NCLT Sanctions Real Estate Merger Under Sections 230-232, Upholding Commercial Wisdom Despite Negative Net Worth and Regulatory Queries - 2025-09-21

NCLT Greenlights Merger of Galleria Retail into R Retail Ventures, Emphasizes Commercial Wisdom

Mumbai - The National Company Law Tribunal (NCLT), Mumbai Bench, has sanctioned the Scheme of Merger by Absorption of Galleria Retail Private Limited into R Retail Ventures Private Limited. The order, pronounced by a bench comprising Member (Judicial) Smt. Lakshmi Gurung and Member (Technical) Shri Hariharan Neelakanta Iyer, reinforces the principle that the commercial wisdom of shareholders is paramount, provided the scheme is fair, reasonable, and not contrary to public policy.

The Tribunal approved the merger despite observations from regulatory bodies concerning the transferor company's negative net worth and compliances related to the real estate sector.

Background of the Merger

The petition was filed under Sections 230 to 232 of the Companies Act, 2013, seeking approval for the amalgamation of Galleria Retail Private Limited (Transferor Company) with R Retail Ventures Private Limited (Transferee Company), effective from the appointed date of October 30, 2023. Both companies, engaged in the real estate business, are part of the same group.

The stated rationale for the merger included consolidating similar businesses to achieve synergies, simplifying the corporate structure, reducing managerial overlaps, and lowering administrative and compliance costs.

As per the scheme, shareholders of Galleria Retail will be issued 528 fully paid-up equity shares in R Retail Ventures for every 1 equity share held.

Regulatory Scrutiny and Company Undertakings

The scheme underwent scrutiny by the Regional Director (RD) and the Official Liquidator (OL), who raised several pertinent observations.

• Negative Net Worth: The Official Liquidator noted that as of March 31, 2024, the Transferor Company had a negative net worth. In response, the companies argued that there is no provision in the Companies Act, 2013, that prohibits a company with a negative net worth from undergoing a merger. The Tribunal accepted this clarification, noting the company would be dissolved without winding up into a financially sound entity.

• RERA Compliance: Given that both entities are in the real estate sector, the Regional Director sought confirmation of compliance with the Real Estate (Regulation and Development) Act, 2016 (RERA). The companies confirmed they had served notice to MahaRERA and submitted that since the promoters remain the same and the Transferor Company has no registered projects, prior RERA approval was not necessary. They also confirmed that all 1571 flat/unit buyers of the Transferee Company had been notified of the scheme.

• Securities Premium Account: The RD raised a detailed query regarding a securities premium of over ₹363 crore in the Transferee Company's books. The company provided a comprehensive explanation, linking the premium to the conversion of Compulsorily Convertible Preference Shares (CCPS) and their fair valuation as per Indian Accounting Standards (IND AS).

The companies provided undertakings to comply with all observations, including those related to accounting standards, stamp duty, and income tax provisions.

Tribunal's Observations and Ruling

The NCLT, in its order, systematically addressed the regulatory concerns and found the petitioners' responses and undertakings satisfactory.

The bench made it clear that while it may not delve into the intricacies of a valuation report, which is the domain of experts, it must be satisfied with its fairness and reasonableness. The petitioners submitted an additional affidavit detailing the valuation methodology—Discounted Cash Flow for the Transferee Company and Net Asset Value for the Transferor Company—which the Tribunal accepted.

Citing the landmark Supreme Court decision in Miheer H. Mafatlal vs. Mafatlal Industries Ltd , the bench reiterated the established legal principle:

"It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court.”

Finding no legal impediments and determining the scheme to be fair and not contrary to public interest, the Tribunal sanctioned the merger.

Final Decision and Directives

The NCLT sanctioned the Scheme of Merger with the appointed date of October 30, 2023. Key directives in the final order include:

• The Transferor Company, Galleria Retail Private Limited, shall be dissolved without being wound up.
• The approval does not grant any exemption from applicable taxes or stamp duties.
• All pending legal proceedings by or against the Transferor Company shall continue by or against the Transferee Company.
• Regulatory authorities, including the Income Tax Department, are free to initiate or continue proceedings against the Transferee Company for any past violations of the Transferor Company.

The ruling provides a clear pathway for corporate restructuring, underscoring that regulatory concerns can be effectively addressed through transparent clarifications and binding undertakings, without hindering commercially prudent business decisions.