The National Company Law Tribunal (NCLT) has rejected a merger application involving three companies, citing serious concerns about the legality of the proposed amalgamation. According to the tribunal, the merger aimed to "legitimize paper transactions" to artificially inflate share values, evade taxes, and facilitate money laundering.
The decision, delivered by Members Harnam Singh Thakur and Subrata Kumar Dash, follows the income tax department's claims that a significant tax demand was pending against the transferee company. The department had reopened the case under Section 147 of the Income Tax Act, describing the transferee company as a “conduit paper company” engaged in dubious transactions.
The NCLT's review revealed that the financial activities of the applicant companies supported the income tax department's view that the transactions were mere “accommodation entries” controlled by a single individual. The tribunal concluded that the merger did not meet its stated objectives, such as synergy or cost reduction, and deemed the scheme "unfair, unreasonable, and not in the public interest." As a result, the merger could not be approved.
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