Indiabulls and Embassy Group Merger Approved by NCLAT, Overturning NCLT Decision
The National Company Law Appellate Tribunal (NCLAT) has approved the merger of Indiabulls Real Estate (IBREL) with Embassy Group. This decision came after the NCLAT set aside the earlier order by the Chandigarh bench of the National Company Law Tribunal (NCLT), which had withheld approval of the merger for the last 18 months. The NCLT had initially blocked the scheme in May 2023, despite receiving all necessary regulatory clearances.
The NCLAT ruling is a major relief for both IBREL and Embassy Group, who had been awaiting approval for the merger that would create a Pan-India real estate entity. The appellate tribunal granted permission to sanction the amalgamation scheme, which involves IBREL as the transferee company, and NAM Estates and Embassy One Commercial Property Developments (EOCPDPL) as the transferor companies. The NCLAT emphasized that the NCLT had overstepped by interfering with the valuation process, which had already been carried out by experts using a standard, prescribed method.
The merger was initially challenged by the Income Tax Department, which raised concerns over the valuation and share swap ratio used in the scheme. However, the NCLAT observed that, during the proceedings, the Income Tax Department had eventually left the approval of the scheme to the discretion of the tribunal. It also noted that IBREL, now operating as Equinox India Developments, had undertaken to bear any tax liabilities related to the merger.
The scheme of amalgamation was supported by an overwhelming majority of nearly 100% of shareholders and creditors of the involved companies, and had already received approval from regulatory bodies like the Competition Commission of India (CCI), the Ministry of Corporate Affairs (MCA), the Securities and Exchange Board of India (SEBI), the Bombay Stock Exchange (BSE), and the National Stock Exchange (NSE).
NCLAT's ruling highlights that the valuation process had been conducted using the universally accepted Discounted Cash Flow (DCF) method, which is recognized for assessing the value of shares. The tribunal further noted that any discrepancies identified in the acquisition of land by a joint venture partner, which had initially raised concerns during the valuation process, were later addressed by revising the profit-sharing ratio of the Cornerstone Project. This adjustment ensured that there would be no impact on the cash flow of the project, alleviating concerns related to the valuation.
The NCLAT also emphasized that the scheme was in compliance with Indian Accounting Standards, as confirmed by the statutory auditors. It added that no objections had been raised by any of the involved regulatory bodies, further validating the merger's legitimacy.
The merger aims to combine IBREL's presence in North India with the operations of NAM Estates and EOCPDPL, which are prominent players in South India. By merging, the companies hope to create a strong, nationwide real estate entity with a diverse portfolio of residential and commercial projects. The merger is expected to enhance their operational efficiencies and strengthen their position in a rapidly evolving real estate market in India.
The ruling has been welcomed by both companies, who are now focused on completing the formalities required for the merger. This includes ensuring that all necessary compliance measures are in place, as directed by the NCLAT. IBREL and the other companies involved have been given a clear path to move forward with their plans, including finalizing the merger and expanding their reach in the Indian market.
