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TMI Blog2021 (8) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of transfer of assets of erstwhile partnership firm to LLP, then question of payment of stamp duty and registration charges on it does not arise. The registration fee is payable on an instrument compulsorily registerable under Section 17 of the Registration Act. Once there is no transfer of immovable property under an instrument, then the question of compulsory registration of that non-existent instrument and payment of stamp duty on it is not warranted. Neither the stamp duty nor the registration fee, therefore, is payable in such circumstances. Whether conversion of firm to LLP involves change in constitution? - HELD THAT:- Conversion of petitioner-firm to LLP is admittedly without any consideration. Neither any sale deed nor any conveyance deed has been executed. Transfer of assets of erstwhile partnership firm to LLP is by operation of law. Conversion to LLP is normally undertaken for restructuring exercises. One of the object of Limited Liability Partnership Act is to view it as an alternative corporate business vehicle providing the benefits of limited liability, while allowing its members the flexibility of organizing their internal structure as a partnership, based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LP, the Essentiality Certificate was issued in favour of the petitioner by the Director of Industries, Himachal Pradesh on 7.02.2017. The Essentiality Certificate mentioned that as a result of conversion, constitution of the petitioner underwent change. The petitioner applied to the Deputy Commissioner Sirmaur for changing its name in the revenue record from 'M/s Sozin Flora Pharma' to 'M/s Sozin Flora Pharma LLP'. On 27.7.2017 the Deputy Commissioner sought clarification from respondent No.2 in this regard, citing non-clarity with respect to applicability of para-5 of the State Government instructions dated 16.02.2012 to the case of petitioner. It will be appropriate to reproduce hereinafter relevant extracts from the instructions dated 16.02.2012:- "Subject:- Instructions for disposal of cases regarding change in name of the Company. I am directed to say that the matter with regard to registration of a transaction for mutation of land in revenue records pursuant to change in name of Company has been under consideration of the department for quite some time. 2. Section 394 of the Companies Act, 1956 deals with the provision for facilitation and amalgamation of two or more Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance to which the name is changed." Circular dated 16.02.2012 also states that "no stamp duty or registration fee is payable in case of change of name of company." The clarification sought by the Deputy Commissioner was provided by the State vide communication dated 20.08.2017. The permission to change the name of petitioner Firm in the revenue record from 'M/s Sozin Flora Pharma' to 'M/s Sozin Flora Pharma LLP' was granted on the condition that Stamp Duty and Registration fee shall be chargeable. Petitioner submitted representation to the respondent on 25.6.2019 against the imposition of stamp duty and registration fee upon its conversion from 'Firm' to 'LLP'. The representation was rejected on 23.08.2019 with the following reasons:- "I am directed to refer to your letter dated 25.06.2019 on the subject cited above. In this regard, it is informed that your case of change of name from "Partnership" to "Limited Liability Partnership (LLP)" has been examined as per opinion of Law Department who has clarified that a partnership firm under the Indian Partnership Act, 1932 is not a distinct legal entity apart from the partners constituting it and equally in law, the firm as su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such conversion, neither the legal entity of the petitioner firm has undergone any change nor there is any change in the constitution of the petitioner. Therefore, stamp duty and the registration charges are not payable by the petitioner. On the behalf of the State, it was contended that Partnership Firm under the Indian Partnership Act does not enjoy a distinct legal entity apart from that of the partners constituting it. However, LLP has a separate legal `entity and is different from its constituent partners. Therefore, conversion of partnership firm into LLP amounts to change of legal rights and liabilities. Accordingly, stamp duty and registration fee is chargeable on such conversion. 4. Observations:- 4(i)(a). First and foremost, nature and concept of conversion of a partnership firm to a Limited Liability Partnership, is to be seen. Reference in this regard can be made to Section 58 of the Limited Liability Partnership Act, relevant portion whereof reads as under:- "58. Registration and effect of conversion. (1) to (3) ………………………………….. (4) Notwithstanding anything contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this argument. In the present case, we are concerned with a Partnership Firm being treated as a company under the statutory provisions of Part IX of the Companies Act. In such cases, the Company succeeds the Firm. Generally, in the case of a transfer of a capital asset, two important ingredients are : existence of a party and a counterparty and, secondly, incoming consideration qua the transferor. In our view, when a Firm is treated as a Company, the said two conditions are not attracted. There is no conveyance of the property executable in favour of the Limited Company. It is no doubt true that all properties of the Firm vests in the Limited Company on the Firm being treated as a Company under Part IX of the Companies Act, but that vesting is not consequent or incidental to a transfer. It is a statutory vesting of properties in the Company as the Firm is treated as a Limited Company. On vesting of all the properties statutorily in the Company, the cloak given to the Firm is replaced by a different cloak and the same Firm is now treated as a Company, after a given date. In the circumstances, in our view, there is no transfer of a capital asset as contemplated by Section 45(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, section 11 of the present Companies Act (section 4 of the previous Act) itself which enacted the prohibition of associations exceeding certain members for carrying on trade starts with saying that no company or association or partnership consisting of more than ten members shall be formed. Section 253 of the previous Act corresponds to section 565 of the present Act. Section 565(1) (b) of the present Act corresponds to section 253(1) (ii) of the 1913 Act, which permits any company otherwise duly constituted according to law consisting of seven or more members to be registered as a company. A partnership must be one such. This is made clear by the provisions of section 255 of the 1913 Act (present Act section 567) and section 256 of the 1913 Act (present Act section 568) where under a deed of partnership has to be filed before the Registrar before seeking the registration. Hence, a partnership which was treated as a company for the purposes of the Companies Act can be registered under Part 8 of the previous Act (Part 9 of the present Act) and the vesting is provided by section 263 of the 1913 Act (section 575 of the present Act). The provision is mandatory and there will be stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Pvt. Ltd., AIR 2020 SC 4305, Hon'ble Apex Court while considering the effect of conversion of partnership firm into a company under Part IX of the Companies Act, held that on statutory vesting all properties of the firm, in law, vest in the company and the firm is succeeded by the company. Para 7 of the judgment reads as under:- "7. The question is: what is the effect of conversion of partnership firm into a company under Part IX of the Companies Act? That can be discerned from Section 575 of the Companies Act, which reads thus: "575. Vesting of property on registration. All property, movable and immovable (including actionable claims), belonging to or vested in a company at the date of its registration in pursuance of this Part, shall, on such registration, pass to and vest in the company as incorporated under this Act for all the estate and interest of the company therein." It is manifest that all properties, movable and immovable (including actionable claims) belonging to or vested in a company at the date of its registration would vest in the company as incorporated under the Act. In other words, the property acquired by a promoter can be claimed by the company after it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity partnership." Second Schedule ensures continuity of the firm after its dissolution and conversion to LLP. The words 'shall be transferred to-shall vest' in the LLP Act are to be read harmoniously to give it purposive interpretation in tune with the object and provisions of the Act. The transfer of assets is only by way of statutory vesting requiring no other separate instrument of transfer. There is automatic vesting and divesting. Thus, no further act or deed is required. This is also evidnced by Clause 7(b) of Second Schedule (extracted above). 4(ii)(b). Section 3 of the Indian Stamp Act pertains to charging stamp duty on certain instruments. The section starts with following words:- "3. Instruments chargeable with duty.- Subject to the provisions of this Act and the exemptions contained in Schedule I, the following instruments shall be chargeable with duty of the amount indicated in that Schedule as the proper duty therefore, respectively, that is to say " Section 3 of the Indian Stamp Act talks about the instruments, which are chargeable with duties.Once there is no instrument of transfer of assets of erstwhile partnership firm to LLP, then question of payment of stamp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s chargeable thereunder. So far as the Registration Act is concerned, only that instrument is chargeable, which needs registration. 17) In the case in hand, land and building remained with the petitioner-company, even after addition of word 'private' to its name. Therefore, there is no question of existence of an instrument of transfer of its assets and property and the compulsorily registration thereof. The respondents though have made an attempt to draw the distinction between a public limited and private limited company from its definition finds mentioned in Section 2 of the Companies Act, 2013 and has canvased that two companies are quite different and distinct However, learned Senior Additional Advocate General has failed to satisfy this Court about the justifiability of such distinction drawn and how the addition of word 'private' in the name of the petitioner company amount to transfer of its assets and liability and consequently levying of stamp duty and Registration charges. The respondent-State rather seems to have taken such stand in reply filed to the writ petition merely for rejection. 18) It is worth mentioning that the circular dated 16.2.2012 Annexure P-2 clearl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner firm as a legal entity gets changed without any change in the constitution of petitioner-firm. 4(iv). Reliance placed by the respondent-State on the judgment passed by the Hon'ble Supreme Court in Delhi Development Authority v. Nalwa Sons Investment Ltd. and Another, 2019 SCC Online SC 586, is misplaced as the controversy involved in that case did not pertain to conversion of a partnership firm to a Limited Liability Partnership. The question involved before the Hon'ble Apex Court in that case was "if the original lessee (respondent No.1, a public limited company) in respect of the plot given on lease by the appellant, transfers the same to another public limited company, albeit an alter ego of the former, consequent to an order of arrangement and demerger passed by the Company Judge, then whether it is liable to pay 50% unearned increase (UEI) on the market value of the plot to the appellant (lessor)". 5. Conclusion:- From the above discussion, following conclusions are drawn:- 5(a). Upon conversion of a registered partnership firm to an LLP under the provisions of the Limited Liability Partnership Act, all movable and immovable properties of erstwhile registered partnersh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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