NCLT withholds merger of Embassy group companies with Indiabulls Real Estate

The Embassy Group and Indiabulls Real Estate (IBREL) have received a setback with the Chandigarh bench of the National Company Law Tribunal (NCLT) withholding its approval to the merger of Embassy group companies, NAM Estates and Embassy One, into IBREL due to objections raised by the Income Tax department.

The merger has already been approved by the NCLT, Bengaluru bench, which has jurisdiction over the Embassy group, and the shareholders of Indiabulls Real Estate.

Share swap ratio

In relation to the objections raised by the Income Tax department, Indiabulls Real Estate said “these objections and concerns were unfounded, unjustified and do not impact the merger in a significant manner,” and had accordingly addressed the same before the NCLT.

Embassy Group’s chairman Jitu Virwani also expressed his disappointment saying that all details and clarifications had already been provided to NCLT. He said they had “meticulously addressed the objections cited by the Income Tax department, including giving an undertaking that any past tax issues will be borne by Embassy Group and not by the public shareholders of IBREL.”

The main objection of the Income Tax department centered around the share swap ratio and the methodology used to arrive at it.  Under the scheme of arrangement, shareholders of NAM Estates would get 6,619 shares of IBREL for every 10,000 held while shareholders of Embassy One would get 5,406 shares of IBREL for every 10,000 held.

Next step

IBREL said it would await the detailed order to “further evaluate the next steps” and would explore all options including filing an appeal against the order with the National Company Law Appellate Tribunal. It added that the board of the company would be meeting on Wednesday to chalk out its plan and strategy to move forward.

Virwani called the current development “surprising” since the merger has already been approved by another bench of the NCLT and other regulators such as the Competition Commission of India, BSE, NSE, regional director, and the official liquidator.

The Embassy Group is the largest shareholder in IBREL and Virwani said it was committed to creating a large real estate platform and all options to resolve the issue will be explored. Post the merger, the Embassy group would be holding 45 per cent stake in the merged entity.

The merger between the companies was approved in FY21 with the intention of creating a pan-India real estate platform with both residential and commercial assets. Shares of Indiabulls Real Estate fell sharply on the news and ended 20 per cent lower at ₹55.40 on the NSE.