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In a major relief to Indiabulls Real Estate (IBREL) and Embassy Group, the National Company Law Appellate Tribunal (NCLAT) has approved their long-pending merger, overturning the Chandigarh NCLT's earlier order that stalled the process. The NCLAT affirmed the legitimacy of the valuation process, clearing tax-related concerns and ensuring compliance with regulatory requirements. The merger, delayed for 18 months, will create a pan-India real estate entity, combining IBREL's North India presence with Embassy's South India operations. This ruling sets the stage for enhanced market competitiveness and growth, strengthening the combined firm's position in India's real estate sector.
The National Company Law Appellate Tribunal (NCLAT) has approved the merger between Indiabulls Real Estate (IBREL) and Embassy Group, the two real estate firms. This decision came after the NCLAT set aside the earlier order by the National Company Law Tribunal (NCLT) that had stalled the process. The NCLAT's ruling is expected to pave the way for the successful merger of the companies. Advertisement
The merger had been delayed for approximately 18 months, following a decision by the Chandigarh bench of the NCLT in May 2023, which had withheld permission to proceed despite all necessary regulatory clearances from the Competition Commission of India (CCI), stock exchanges, the Registrar of Companies (RoC), and approval from the respective shareholders and creditors.
The NCLAT, in its ruling, pointed out that the NCLT had made an error in interfering with the valuation done by experts using a recognised valuation method. It was noted that the valuation of shares and the Fair Equity Share Exchange Ratio had been determined using the widely accepted Discounted Cash Flow (DCF) method. According to the appellate tribunal, this method is a standard practice for valuing shares and ensuring fair market value, which had been duly applied in this case.
In its order, the NCLAT also observed that the Income Tax Department, which had raised concerns regarding the valuation and swap ratio under the scheme, had later agreed to leave the approval of the scheme to the discretion of the tribunal. Furthermore, the appellate tribunal noted that the transferee company, Indiabulls Real Estate (now known as Equinox India Developments), had undertaken to bear any tax liabilities arising from the merger, addressing concerns raised during the proceedings.
The NCLAT also instructed that all companies involved in the scheme, including IBREL, NAM Estates, and Embassy One Commercial Property Developments (EOCPDPL), should ensure full compliance with all necessary regulations consequent to the merger. The tribunal also dismissed the appeal filed by Tejo Ratna Kongara, who had objected to the scheme.
Indiabulls Real Estate, the transferee company, along with the two transferor companies, NAM Estates and EOCPDPL, had initially approached the NCLT for approval of the merger. IBREL is primarily active in North India, while NAM Estates and EOCPDPL operate significantly in South India. The merger was expected to create a unified, Pan-India real estate company, combining the strengths of both regions and bolstering the companies' overall presence in the market.
After obtaining all required approvals from shareholders, creditors, the RoC, and the fair trade regulator CCI, IBREL had filed a second motion with the NCLT under Sections 230-232 of the Companies Act, 2013. However, the NCLT had rejected the motion and withheld permission in May 2023 due to concerns raised by the Income Tax Department. The tax department had questioned the valuation and the swap ratio, but the NCLAT later clarified that these concerns had been resolved.
The NCLAT's judgement, issued in a detailed 46-page order, underscored the legitimacy of the valuation process and the determination of the share exchange ratio by experts. The tribunal observed that discrepancies regarding land acquisition by a joint venture partner, which had not been known to the merging companies at the time of valuation, had been addressed by revising the profit-sharing ratio of the Cornerstone Project. This revision ensured that there were no changes to the cash flow projections.
The NCLAT further noted that the statutory auditors had confirmed that the scheme complied with Indian Accounting Standards. Additionally, the scheme had received overwhelming approval from nearly 100% of shareholders and creditors, and had already been approved by the NCLT in Bengaluru for the transferor companies.
The appellate tribunal also pointed out that no objections had been raised against the scheme by major regulatory bodies, including the Competition Commission of India, the Central Government, the Regional Director of the Ministry of Corporate Affairs, the Registrar of Companies, the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE), and the National Stock Exchange (NSE).
This ruling marks a crucial step in the creation of a larger real estate entity with a broader footprint across India, combining the best assets and resources of the two merging firms, creating a more competitive force in the real estate industry.
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