A recent ruling by the Madras High Court has reshaped how stamp duty applies to amalgamation orders in Tamil Nadu. This case tackled longstanding ambiguity on whether court-sanctioned amalgamations should be classified as instruments of conveyance, and how stamp duty should be computed. By affirming that amalgamation orders qualify as both “instruments” and “conveyance” under the Indian Stamp Act, the court validated certain government orders while striking down parts that overstepped legislative authority. The outcome? A clarified, consistent process for determining applicable stamp duty and refund eligibility for excess payments. This blog walks through the ruling, its background, and what it means for entities involved in mergers and restructurings.
1. Background
The Madras High Court recently delivered a landmark ruling on how to classify court orders that sanction amalgamation schemes. The judgment clarified that such orders are both “instruments” and “conveyance” under the Indian Stamp Act, directly affecting how stamp duty is calculated for such transactions in Tamil Nadu.
This decision didn’t just resolve one case — it also clarified past ambiguities and established a precedent for calculating stamp duty on corporate mergers in the state.
2. Historical Context
- Stamp Duty is governed by state laws, meaning different states in India treat corporate restructurings differently.
- While states like Maharashtra already treat amalgamations as conveyance instruments, Tamil Nadu’s version of the Indian Stamp Act had no such explicit provision, causing confusion.
- In 2018, the Inspector General of Registration (IGR), Chennai issued a circular clarifying that amalgamation schemes qualify as “conveyance” under Article 23 of the Indian Stamp Act.
- A 2019 Government Order (G.O.) specified that stamp duty would be:
- 2% of the market value of the immovable property, or
- 0.6% of the aggregate market value of the shares, whichever is higher.
- Notably, before this G.O., stamp duty was a flat 5% of the property’s market value.
- A follow-up 2020 G.O. made the 2019 order retrospective, dating back to April 1, 1956, meaning previous amalgamations would also qualify for the reduced rate.
3. Questions Answered in the Ruling
3.1 Is the order an “instrument”?
Yes.
- The court confirmed that the order itself transfers rights, liabilities, and assets, thereby qualifying as an “instrument” under the Indian Stamp Act.
- This aligns with the Supreme Court’s decision in Hindustan Lever vs State of Maharashtra, which set similar precedence.
3.2 Is the order a “conveyance”?
Yes.
- The ruling stated that even though the Indian Stamp Act (as applied in Tamil Nadu) didn’t specifically define it, the nature of the amalgamation qualifies it as a conveyance.
- It reaffirms that court orders transferring assets between two juristic persons meet the definition of “conveyance inter vivos.”
3.3 Is the Government Order valid under stamp law?
Yes.
- Section 9(1) of the Indian Stamp Act gives states the power to reduce stamp duty via government orders, and Tamil Nadu used this power lawfully.
3.4 Is the share-based calculation method valid?
No.
- The 2019 G.O. introduced a 0.6% stamp duty on the aggregate market value of shares, which wasn’t originally in Article 23.
- The court struck down this portion, stating that changing the basis of valuation required legislative amendment, not an executive order.
3.5 Can the 2019 G.O. apply retrospectively from 1956?
Yes.
- Since stamp duty rates were never below 2% from 1956 onward, applying the reduced 2% rate retrospectively was deemed valid under Section 9(1).
3.6 Can duty paid in other states be adjusted in Tamil Nadu?
Partially.
- If an entity paid more stamp duty elsewhere than what is due in Tamil Nadu, they don’t need to pay extra.
- But if they paid less, the difference must be paid in Tamil Nadu to meet the 2% requirement.
- This ensures compliance without overpayment, offering clarity for businesses operating in multiple states.
4. Summary of Key Impacts
- Amalgamation orders are confirmed as instruments of conveyance and will be subject to 2% stamp duty on the market value of the immovable property involved.
- The 0.6% calculation on share value is invalid — only property-based valuation applies in Tamil Nadu.
- Businesses that paid excess duty (either 5% on property or 0.6% on shares) are now eligible for refunds by filing a writ petition.
- The judgment streamlines how stamp duty applies to court-sanctioned mergers, bringing clarity and consistency to corporate restructuring in Tamil Nadu.
