The National Company Law Tribunal (NCLT), Chandigarh Bench, delivered a significant judgment on July 23, 2024, regarding the joint second motion company petition filed under Sections 230 to 232 of the Companies Act, 2013. The petition involved Hologram Holdings Private Limited and Swen Holdings Private Limited as transferor companies, with Sulphur Securities Private Limited acting as the transferee company.
NCLT rejected the application seeking approval of a scheme of merger between 3 companies, on finding that “…the proposed amalgamation…is aimed at legitimising the paper transactions carried out by the three applicant companies to artificially increase value of shares of the transferee company and thereby avoid payment of due taxes and to use this as a vehicle for money laundering.”, relies on NCLAT ruling in Wiki Kids and NCLT coordinate bench ruling in Gabs Investments;
The Income Tax Department submitted that a huge demand was pending against the Transferee co., and the case against it was reopened u/s 147 of the Income Tax Act, and that the Transferee Co. was a ‘conduit paper company’; Further, analysing the financial transactions of the Applicant cos. in detail, Tribunal observes, “The…narrations lend credence to the observation of the Income Tax Department that these are merely accommodation entries among a clutch of companies being controlled by one individual…”; In conclusion, NCLT holds that the present proposal for amalgamation doesn’t meet the objectives stated in the application itself, i.e. of providing synergy, cutting overhead costs, etc., and remarks, “This scheme, being unfair, unreasonable and not being in public interest cannot be sanctioned by this bench.”
For details, please refer the NCLT Chandigarh Bench order dated 23.07.2024:
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PDF version is attached: NCLT Rejects Merger Scheme Cites Tax Evasion and Money Laundering Concerns
