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The National Company Law Tribunal (NCLT) has blocked the proposed merger of three companies, citing serious concerns about tax evasion and money laundering. The tribunal deemed that the merger was designed to legitimise dubious transactions, evade taxes, and facilitate money laundering.
In a detailed ruling, members Harnam Singh Thakur and Subrata Kumar Dash criticised the merger, stating it aimed to validate questionable transactions and artificially inflate the transferee company’s share value to avoid tax payments. They described the merger as a vehicle for money laundering.
The Income Tax Department had raised alarms, revealing significant tax demands pending against the transferee company and noting its case had been reopened under Section 147 of the Income Tax Act. The department labelled the transferee company as a ‘conduit paper company.’
The tribunal’s review of the applicant companies’ financial transactions supported the tax department’s claims, suggesting that the entries were merely accommodation entries among companies controlled by a single individual.
The NCLT concluded that the merger failed to meet its claimed objectives of synergy and cost reduction, declaring it ‘unfair, unreasonable, and not in the public interest.’ As a result, the tribunal has rejected the proposed scheme.
