Indiabulls Real Estate Shares Decline 20% As NCLT Rejects Merger With Embassy Group

The National Company Law Tribunal's Chandigarh bench has refused to allow the real estate company Embassy Group to merge with Indiabulls Real Estate, which has caused a sharp 20% decline in the stock price of the Indiabulls group company.

The National Company Law Tribunal (NCLT) judgement is being challenged, and Indiabulls Real Estate (IBREL), based in Mumbai, stated it will consider all possibilities after reading the whole judgement before deciding on the next course of action.

In August 2020, the Embassy Group, a real estate company based in Bengaluru, finalized a merger agreement with IBREL. The agreement involved combining their residential and commercial projects through a scheme of amalgamation that did not involve cash transactions.

Embassy Group will become the promoter of the merged entity. Through a regulatory filing, IBREL informed that "the sanction to the merger of NAM Estates Pvt Ltd (NAM Estates) and Embassy One Commercial Property Developments Pvt Ltd (Embassy One) into IBREL has been withheld by the National Company Law Tribunal, Chandigarh Bench".

Indiabulls Real Estate's shares plunged 19.98% to close at Rs. 55.34 a share on the BSE. On the NSE, it dropped dramatically by 20% to close at Rs. 55.40 per piece, which was its lower circuit limit. The company's market value decreased by Rs 748.59 billion to Rs 2,997.63 billion.

IBREL reported that on April 22, 2022, the NCLT, Bengaluru Bench, which has jurisdiction over NAM Estates and Embassy One, approved the merger plan.

"However, the NCLT, Chandigarh Bench, which has jurisdiction over IBREL, had earlier raised certain concerns based on the objections cited by the Income Tax department to the merger.

"IBREL strongly believes that these objections and concerns were unfounded, unjustified and do not impact the merger in a significant manner and had accordingly addressed the same before the NCLT," the company said in the filing.

IBREL stated that it will wait for the complete ruling before determining the next course of action and that it will investigate all possibilities, including the earliest possible filing of an appeal against the NCLT, Chandigarh Bench, order to the National Company Law Appellate Tribunal (NCLAT). Jitu Virwani, the chairman of the Embassy Group, expressed unhappiness with the choice.

"We have provided all the necessary details and clarifications sought by the NCLT regarding the details of NAM Estates and Embassy One and have also meticulously addressed the objections cited by the Income Tax department, including giving an undertaking that any past tax issues will be borne by Embassy Group and not by the public shareholders of IBREL," Virwani said. However, he said, the NCLT has taken the extreme step of not approving the merger.

"This development is especially surprising, given that the merger already stands sanctioned by the NCLT, Bengaluru Bench, which has jurisdiction over NAM Estates and Embassy One and that other regulators, such as CCI, BSE, NSE, Regional Director and Official Liquidator have also approved the scheme," he said.

IBREL claimed in the regulatory filing that other regulators had also given their blessing to the merger, which had already won the unanimous backing of 99.9987 percent of the company's shareholders who had cast ballots.

"IBREL's board shall be meeting over the next day to chalk out its plan and strategy to move forward and shall communicate the same to all its stakeholders," the filing said. In February 2021, the Competition Commission of India (CCI) approved the proposed merger of Embassy Group firms -- NAM Estates Pvt Ltd and Embassy One Commercial Property Developments Pvt Ltd -- with IBREL.

Currently, Embassy Group owns about 14% of IBREL, but after the two firms' assets are merged, that percentage will rise to 45%. The merged company will have 80.8 million square feet of launched and anticipated development after the merger.

There will be roughly 30 projects under the combined company. The agreement stipulates that each share of IBREL is worth Rs 92.5. Located close to significant metropolitan areas, IBREL has a land bank of 3,280 acres. It is present in Delhi-NCR, Mumbai Metropolitan Region (MMR), Jodhpur, Vadodara, Vizag, and Indore, among six other cities.