NCLT Chennai Approves Lancor Group Amalgamation, Rejects Objections On Alleged Diversion Of Funds

The Chennai Bench of the National Company Law Tribunal (NCLT) on 27 April held that objections relating to alleged diversion of funds, an ante-dated appointed date, and shareholding structure cannot defeat an otherwise compliant scheme of amalgamation under Section 232 of the Companies Act, 2013, where no prejudice to stakeholders is demonstrated.

The Bench comprising Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam approved the amalgamation of Lancor Maintenance and Services Limited with Lancor Holdings Limited. It held:

“After analyzing the Scheme in detail, this Tribunal is of the view that the Scheme as contemplated amongst the Petitioner Companies seems beneficial to the Companies and will not be in any way detrimental to the interest of the shareholders of the Companies.”

Lancor Maintenance and Services Limited (Transferor Company) is a wholly owned subsidiary of Lancor Holdings Limited (Transferee Company), a listed entity engaged in real estate. The transferor company carries out maintenance services, while the transferee company undertakes real estate business.

The companies stated that the amalgamation was intended to consolidate operations, improve efficiency, reduce layered shareholding structures, and enable better utilisation of resources.

Earlier, the Tribunal had dispensed with meetings of shareholders and creditors and directed issuance of notices to statutory authorities including the Regional Director, Registrar of Companies, Official Liquidator, and Income Tax Department.

The Official Liquidator raised objections alleging an ante-dated appointed date of 01 April 2024, diversion of funds through cancellation of inter-company balances, and concerns regarding shareholding, noting that the transferee directly held 99.30% shares in the transferor company.

The companies submitted that the appointed date was fixed for commercial and accounting convenience and did not confer any tax advantage. They further stated that the inter-company balances reflected bona fide transactions and that remaining shares were held by nominee shareholders on behalf of the transferee.

Rejecting the objection on the appointed date, the Tribunal held that no prejudice or public interest concern was established. It observed:

“It is also observed that the ante-dating of the Appointed Date is not so significant as to warrant interference.”

On allegations of diversion of funds, the Tribunal held:

“Transactions between a wholly owned subsidiary and its holding company are not impermissible, provided they comply with applicable legal and accounting principles and are at arm's length transactions. The cancellation of the said advance pursuant to the Scheme is by operation of law and cannot be equated with declaration or payment of dividend under the Companies Act, 2013. In the absence of any material to substantiate diversion of funds or illegality, the objection does not survive.”

On the scope of scrutiny under Section 232, the Tribunal further observed:

“Any investigation into the commercial viability of the Scheme beyond the compliance with criteria envisaged under Section 232(1)(b) would be outside the scope of the Tribunal since the same lies within the domain of the shareholders.”

The Tribunal also accepted the explanation regarding shareholding structure, holding that the remaining shares were held by nominee shareholders and that the transferor company functioned as a wholly owned subsidiary.

Accordingly, the NCLT approved the scheme of amalgamation.

For Petitioner: Advocate Pawan Jabhakh

For Regional Director: Advocate Avinash krishnan Ravi

For Official Liquidator: Pola Raghunathan

For Income Tax Department: Advocate Raj Jhabakh