Change In Directors Doesn't Amount To Transfer Of Company's Property Or Evasion Of Stamp Duty: Rajasthan High Court
The Jaipur bench of the Rajasthan High Court set aside an order passed by the Stamp Collector asking the erstwhile directors of a company to pay Rs. 7 crore as stamp duty for transfer of property in view of transfer of the company's shareholding to a new set of directors. A division bench of Justice Avneesh Jhingan and Justice Ashutosh Kumar ruled that transfer of shareholding by...
The Jaipur bench of the Rajasthan High Court set aside an order passed by the Stamp Collector asking the erstwhile directors of a company to pay Rs. 7 crore as stamp duty for transfer of property in view of transfer of the company's shareholding to a new set of directors.
A division bench of Justice Avneesh Jhingan and Justice Ashutosh Kumar ruled that transfer of shareholding by previous directors to new directors in a company did not impact the ownership of property of that company because the property of the company continued to be so even after the change of directors.
“Transfer of shareholdings by previous directors to the current directors does not impact the ownership of the property of the company. There is fallacy in the contention of counsel for the respondent that by changing directors property of company was transferred by evading the stamp duty and therefore the corporate veil be pierced. The legal status and character of company remained as it is and transfer of shareholding only resulted in change of directors. There was no transfer of property of company for which stamp duty was payable and no case is made out for lifting of corporate veil.”
The company had purchased an agricultural land for which a lease deed for ninety years was executed by Urban Improvement Trust (UIT) in favour of the company. After following the procedure under Section 90B of the Land Revenue Act, 1956 and Section 60 of Urban Improvement Trust Act, 1959, the Urban Improvement Trust, Alwar issued allotment letter dated 25.01.2023 in the name of the company. The allotment to the company was through the four of the company's directors. Subsequently, these directors of the company transferred their shares and new directors were appointed.
Following this transaction, the Collector (Stamps) issued notices to the erstwhile directors raising a demand for around Rs. 7 Crores as stamp duty alleging that owing to the transfer of shareholding there was transfer of property of the company.
After hearing the contentions, the Court highlighted the issue as, “whether changing of the directors tantamounts to transfer of the property of the company?”
The Court observed that it was a well-settled law that a company was a juristic person having an independent identity distinct from its shareholders. It was highlighted that despite being so, considering its formation, it had to act through authorized representatives, and hence, the lease deed was made in favour of the company through its directors.
It was further observed that there was no dispute about the proposition that company's property was not the shareholders' property and mentioning directors' names in the lease deed did not change that fact. In this light it was a fallacious contention that by changing the directors, company's property was transferred by evading stamp duty.
“The impugned order is beyond jurisdiction and is in violation of statutory provisions. On transfer of shareholding by directors demand of more than seven crores has been created on the erroneous basis that the property of the company was transferred to the new directors.”
Accordingly, the petition filed by the company was allowed.
Title: M/s Rampabhu Hotels India Private Limited v State of Rajasthan & Ors.
Citation: 2025 LiveLaw (Raj) 92