Indiabulls Real Estate Limited Ors vs Department Of Income Tax

[Arising out of the Impugned Order dated 09.05.2023 in CA No. 9/2023 & CA No. 29/2023 and CP (CAA) No. 14/Chd/Hry/2022 passed by Ld. NCLT Chandigarh Bench, Chandigarh]

In the matter of:

1. Indiabulls Real Estate Limited (Now known as Equinox India Developments Limited) Plot No. 448-451, Udyog Vihar Phase-V, Gurugram.

... Appellant No. l/Transferee Company

2. NAM Estates Private Limited 1st Floor, Embassy Point 150, Infantry Road, Bangalore-560052.

... Appellant No. 2/ Transferor Company No.1

3. Embassy One Commercial Property Private Ltd. Developments Private Limited 1st Floor, Embassy Point 150, Infantry Road, Bangalore-560052.

... Appellant No. 3/ Transferor Company No.2

Versus

1. Department of Income Tax Through the Office of The Deputy Commissioner of Income Tax, Central Circle 6(4), Mumbai. E-mail: mumbai.dcit.cen6.4@incometax.gov.in ... Respondent 2

Present: For Appellant : Ms. Munisha Gandhi, Sr. Advocate with Ms. Salina Chalana, Advocate for Appellant No. 1. Mr. Vaibhav Sharma, Advocate for Appellant No. 2-3.

For Respondents : Mr. Gaurav Gupta, Sr. SC with Mr. Shivendra Singh, Mr. Yojit Pareek, Advocates for Income Tax. Mr. Sajjan Poovayya Sr. Advocate with Mr. K.V. Girish Chowdary, Mr. Palash Maheshwari, Mr. D. Satya Sai Sumanth, Advocates for Intervention Applicant.

WITH

Company Appeal (AT) No. 215-216 of 2023 & I.A. No. 5263 of 2023, 1629, 1649, 1628 of 2024

[Arising out of the Impugned Order dated 09.05.2023 in CP (CAA) No. 14/Chd/Hry/2022 passed by Ld. NCLT Chandigarh Bench, Chandigarh,]

In the matter of: 1. Tejo Ratna Kongara SO. Partha Sarathi, Aged 33 Years, R/O. Plot No. 9-B, H No. 8-2-293/82/F/9, Road No. 7 Film Nagar, Hyderabad 500096. Appellant / Shareholder

Versus

1. Indiabulls Real Estate Limited (Now known as Equinox India Developments Limited) Plot No. 448-451, Udyog Vihar Phase-V, Gurugram-122016

... Respondent No. l

2. NAM Estates Private Limited 1st Floor, Embassy Point 150, Infantry Road, Bangalore-560052.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 2 of 46 3

... Respondent No. 2

3. Embassy One Commercial Property Private Ltd. Developments Private Limited 1st Floor, Embassy Point 150, Infantry Road, Bangalore-560052.

... Respondent No. 3 4. Income Tax Department Through the Office of The Deputy Commissioner of Income Tax, Central Circle 6(4), Mumbai-400012. E-mail: mumbai.dcit.cen6.4@incometax.gov.in ... Respondent No. 4

Present: For Appellant : Mr. Sajjan Poovayya Sr. Advocate with Mr. K.V. Girish Chowdary, Mr. Palash Maheshwari, Mr. D. Satya Sai Sumanth, Advocates.

For Respondents : Ms. Munisha Gandhi, Sr. Advocate with Mr. Vaibhav Sharma, Ms. Salina Chalana, Advocates for R- 1. Mr. Vaibhav Sharma, Advocate for R- 2 & 3.

JUDGMENT

(Hybrid Mode)

[Per: Ajai Das Mehrotra, Member (Technical)]

Company Appeal (AT) No. 120 of 2023 is filed by Indiabulls Real Estate

Ltd. (hereinafter called the 'IBREL' or the 'Transferee Company'), NAM Estates

Private Limited (hereinafter called the 'NAMEPL' or the 'Transferor Company

No. 1') and Embassy One Commercial Property Developments Private Limited

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 3 of 46 4

(hereinafter called 'EOCPDPL' or the 'Transferor Company No. 2') against the

order dated 09.05.2023 in CA No. 9/2023 & CA No. 29/2023 and CP (CAA) No.

14/Chd/Hry/2022 passed by Ld. NCLT Chandigarh Bench, Chandigarh,

wherein the Second Motion Company Petition filed by Transferee Company

under Section 230-232 of Companies Act, 2013 and other applicable provisions

of the Act read with Companies (Compromises, Arrangements and

Amalgamations) Rules, 2016, in relation to the Scheme of Amalgamation

between Transferee Company and Transferor Company No. 1 and Transferor

Company No. 2, was rejected by Ld. NCLT, Chandigarh.

2. Company Appeal (AT) Nos. 215 and 216 of 2023 is filed by Tejo Ratna

Kongara against the same impugned order dated 09.05.2023 wherein his

application CA No. 9/2023 in CP (CAA) No. 14/Chd/Hry/2022 praying for

substitution in the said petition and his second application CA No. 29/2023 in

the same Company Petition seeking copies of various reports filed by the Income

Tax Department were rejected by the Ld. NCLT Chandigarh Bench, Chandigarh.

3. I.A. No. 5599 of 2024 is filed along with certificate of incorporation

pursuant to change of name dated 20.06.2024 stating that the name of the

company 'Indiabulls Real Estate Limited' has been changed to 'Equinox India

Developments Limited'. The said change in memo of parties is allowed. However,

for easy reference the earlier name is used in this order.

4. The facts, background of the case and basis for decision, as noted by Ld.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 4 of 46 5

NCLT, Chandigarh in its order dated 09.05.2023 are summarised as under:

i) The Petitioners Companies had filed Scheme of Amalgamation between the

respective companies, namely, Transferee Company IBREL, the Transferor

Company No. 1, NAMEPL and Transferor Company No. 2 EOCPDPL. Since the

registered office of the Transferor Company No. 1 and Transferor Company No.

2 were situated in Bangalore and the registered office of Transferee Company

was in Gurugram, separate petitions were filed before the Ld. NCLT, Bangalore

regarding the Transferor Companies and Ld. NCLT, Chandigarh regarding the

Transferee Company.

ii) The First Motion application before the Ld. NCLT, Chandigarh bearing no.

CA (CAA) No. 35/Chd/Hry/2021 was allowed by the Ld. NCLT, Chandigarh and

necessary directions for convening the meetings were issued which included

dispensation for convening the meetings of Secured and Unsecured Creditors

and convening the meeting of Equity Shareholders of the Transferee Company.

Justice Mr. R.P. Nagrath (Retd.) was appointed as Chairperson. After conducting

the meetings of the equity shareholders, the Chairperson in his Report confirmed

that the resolution for Amalgamation was passed by equity shareholders by

99.9987% out of the total shareholders present and voting in the meeting.

iii) All the directions issued by Ld. NCLT were complied with by the Transferee

Company including publication of notice of hearing in English and Vernacular

newspapers and notices to various Government/Statutory Regulatory

Authorities.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 5 of 46 6

iv) The Petitioner Company submitted that no objection to the scheme was

received by the Petitioner Company or any of its representatives till date.

v) The Competition Commission of India, in letter dated 24.02.2021 gave

their no objection stating that "the proposed combination is not likely to have any

appreciable adverse effect on competition in India in any relevant market(s) and

the proposed combination is approved under Section 31(1) of the Competition

Commission Act, 2002".

vi) The Statutory Auditors confirmed that the Scheme is in compliance with

the applicable Indian Accounting Standards as specified in Section 133 of

Companies Act, 2013.

vii) The Registrar of Companies and the Regional Director initially raised some

observations which were clarified by the Petitioners Companies, and in para 15,

the Ld. NCLT noted as under:

"In view of the aforementioned clarifications submitted by the petitioners, it is held that no adverse conclusion in this regard can be inferred."

viii) Through CA 9 of 2023, Sri Tejo Ratna Kongara sought substitution in

place of Sh. Dhanekula Dharanish in CA No. 192 of 2022 which sought

intervention in the main company petition. It was submitted that Shri Tejo Ratna

Kongara had purchased 20,100 equity shares of Transferee Company, which

were previously held by Sh. Dhanekula Dharanish.

ix) In its submissions, the petitioner company responded on maintainability

of the application and submitted that previous intervenor/objector has ceased

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 6 of 46 7

to be a shareholder of IBREL and the subsequent purchaser had sufficient

knowledge of the Scheme and has chosen to purchase the shares of the

company, with the sole motivation of disrupting the scheme. In any case, even

the previous shareholder had merely 0.003% of the total shareholding of the

company which is below the prescribed threshold of 10% for raising an objection

as provided in proviso to Section 230(4) of Companies Act, 2013. Further the

allegations levelled by the earlier shareholder have been fully dealt with by SEBI

in their order dated 15.12.2022.

x) The Ld. NCLT held that "by just buying shares from the earlier objector, on

commercial consideration, the right to object does not necessarily pass on to the

buyer of the shares".

xi) The prayer of the objector was rejected and Ld. NCLT held it appropriate

not to go into the merits of the objections raised.

xii) Regarding the 2nd prayer of Tejo Ratna Kongara, the Ld. NCLT held that

the report filed by the Income Tax Department are for the consideration of

Tribunal alone and the same cannot be shared with any third party.

xiii) On the above grounds application of Tejo Ratna Kongara, the objector,

bearing CA No. 9/2023 and CA No. 29/2023 were rejected.

xiv) Through letter dated 24.06.2022, the Income Tax Department informed

that a search and seizure action was initiated in the Embassy group and related

entities, including IBREL, and during the search it came to the knowledge that

Embassy group has acquired controlling stake in the listed company, M/s

IBREL, to the extent of 42%, including 29% being acquired by way of

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 7 of 46 8

amalgamation of NAM Estates Pvt. Ltd. and EOCDPL with IBREL by way of share

swapping.

xv) In a more detailed report dated 17.09.2022, the Income Tax Department

informed that incriminating material was seized, indicating over valuation of the

assets of the Embassy group while transferring the same to M/s NAMEPL. It was

pointed out that there are inconsistencies and incorrect assumptions made

while valuing the assets. The Income Tax Department pointed out that one of

the joint development project, namely Embassy Cornerstone Tech Valley, was

undertaken by the Embassy group where the land doesn't belong to it. The value

of this asset has been estimated at Rs. 581 crores and the land for development

was 100 acres, and it was decided by parties that 67% built-up area was for the

Embassy group and 33% belonged to Cornerstone group. Cornerstone had failed

to acquire 20 acres and the total land available for development is only 80 acres.

The reduction of the measurements of assets (land) has not been conveyed to

IBREL and its shareholders. As per the Embassy group approximately 8 acres

of land still needs to be acquired by the Cornerstone group out of the 80 acres.

The Embassy group has valued the land on the basis of joint development

agreement for 80 acres. It was further mentioned that in the "valuation

certificate", the purpose of valuation was shown for "secured lending purposes",

and not for any amalgamation or merger purposes. Other issues raised regarding

valuation were that only residential development can take place on the subject

property, however valuation is made assuming commercial development, and

that there were issues regarding Title/Litigations and use of some of the

properties as collaterals for borrowings.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 8 of 46 9

xvi) (a) In response to the allegations of the Income Tax Department, and

the query raised, an affidavit was filed by the petitioner on 27.02.2023 stating

that the valuation reports were specifically prepared for the purpose of

determination of the Fair Equity Share Exchange Ratio in Scheme of

Amalgamation. The valuation of NAMEPL has been carried out on a post

restructuring base as provided in the scheme. All the assets/liabilities

mentioned in the report of the Income Tax Department were disclosed to the

valuer by the management and the same has been considered for the purpose of

determining the swap ratio. Having understood that only 80 acres instead of 100

acres has been acquired by the Cornerstone group, the sharing ratio was revised

to 74% for the Embassy and 26% for the Cornerstone, in place of the earlier ratio

of 67:33. The Valuer had considered the DCF (Discounted Cash Flow) Method

under the income approach for the valuation of the amalgamating company

which is widely accepted methodology.

(b) It was clarified that the said land project can be developed as a commercial

project upon meeting certain criteria and getting certain clearances. It was

clarified that valuation was on the basis of information submitted by the

management and no physical verification was required. Since the Emabssy

group had only development rights, the land was not valued but only

development rights were valued and that there is no inaccuracy in the valuation.

Under the amended zoning regulations, the said project can be developed for

commercial/residential use and certificate of Architect is annexed to the reply.

It was submitted by the petitioner that the changed sharing ratio generated same

cashflow, even though the area under development has been reduced.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 9 of 46 10

(c) It was submitted by the petitioner that 99% of the secured creditors, which

included leading banks and financial institution, had given their consent to the

scheme of amalgamation. The public shareholders have also approved the

scheme with overwhelming majority. The scheme has been additionally vetted

and cleared by the SEBI and Stock Exchanges.

xvii) The Valuer, Mr. Mander Vikas Gadkari, filed an affidavit dated 14.03.2023

supporting his valuation report. The Second Valuer, Mr. Niranjan Kumar also

filed an affidavit dated 14.03.2023 supporting his valuation report.

xviii) Valuation reports submitted by Mr. Niranjan Kumar/NS Kumar and

Company and Mr. Mander Vikas Gadkari/BDO* (wrongly stated as IBDO in the

order of NCLT) have stated number of limitations, qualifications, exclusions and

disclaimers in the report. It was noted that the Valuer had not done any

independent evaluation or appraisal of the assets of the company and no

analysis of any potential or actual litigation or possible unasserted claims has

been made.

xix) The main issue for discussion is "whether a Fair equity swap ratio

determined solely on the basis of information furnished by the management

without the valuer making any independent verification of the same be accepted

as a basis of a credible amalgamation process".

xx) The relevant provisions of Sections 230, 232 and 247 of the Companies

Act, 2013 were extracted as also the relevant ICAI Valuation Standards. The

Insolvency and Bankruptcy Board of India (hereinafter called 'IBBI') guidelines

dated 01.09.2020 were extracted and discussed.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 10 of 46 11

xxi) It was noted that assets and liabilities positions of the amalgamating

companies were not placed on the websites of the amalgamating companies and

the revised JDA in the Embassy Cornerstone Project was not discussed in the

valuation report.

xxii) Considering the complicated issues of valuation involved, Tribunal

appointed CA (Dr) Debashis Mitra as Amicus Curiae.

xxiii) Following conclusions were drawn, and on the basis of these conclusions,

it was held that it is not a fit case to sanction the scheme of amalgamation:

"a) These valuation reports cannot be considered relevant and reliable material to enable the stakeholders to arrive at an informed decision for approving the scheme in question as laid down in the decision of the Hon'ble Supreme Court in the case of Miheer Mafatlal (supra);

b) The valuation reports failed to comply with the mandatory provisions of the relevant ICAI valuation standards, the guidelines of the IBBI dated 01.09.2020, and the strict provisions in this regard in the Companies Act, 2013 and The Rules 2016;

c) Based on the evidence with regard to the adjustment of sharing ratio, post the date of valuation, in the case of Embassy Cornerstone Tech Valley Project in the initial report of the Income Tax Department, we hold that the registered valuers failed to appropriately review, and make enquiries regarding the basis of key assumptions in the context of business being valued and the industry/economy as laid down in the IBBI notification;

d) The valuation reports lay down caveats, limitations, and disclaimers, only for limiting the responsibility of the valuers, and do not mention many key factors which have a material impact on the valuations;

e) The valuation reports placed before this Bench seeking sanction of the scheme and also made available to the

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 11 of 46 12

shareholders at the time of the meetings ordered by this Bench, contain information which is not free from material error, and do not represent faithfully that which it either purports to represent or could reasonably be expected to represent.

32. As a sequel to the above discussion and reasons recorded herein before, this Tribunal is of the considered opinion that it is not a fit case to sanction the scheme of amalgamation. Hence, the CP(CAA) No. 14/Chd/Hry/2022 stands dismissed. As discussed above, CA No. 9/2023 & CA No. 29/2023 are also dismissed."

5. Surprisingly, the report dated 11.04.2023 of Amicus Curiae appointed by

Ld. NCLT, Chandigarh is not reproduced/discussed in the impugned order. At

the end of his report, the Amicus Curiae, CA (Dr) Debashis Mitra, gave his

opinion, which is reproduced below:

"D. Opinion

In view of the above, in my considered view :-

1. It is recognized that a Registered Valuer (RV), shall prepare the valuation report of the company based on information and records concerned as provided by the management. The management remains liable for the correctness and veracity thereof. However, significant inputs provided to the RV by the management/owners should be considered, investigated and /or corroborated by the Valuer.

The various projections of business growth, profitability, and cash flows etc, which are used in the valuation report are the company's estimates. The RV should consider the reliability and credibility of projections after testing the assumptions made by the management / owners / company in given market conditions and after sufficient inspection, enquiry, computation and analysis. The RV may disagree with the projections if they are conjectural or bordering on the unreal and accordingly make necessary modifications.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 12 of 46 13

The RV is required to comply with Section 247 of the Companies Act 2013 read with Companies (Registered Valuers & Valuation) Rules, 2017 as amended as well as comply with Relevant Valuation Standards. (Refer Paras 5 & 6). Compliance with Guidelines on Use of Caveats, Limitations & Disclaimers in Valuation Report as issued by IBBI is very important.

As the work of Valuer involves an analysis of financial information and accounting records, his engagement does not include an audit in accordance with generally accepted Auditing Standards relating to client's existing business records. Accordingly, a valuer expresses no audit opinion or any other form of assurance on this information.

However, a valuer should consider the reliability and credibility of projections after testing the assumptions made by the management / owners / company in given market conditions and after sufficient inspection, enquiry, computation and analysis.

Generally, a valuer would consider only circumstances existing at the valuation date and events occurring up to the valuation date. However, events and circumstances occurring subsequent to the valuation date, may be relevant to the valuation depending upon, inter alia, the basis, premise and purpose of valuation. Hence, the valuer should apply its professional judgement to consider any of such circumstances/ events which are relevant for the valuation. Such circumstances/ events could be relating to, but not limited to, the assets being valued, comparables and valuation parameters used. In the event such circumstances/ events are considered by the valuer the same should be explicitly disclosed in the valuation report.

2. In my opinion, the material assumptions play a stellar role in the DCF method. A factual error in the assumption would affect the Valuation under any Valuation Method. Consequently, if the material assumptions are found to be incorrect or not based on facts then the DC Method would be adversely affected.

3. I have been made to understand that the original scheme of merger related to100 acres of land for Embassy Comerstone Tech Valley Project at Bangalore & the swap ratios* of 67:33 was

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 13 of 46 14

decided between Nam Estates Private Limited, Embassy One Commercial Property Development Private Limited and India bulls Real Estate Limited.

Subsequently, the swap ratio* was revised to 74:26 based on 80 acres of land which could be acquired at Embassy Cornerstone Tech Valley Project at Bangalore.

The Joint Development Agreement ("JDA") for 80 acres with the revised sharing ratio (74:26) was executed between the parties on 15 Nov 2021 (which is after the date of valuation report being August 18, 2020), with the provision for reverting to the original ratio of 67:33 upon completion of acquisition of the balance lands by the Landowner.

Further clarity is required as to how the swap ratio could be revised post the valuation date of 18th August,2020 & whether the revision adequately compensates Embassy Group for loss in value due to reduction in the area of the land to be developed. It is also not clear as to whether all material facts were disclosed to the stakeholders relating to the revision in the swap ratio.

The swap ratio should not be contrary to any law, should not violate public interest and the same should be fair and approved by overwhelming majority of the shareholders of the companies involved. The scheme should not defeat the right of the Income- Tax Department to take appropriate recourse for recovering the Income-Tax liabilities of the Transferor /Transferee Companies."

(The report wrongly uses the word "swap" instead of "profit sharing" at places in the report)

(Emphasis supplied)

6. In its oral and written submissions, the Learned Sr. Counsel for the

Appellant submitted that the proposed scheme of merger/amalgamation

involved three entities viz. IBREL - the Transferee Company, NAMEPL - the

Transferor Company No. 1 and EOCPDPL - the Transferor Company No. 2. It

was stated that IBREL has a strong presence in North India, whereas NAMEPL

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 14 of 46 15

and EOCPDPL have significant operations in South India, and the merger aims

to create a Pan-India Real Estate Company.

7. It was further submitted that the Ld. NCLT, Bengaluru had already

sanctioned the scheme on 22.04.2022. The Ld. NCLT, Chandigarh, however

declined to sanction the scheme vide order dated 09.05.2023. The rejection of

the scheme by Ld. NCLT, Chandigarh is solely based on the objection of the

Income Tax Department regarding valuation and swap ratio. It was submitted

that the decision of the Ld. NCLT, Chandigarh is not correct on the following

grounds.

(a) It is not mandatory for valuation report to be made, as per provisions of

Section 230 of Companies Act, 2013, as the language used is that the scheme of

Arrangement may be accompanied by a copy of the valuation report, if any. The

use of the words "if any" indicates that valuation report is not essential for

sanctioning a scheme.

(b) It is only the requirement of SEBI that valuation report be prepared.

(c) The valuation reports were prepared by BDO Valuation Advisory LLP

based in Mumbai and NS Kumar & Co. based in Pune. The valuation report was

further scrutinized by a SEBI registered Category I Merchant Banker, o3 Capital

Global Advisory Pvt. Ltd., and they provided a 'fairness' opinion, certifying that

the recommended swap ratios are fair. The SEBI had specifically examined the

valuation reports and have found them to be in order.

(d) The scheme has been extensively examined by various Government and

Statutory Authorities and no objection has been raised by Securities and

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 15 of 46 16

Exchange Board of India, Bombay Stock Exchange, National Stock Exchange,

Registrar of Companies, Regional Director, Ministry of Corporate Affairs and

Competition Commission of India and their replies were placed on record.

(e) The scheme was approved by an overwhelming 99.998% shareholders,

much higher than the threshold of 75% required under Section 230 of the

Companies Act, 2013.

(f) All the pre-requisites prescribed under Section 230 of Companies Act,

have been complied with.

(g) The report of BDO has been made on the basis of the International

Valuation Standards. Only the report of NS Kumar & Co. is made as per ICAI

valuation standards. The ICAI Standards 201 (2018), in point 18 itself states

that "The valuation shall not be constituted as an audit or review in accordance

with the auditing standards applicable in India, accounting/ financial/

commercial/ legal/ tax/ environmental due diligence or forensic/investigation

services, and shall not include verification or validation work." Thus, verification

or investigation is not required to be done during the valuation exercise.

(h) The Ld. NCLT, Chandigarh had incorrectly assumed that Valuer was

required to do independent verification of the assets of the amalgamating

companies.

(i) There are multiple projects under each of the company under going

amalgamation. The controversy created is regarding Cornerstone project of

NAMEPL, Transferor Company No. 1. The NAMEPL itself is having 11 projects in

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 16 of 46 17

total land area of 757.63 acres. The projects under amalgamating company No.

1 NAMEPL are as under:

Projects under Land in amalgamating acres company 1 1 Embassy Grove, 4.78 Residential, Bengaluru 2 Embassy Lake Terraces, 17.20 Residential, Bengaluru 3 Embassy Boulevard, 51.75 Residential, Bengaluru 4 Embassy Pristine, 14.50 Residential, Bengaluru 5 Embassy Residency, 10.00 Residential, Chennai 6 Embassy One, 2.69 Residential, Bengaluru. 7 Embassy Springs & 280.35 Edge, Mix use, Bengaluru 8 Embassy Knowledge 212.00 Park, Mix use, Bengaluru 9 Embassy East Business 60.55 Park, Commercial, Bengaluru 10 Embassy ACC Prism, 3.60 Mix Use, Bengaluru 11 Embassy Cornerstone 100.22 Tech Valley, Residential, Bengaluru Total 757.63

(j) On the specific issue of land for Cornerstone project, it was clarified that

since the joint venture partner was not able to acquire balance 20 acres, the

profit-sharing ratio was altered to 74:26 from the earlier 67:33 thereby the

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 17 of 46 18

cashflow to the amalgamating company was protected. The valuation was done

on discounted cashflow method, which is more concerned with income, and

thus, non-acquisition of balance 20 acres was not relevant. Even non-

acquisition of 20 acres by joint venture partner came to the knowledge of the

amalgamating companies subsequently. On coming to its knowledge, the profit

sharing ratio was revised to ensure cash flow/profit of amalgamating companies

is protected.

(k) The valuations were prepared on 18.08.2020 whereas the IBBI's

guidelines were published on 01.09.2020 and were made applicable for

valuation reports completed on or after 01.10.2020. The Ld. NCLT, Chandigarh

erred in applying these guidelines to the valuation reports which were prepared

prior to the issue of these guidelines.

8. It was further submitted that the Amicus Curiae had correctly pointed out

that Valuer is not required to conduct any audit or to express any assurance on

the information provided by the management. It was further stated that change

in profit sharing ratio consequent to later knowledge of acquisition of only 80

acres of land, instead of 100 acres of land by the joint development partner, were

events subsequent to the valuation report. However, due to changed profit

sharing ratio, the cashflow from the JDA will hardly be affected and this aspect

has been confirmed by the Valuer in affidavit dated 01.03.2023, which is as

under:

"10.2. Assuming all other factors considered in the valuation report remain same, if the area to be developed is reduced from 100 acres to 80 acres (and the said reduction is reflected in the last phase of development), then the revision in JDA ratio

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 18 of 46 19

from 67% to 74% adequately compensates Embassy Group for loss in value due to such reduction in the area of the land to be developed."

Reliance was placed on the following judgments:

(i) Mihir H. Mafatlal Vs. Mafatlal Industries Limited [(1996) 10 SCL 70],

where the Hon'ble Supreme Court held that courts should not scrutinize the

scheme when shareholders have exercised their commercial wisdom.

(ii) Hindustan Lever Employees' Union vs. Hindustan Lever Limited

[(1994) 2 SCL 157 (SC)], where it was held that once the requisite majority

approves the scheme, the court should not interfere.

(iii) RHI India Private Limited and Ors. vs. Union of India

(MANU/NL/0013/2021), where it was held that even NCLT has limited power

to overrule the commercial wisdom of shareholders.

In conclusion, it was submitted that the order of Ld. NCLT, Chandigarh

be set aside and the Scheme of Amalgamation be approved.

9. The Respondent, Income Tax Department in its counter affidavit dated

22.11.2023 has submitted that reduction in the acreage of the land to be

developed as part of JDA with Cornerstone was not informed to IBREL and to its

shareholders, nor it was considered in valuation of assets and Ld. NCLT,

Chandigarh was right in not granting approval to the scheme. Without prejudice

to the submissions, it was stated that if the Appellate Tribunal is considering

the matter based on merits, the interests of the Revenue (Income Tax

Department) may be protected.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 19 of 46 20

10. In its email dated 21.10.2024, the Dy. Commissioner of Income Tax,

Central Circle- 1(3), Bengaluru had submitted his comments as under:

"Therefore, the comments on the subject case are hereby submitted as below:

2.1. In the AFFIDAVIT filed by the amalgamated company Equinox India Development Limited (Formerly known as Indiabulls Real Estate Limited) in compliance of order dated 28/08/2024, the petitioner has stated that it has already undertaken to pay any and all tax dues as may be applicable with respect to it or the Amalgamating companies and that the concerned tax authorities shall not be prejudicially affected by the proposed merger under the scheme.

2.2. The department had objected to the scheme of the amalgamation as it was not in the interest of public investors of the listed company and brought the findings of the search action before Hon'ble NCLT to protect public interest. The department also requested the Hon'ble NCLT that, if at all Hon'ble NCLT gives approval, then an undertaking should be obtained from the resulting company that they would discharge all tax liabilities arising due to pre-merger and merger stage issues of the concerned entities.

2.3. In view of the above, since the petitioner company has undertaken to pay any and all tax dues as may be applicable with respect to it or the Amalgamating companies which was the stand of the department, the interest of the Income Tax Department is protected on this aspect.

2.4. Vide email dated 01/03/2023, it was submitted before the Hon'ble NCLT that O/o DDIT (Inv.) Unit 3(3), Bengaluru submitted a factual report on valuation based on the prima facie evidences found during search, and since the department is not expert in valuation and the said office didn't have any further comments to offer on same."

11. In Rejoinder to the counter affidavit dated 07.12.2023, the Appellants

submitted that the Scheme of Amalgamation, in Clause 3.2(xiv) of Part III read

with Clause 15.2(xiv) of Part IV, provides that all tax liabilities including any tax

proceedings (whether direct or indirect) payable by NAM Estates Private Limited

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 20 of 46 21

or Embassy One Commercial Property Developments Private Limited,

respectively, shall be treated as the tax liability/proceedings of the Amalgamated

Company and accordingly, the concerned tax authorities shall not be

prejudicially affected by the proposed merger under the Scheme. The Appellants

reiterated the position of the Cornerstone project stating that it was

communicated to them after the valuations that only 80 acres were acquired by

the joint venture partner and thereafter, the profit sharing ratio was altered from

67:33 to 74:26, enhancing the share of Embassy Group, which ensured that

similar cashflow comes to the Appellant Companies. Since the valuation was

based on DCF Method, the reduction in acreage will not have any significant

impact as the revised profit sharing ratio will ensure similar cashflow.

12. The Learned Counsel for Tejo Ratna Kongara, the Appellant in Company

Appeal (AT) No. 215-216 of 2023 submitted that they had objected to the Scheme

of Amalgamation and are aggrieved by the order of rejection of their objection by

Ld. NCLT, Chandigarh. It was submitted that the objector had purchased shares

from Mr. Dhanekula Dharanish and wanted substitution in his place in CA No.

192 of 2022 for which Interlocutory Application CA No. 9 of 2020 was filed before

the Ld. NCLT. Shri Tejo Ratna Kongara had purchased 20,100 equity shares of

the Transferee company, which was previously held by Mr. Dhanekula

Dharanish for consideration of Rs. 18,33,120/-. The Ld. Counsel relied on the

decision of this Tribunal in Ankit Mittal v Ankita Pratisthan Ltd. and Others in

Company Appeal (AT) No. 238 of 2018 dated 29.11.2019 reported in 2019 SCC

OnLine NCLAT 847 wherein it was held as under:

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 21 of 46 22

"32. We have considered the arguments of the learned counsel for the Respondent. As regards filing of appeal by appellant is concerned we have decided the issue in para 31 above. As regards the objection raised by the Respondent regarding 10% shareholding or having an outstanding debt less not than 5% of the total outstanding debt is concerned we are of the opinion that the law prescribed that the objectors must have 10% limit. But when matter is before the Tribunal it is duty bound to see that all the procedures are duly followed and the scheme is conscionable. The issue raised by any body even if not eligible or even otherwise the Tribunal will have a duty to look into the issue so as to see whether the scheme as a whole is also found to be just, fair, conscionable and reasonable inter alia from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. The Tribunal also has to see that the scheme of amalgamation if the same is prejudicial to the interest of a particular class who may not be able to meet the threshold limit to see the scheme but it may be a pointer enough for the Tribunal to see that the scheme may be loaded against the interest of the objectors."

13. It was submitted that besides the issue of Cornerstone Project, there was

another issue regarding Concord Land which was land leased by KIADB in

favour of Concord India Pvt. Ltd. It is alleged by the objector that resumption

proceedings were initiated by KIADB as of 31.08.2023 and in this case interim

orders were passed by Karnataka High Court on 29.10.2021 in Writ Petition No.

18952 of 2021 which ought to have been duly disclosed. It was also submitted

that the impact of internal restructuring of NAMEPL was not considered by the

valuers while working out the swap ratio.

14. In its response, the Learned Counsel for Respondent No. 1 (IBREL)

submitted as follows:

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 22 of 46 23

i) Mr. Tejo Ratna Kongara acquired shares through Share Purchase

Agreement (SPA) dated 08.12.2022 and his shareholding is only 0.003%. The

previous shareholder Mr. Dhanekula Dharanish had already filed CA No. 192 of

2022 before the Ld. NCLT, Chandigarh raising certain objections against the

Scheme. Under the SPA, it was claimed that Mr. Tejo Ratna Kongara inherited

the right to persist with the objections filed by Mr. Dhanekula Dharanish.

ii) Mr. Tejo Ratna Kongara purchased the shares fully aware of the ongoing

amalgamation proceedings and the objections raised by Mr. Dhanekula

Dharanish, and his motive merely seems to impede the amalgamation

proceedings.

iii) Mr. Dhanekula Dharanish never raised any objections nor participated in

the meeting of shareholders held on 12.02.2022.

iv) The provisions of Section 230(4) of the Companies Act, 2013 explicitly

stipulate a minimum threshold of 10% shareholding as eligibility to raise any

objection to the Scheme of Amalgamation.

v) The Scheme of amalgamation was approved by overwhelming majority of

99.9987%, which is much beyond the threshold required under Section 230 of

the Companies Act, 2013.

vi) The allegations raised by Mr. Dhanekula Dharanish were examined in

detail and were addressed by statutory regulators including SEBI, BSE before

giving their clearances to the Scheme of amalgamation. SEBI had investigated

and responded to the allegations made by Shri Dhanekula Dharanish vide their

letter dated 15.12.2022 wherein all the allegations raised by Shri Dhanekula

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 23 of 46 24

Dharanish were rejected and reasons for rejections were communicated through

the said five page letter to Shri Dharanish.

vii) It was submitted that regarding Concord land that it is not part of the

Scheme of amalgamation and that the matter is still pending before the Hon'ble

Karnataka High Court.

viii) In conclusion it was submitted that the objector has miniscule shares, is

not eligible to file objections under Section 230(4) of the Companies Act, 2013,

that the subject Concord land is subject matter of proceedings pending before

the Hon'ble Karnataka High Court and it is not part of the Scheme and its

valuation was not considered in the Scheme.

15. We have heard the Appellant, Respondents and Objector and have perused

the records.

16. We agree with the Ld. NCLT, Chandigarh that Objector being aware of the

amalgamation and objections by previous owner, had purchased the said

shares, and since his shareholding is much less than the threshold of 10%

specified under Section 230(4) of the Companies Act, 2013, the Company

Application No. 9 of 2023 and Company Application No. 92 of 2022 are not

maintainable. Recently, this Tribunal has held similar view in Jatinder Singh

Ahuja & Ors. vs. Tata Steel Ltd. & Ors. (MANU/NL/0867/2023). However, in

view of the spirit of decision of this Tribunal in the case of Ankit Mittal (Supra)

the objections raised by the Objector are being considered while arriving at the

decision in this case. We also agree with Ld. NCLT that the reports submitted by

the Income Tax Department are not to be shared with a minority shareholder

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 24 of 46 25

who has no locus to intervene, as his shareholding is less than the minimum

prescribed in Section 230 (4) of the Companies Act, 2013. Company Appeal (AT)

No.215-216 of 2023 are accordingly dismissed.

17. The issue in the main appeal Company Appeal (AT) No.120 of 2023 is

(a) whether any material information was suppressed which had a substantial

impact on valuation of the shares, and the consequential share swap ratio, or

whether the valuation done by the valuers is appropriate, and (b) whether the

Tribunal could have rejected the Scheme, even when overwhelming majority of

shareholders and creditors have approved it.

18. To answer to the controversy, we first examine the issue whether the

valuation method used, and the consequent valuation, is acceptable or not.

19. The valuation of shares has been done by two recognised independent

valuers, one in Mumbai and the other in Pune. The valuation was done by N.S.

Kumar and Company and BDO Valuation Advisory LLP and both the valuers are

registered with IBBI. Both the valuation reports were examined and a report on

fair equity share exchange ratio was given by a third expert, namely, o3 Capital

Global Advisory Pvt. Ltd. which is a category I Merchant Banker. None of the

parties to the dispute, or statutory authorities or anyone else has raised any

objection regarding the competence or expertise of the valuers or the Merchant

Banker, to carry out the said valuations, so admittedly, services of two

competent professional valuers and one Category I Merchant Banker were

utilized by the proponents of the Scheme to carry out the necessary valuation.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 25 of 46 26

Both Valuers, in their affidavits filed before Ld. NCLT have stood by and affirmed

the correctness of their valuations.

20. The valuation of shares has been done by both the Valuers under

discounted cash flow method or the DCF. As per Technical Guide on valuation

issued by Valuation Standards Board of Institute of Chartered Accountants of

India, the DCF method indicates fair value of shares. The relevant portion of the

said Technical Guide on valuation is reproduced below:

"3.6 The Discounted Cash Flow method indicates the Fair Value of a business based on the value of cash flows that the business is expected to generate in future. This method involves the estimation of post-tax cash flows for the projected period, after taking into account the business's requirement of reinvestment in terms of capital expenditure and incremental working capital. These cash flows are then discounted at a cost of capital that reflects the risks of the business and the capital structure of the entity.

3.6.1 Discounted Cash Flow is the most commonly used valuation technique, and is widely accepted by valuers because of its intrinsic merits, some of which are as follows:

(a) Theoretically, it is a very sound model because it is based upon expected future cash flows that will determine an investor's actual return;

(b) It is based on expectations of performance specific to the business, and is not influenced by short-term market conditions or non-economic indicators;

(c) It is not as vulnerable to accounting conventions like depreciation, inventory valuation in comparison with the other techniques/approaches since it is based on cash flows rather than accounting profits;

(d) It is appropriate for valuing green-field or start-up projects, as these projects have little or no asset base or earnings which render the Cost Approach (net asset value) or the Market Approach (application of market multiples) inappropriate. However, it is important that valuation must recognise the additional risks in such

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 26 of 46 27

a case (e.g. project execution risk, lack of past track record, etc.) by using an appropriate discount rate."

(Emphasis supplied)

21. The said DCF method is also recognised in Rule 11(UA) of Income Tax

Rules 1962, the relevant part of which is under:

"11UA. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,-

(a) Valuation of jewellery,-

(i) .....

(ii) .....

(iii) .....

(b) Valuation of archaeological collections, drawings, paintings, sculptures or any work of art,-

(i) .....

(ii) .....

(iii) .....

(c) Valuation of shares and securities,-

(a) .....

(b) .....

(c) .....

[(2)] Notwithstanding anything contained in sub-clause (b) or sub- clause (c), as the case may be, of clause (c) of sub-rule (1):-

(A) the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of the /explanation to clause (viib) of sub-section (2) of /section 56 shall be the value, on the valuation date, of such unquoted equity shares, as shall be determined under sub-clause (a), sub-clause (b), sub-clause (c) or sub-clause (e), at the option of the assessee, where the consideration received by the assessee is from a resident ; and under sub-clauses (a) to (e) at the option of the assessee, where the consideration received by the assessee is from a non-resident, in the following manner:-

(a) .....

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 27 of 46 28

(b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method;

(c) ....."

22. The International Valuation Standards also recognise DCF as method for

valuation of shares.

Valuation Approaches and Methods state that:

50.1. Although there are many ways to implement the income approach, methods under the income approach are effectively based on discounting future amounts of cash flow to present value. They are variations of the Discounted Cash Flow (DCF) method and the concepts below apply in part of in full to all income approach methods.

Discounted Cash Flow (DCF) Method 50.2 Under the DCF method the forecasted cash flow is discounted back to the valuation date, resulting in a present value of the asset.

50.3. In some circumstances for long-lived or indefinite-lived assets, DCF may include a terminal value which represents the value of the asset at the end of the explicit projection period. In other circumstances, the value of an asset may be calculated solely using a terminal value with no explicit projection period. This is sometime referred to as an income capitalisation method.

23. The Foreign Exchange Management Act (FEMA) earlier recognised DCF as

the only method for valuing shares, though it has been replaced with any

internationally accepted pricing methodology. The DCF was specified as sole

method in RBI FEMA Notification No. 205/2010-RB dated 07.04.2010 and the

relevant portion is as under:

"5. Issue Price

Price of shares issued to persons resident outside India under this Schedule, shall not be less than-

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 28 of 46 29

(a) the price worked out in accordance with SEBI guidelines, as applicable, where the shares of the company is listed on any recognised stock exchange in India;

(b) the fair valuation of shares done by a SEBI registered Category-I Merchant Banker or a Chartered Accountant as per the discounted free cash flow method, where the shares of the company are not listed on any recognised stock exchange in India; and

(c) the price as applicable to transfer of shares from resident to non-

resident as per the pricing guidelines laid down by the Reserve Bank from time to time, where the issue of shares is on preferential allotment."

The said rules were revised by RBI Notification No. FEMA 306/2014 dated

23.05.2010 and following method was prescribed:

"b. the valuation of shares done as per any internationally accepted pricing methodology for valuation of shares on arm's length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker where the shares of the company are not listed on any recognised stock exchange in India."

24. Ongoing through the standards, Rules and Judgments cited above, we are

of the opinion that DCF method is one of the recognised methods for valuation

of shares and the valuers, as well as the amalgamating companies cannot be

faulted for using it. It is also to be noted that DCF method relies on future

earnings, rather than ownership of assets.

25. The allegation that valuer has not verified the information before valuation

is answered by the Amicus Curiae himself that work of the valuer does not

include an audit and that he is not required to express any audit opinion or any

other form of assurance on this information, and generally a valuer would

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 29 of 46 30

consider circumstances existing on the valuation date. The opinion of Amicus

Curiae is reproduced in para 5 supra.

This aspect was also examined by SEBI in the present case and their

finding (Vol. 3, pg. 445 of Annexure A-13) is as under

"c. On the issue of the disclaimers by the valuers that they have not done any independent technical valuation or appraisal of title search of the assets or liabilities of the Company or its subsidiaries/associates, the following is stated:

i. xxx ii. The ICAI Valuation Standards were perused, and it is observed that the standards state that valuation shall not be constituted as an audit or review in accordance with the auditing standards applicable in India, accounting/financial/commercial/legal/tax/environmental due diligence or forensic/investigation services, and shall not include verification or validation work.

iii. Considering the above, a valuation exercise may not necessitate an independent technical valuation or appraisal of title search of the assets or liabilities".

26. The Ld. NCLT has applied IBBI guidelines on use of caveats, limitations and

disclaimers dated 01.09.2020 on the valuations done in this case, which ante-

date the IBBI circular, as valuations were done on 18.08.2020. The IBBI

guidelines dated 01.09.2020 are applicable prospectively and para 1(b) states

that :

"These guidelines shall come into force in respect of valuation reports in respect of valuations completed by Registered Valuers (RVs) on or after 1st October, 2020".

The Ld. NCLT has grossly erred in applying these guidelines retrospectively.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 30 of 46 31

27. From perusal of the records of this case, we find that no objection to the

Scheme was raised by any of the statutory or regulatory authority, except the

Income Tax Department. The Competition Commission of India has stated that

the Scheme does not cause any appreciable adverse impact on competition and

they have no objection to its approval. The Competition Commission of India,

The Registrar of Companies and The Regional Director, Ministry of Corporate

Affairs have not raised any objections viz. a viz. compliance of various provisions

of the Companies Act, 2013 and Competition Act. SEBI and Stock Exchanges

have not raised any compliance issue regarding the listed entities involved in the

Scheme.

28. The Ld. NCLT, Bangaluru, which had jurisdiction over both the Transferor

Companies had accepted and approved the Scheme. As recorded in the previous

paragraphs, the Income Tax Department had subsequently stated that they are

not experts in valuation, and that in case Tribunal is approving the scheme, the

interests of Revenue be protected.

29. The objection raised regarding Cornerstone Project is primarily that joint

venture partner, namely, Cornerstone Group was unable to acquire 100 acres of

land, and there was shortage of 20 acres in acquisition. Whether this shortage is

so fatal as to cause rejection of the Scheme is the issue to be decided herein. It

is admitted fact that there is shortage in acquisition of land, as also the said

information was not passed on by Cornerstone Group to the amalgamating

companies, and they were unaware about it. Consequently, the said information

was also not available to the shareholders when they were approving the Scheme.

However, we find that valuation of shares has been done on DCF method, which

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 31 of 46 32

is concerned more with the future income generation and less with the assets

held by the company. Admittedly, the Profit Sharing Ratio (PSR) in the

Cornerstone Project was initially 67% for Embassy group and 33% for

Cornerstone Group. On being aware of the shortage in acquisition, the PSR was

revised to 74% for Embassy group and 26% for Cornerstone Group. On specific

query by Ld. NCLT, the valuers in their affidavit have stated that after revision of

PSR, the cash flow to the amalgamating companies is not affected at all.

30. We are also conscious of the fact that nearly 100% of the shareholders

have approved the Scheme. Business is done in a dynamic, and not a static

environment, and the assets and liabilities of the business change continuously

impacting the valuation of the enterprise. We are aware that the price of shares

of the company in stock exchange, which is reflection of the valuation, changes

every minute, rather every second based on the business environment and the

perception of buyers and sellers. It is said that valuation is not an exact science

and is subject to professional judgment and can vary from one valuer to another.

31. Before deciding whether learned Tribunal was correct in rejecting the

Scheme on the issue of valuation on the initial objection raised by the Income

Tax Department, we look to judicial guidance on this issue.

It has been held in Cetex Petrochemicals Ltd., re, (1992) 73 Comp Cas 298

(Mad) that the approval by overwhelming majority is a symbol of the soundness

of the scheme. The court would not interfere. It cannot substitute with its wisdom

the collective wisdom of the shareholders.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 32 of 46 33

32. It was held in Aradhana Beverages & Foods Company Ltd. V Regional

Director of Companies, 1998 (46) DRJ 228 where share exchange ratio is

determined by experts, and shareholders are satisfied, no interference at the

instance of Regional Director is called for. The relevant portion of the said

judgment is reproduced below:

"Since as a matter of fact and undisputedly the loan has been subsequently converted into shares, the grievance of the Regional Director in my view does not survive. The shareholders and creditors are better equipped to gauge the value of their shares with reference to market trends & if they have approved the amalgamation, the Regional Director cannot be heard to say that the merger would not be in interest of the shareholders and creditors & consequently in the public interest. To my mind in a given case, the interest of the shareholders may or may not be synonymous with the public interest. But in the instant case determination of the share exchange ratio does not affect public interest. Therefore, the submission of the learned counsel for the Regional Director that the amalgamation not being in the interest of shareholders will also be opposed to public interest is untenable as they do not coincide. It may also be noticed that both the transferor and the transferee companies, are the subsidiaries of Pepsico. Both the companies are closely held companies and the share exchange ratio seems to be fair to the shareholders. The Regional Director has not been able to show that the valuation is manifestly un- reasonable, unfair and arbitrary. This being so, the judgment of the shareholders must be respected & cannot be disturbed."

(Emphasis supplied)

33. The Court's obligation is to be satisfied that the valuation was in

accordance with law and it was carried out by an independent body. While

stating so, the Hon'ble Supreme Court in Hindustan Lever Employees' Union v

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 33 of 46 34

Hindustan Lever Ltd. and Ors.,1995 Supp (1) SCC 499, has given the following

guidance:

"3. But what was lost sight of was that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction. It exercises a jurisdiction founded on fairness. It is not required to interfere only because the figure arrived at by the valuer was not as better as it would have been if another method would have been adopted. What is imperative is that such determination should not have been contrary to law and that it was not unfair to the shareholders of the company which was being merged. The Court's obligation is to be satisfied that valuation was in accordance with law and it was carried out by an independent body. The High Court appears to be correct in its approach that this test was satisfied as even though the chartered accountant who performed this function was a Director of TOMCO but he did so as a member of a renowned firm of chartered accountants. His determination was further got checked and approved by two other independent bodies at the instance of shareholders of TOMCO by the High Court and it has been found that the determination did not suffer from any infirmity. The company court, therefore, did not commit any error in refusing to interfere with it. May be as argued by the learned counsel for the petitioner that if some other method would have been adopted probably the determination of valuation could have been a bit more in favour of the shareholders. But since admittedly more than 95% of the shareholders who are the best judges of their interest and are better conversant with market trend agreed to the valuation determined it could not be interfered by courts as,

"[c]ertainly, it is not part of the judicial process to examine entrepreneurial activities to ferret out flaws. The court is least equipped for such oversights. Nor, indeed, is it a function of the judges in our constitutional scheme. We do not think that the internal management, business activity or institutional operation of public bodies can be subjected to inspection by the court. To do so, is incompetent and improper and, therefore, out of bounds. Nevertheless, the broad parameters of fairness in administration, bona fides in action, and the fundamental rules

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 34 of 46 35

of reasonable management of public business, if breached, will become justiciable."

(Emphasis supplied)

34. It has been held by Hon'ble Supreme Court in the case of Miheer H.

Mafatlal v Mafatlal Industries Ltd. (1997) 1 SCC 579, it is for the equity

shareholders acting bona fide in the interest of their class as a whole to accept

a particular scheme and once the exchange ratio is worked out by a recognised

firm of Chartered Accountants who are experts in the field of valuation and if no

mistake can be pointed out in the said valuation, it is not for the court to

substitute its exchange ratio, especially when the same has been accepted

without demur by the overwhelming majority of the shareholders (para 39 and

40 of the judgment).

35. Following the said judgment in Miheer Mafatlal, the Hon'ble Gujarat High

Court in the case of Gujrat Ambuja Cotspin Ltd., 1998 SCC OnLine Guj 390 :

(2001) 104 Comp Cas 397 refused to interfere in the valuation of shares done by

the experts.

36. Hon'ble Supreme Court in Duncans Industries Ltd. vs. State of U.P. and

Ors. (2000) 1 SCC 633 in paragraph 15 has held as under:

"15. The question of valuation is basically a question of fact and this court in normally reluctant to interfere with the finding on such a question of fact if it is based on relevant material on record".

Following this Judgment, Hon'ble Supreme Court in the case of G.L. Sultania

and Anr. vs. SEBI and Ors. (2007) 5 SCC 133, paragraph 31 and 32 has held

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 35 of 46 36

that valuation of shares is a technical, complex issue which should be

appropriately left to the wisdom of the experts. The relevant portion is as under:

"31. In Duncans Industries Ltd. vs. State of U.P. this court held that the question of valuation is basically a question of fact and this court is normally reluctant to interfere with the finding on such a question of fact if it is based on relevant material on record. Similarly, in Miheer h. Mafatlal v. Mafatlal Industries Ltd. this Court sounded a note of caution observing that valuation of shares is a technical and complex problem which can be appropriately left to the consideration of experts in the field of accountancy. So many imponderables enter the exercise of valuation of shares.

32. These decisions clearly lay down the principle that valuation of shares is not only a question of fact, but also raises technical and complex issues which may be appropriately left to the wisdom of the experts, having regard to the many imponderables which enter into the process of valuation of shares. If the valuer adopts the method of valuation prescribed, or in the valuation, his valuation cannot be assailed unless it is shown that the valuation was made on a fundamentally erroneous basis, or that a patent mistake had been committed, or the valuer adopted a demonstrably wrong approach or a fundamental error going to the root of the matter. Where a method of valuation is prescribed the valuation must be made by adopting scrupulously the method prescribed, taking into account all relevant factors which may be enumerated as relevant for arriving at the valuation".

(Emphasis supplied)

37. Hon'ble Bombay High Court in the case of Alstom Power Boilers Ltd. vs.

State Bank of India & IDBI 2002 SCC Online Bom 1084 has held the Company

Court has supervisory jurisdiction, and where Scheme is approved by

overwhelming majority, the dissenting minority shareholders cannot tyrannise

the majority. The relevant part of judgement is as under:

"........

28. The parameters of the jurisdiction of the Company Court under Sections 391 to 394 are well established. The limitations put on this jurisdiction can be equated with the jurisdiction of the judicial review under Articles 226 and 227 of the Constitution of India. It is

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 36 of 46 37

not an appellate jurisdiction. The application under Section 391 for sanction of the scheme of amalgamation cannot be treated as an appeal. The scheme is to be examined by the company court within the limited scope of supervisory jurisdiction".

........

37. To conclude, the scheme was opposed by one unsecured creditor of value Rs. 4.48 lakhs. Barring one such opposition, the scheme was approved by one and all from all the classes. One person cannot dictate his baseless commercial wisdom on the 99% voters. If the majority cannot be allowed to coerce the minority, even the molecule or microscopic minority can never be allowed to stall the scheme approved by almost 100% members. To do so, would be to mock at the vast majority who overwhelmingly are in favour f the scheme. Even minority cannot tyrannise the majority". ........

50. Further, I do no find any unfairness or unjustness in the scheme. The A.P.I.L shareholders have accepted the swap ratio and whatever was computed in the scheme. Commercial wisdom of the A.P.I.L. shareholders cannot be subjected to appeal before this court. In may opinion, broadly the scheme by and large, is fair and just to both the parties and all the shareholders and the creditors and the same deserves to be sanctioned. There is hardly any valid dissent to the scheme which is approved almost unanimously, even by those from the A.P.I.L. who stand to gain less immediately in short ran".

(Emphasis supplied)

38. It has been held by the Hon'ble Gujarat High Court in the case of Alfa

Quartz Ltd. vs. Cymex Time Ltd. 1997 SCC Online Guj 265 that even where there

are allegations of unfairness of share exchange ratio, court should not interfere

as the same has been accepted without demur by the overwhelming majority of

the shareholders of the amalgamating companies. The relevant portion of the

said judgment is reproduced below:

"12. It has been pointed out that the shareholders of the transferor-compa-nies are proposed to be allotted more shares which seems to be against the interest of the shareholders of the transferee-company.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 37 of 46 38

13. But against this say, learned counsel Mr. Mavank Buch for the petitioning companies places reliance upon the Supreme Court pronouncement in Miheer H. Mafatial v. Mafatial Industries Ltd., [1996] 87 Comp Cas 792; [1996] 4 Comp 124, with a view to canvass the principle that, it is not for the court to substitute its exchange ratio especially when the same has been accepted without demur by the overwhelming majority of the shareholders of the two companies, or the say of that the shareholders in their collective wisdom should not have accepted the exchange ratio on the ground that it will be detrimental to their interest. The Supreme Court precisely says so, In the petitions on hand there is absolutely no demur by any of the shareholders against the exchange ratio. On the contrary the shareholders of the transferor-companies and transferee-company also have accepted the exchange ratio proposed in the scheme of amalgamation. Therefore, it appears that, it would not be open to me to say that the exchange ratio accepted by the shareholders of the transferor-companies and the transferee- company would be prejudicial or detrimental to their interest. Therefore, the above said communication should not come in the way of the petitioning companies.

14. Independently all of these, as a company court, I have been satisfied with the scheme proposed as a whole is just, fair and reasonable from the point of view of all concerned".

(Emphasis supplied)

39. Hon'ble High Court of Calcutta in the case of Suresh Kumar Rungta vs.

Roadco (India) Pvt. Ltd. & Ors. has relied upon a judgment of the English Court

in Fletcher & Anr. vs. Royal Automobile Club Ltd. reported in (2000) 1 BCLC

331 wherein it was held that if the effect was the same had fraud been practised

and it not having been practised, the court should not set aside a judgment on

the ground of fraud. The relevant part of the judgement is as under:

"30. The Ld. Judge has relied on the judgment in Fletcher & Anr. v. Royal Automobile Club Ltd. reported in (2000) 1 BCLC 331. On the basis of the said judgment the learned Judge has held that if the effect was the same had fraud been practised and it not having been practised, the court should not set aside a judgment on the ground of fraud....."

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 38 of 46 39

40. In the case of Challa Rajendra Prasad vs. Asian Coffee Ltd. 1999 SCC

Online AP 92, while rejecting the request of the objector seeking details of

valuation, the High Court of Andhra Pradesh, following the judgment of Supreme

Court in Kamala Sugar Mills Ltd. ( 1984) 55 Company Cases 308 made following

observations:

".....

From this law of the Hon'ble Supreme Court it is clear that it is enough if the expert opinion is obtained regarding the valuation and fixation of the exchange ratio and the mathematical calculation as to how those valuers had arrived at would be a technical and complex problem and should be left to the consideration of such experts in the field of accountancy only". (para 8)

41. Hon'ble Gujarat High Court in APCO Industries Ltd., In re 1995 SCC

Online Guj 284 has held that when there is no evidence of fraud or malafides on

part of Valuers, and standard method of valuation is followed, the objection to

the valuation should be overruled. The relevant part of the judgement is as

under:

"14. It is sought to he urged that the exchange ratio of 150 shares to be allotted by the transferee-company for each share held of the transferor-company is, apparently, on a high side. But, it requires to be appreciated that the exchange ratio has been fixed, taking into consideration the apparent rise in the fixed assets of the company as valued and reported by the expert valuer. As indicated above, there is no reason to believe that the valuer can be said to be guilty of submitting an inflated valuation- report, which would not correctly reflect the revaluation reserve. In this connection, a reference is made to the Kerala High Court decision, in the case of Malayalam Plantation (India) Ltd. v. Mathew Philip. [1986] TLR 1753, in which the learned single Judge has taken a view that, when there was no evidence of fraud or mala fides on the part of the persons making the valuation and when the standard method of valuation is adopted, the objection to the valuation should be overruled. Here

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 39 of 46 40

also, in the instant case before me, there is not only no evidence of fraud or mala fides on the part of the valuer, but even there is no such whisper in the affidavit-in-reply, filed on behalf of the Central Government. In view of this factual and legal position, the contention does not appear to be open to the Central Government. The exchange ratio, therefore, cannot be said to be unreasonable or unfair. This requires to be said and emphasised regard being had to the revaluation reserve of the assets of the transferor-company.

15. Thus, it appears that, the petitions require to be allowed and the scheme of amalgamation, as presented along with the same require to be sanctioned. The same is hereby accordingly allowed and sanctioned".

(Emphasis supplied)

42. In the case of M/s Vodafone Essar Ltd. & Ors. and M/s Vodafone Essar

Infrastructure Ltd. (Company Petition No. 334/2009), the Delhi High Court

examined objections raised by the Income Tax Department concerning the

proposed demerger scheme. The objections included concerns about the

potential negative net worth of the transferor companies' post-demerger, possibly

impairing their ability to meet tax liabilities, and arguments that the scheme

might contradict public interest, despite aligning government policies promoting

infrastructure sharing. The department also highlighted potential tax evasion

risks, though the court clarified that lawful tax avoidance does not inherently

render a scheme against public interest. Additionally. disputes over the valuation

and accounting treatment of transferred assets were acknowledged, with the

court leaving such matters to tax authorities for resolution. Ultimately, the court

sanctioned the scheme but preserved the tax authorities' rights to pursue any

related liabilities independently. The relevant extract of the judgement is as

follows:-

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 40 of 46 41

"70. If the Court is indeed to sanction the Scheme, the powers of the Income Tax Department must remain intact. The authorities relied on by the petitioners also support this proposition, with the only exception being a situation where the Scheme itself has only one purpose, which is to create a vehicle to evade the payment of tax, rather than mere avoidance of tax. It is also true that the scope of objection that may be raised by the Central Government and the Regional Director is larger, and that of the tax authorities is confined to the question of revenue. It is not open to this Court, in the exercise of company Jurisdiction, to sit over the views of the shareholders and Board of Directors of the petitioner companies, unless their views were against the framework of law and public policy, which, as discussed above, is not the conclusion reached here. It is purely a business decision based on commercial considerations....

...72. In view of the approval accorded by the equity shareholders, secured and unsecured creditors of the petitioner companies, and the Regional Director, Northern Region, to the proposed Scheme of Arrangement, as well as the submissions of the Income Tax Department, there appear to be no further impediments to the grant of sanction to the Scheme of Arrangement. Consequently, sanction is hereby granted to the Scheme of Arrangement under Sections 391 and 394 of the Companies Act, 1956 on the aforesaid terms while reserving the right of the Income Tax Authorities to the extent stated above".

(Emphasis supplied)

43. The Hon'ble Bombay High Court in Parke Davis (India) Ltd, In re [Company

Petition No. 894 of 2002] while deciding the legality of swap share ratio discussed

the judgement of Hindustan Lever (Supra) and held that:

"It is clear from the observations that if any objection is raised before the company court to the swap ratio of shares, the enquiry that the court has to make is whether it is contrary to any law, whether the valuation is carried out by an independent body and to find out whether it can be said that the ratio is unfair. The court has to see how the members who are the best judges of their own interest have voted on the resolution. So far as the present case is concerned, it is nobody's case that the swap ratio is contrary to any law. It is also nobody's case that the experts who submitted the valuation report were not independent so far as the question of fairness is concerned. It is clear from the material produced on record that 99.94 percent of the

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 41 of 46 42

shareholders have voted in favour of the resolution and therefore, in my opinion, when 99.94 per cent, of the shareholders find that the swap ratio is not unfair, this court would not be justified in interfering with the same".

(Emphasis supplied)

44. In the present case valuation has been done by two independent experts

using DCF method which is universally accepted and recognised for valuation of

shares. No objection/comment regarding competence of valuers is made by any

concerned party. A Category I Merchant Banker has affirmed the share-swap

ratio. It is nobody's case that valuation is contrary to any law. There is no

evidence of fraud or malafides on the part of persons undertaking the valuation.

The shareholders have approved the Scheme with overwhelming majority of

nearly 100%. The creditors have also approved the Scheme with nearly 100%

majority. The amalgamating companies have numerous real estate projects and

it was only in one project that the joint venture partner had acquired lesser land

area. The amalgamating Transferor company is only a developer in this project

and was informed later about lesser acquisition of land, after the valuation was

done. The valuation has been done under DCF method, which is concerned more

about future income than assets of the company. In any case, the profit sharing

ratio with joint venture partner (Cornerstone Group, which is an independent

unrelated group), was subsequently revised in favour of Embassy Group to

ensure similar cash flow. In the conspectus of facts of this case enumerated

above, we hold that learned NCLT had no grounds to reject the scheme on the

issue of valuation or share swap ratio.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 42 of 46 43

45. Though it does not find any mention in the order of Ld. NCLT, Chandigarh,

the issue of land regarding Concord India Pvt. Ltd. has been raised by the

objector before this Tribunal. The Appellant in their submissions dated

24.09.2024 have clarified that land in question was very much in possession of

the Embassy group as on the date of valuation and continues to remain with the

group. It was clarified that writ petition was filed before the Hon'ble Karnataka

High Court, wherein Hon'ble Court directed Karnataka Industrial Areas

Development Board (KIADB) to conduct enquiry into alleged violation of lease

terms by Concord India Pvt. Ltd., which is subsidiary of NAMEPL. It was

submitted that KIADB concluded the enquiry and passed the order dated

03.09.2024 under Section 34(B) of KIADB Act 1966 which is entirely in favour

of Concord India Pvt. Ltd. (now known as Embassy East Business Pvt. Ltd., for

short 'EEBPL'). This order of KIADB has been challenged before the Hon'ble High

Court of Karnataka and it is still pending. Since this land and the land holding

company are not part of the present scheme of amalgamation, it is not likely to

effect the approval of the scheme. Interestingly, this issue was also raised before

Ld. NCLT Bangaluru, wherein it was held as under:

"It is to be seen that even according to the KIADB, the original Allottee M/s. Steyr India Ltd.*, now known as M/s. Embassy East Business Park Pvt. Ltd. is neither the Petitioner in the instant C.P. nor the Petitioners in the C.P. sought for any reliefs with regard to the properties or claims of the said Allottee. Even otherwise as ordered hereinunder, upon approving, the scheme does not confer any additional right, authority or power to the amalgamated company or does not take away the right, power or authority of any other company or person or statutory body vis a vis any of the Petitioner Companies. Hence, there is no impediment in approving the scheme".

(*Steyr India Ltd. is earlier name of Concord India Pvt. Ltd.)

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 43 of 46 44

The said order of NCLT Bangaluru, was not challenged by the objector or any

other party.

46. We note that Ld. NCLT, Bengaluru had already approved the Scheme viz.

a viz. Transferor Companies. The Cornerstone Project and the Concord land

issue were of the Transferor Companies, in whose case approval to the Scheme

of amalgamation has already been granted by the Ld. NCLT, Bengaluru.

47. In conclusion, on going through the facts of this case and guidelines

provided by various judicial pronouncements cited above, we find that in the

present case 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 revision of profit-sharing ratio of Cornerstone

Project which has ensured that there is no variation in the cash flow in the

project. Statutory Auditors have confirmed that the Scheme is in compliance

with applicable Indian Accounting Standards. The Scheme has been approved

by overwhelming majority of nearly 100% shareholders and 100% of the

creditors, and that the Scheme has already been approved by Ld. NCLT,

Bengaluru with reference to the Transferor Companies. We note the judicial

guidance that approval by overwhelming majority of shareholders indicates

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 44 of 46 45

fairness of the Scheme, and that in normal course, the Tribunal should not

interfere in the valuation done by the experts using one of the standard

prescribed valuation method. We also note that no objection was raised against

the Scheme by the Regulatory bodies like Competition Commission of India,

Central Government through Regional Director, MCA, Registrar of Companies,

Security Exchange Board of India, Bombay Stock Exchange, and National Stock

Exchange. We also note that Income Tax Department had initially raised the

objection but had later left the approval of the Scheme at the discretion of the

Tribunal, stating that in case scheme is approved, Revenue's interests be

protected. The Revenue's interests are protected in the Scheme and as noted in

para - 11 supra the Transferee company has undertaken to bear the tax

liabilities, and the proceedings, against the Transferor companies can be

continued against the transferee company.

48. 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. We make it clear that the Income Tax Department shall

be at liberty to take any or all action to protect the interests of Revenue. The

companies involved in the Scheme of amalgamation are directed to ensure that

all compliances consequent to the amalgamation are made. Accordingly,

Company Appeal (AT) No. 215-216 of 2023 filed by the Objector is dismissed and

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 45 of 46 46

Company Appeal (AT) No. 120 of 2023 is allowed. All application(s), if pending,

are closed. No order as to costs.

[Justice Yogesh Khanna] Member (Judicial)

[Mr. Ajai Das Mehrotra] Member (Technical)

Place: New Delhi Dated: 07.01.2025 R.S/R.N/S.R.

Company Appeal (AT) Nos. 120/2023 and 215-216/2023 Page 46 of 46