Merger Sanction Does Not Extinguish Tax Recovery Rights: NCLT Chennai

In re Dr. Agarwal’s Eye Hospital Limited (NCLT Chennai)

Summary: The NCLT Chennai, Division Bench I, sanctioned the scheme of amalgamation of Dr. Agarwal’s Eye Hospital Limited, the transferor company, with Dr. Agarwal’s Health Care Limited, the transferee company, under Sections 230 to 232 of the Companies Act, 2013. The scheme sought to consolidate the companies’ businesses, improve operational and financial efficiencies, integrate capital allocation, simplify their corporate structure and create shareholder value. Following the first-motion order dated 5 May 2026, shareholder and creditor meetings were held on 2 July 2026. The second-motion petition was filed on 8 July 2026, followed by notices to statutory authorities and newspaper publications.

The Tribunal examined the reports of the Regional Director, Registrar of Companies, Income Tax Department and Official Liquidator, together with the petitioners’ responses. Regarding differences between secured-creditor certificates and charges appearing on the MCA portal, the petitioners explained that certain charges arose after the certificate’s cut-off date of 31 December 2025 and that another charge concerned a corporate guarantee rather than a secured borrowing. Taking account of these explanations and undertakings to honour liabilities, the Tribunal considered further directions unnecessary. It also recorded undertakings concerning continuing liability for offences and adjustment of authorised-capital fees.

The Income Tax Department did not object to the amalgamation subject to preservation of its statutory rights and the transferee company’s responsibility for existing and future tax liabilities. The transferee undertook to intimate the relevant tax authorities, make necessary PAN and address-database changes, comply with lawful proceedings and refrain from using the amalgamation as a technical weapon to challenge such proceedings. The Tribunal expressly preserved the Department’s liberty to undertake appropriate recovery proceedings in accordance with law. These observations did not grant any exemption from taxes, stamp duty or other statutory charges.

The scheme provided for issuance of 23 fully paid equity shares of the transferee company, of ₹1 each, for every two fully paid equity shares of the transferor company, of ₹10 each. The statutory auditors certified the scheme’s accounting treatment as compliant with applicable Indian Accounting Standards; the scheme prescribed the pooling of interest method under Appendix C of Ind AS 103. The Tribunal retained 1 April 2026 as the appointed date. It found the scheme beneficial to the companies and not detrimental to shareholders, while clarifying that sanction would not prevent lawful action for any statutory violation.

The operative directions transferred the transferor’s business, assets, debts, liabilities, duties and obligations to the transferee; provided for the prescribed share allotment; continued pending proceedings against or by the transferee; and protected employee continuity without interruption of service. The companies were directed to deliver a certified copy of the order to the Registrar of Companies within thirty days of receipt. The order also provided for dissolution of the transferor without winding up, filing of revised constitutional documents, payment of differential authorised-capital fees where applicable, and payment of ₹35,000 plus applicable GST to the Official Liquidator towards the investigating auditor’s fees. The petition was disposed of subject to these directions.

Cases Discussed

• Order in Company Petition CAA-284/ND/2018, dated 12.11.2018 (NCLT New Delhi) — The order reproduced its observations preserving the Income Tax Department’s right to recover statutory dues notwithstanding sanction of a scheme of amalgamation. The supplied source does not identify the parties.
• Department of Income-tax v. Vodafone Essar Gujarat Limited, (2016) 66 taxmann.com 374 (Supreme Court), order dated 15.04.2015 — In the passage reproduced from the NCLT New Delhi order, the Supreme Court’s order declining the Revenue’s special leave petitions was referred to as preserving appropriate proceedings for recovery of statutory dues from persons liable to pay them.
• Vodafone Essar Gujarat Limited v. Department of Income Tax, (2013) 353 ITR 222 (Gujarat High Court) — Cited within the reproduced NCLT New Delhi observations concerning protection of the Income Tax Department’s recovery rights.
• Marshall Sons & Co India Ltd v. Income Tax Officer, AIR 1997 SC 1763; MANU/SC/0407/1997 (Supreme Court) — The Income Tax Department relied on paragraph 17, which left it open to tax authorities to question an alleged tax-avoidance device through separate proceedings according to law.

FULL TEXT OF THE NCLT JUDGMENT/ORDER

1. This Joint Company Petition has been filed by DR. AGARWAL’S EYE HOSPITAL LIMITED (hereinafter referred as 1st Petitioner Company / Transferor Company), and DR. AGARWAL’S HEALTH CARE LIMITED (hereinafter referred as 2nd Petitioner Company / Transferee Company) under Section 230-232 of the Companies Act, 2013, and other applicable provisions of the Companies Act, 2013 read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (for brevity ‘the Rules’) for approval of Scheme of Arrangement (hereinafter referred to as the ‘SCHEME’) proposed between the Petitioner Companies. The Scheme is appended as “Annexure – 15” at Page Nos. 472-504 of the Petition typeset.

2. 1ST MOTION APPLICATION

2.1 The Petitioner Companies had filed First Motion Application vide CA (CAA) / 19 (CHE) / 2026 and sought directions for Dispensation/ Convening the meeting of its Members/ Shareholders and Creditors regarding approval of the proposed Scheme, which are extracted as follows:

2.2 Based on the submissions, this Tribunal vide Order dated 05.05.2026 ordered for convening the meeting of Equity Shareholders, Creditors and Unsecured Creditors of both the companies. The report is reproduced as follows:

2.3. Subsequently, the second motion petition was filed before this Tribunal by the Petitioner Companies on 08.07.2026 for sanction of the Scheme of Arrangement (Amalgamation).

3. SCHEME SUMMARY

The Scheme provides for the Amalgamation between DR. AGARWAL’S EYE HOSPITAL LIMITED With DR. AGARWAL’S HEALTH CARE LIMITED their respective Shareholders and Creditors. Both the Petitioner Companies come under the jurisdiction of this Tribunal.

4. RATIONALE OF THE SCHEME

The rationale and benefits of the Scheme are briefed in Clause C of the Scheme as follows,

RATIONALE FOR THE SCHEME OF AMALGAMATION:

The Amalgamation will result in the consolidation of the business of the Companies into a single entity and will inter alia result in the following benefits:

Operational and financial efficiencies:

(i) integration of operations leading to more efficient and economical management of the business;

ii) streamlined functions, standardized protocols, enhanced operational, organizational and financial efficiencies and transparency, and achieving economies of scale by pooling of resources;

Integrated Capital Allocation for Stronger Growth:

(i) a unified capital structure will allow for a more efficient allocation of capital and resources, and will also enable prioritization of strategic investments;

(ii) more efficient management of working capital and cash flows by optimizing the use of existing cash balances and providing unrestricted access to combined cash resources, which can be strategically deployed for growth and continued operations;

Simplified Legal, Regulatory and Governance Framework:

(i) dedicated, specialized management focus on a single entity, fostering agility and enabling strategic alignment;

(ii) consolidation of administrative and managerial functions and elimination of multiple record-keeping, inter alia other expenditures and optimal utilization of resources;

Shareholder Value Creation:

(i) accretion in terms of earnings per share from the first year of the implementation of the Scheme that will benefit all the stakeholders of AHCL and AEHL, leading to opportunity for growth and value creation in the long run and maximizing the value and returns to the shareholders;

(ii) alignment of interest of all stakeholders of both Companies and streamlining of the corporate structure.”

This Scheme provides for various other matters consequential or otherwise integrally connected herewith.

5. In the second motion Petition filed by the Petitioner Companies, this Tribunal vide order dated 15.07.2026 directed the Petitioner Companies to issue notice to the Statutory / Regulatory Authorities and to issue paper publication.

6. In compliance with the directions issued by this Tribunal, the Petitioner Companies effected paper publications in “Business Standard” in English (All India Edition) and “Makkal Kural” in Tamil (Tamil Nadu Edition) on 20.07.2026.

7. It is also seen that notices have been served to

Pursuant to the service of notice of the petition, the following statutory authorities have responded:

1. Regional Director, Southern Region, Chennai

2. Registrar of Companies, Chennai

3. Income Tax Department

4. Official Liquidator

8. STATUTORY / REGULATORY AUTHORITIES

8.1. REGIONAL DIRECTOR

8.1.1. The Regional Director (RD), Southern Region to whom the notice was served, has filed its report on 12.08.2026 and has expressed its ‘Observations’. The same are as follows,

8.1.2 The relevant observations, response and the analysis by the tribunal are tabulated as under:

8.2. INCOME TAX DEPARTMENT

8.2.1 It is stated that the requirement to send notice to the concerned department is a procedural requirement and as such does not impact the right of the Department to proceed in accordance with the provisions of the Income Tax Act, 1961. It is prayed that this Tribunal may take the report on record without prejudice to the rights of the Department to take all appropriate proceedings under the provisions of the Income Tax Act, 1961 to protect the interest of the government including the right to reopen the assessment. Therefore, by way of filing of this memo and the report, the Income Tax Department shall not have deemed to waive its rights to undertake all proceedings under the Income Tax Act, 1961.

8.2.2 It is stated that the office has no objections to the proposed scheme of amalgamation, subject to the condition that all existing and future tax liabilities of the amalgamating company shall be borne by the amalgamated company in accordance with the provisions of Income Tax Act. The letter to this effect is reproduced as under:

5. In this regard, this office conveys no objection to the scheme of amalgamation subject to the condition that the scheme of arrangement should not flout any provisions of Income Tax Act, 1961/ 2025 and any rules under Income Tax Rules, 1962 / 2026 and subject to fulfilment of conditions specified in scheme of amalgamation. If any part of the scheme is found to be repugnant to the Income tax Act 1961 / 2025 and Income Tax Rules, 1962 / 2026 the same is to be treated as void ab initio. The Department also requests that the transferee company M/s. Dr. Agarwal’s Health Care Limited shall discharge all its responsibilities and liabilities emanating in respect of the proceedings pending/completed/likely to arise in respect of Transferor Company.

8.2.3 The Income Tax Department has filed its report on 25.07.2026 and has expressed its ‘Observations’ as follows:

8.2.4 It is stated that the Income Tax Department reserves its right to proceed against the Petitioner Companies through independent proceedings under the provisions of the Income Tax Act, 1961 and pass orders in accordance with law. Reliance is placed on the judgement of the Hon’ble Supreme Court in Marshall Sons & Co India Ltd Vs Income Tax Officer (AIR 1997SC1763 & MANU/SC/0407/1997). The para 17 of the Judgement is extracted as under:

“17. We, however, make it clear that we have not expressed any opinion on the plea of the learned Counsel for the Revenue that the amalgamation itself is a device designed to evade the taxes legitimately payable by the subsidiary company. If the Income Tax authorities think that, they are entitled to raise this question in the proceedings under the Income Tax Act, it is open to them to do so by way of a separate proceeding according to law.“

(emphasis supplied)

8.2.5 It is stated that in line with the judgment of Hon’ble Supreme Court, the Income Tax Department reserves its right to proceed against the Petitioner Companies through independent proceedings under the provisions of the Income Tax. It is reiterated that filing of the present memo shall not in any manner amount to waiving its rights to proceed against the Petitioner Companies and pass orders in accordance with law.

8.2.6 In Company Petition CAA-284/ND/2018 vide Order dated 12.11.2018, the NCLT New Delhi has made the following observations with regard to the right of the IT Department in the Scheme of Amalgamation,

“taking into consideration the clauses contained in the Scheme in relation to liability to tax and also as insisted upon by the Income Tax and in terms of the decision in RE: Vodafone Essar Gujarat Limited v. Department of Income Tax (2013)353 ITR 222 (Guj) and the same being also affirmed by the Hon’ble Supreme Court and as reported in (2016) 66 taxmann.com.374(SC) from which it is seen that at the time of declining the SLPs filed by the revenue, however stating to the following effect vide its order dated April 15,2015 that the Department is entitled to take out appropriate proceedings for recovery of any statutory dues from the transferor or transferee or any other person who is liable for payment of such tax dues, the said protection be afforded is granted. With the above observations, the petition stands allowed and the scheme of amalgamation is sanctioned.”

8.2.7 Hence, the Income tax Department is at liberty to undertake appropriate recovery proceedings in accordance with law.

8.3. OFFICIAL LIQUIDATOR

8.3.1 The Official Liquidator to whom the notice was served, has filed its report on 13.08.2026 and has expressed its ‘Observations’. The petitioners have also filed the reply. A table showing the Report, Compliance and Observations is as under:

8.3.2 The Official Liquidator has sought to take on record the above report and consider the report of the Chartered Accountant. He has also sought to fix the remuneration payable to the Auditor who has investigated into the affairs of Transferor Company. In this regard, this Tribunal directs the Transferor Company to pay a sum of Rs. 35,000/- + GST (Rupees Thirty-Five Thousand Plus GST if applicable) to the Official Liquidator for the payment of fees payable towards the Auditor who has investigated into the affairs of the Transferor Company.

9. ACCOUNTING TREATMENT

The Statutory Auditors have examined the Scheme and certified that the Accounting Treatment contained in the proposed Scheme of Arrangement is compliant with the Applicable Indian Accounting Standards. The Certificate issued by the Statutory Auditors certifying the Accounting Treatment of the Petitioner Companies is placed at Annexure 25 of the typed set.

10. VALUATION

The Petitioner Companies have filed Share Exchange Ratio Report obtained from a Registered Valuer, namely, Bansi S. Mehta Valuers LLP, with Registration No. IBBI/RV-E/06/2022/172. The report dated 26.08.2025 is placed as Annexure 22 of the Petition typeset. The Valuation Approach and the Share Entitlement Ratio Analysis of the Independent Valuer are extracted hereunder for reference,

“23 (Twenty-Three) equity shares of AHCL (of INR 1/- each fully paid up) for every 2 (Two) equity shares of AEHL (of INR 10/-each fully paid up).”

The computation of fair equity share entitlement ratio as derived by BSM for amalgamation of AEHL into AHCL, is given below:

11. With respect to the Appointed Date of the Scheme, it is noted that Clause 4 stipulates the Appointed Date as 01.04.2026. The application in CA(CAA)/19(CHE)/2026 came to be filed before this Tribunal on 04.03.2026.

11.1.3 As per MCA General Circular No. 09/2019, if the chosen appointed date precedes the date of filing the application for the Scheme with the NCLT by more than one year, the specific justification for doing so must be adequately disclosed in the Scheme. The same is extracted as follows:

“c) where the ‘appointed date’ is chosen as a specific calendar date, it may precede the date of filing of the application for scheme of merger/amalgamation in NCLT. However, if the ‘appointed date’ is significantly ante-dated beyond a year from the date of filing, the justification for the same would have to be specifically brought out in the scheme and it should not be against public interest.”

11.1 Hence, the Appointed Date shall remain as 01.04.2026, as specified in Clause 2(E)(d) of the Scheme.

12. After analysing 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. In the absence of any other objections having been placed on record, this Tribunal sanctions the Scheme as well as the prayer made therein.

13. Notwithstanding the above, if there is any deficiency found or, violation committed qua any enactment, statutory rule or regulation, the sanction granted by this Tribunal will not come in the way of action being taken, albeit, in accordance with law, against the concerned persons, directors and officials of the petitioners.

14. While approving the Scheme as above, it is clarified that this order should not be construed as an order in any way granting exemption from payment of stamp duty, taxes or any other charges, if any, payment is due or required in accordance with law or in respect to any permission/compliance with any other requirement which may be specifically required under any law.

15. THIS TRIBUNAL DO FURTHER ORDER

(i) That the entire business and undertaking of the Transferor Company shall, under the provisions of Section 230 to 232 of the Companies Act, 2013, without further act or deed, be transferred to and vest in or be deemed to have been transferred and vested in the Transferee Company.

(ii) That all the assets of the Transferor Company shall be transferred to the Transferee Company, without further deed or instrument of conveyance and accordingly the same become the property of the Transferee Company.

(iii) That all the debts, liabilities, duties and obligations of the Transferor Company shall be transferred to the Transferee Company and accordingly the same become the liabilities and duties of the Transferee Company.

(iv) That the Transferee Company do without further application allot to such members of the Transferor Company, as have not given such notice of dissent, as is required by Clause 18.1 of the SCHEME herein the shares in the Transferee Company to which they are entitled under the said Scheme.

(v) That the Appointed date for the Scheme shall be 01.04.2026 as mentioned in Clause 2(E)(d) of the Scheme.

(vi) That all proceedings now pending by or against the Transferor Companies be continued by or against the Transferee Company.

(vii) That all the employees of the Transferor Company in service from the Appointed Date till the date on which the Scheme finally takes effect, shall become the employees of the Transferee Company without any break or interruption in their service.

(viii) That the Transferee Company shall file the revised Memorandum and Articles of Association with the Registrar of Companies and further make the requisite payments of the differential fee (if any) for the enhancement of authorized capital of the Transferee Company after setting off the fees paid by the Transferor Company.

(ix) That the Transferor Company and the Transferee Company, shall within thirty days of the date of receipt of this order cause a certified copy of this order to be delivered to the Registrar of Companies for registration. That as per Clause 23) of the Scheme, on such certified copy being so delivered, the Transferor Company shall be dissolved without the process of winding up and the Registrar of Companies shall place all documents relating to the Transferor Company registered with him on the file kept by him in relation to the Transferee Company and the files relating to the said company shall be consolidated accordingly.

(x) That any person interested shall be at liberty to apply to the Tribunal in the above matter for any directions that may be necessary.

16. The Scheme is approved subject to the directions issued above.

17. Company Petition CP(CAA)/57(CHE)2026 in CA(CAA)/19(CHE)2026 accordingly, stands disposed of on the aforementioned terms.