Column: Legal

LEGAL
Going By The Book

In the absence of any specific provision in your share acquisition agreement, the transferor of the shares will be liable to pay the stamp duty.

By Diljeet Titus, Titus & Co. Advocates

We have executed a share acquisition agreement, which does not specify which party is to pay the stamp duty on the transfer of shares. Who should be made liable to pay the stamp duty?

If your agreement does not specify who is to pay the stamp duty, then pursuant to Section 29 of the Indian Stamp Act, 1899, the transferor of the shares will be responsible to bear the expense of proper stamp duty. There's no provision under the Indian law that makes the transferee liable to bear the stamp duty. The High Court of Punjab has held in Mrs G. Perry vs Union of India, air 1961, Punj 123 that ordinarily, and also as a matter of law in the case of a transfer of shares of a company, it is the vendor who has to bear the stamp duty-in the absence of a contract to the contrary. Therefore, in the absence of any specific provision in your share acquisition agreement, the transferor of the shares will be liable to pay the stamp duty.

Due to poor market conditions, our company intends to shut down one of its business units. What procedures must we comply with regard to termination of our employees in this business unit?

The procedure for termination of services will depend on classification of your employees under the Industrial Disputes Act, 1947. The services of your employees who do not classify as workmen can be terminated in terms of their respective employment agreements with your company. For employees that fall under the category of workmen, you must obtain approval of the secretary, Department of Labour and Employment (if your business unit has employed more than one hundred workmen on any day in the last twelve months) to close your unit after filing the prescribed application at least ninety days before the date of intended closing.

A copy of this application must also be given simultaneously to each workman of your unit. Alternatively, you may notify the Secretary at least sixty days before the intended closure (if your business unit has employed between fifty to one hundred workmen on any day in the last twelve months).

No approval or notice to the secretary is required if the total number of workmen in your unit is less than fifty. Thereafter, inform all workmen of the approval/notice together with the amount, date and mode of payment of compensation to each workman and pay the closure compensation to the workmen and other employees before the date of closure of your business unit, preferably by demand drafts/pay orders under acknowledgement receipt to reduce chances of labour disputes. The services of the employees not categorised as workmen can be terminated as per their terms of employment with your company. Your company should not conduct any business activity from the date of closure as approved by the secretary, and should not ordinarily retain any employee for completion of any work in progress.

We are a company incorporated in India. A UK firm, which is a major shareholder in our company is being acquired by a company based in the US. As the closing of the share acquisition is to take place at a location in the US, is it possible for our company to effect the transfer of shares in the US?

The transfer of shares can be effected in the US if the Board of Directors of the Indian company dele- gates the power to effect the transfer of shares to a committee comprised of directors or officers of the Indian company or to persons present in the US at the time of the transfer. You will, however, need to see if the Articles of Association of your company authorise such delegation of powers by the Board. If it does, the Board of Directors of your company can, by resolution, (i) constitute a share transfer committee, and (ii) delegate the power to effect the transfer of shares to the share transfer committee in compliance with your company's Articles of Association and the Companies Act, 1956, and endorse the original share certificates in favour of the US company as transferee.

The view expressed here should not be construed as legal opinion and is for reference only. Business Today and/or the author will not be responsible for any decision taken by readers on the basis of these views. Please send in your queries to legal.bt@intoday.com or Going By The Book, c/o Business Today, F-26, Connaught Place, New Delhi-1

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