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Showing contexts for: Embassy Group in Indiabulls Real Estate Limited Ors vs Department Of Income Tax on 7 January, 2025Matching Fragments
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 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.
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 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.
(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.