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No stamp duty or registration fees payable on conversion from a public company to a

private company:

H.P. High Court

Contributors: Deepika Shori and Madhusudan Bose, Advocates, PRA Law Offices.

Stamp duty is ordinarily payable on transfer of movable and immovable properties. Corporate
transactions like merger, amalgamation, slump sale etc. are naturally liable to stamp duty
because they involve transfer of properties between two entities.

But would stamp duty be payable on conversion of a public company into a private company?
Moreover, would such conversion be required to be registered with the Sub-Registrar under
the Registration Act, 1908?

The Govt. of Himachal Pradesh definitely seemed to think so. The Revenue Department of the
Govt. of Himachal Pradesh has over the past many years consistently taken a view that stamp
duty would be payable on value of properties held by a company, if there is change in
constitution of the company from a public company to private company (and vice versa). It
has been reliably learnt that the State Govt. has over the years been collecting stamp duty and
registration fees on change in constitution of companies which owned properties in the State.

The position taken by the Govt. of H.P. has been intriguing to say the least. This is because
conversion of a public company into a private company does not involve transfer of properties
between two distinct entities. Unlike mergers and amalgamations, where one transferor entity
is wound up and its properties are transferred to a resulting company, conversion does not
involve transfer of properties between two entities. Rather, the same company which operated
as a public company is accorded the status of a private company with no discontinuity in the
legal existence of the converted entity.

The long standing position taken by the Govt. of H.P. was finally assailed before the High
Court of Himachal Pradesh in the matter of Reckitt Benckiser (India) Private Limited versus
State of H.P. (CWP No. 1293 of 2019). The decision of High Court of H.P. would help put to
rest the controversies surrounding the imposition of stamp duty on change in constitution of
companies in the State of Himachal Pradesh.

Facts

In the above case, the petitioner company was incorporated as a public limited company under
the Companies Act, 1913. The name of the petitioner company was changed to Reckitt
Benkiser (India) Limited on 18.12.2000. Thereupon, the petitioner company got converted
into a private limited company and its name changed to Reckitt Benckiser (India) Private
Limited on 13.05.2015 and a fresh certificate of incorporation with the changed name was
granted to the company by the Registrar of Companies, NCT of Delhi and Haryana.

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The petitioner company owned a factory comprising of both land and building in Solan,
Himachal Pradesh. The petitioner company applied to the Deputy Commissioner, Solan
District for change of its name in the revenue records by addition of the word “Private” in its
name.

The Deputy Commissioner vide its order dated 20.02.2019 held that stamp duty and registration
fees has to be charged “on the value of assets sought to be transferred from one company to
another company”. (“Impugned Order”). The Deputy Commissioner relied on some previous
circulars issued by the Principal Secretary, Govt. of Himachal Pradesh in this regard.

Aggrieved by Impugned Order dated 20.02.2019 passed by the Respondent No.2, the Petitioner
Company challenged the Impugned Order by way of a writ petition bearing CWP No. 1293 of
2019 before the Hon’ble High Court of Himachal Pradesh.

Arguments before the High Court

The counsel for the Petitioner Company argued that Impugned Order is without jurisdiction
and has been passed without application of mind. This is because no stamp duty or registration
fees is payable on mere change in name of a company by addition of the word “private” to its
name. It was argued that the Impugned Order is contrary to the provisions of the Indian Stamp
Act as stamp duty is payable on “instruments” for transfer of assets and properties as mentioned
in Schedule-I of the Indian Stamp Act. However, no transfer of assets takes place on conversion
of a public company to a private company. In case of conversion, the entity which existed prior
to conversion subsists even after conversion without any discontinuity. This is evident from
the master data maintained by the Ministry of Corporate Affairs on www.mca.gov.in.
Conversion in essence merely involves change in name of a company and the Principal
Secretary, Govt. of H.P. had in the past clarified that no stamp duty is payable upon change in
name of a company.

Further, since there is no transfer of immovable property, no instrument is required to be

compulsorily registered under the provisions of Registration Act and therefore registration fees
is also not payable.

The Govt. of H.P. on the other hand argued that the present case is not a case of mere change
of name and rather a case of conversion of public limited company to private limited company,
hence stamp duty is chargeable under section 3 of the Indian Stamp Act, 1899.

Held

Dismissing the arguments made by the Govt. of H.P., the High Court observed that there is no
entry in the Schedule to the Indian Stamp Act, 1899 which makes an instrument for conversion
of a public company to a private company chargeable to stamp duty. The High Court appears
to have relied on the fact that conversion of a public company to a private company essentially
involves addition of the word “private” in the name of the company. Therefore, there is no
question of existence of an instrument for transfer of assets. Further, if no such instrument
exists, the question of compulsory registration of an instrument also does not arise.

The High Court quashed the Impugned Order of the Deputy Commission to the extent that it
required payment of stamp duty and registration fees on conversion of a public company to a
private company.
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Implications

The decision of the High Court of Himachal Pradesh would be highly welcome by companies
whose application for mutation had been pending for payment of stamp duty and registration
fees. Himachal Pradesh is home to almost all major pharmaceutical and FMCG companies in
India who have set up manufacturing plants in the designated tax free zones in the State.

The decision of High Court of Himachal Pradesh would help expedite the process of mutation
of title with the Revenue Department of the State. How the State Govt. would deal with cases
where it had wrongly claimed stamp duty in the past is a different matter altogether.

[Author’s views are personal]