The National Company Law Appellate Tribunal (NCLAT) on Tuesday approved the merger between Equinox India Developments (formerly known as Indiabulls Real Estate) and Embassy Group. (Indiabulls Real Estate Limited v. Department of Income Tax).In doing so, a coram of Judicial Member Justice (retd) Yogesh Khanna and Technical Member Ajay Das Mehrotra set aside a 2023 order of the National Company Law Tribunal (NCLT) Chandigarh which halted the merger..The petitioners filed a scheme of amalgamation involving Equinox (transferee company) and two transferor companies - NAM Estates Private Limited and Embassy One Commercial Property Developments. Due to their different registered office locations - Bangalore for the transferor companies and Gurugram for the transferee company - separate petitions were filed before the NCLTs in Bangalore and Chandigarh. The Chandigarh NCLT allowed the first motion application, issuing directions for creditor and shareholder meetings. The resolution for the amalgamation was overwhelmingly approved by 99.9987% of equity shareholders. Compliance with regulatory notices and statutory requirements was confirmed, and no objections were raised against the scheme until this point. Meanwhile, the NCLT in Bengaluru approved the scheme.The Competition Commission of India (CCI) also signed off on the scheme, confirming that it would not adversely affect competition. Statutory auditors verified the scheme's alignment with Indian accounting standards. Although some initial observations were raised by regulatory authorities, these were satisfactorily addressed..However, a new shareholder, Tejo Ratna Kongara, objected to the scheme, alleging discrepancies. However, the NCLT held that his objection was invalid due to his minor shareholding and commercial motivation. Additionally, the Tribunal rejected his request for access to an Income Tax Department report, which was deemed confidential.The Income Tax Department raised concerns over the valuation of assets and inconsistencies in assumptions, particularly regarding a project where land availability was overstated. Valuation discrepancies included issues like inflated asset values, incorrect assumptions about development rights, and insufficient disclosure to stakeholders..Thus, the NCLT in 2023 declined to sanction the scheme, citing the unreliability of valuation reports and their failure to meet mandatory guidelines. Equinox and the objector Kongara filed an appeal against the order of the NCLT..The NCLAT upheld the NCLT’s decision that the objector's application was not maintainable. It further ruled that confidential Income Tax Department reports need not be disclosed to such shareholders due to their lack of locus.The primary issues were whether material information impacting valuation was suppressed and whether the NCLT was justified in rejecting the scheme despite overwhelming shareholder approval. The valuation of shares had been conducted using the Discounted Cash Flow (DCF) method by two independent valuers and affirmed by a Category I Merchant Banker. The appellate tribunal noted that DCF is a recognised and universally accepted method, and observed that no objections were raised regarding the competence or expertise of the valuers or the merchant banker. It found no evidence of fraud, malafides, or legal non-compliance, and said that the scheme had secured nearly 100% approval from both shareholders and creditors..It thus held, “After going through the facts and circumstances and the relevant judicial precedences, we hold that Ld. NCLT, Chandigarh has erred in interfering in the Scheme ignoring the commercial wisdom of shareholders, creditors and Board of Directors of the appellant companies. We set aside the impugned order of Ld. NCLT, Chandigarh and allow the prayer to sanction the scheme of amalgamation between the Appellants.”However, the appellate tribunal clarified that the Income Tax Department is at liberty to take any or all action to protect the interests of the revenue. .The appellant companies were represented by Senior Advocate Munisha Gandhi and Advocates Salina Chalana and Vaibhav Sharma.The Income Tax Department was represented by Senior Standing Counsel Gaurav Gupta and Advocates Shivendra Singh and Yojit Pareek. Tejo Ratan Kongara was represented by Senior Advocates Sajan Poovayya and Advocates KV Girish Chowdary, Palash Maheshwari and D Satya Sai Sumanth..[Read Judgment]
