The Bengaluru Bench of the National Company Law Tribunal (‘NCLT’) has refused to sanction a Scheme of Amalgamation under sections 230 to 232 of the Companies Act, 2013 involving four companies belonging to the same promoter group and operating in thereal estate sector.
The order is significant because the Tribunal did not confine its review to procedural compliance under the Companies Act. It examined the voting outcome of secured creditors, compliance with the Income-tax Act, the substantive tax effect of consolidating profitable and loss-making entities, and the insolvency exposure of the Transferee Company. On a cumulative assessment, the Tribunal held that the Schemewas opposed to publicpolicy.
BACKGROUND AND PROPOSED RESTRUCTURING1
- TheSchemecontemplated the amalgamation of Maniveera Structure Private Limited, Meru Parvat Structure Private Limited and Metrik Infraprojects Private Limited (“Transferor Companies”) into JainHeights andStructures PrivateLimited (“Transferee Company”).
- The four companies were engaged in similar real estate and infrastructure activities, operated from the same premises and were ultimately controlled by the same promoter group. The Scheme specified 1 April 2024 as the Appointed Date. Upon the Scheme becoming effective, the Transferor Companies would stand dissolved without winding up.
- The petitioner companies stated that the amalgamation would consolidate operations, pool manpower and financial resources, eliminate inter-company transactions and cross billing, reduce administrative duplication, improve governance and strengthen the asset andrevenuebase oftheresulting entity.
TRIBUNAL’S ANALYSIS: GROUNDS FOR REJECTION
- OppositionbySecuredCreditors:
- The meeting of the secured creditors of the Transferee Company resulted in 69% in value voting againstthe scheme and only 31% votingin favour.
- The Tribunal observed that the opposition of the secured creditors indicated that the arrangement maynothavebeenconsidered to be in their interest.
- Income-taxconsiderations:
- TheIncome-tax Department (“ITD”) raised concerns regarding the non-filing of income tax returns by the petitioner companies for AY 2025-26 and the substantive tax effect of the proposed consolidation.
- According to the ITD, if the companies had filed separate returns, the profitable entities would have incurred an aggregate tax liability of approximately INR 6.90 crore. Instead, the petitioner companies proposed to undertake the relevant filings after sanction of the Scheme, taking into account the Appointed Date of 1 April 2024. The petitioner companies disputed any tax-avoidance intent and maintained that the Scheme was driven by bona fide commercial considerations.
- The NCLT observed that the pendency of the Scheme did not dispense with the statutory obligation to file returns. It further held that a modified return under section 170A of the Income-tax Act, 1961 (“the Act”) presupposes the filing of an original return under section 139 of the Act. Since the petitioner companies had not filed their original returns for AY 2025-26, their proposed post-merger return-filing approach could not be implemented through section 170A of the Act. The NCLT regarded this non-compliance with the Income-taxActas aviolation ofpublic policy.
- The NCLT also noted that two Transferor Companies had positive income, while the third Transferor Company and the Transferee Company had net business losses. The proposed consolidation would result in an overall net business loss of approximately INR 26.41 crore. On the basis of the financial position of the petitioner companies, the NCLT observed that the proposed consolidation would result in a loss-making entity and that the concerns raised by the ITD stood vindicated. Although the ITD had also referred to the potential applicability of GAAR, the NCLT’s findings did not specifically deal with this issue.
TRIBUNAL’S ANALYSIS: GROUNDS FOR REJECTION (CONTD.)
- Pendinginsolvencyproceedings
- Asection 7 application under the Insolvency and Bankruptcy Code, 2016, involving a claim of approximately INR 14.75 crore plus interest, was pending against the Transferee Company.
- Although the petitioner companies submitted that the pendency of the application should not preclude sanction of the Scheme, the NCLT observed that the amalgamation would expose the Transferor Companies, including profit-making entities, to the insolvency risk associated with the Transferee Company. The NCLT considered this consequence to becontrary to public policy.
TRIBUNAL’S DECISION
- On a cumulative consideration of the opposition by secured creditors, non-compliance with the return-filing framework under the Income-tax Act, the tax consequences of consolidating profitable and loss-making entities, and the insolvency proceedings pending against the Transferee Company, the NCLT held that the Scheme was opposed to public policy.
- Accordingly, the NCLT refused to sanction the Scheme and dismissed the amalgamation petition.
AURTUS COMMENTS
- Theruling demonstrates that the NCLT’s review of a Scheme under sections 230 to 232 of the Companies Act is not limited to procedural compliance or the commercial rationale presented by the applicants. The NCLT may also consider the interests of creditors, compliance with other applicable laws and the wider consequences of the proposed restructuring.
- Where a restructuring involves profitable and loss-making entities, the commercial rationale should be clearly documented and capable of being demonstrated independently of any resulting tax benefit. At the same time, the ruling should not be read as laying down that every amalgamation resulting in the utilisation of losses constitutes tax avoidance. In the present case, the tax consequences were considered together with the applicants’ return-filing defaults and the other concerns identified by the NCLT.
Footnote
1 Order dated 16 September 2026 in CP (CAA) No. 46/BB/2025, National Company Law Tribunal, Bengaluru Bench.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]