structuring transactions, speciallywith many of the states in India imposing high stamp duties on documents toshore up their revenues.
A document inadequately stamped is not admissible as evidence. It is thusvery important that stamp duty implications be examined upfront whilststructuring a transaction rather than just before execution as the latterapproach often leads to delay and many a times may also lead to payment ofexcess stamp duty when it was not required.
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member-ICSI
New Delhi
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Disclaimer: While every care has been taken to ensure accuracy of this presentation, Vaish Associates shall not assume any liability/ responsibility for any
errors that might creep in. The material herein does not constitute/ substitute professional advice that may be required before acting on any matter.
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