NCLAT gives go-ahead for Indiabulls Real Estate-Embassy Group merger

In a major relief to Indiabulls Real Estate (IBREL) and Embassy Group, the appellate tribunal NCLAT has sanctioned the scheme of amalgamation to merge both the real estate firms after setting aside the NCLT order stalling the process.

"We set aside the impugned order of NCLT, Chandigarh and allow the prayer to sanction the scheme of amalgamation between the appellants (Indiabulls Real Estate, Embassy one & NAM Estates)," said a two-member NCLAT bench.

The merger was on hold for the last 18 months, as the Chandigarh bench of the NCLT had withheld its permission in May 2023, despite all regulatory clearances from the CCI, bourses, RoC and approval from respective shareholders and creditors.

The appellate tribunal said the National Company Law Tribunal (NCLT) should not have interfered in the valuation done by the experts using one of the standard prescribed valuation methods.

"After going through the facts and circumstances and the relevant judicial precedences, we hold that NCLT, Chandigarh has erred in interfering in the Scheme ignoring the commercial wisdom of shareholders, creditors and Board of Directors of the appellant companies," said NCLAT.

The NCLT had withheld its permission based on the objection from the the Income Tax Department over valuation and swap ratio under the scheme, however, the appellate tribunal observed that during the proceedings, the department had later left the approval of the scheme at the discretion of the tribunal.

The Transferee company Indiabulls Real Estate, now known as Equinox India Developments has undertaken to bear the tax liabilities, and the proceedings, against the transferor companies, the appellate tribunal observed.

The NCLAT further said all "companies involved in the Scheme of amalgamation are directed to ensure that all compliances consequent to the amalgamation are made" and also dismissed the appeal filed by Tejo Ratna Kongara, an objector of the scheme.

IBREL, a transferee company along with two transferor companies - NAM Estates and Embassy One Commercial Property Developments (EOCPDPL) - had approached the NCLT for the approval of the scheme of amalgamation.

IBREL has a presence in North India, whereas NAM Estates and EOCPDPL have significant operations in South India, and the merger was aimed at creating a Pan-India real estate company.

After completing the formalities, such as getting approval from shareholders, creditors, RoC, and fair trade regulator CCI, transferee company IBREL filed a second motion before the NCLT under Sections 230-232 of the Companies Act, 2013.

However, the Chandigarh bench of NCLT rejected it and withheld permission on May 9, 2023, over the objections filed by the Income Tax Department regarding valuation and swap ratio.

The said order of NCLT was challenged by Indiabulls Real Estate, Embassy One & NAM Estates before the National Company Law Appellate Tribunal (NCLAT).

NCLAT, in a 46-page-long order, set aside the NCLT order observing that the valuation of shares and determination of Fair Equity Share Exchange Ratio has been done by experts, and the method of valuation used, namely, Discounted Cash Flow Method is universally accepted as a valid recognised method for valuation of shares.

"Whatever discrepancy was noticed regarding acquisition of land by the joint venture partner, which was not in the knowledge of the amalgamating companies at the time valuation was done, has subsequently been set right by the revision of profit-sharing ratio of Cornerstone Project which has ensured that there is no variation in the cash flow in the project," it said.

Moreover, statutory auditors have confirmed that the scheme is in compliance with applicable Indian Accounting Standards.

"The Scheme has been approved by an overwhelming majority of nearly 100 per cent shareholders and 100 per cent of the creditors, and has already been approved by NCLT Bengaluru with reference to the transferor companies," it said.

NCLAT also noted that no objection was raised against the scheme by regulatory bodies like the Competition Commission of India, and the Central Government through the Regional Director, MCA, Registrar of Companies, Security Exchange Board of India, BSE, and NSE.