Volteron

John Cockerill’s strategy for India is evolving, from serving as a regional technology provider into becoming the global strategic and execution hub for the Group’s entire Metals business. A major structural move is underway: consolidating John Cockerill’s global metals activities under an India-based listed entity, intended to improve focused, transparent operations aligned to growth.

We look at the transactions the group has undertaken and will take soon to make India the global hub of its entire Metals Business.

Transaction Overview

John Cockerill SA, Belgium (JCSA) is the parent company of the group under which all the other companies are under. JSCA created John Cockerill Metals International SA, Belgium (JCMI) under which it has first transferred it Europe and China Metal Business. This was done via transfer of 100% shares of John Cockerill UVK, Germany and John Cockerill Industry Technology China to JCMI.

Furthermore, there are 2 more transactions which are to be done.

In January 2026, the board of John Cockerill India (JCIL), a subsidiary of JCSA, approved acquisition of  JCMI via 100% equity buyout from its parent JSCA. Thus, JCMI will become 100% subsidiary of JCIL and the Europe and China business shall become step-down subsidiary.

In the near future, US affiliate John Cockerill North America transfers its shareholding in John Cockerill Industry North America to John Cockerill Metals International SA. This is planned to be carried out by December 2026.

The approval given by JCIL’s shareholders for the proposed acquisition of the global metals business of John Cockerill Group through acquisition of 100% equity stake in John Cockerill Metals International SA (JCMI) from its ultimate parent entity, John Cockerill SA, subject to requisite approvals, for a consideration of up to €50 million (~₹500 crore), including an upfront advance payment in cash and the balance to be paid on a deferred basis over five years as interest free loan from the promoter. The company has completed the acquisition of 100% stake in JCMI from January 01, 2026, which includes the group’s metals businesses in China and Europe, while the transfer of the US metals business is likely to happen at a later date.  Consideration for the current transaction is €29.6 million (~₹320 crore), of which €5.0 million (~₹55 crore) is payable in cash by June 30, 2026, post deferment approval received from the transferor, and balance being payable in the next five years without interest. Acquisition aims to consolidate and enhance the strategic operations of the group’s metals business and could significantly improve scale and geographical diversification of JCIL’s operations. Clear details of the acquired business’ financial risk profile remain to be known.

The Strategic intent is to consolidate all global metals activities under the Indian listed entity. JCIL shall become the global holding & execution vehicle for metals, not a subsidiary operator.

Valuation

It is stated that Valuation is arrived at based on DCF adjusted then by the net working capital, though detail relating to growth rate and discount rate used are not disclosed. Management declined to disclose detailed financials until minority shareholder approval, but suggested revenue uplift expectations:

• A decent multiplicator factor of around 2.5 to 3.5 times
• You can expect an addition of at least EUR 100 million in revenue.

Funding and payment terms of acquisition

• Consideration is to be paid over a period of five years with interest-free debt. However, debt may get converted into shares if not fully paid at termination.
• JCIL exits FY25 cash‑rich, profitable, and with a record order backlog and having ₹225 crores cash on the balance sheet. So, management said no near-term fundraising is required for the current acquisition. Fundraising may be tied to future acquisitions rather than immediate needs.

Restructuring Outcome – Management Bet on JCIL as Group’s Global Metals Platform

Management frames FY25 (Dec 25) as the end of restructuring.  As shown in Transaction overview II, JCIL will have the group’s metal business through JCMI Belgium which will become WoS of JCIL. JCMI holds Europe’s metal business and 100% stake in German, China and USA (by Dec 2026) subsidiaries.  As a result, JCIL will become global metal platform and a totally different company than what it was before the restructuring. It is intended that India and China will be manufacturing hubs while Europe & USA will be technology competence centres.

Rationale and Explicit expected benefits

Expected operational benefits are –

•  Removal of duplication,
• clarifying accountability,
• and accelerating decision-making.
• Procurement unified
• Reducing lead times
• Project governance strengthened
• and faster client billing and recovery

All the above will lead to improvised cost competitiveness, reduce working capital and increase in EBITDA margin.

Not only substantial operational benefits as the group’s global metal hub, but also technology governance will be centralized with a single pipeline for R&D, product development, and technology transfer. So, all trademarks’ patents and technology will be owned by JCIL post the whole transaction.

As a result of consolidation, the Management is confident to have growth for next five years based on growth engines described below:

India steel capex cycle: downstream technology pull

India is the world’s second largest and fastest growing major steel market, with demand driven by infrastructure, automotive, renewables, and National Steel Policy upgrades.

JCIL Positioning

JCIL management claims that they are not selling into a commodity market. They are the technology and engineering partner for advanced downstream processing and modernization. As a result, they will be able to capture disproportionate share in additional business generated. Tata Steel, JSW, AM/NS, JSPL, etc. are major wins in recent past which will be executed over period of next two years. It will get reflected in Q3 – FY- 26 onwards considering long execution time and revenue recognition policy. There is a qualitative shift in bidding as well. Now the company bids selectively technically differentiated projects, having better margins, and which create long-term partnerships.

Increase in share of value services

Value services are a growth flywheel with higher margins, faster cash cycles, and more recurring demand. Value services revenue share is close to 30% and expected to be 28% roundabout next year. Value services margin is around 40% and will represent next year half of the profitability of the JCIL. Commissioning the new Rolls coating facility at Taloja in 2026 will also enable the company to provide enhanced value-added services.

HP-HVAF technology (first of its kind in India) with Advanced Coating SA (Belgium) will be available in the Indian market now, creating a high-margin recurring revenue stream from a captive customer base.

Proposed US entity acquisition by Dec 31, 2026

Proposed acquisition of the US-based group entity is targeted for completion by December 31st, 2026, will not only have the American engineering expertise and project management capability directly under the JCIL platform but also enable the company to participate in major projects like ArcelorMittal Calvert. It is expected to create large export revenue opportunities for Indian-manufactured equipment/components through the integrated group.

Green steel / next-gen technology monetization

Management calls steel’s shift to decarbonization not a trend; it is a structural shift and multi-year opportunity. Its Voltron electrochemical ironmaking, targeting CO2 reduction at the upstream end and Jet Vapor Deposition (JVD) (with ArcelorMittal) with superior coating quality will have lower environmental impact. Electrical steel processing: JSW JFE Electrical Steel, Nashik for transformers is, described as a localization/entry into the high-tech segment.

Concerns in the structure, valuation, and payment terms

No doubt, there are multiple growth drivers which may lead to multi-year growth in both sales and profitability with expansion in EBITDA margin. However, there are many grey areas.
Management claims that the consolidation of global metals under JCIL improves transparency, focus, and value creation. However, this is a classic related‑party consolidation, with asymmetric information.

Key concerns:

• The businesses being merged were previously unlisted, opaque, and controlled by the parent.
• Management explicitly refused to disclose detailed financials until shareholder approval.
• Valuation is DCF‑based, with no disclosed assumptions (growth, margins, WACC).

DCF transfers value through assumptions, not facts. A 1–2% change in terminal assumptions shifts value massively.

• There is no earn‑out, no claw back, no ROIC threshold disclosed. Hence, minority shareholders will have no downside protection if acquired entities underperform the DCF case. Consideration for the acquisition of JCMI to be paid over 5 years without interest by JCIL apparently looks very minority friendly. However, payment is not done in time; unpaid consideration can be converted int equity diluting minority interest. Further, there is no information available at what price/valuation would conversion happen? Is there a cap on dilution? And who decides termination and conversion terms? Till all these are fully clarified, this is balance‑sheet risk masquerading as generosity. Further Minority shareholders get diluted after the risk has played out, not before that.

Management talks a lot about scale, growth, and global positioning but is careful not to talk about ROCE on the acquired assets, free cash flow, and dividend sustainability.

JCIL may well succeed — but the burden of proof now shifts to execution and capital discipline, not storytelling. If JCIL’s standalone India business cannot deliver double‑digit ROCE and sustainable FCF growth, then minority shareholders are underwriting global risk.

Conclusion

In short, minority shareholders are providing exit to foreign promoters by pricing in full global synergies based on macro and micro on the day of the deal taking full future risks. While promoters may be able to increase the stake after risk is negatively played out. It is not clear what commercial consideration led to the consolidation into Indian entity. It will be good to examine whether a standalone Indian business would have created more value for Indian shareholders.

The post John Cockerill’s Strategic shift: Consolidating global metals under the India-listed entity first appeared on M&A Critique.

Religare Finvest Limited (RFL) was incorporated under the Companies Act, 1956 and is currently registered with the RBI as a Non-Banking Financial Company – Investment and Credit Company, Middle Layer (NBFC-ML). RFL is a wholly-owned subsidiary of REL. Historically, it was one of the largest SME lending platforms in India, building a peak loan book of over ₹16,000 crore by 2016. After governance failures under erstwhile promoters Malvinder and Shivinder Singh, RFL was placed under a Corrective Action Plan (CAP) by the RBI in January 2018, prohibiting fresh lending. By 2022–23, the company successfully settled all outstanding dues with lenders through One Time Settlements (OTS), and in July 2025 the RBI formally withdrew the CAP conditions, paving the way for RFL’s revival.

A History of Structural Transactions in the Religare Group

2016 Merger Scheme

In 2016, REL undertook a composite scheme of arrangement, the broad purpose of which was to consolidate various operating entities and streamline the group structure. This transaction involved the merger of certain Religare group entities into REL, reducing internal holding layers and rationalising the corporate structure.

2019 Merger Scheme

REL again undertook a composite scheme of arrangement in 2019, which received NCLT final approval on June 15, 2023. This transaction involved the merger of Religare Comtrade Limited and Religare Securities Limited (both wholly-owned subsidiaries carrying out commodity broking and retail equity broking respectively) into REL. Post this merger, REL directly held the broking business and related assets on its own balance sheet rather than through intermediate subsidiaries.

Change of Control — The Burman Group Open Offer (2025)

In September 2023, the Burman Group — through four entities namely Puran Associates Pvt. Ltd., VIC Enterprises Pvt. Ltd., M.B. Finmart Pvt. Ltd., and Milky Investment & Trading Company — announced an Open Offer for the public shareholders of REL under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The Open Offer was completed in February 2025, consequent to which the Burman Group entities became the new Promoters of REL. This change in control triggered an indirect change of control of RFL, for which the RBI gave its approval on May 23, 2025.

Current Structure and Transaction

The current scheme is a Scheme of Arrangement under Sections 230 to 232, read with Sections 52 and 66 and other applicable provisions of the Companies Act, 2013. It provides for:

1. The demerger, transfer, and vesting of the Demerged Undertaking from REL (Demerged Company) into RFL (Resulting Company) on a going concern basis.
2. Issuance of new equity shares by RFL to the shareholders of REL as consideration.
3. Consequent reduction and cancellation of the entire pre-scheme share capital of RFL (which is currently 100% held by REL), effectively making RFL a publicly listed company after the transaction.

The Appointed Date will be same as the Effective Date of the scheme (or such date as approved by both Boards).

What is the Demerged Undertaking?

The Demerged Undertaking comprises REL’s entire financial services business — lending, broking, investment activities and ancillary/support services — carried on directly or through its subsidiaries. Concretely, this includes REL’s investments and shareholding in: Religare Finvest Limited itself, Religare Broking Limited, Religare Housing Development Finance Corporation Limited (RHDFCL), Religare Digital Solutions Limited, and associated support and ancillary businesses. The Demerged Undertaking captures all movable and immovable assets, intellectual property, contracts, employees, liabilities, permits, litigation proceedings, tax positions, and receivables of these businesses, together with all employees engaged in or pertaining to them.

What Remains with REL (Remaining Business)?

The only business remaining with REL after the demerger is its investment and shareholding in Care Health Insurance Limited (CHIL) — REL’s health insurance subsidiary. Going forward, REL will essentially be a holding company for Care Health Insurance alone, with a more focused identity in the insurance vertical.

Share Entitlement Ratio

The consideration for the demerger is straightforward: 1 (one) fully paid-up equity share of RFL of face value ₹10 for every 1 (one) fully paid-up equity share of REL of face value ₹10 held by shareholders of REL as on the Record Date. Since REL currently has 33,27,40,479 equity shares outstanding (as of December 31, 2025, per the scheme), the same number of new RFL shares will be issued to REL’s public shareholders. RFL’s existing 26,20,95,287 shares held entirely by REL will be cancelled (as the holding company cannot hold shares in itself post-demerger). RFL will list its shares on BSE and NSE pursuant to the scheme.

Strategic Rationale for the Demerger

• Focused management and governance:
  REL currently holds diverse businesses — financial services (lending, broking, housing finance) and health insurance — under a single listed entity. The distinct nature of these businesses demands different regulatory oversight, capital allocation, and growth strategy. Separating them allows each to pursue an industry-specific strategy with sharper management focus.
  
• Regulatory efficiency:
  The financial services businesses (particularly NBFC lending and broking) operate under RBI, SEBI, and NHB frameworks. Having them vested in a dedicated NBFC entity (RFL) enables more targeted regulatory compliance and supervision and resolves the complexity of a CIC holding operating businesses.
  
• Unlocking shareholder value:
  REL’s public shareholders currently receive one diversified, blended valuation for both the insurance and financial services businesses. Post-demerger, both RFL (financial services) and REL (insurance holding) will trade independently, allowing the market to price each business on its own merits and potentially unlocking value hidden in the conglomerate structure.
  
• Attracting differentiated investors and partners:
  The financial services businesses (NBFC, broking, housing finance) attract a different investor class compared to health insurance. An independent listed RFL can access capital markets, attract strategic investors, and forge partnerships appropriate to its sector.
  
• Enabling RFL’s revival and growth:
  With the RBI CAP now lifted (July 2025), RFL is poised to resume fresh lending to the Micro and Small Enterprise (MSE) segment. Listing RFL directly — and transferring all of REL’s financial services investments into it — gives RFL a stronger capital structure, direct market access, and a focused identity to rebuild its lending franchise.
  
• Capital and balance sheet optimisation:
  The demerger extinguishes REL’s 100% holding in RFL and distributes those shares directly to REL’s public shareholders, eliminating a layer of holding company discount and improving the capital efficiency of both entities.

Post-Demerger Corporate Structure

After the demerger becomes effective:

• REL will be a listed holding company owning Care Health Insurance Limited. Its public shareholders will also directly hold shares of RFL.
• RFL will become a publicly listed NBFC (on BSE and NSE), independently holding and operating: Religare Broking Limited, Religare Housing Development Finance Corporation Limited, Religare Digital Solutions Limited, and its own SME lending business. With the RBI CAP lifted, RFL is gearing up to restart lending to the MSE segment, targeting an AUM build-up with small-ticket secured loans.

Financials

The financials clearly shows that CARE Health insurance remains the primary driver of group revenue, contributing 85.8% of the group’s total income.

Religare Finvest (RFL) remained profitable with a PAT of Rs. 23.82 Crore. A major milestone was reached in July 2025 when the RBI removed the Corrective Action Plan (CAP), allowing the company to resume fresh business operations.

Income Tax Implications

The scheme is explicitly structured to comply with the definition of “demerger” under Section 2(19AA) of the Income Tax Act, 1961 — and this is a critical drafting decision, because a qualifying demerger under Section 2(19AA) attracts significant tax neutrality.

For REL (Demerged Company):

Under Section 47(vib) of the Income Tax Act, the transfer of capital assets in a qualifying demerger is not treated as a “transfer” for capital gains purposes. REL will therefore not be liable to pay capital gains tax on the assets transferred to RFL under the scheme.

For Shareholders of REL:

Under Section 47(vid), the issue of shares by RFL to the shareholders of REL in exchange for their REL shares (pursuant to the demerger) is not treated as a transfer for capital gains purposes. Shareholders do not have a taxable capital gains event at the time of the demerger. Their original cost of acquisition of REL shares will be apportioned between their REL shares and the new RFL shares received, in proportion to the net book value of assets of the remaining business (insurance) and the demerged undertaking (financial services) respectively, per the formula provided under Section 49(2C) of the Act.

For RFL (Resulting Company):

The assets received by RFL under Section 2(19AA) demerger are recorded at the book values at which they stood in REL’s books, consistent with the pooling treatment for the demerger. This also preserves the tax cost base for RFL.

The scheme also provides that all pending tax assessment proceedings relating to the Demerged Undertaking shall stand transferred to and be continued by RFL; tax refunds, credits for advance tax, and tax deductions for unpaid liabilities will also transfer to RFL as contemplated under Sections 47 and 72 of the Income Tax Act. Any business losses and unabsorbed depreciation of the Demerged Undertaking may be carried forward and set off by RFL, subject to the conditions of Section 72A of the Income Tax Act which governs the carry-forward of losses in the context of a qualifying demerger.

Stamp Duty Implications

Under Clause 22 of the scheme, all costs, charges, and expenses payable in connection with the scheme — including stamp duty on the order(s) of the NCLT, to the extent applicable and payable — shall be borne and paid by REL (the Demerged Company).

For transfers of assets pursuant to court/tribunal-sanctioned schemes of arrangement, several Indian states provide concessional stamp duty treatment. Under Article 25A of the Indian Stamp Act (as applicable in Delhi and various states), the order of the NCLT sanctioning the scheme is itself treated as the instrument of transfer. Stamp duty is ordinarily assessed on the higher of the consideration or the market value of the property transferred. However, the precise stamp duty impact will depend on the state in which the immovable properties forming part of the Demerged Undertaking are situated. For immovable properties located in states other than where REL’s registered office is situated, the scheme provides that REL and RFL may separately execute and register deeds of conveyance or lease assignments to comply with local law requirements — and the stamp duty on those instruments would also fall on REL, as the party bearing scheme costs under Clause 22.

Conclusion

For years, REL’s market valuation reflected an uneasy blend of a recovering NBFC business (weighed down by legacy fraud, regulatory restrictions, and accumulated losses) and a thriving health insurance franchise in Care Health Insurance Limited — two businesses with fundamentally different risk profiles, regulatory environments, and investor audiences.

The demerger of Religare Enterprises Limited’s financial services undertaking into Religare Finvest Limited is, at its core, a structural value-unlocking exercise driven by the Burman Group’s vision of creating two clearly differentiated, independently governed listed entities from what was previously a conglomerate holding structure. By separating them, the Burman Group enables Care Health Insurance to be valued purely on its own strong fundamentals as a high-growth standalone health insurer, without being overshadowed by the legacy issues of the financial services side.

For RFL and the demerged financial services business, the transaction is equally transformative — it converts RFL from a wholly-owned, unlisted subsidiary into a publicly traded NBFC with direct market access, a fresh capital structure, and an independent platform to rebuild its SME lending franchise following the RBI’s removal of the Corrective Action Plan in July 2025. In effect, the demerger is both a clean-up of the past and a launchpad for the future: REL becomes a focused insurance holding company, while RFL inherits the full breadth of the group’s financial services operations — lending, broking, and housing finance — and steps out independently to pursue the significant growth opportunity in India’s underserved Micro and Small Enterprise credit market and also act as group NBFC to support Dabur’s suppliers and distributors.

The post Strategic Reorganization and Value Unlocking: The Demerger of Religare’s Financial Services into Religare Finvest Limited first appeared on M&A Critique.

Major changes related to LLPs

Conversion of “Specified Trusts” into LLPs

• New Conversion Category: A new section (57A) and a Fifth Schedule are proposed to allow “specified trusts” to convert into LLPs.
• Definition: A “specified trust” includes those established under the Indian Trusts Act, 1882, or other Central/State Acts and registered with SEBI or the International Financial Services Centres Authority (IFSCA).
• Facilitation: This change specifically aims to allow Alternative Investment Funds (AIFs), often formed as trusts, to transition into an LLP structure.
• Effect of Conversion: Upon registration, all assets, liabilities, and legal proceedings of the trust are transferred to and vested in the new LLP.

Integration of Companies Act Provisions for LLPs

• Valuation Standards: The Bill introduces Section 33A to the LLP Act, which mandates that the valuation provisions of Section 247 of the Companies Act, 2013, will now apply to LLPs. This applies to the valuation of a partner’s contribution, property, assets, net worth, or liabilities.
• Loans to LLPs: Section 185 of the Companies Act is amended to explicitly include LLPs within its purview, ensuring consistent treatment of loans and guarantees to entities where directors have an interest.

International Financial Services Centre (IFSC) LLPs

• New Entity Classification: The Bill introduces the concept of a “Specified International Financial Services Centre LLP”.
• Foreign Currency Operations: These LLPs must account for and disclose partner contributions in a permitted foreign currency. They must also maintain their books of account and financial records in that currency unless otherwise permitted by the IFSCA.
• Naming Requirement: Such entities must use the suffix “International Financial Services Centre LLP” in their name.

Compliance and Regulatory Streamlining

• Annual Reporting for AIFs: For LLPs regulated by SEBI or IFSCA (like AIFs), changes in partner details may now be furnished to the Registrar on an annual basis rather than immediately, facilitating smoother operations for investment funds.
• Decriminalization: Several procedural defaults in the LLP Act (such as those related to books of account and requisitions from the Registrar) are being converted from criminal offenses to civil penalties.
• Adjudication Mechanism: A new mechanism (Section 76A) is proposed to allow LLPs or their partners to apply for the adjudication of penalties, streamlining how contraventions are handled.

Major changes related to Corporate Restructuring

The Corporate Laws (Amendment) Bill, 2026 proposes several significant changes to the provisions governing mergers, acquisitions, and fast-track mergers under the Companies Act, 2013. These amendments aim to simplify procedures and reduce the time required for such restructuring.

General Merger and Acquisition Changes

• Single NCLT Bench Jurisdiction:
  Applications for schemes of compromise, arrangement, or amalgamation under Sections 230 to 233 must now be made only to the National Company Law Tribunal (NCLT) bench having jurisdiction over the transferee company or the resultant company. This eliminates the previous requirement for parallel filings before multiple benches when companies were in different jurisdictions.
  
  No doubt even now, an order passed by the NCLT bench having jurisdiction over the transferee company or the resultant company is relevant. This should have always been the law because the Scheme is the contract between the companies and the NCLT having jurisdiction over the acquiring company. NCLT approves the scheme on a joint application by all companies which are party to the scheme, so there is no sense in having the scheme scrutinised by multiple NCLTs. This is more so because the Companies Act is the central law applicable over the whole of India. It also increased transaction and execution time and cost, which should be mitigated by this proposed amendment. No doubt, for collecting stamp duty on the transfer of assets of the transferor company in the state in which its assets are situated will have some challenges. We don’t think that the transferor company or its shareholders will have any challenge in their direct taxes or indirect taxes assessment because there is no separate petition by the company for the approval of the scheme. Further under the Companies Act, official liquidator and ROC of the transferor company will face some challenge to submit their report to the NCLT situated in other state. This is more so because there are some procedural and requirement differences between OL and RD of various states.
• Interaction with IBC:
  The Bill clarifies that a compromise or merger under the Companies Act is not permitted if a liquidation process under the Insolvency and Bankruptcy Code (IBC), 2016 has already been initiated.
• Treatment of treasury Shares:
  A new section (Section 233A) is proposed regarding shares held by a transferee company in its own name or through a trust because of a past arrangement. Such shares must be dealt with or disposed of within three years of the new legislation’s commencement.

Changes to Fast-Track Mergers (Section 233)

Fast-track mergers, which allow certain classes of companies (like small companies or holding and wholly owned subsidiaries) to merge without NCLT approval, have been further rationalized:

• Revised Approval Thresholds: The Bill aligns the approval requirements for fast-track schemes with general mergers.
  • Members: The scheme must now be approved by a majority of members (or class of members) present and voting, who hold at least 75% in value of the shares held by those present and voting.
  • Creditors: Similarly, approval is required from a majority representing nine-tenths (90%) in value of the creditors or class of creditors.
• Simplified Filing for Demergers: In cases where the fast-track scheme involves a transfer or division (demerger) of an undertaking, the requirement to file a copy of the scheme with the Official Liquidator has been removed.

Changes for LLPs

While most merger provisions are under the Companies Act, the Bill introduces a new mechanism for Specified Trusts (like Alternative Investment Funds) to convert into Limited Liability Partnerships (LLPs). Upon this conversion, all assets, liabilities, and undertakings of the trust vest in the LLP without further deed.

Recent changes made leading upto these proposed Amendments

As of early 2026, several significant legislative and regulatory updates have reshaped the landscape for mergers and acquisitions (M&A) in India. These changes aim to streamline procedures, reduce litigation, and enhance transparency.

Below is a section-wise summary of the key amendments across major frameworks:

1. Companies Act, 2013 & Rules (MCA)

The Ministry of Corporate Affairs (MCA) has significantly expanded the Fast Track Merger (FTM) route under Section 233, allowing more companies to merge without NCLT approval.

• Section 233 (Scope Expansion):
  • Unlisted Companies: Now eligible for FTM if collective borrowings are $\le$ ₹200 crore and they have no repayment defaults.
  • Holding & Subsidiaries: FTM is now permitted between a holding company (listed or unlisted) and its unlisted subsidiaries, even if they are not wholly owned.
  • Fellow Subsidiaries: Two or more subsidiaries under a common parent can now merge via the fast-track route.
• Section 234 (Cross-Border Mergers):
  • Reverse-Flips: Amendments now explicitly allow “reverse-flip” mergers (foreign holding companies merging into their wholly-owned Indian subsidiaries) to proceed under the FTM route with RBI consent.
• Procedural Updates (Rule 25):
  • Filing Timelines: The time limit for filing a merger petition with the Regional Director (RD) has been extended from 7 days to 15 days after the conclusion of the meeting.
  • Form CAA-10A: A new requirement for an auditor’s certificate is to verify satisfaction of eligibility conditions for fast-track schemes.

2. SEBI (LODR) Regulations, 2015

Recent amendments focus on tighter governance for listed entities and their subsidiaries involved in restructuring.

• Regulation 23 (Related Party Transactions):
  • Materiality Thresholds: Materiality is no longer a flat ₹1,000 crore. It now follows a graded, turnover-linked framework (e.g., 10% for turnover up to ₹20,000 crore, capped at ₹5,000 crore for very large entities).
• Regulation 30 (Materiality of Events):
  • Strict Disclosure Timelines: Decisions regarding mergers/restructuring must be disclosed within 30 minutes of the board meeting’s conclusion.
• HVDLE Framework (2026 Amendment):
  • High Value Debt Listed Entities: Governance for debt-listed entities is now largely aligned with equity-listed entities. Transactions involving sale or lease of assets between wholly owned subsidiaries of an HVDLE are now exempted from shareholder approval to ease internal restructuring.

3. Income Tax Act, 2025

The Income-tax Bill, 2025 and the Finance Act, 2025 have rationalized the tax benefits associated with amalgamations.

• Section 72A & 72AA (Carry Forward of Losses):
  • 8-Year Cap: For mergers effective on or after April 1, 2025, accumulated losses can only be carried forward for a total of 8 years from the date they were first computed by the predecessor entity. This prevents the “resetting” of the 8-year clock upon merger.
• Section 47 (Tax Neutrality):
  • Provisions continue to ensure that transfers of capital assets in a scheme of amalgamation are not treated as “transfers” for capital gains purposes, provided the surviving company is Indian.

4. Insolvency and Bankruptcy Code (IBC)

The IBC Amendment Bill, 2025 introduces structural overhauls for distressed M&A.

• Group Insolvency:
  • A new framework allows for the coordinated insolvency of multiple companies within the same corporate group, facilitating holistic restructuring rather than piecemeal liquidation.
• Creditor-Initiated Resolution (CIIRP):
  • Out-of-Court Mechanism: Allows financial creditors (51% vote) to initiate a resolution process through public announcement, bypassing initial NCLT adjudication to save time.
• Section 3(30) (Security Interest):
  • Clarified that security interests must arise from mutual agreement, not just statute, providing more certainty to acquirers regarding the asset’s encumbrances. 

Conclusion

The Corporate Laws (Amendment) Bill, 2026, along with related regulatory updates from 2025 and 2026, introduces comprehensive reforms to the Companies Act, 2013, the LLP Act, 2008, and the Insolvency and Bankruptcy Code (IBC) to enhance the ease of doing business and streamline corporate restructuring.

The acceptance and implementation of these proposed amendments shall determine its effectiveness in the near future. It should also reveal more regulatory hurdles which need to be addressed by the government.

The post Corporate Law – Reforms and Regulatory Amendments 2026 – Proposed first appeared on M&A Critique.

The hotel business will remain with Magnum Ventures. As part of the same scheme, it is going to restructure the paid-up capital by reduction of both equity and preference paid up capital without any payment being made because of the reduction.

What is Being Demerged?

The entire Paper Business is being demerged including:

• Manufacturing facilities at Sahibabad
• All assets (movable/immovable, tangible/intangible) whether recorded in the books or not.
• Employees
• Contracts, licenses, permits.
• Tax attributes, receivables, liabilities.
• NCDs related to the Paper Business
• Proportionate common liabilities

will get transferred to Magnum Paperz Ltd as a going concern.

Consideration

For Equity Shareholders of Magnum Ventures

As the scheme is a composite scheme of demerger with reduction of capital, share swap ratio and adjustment to present paid up capital equity and Preference shares, both are as follows –

• For every 10 existing equity shares → 2 new equity shares in Magnum Paperz
• Post demerger, Magnum Ventures will reduce its equity capital by 70%, leaving shareholders with:
  • 3 equity shares retained in Magnum Ventures
  • 7 shares cancelled

So effectively, 50% of the paid-up equity capital is reduced. A shareholder holding 100 shares of Magnum Ventures before the Effective Date of the scheme will hold 30 equity shares of Magnum Ventures Ltd and 20 equity shares of Magnum Paperz Ltd. No doubt the shareholder’s percentage holding in Magnum Ventures and Magnum Paperz will be identical hence no loss of any beneficial interest.

For Preference Shareholders of Magnum Ventures Ltd

• For every 10 CRPS one holds in Magnum Ventures Ltd will get → 9 new CRPS in Magnum Paperz Ltd
• Magnum Ventures Ltd cancels 90% of its existing CRPS (retaining 1 out of 10).
• So, after the transaction, in total a shareholder will continue to hold 10 CRPS.

Impact on NCD Holders

NCDs relating to the Paper Business will get transferred to Magnum Paperz, Ltd. There will be No change in coupon, tenure, redemption, security, listing status or investor rights post transfer. NCDs will remain listed and tradable after transfer. In addition, Promoters will support servicing obligations if needed. Thus, repayment of NCDs and interest thereon is backed by personal guarantees of the promoters.

Rationale for the Demerger

The board/Audit Committee gives several reasons which are summarised as follows:

• The company has two unrelated businesses (paper & hotel).  Post demerger dedicated management team will lead to operational efficiency. It will also lead to better risk segregation.
• Both businesses will have strategic flexibility.
• The scheme will lead to better capital structuring by dividing the present paid up capital based on each business needs and servicing capabilities and the reduction of excess capital. This will enable both businesses to raise funds independently. It will be easier to attract investors relevant to each business.

Tax implications

The Scheme explicitly states that it is structured to meet all conditions of a tax-neutral demerger under Section 2(19AA) of the Income Tax Act, 1961. All tax ‑related attributes specifically relating to the Paper Business transfer to the Resulting Company, including:

• GST input credits
• Income Tax refunds
• Unabsorbed depreciation
• Accumulated losses (subject to Section 72A & 2(19AA))
• MAT credit this ensures Magnum Paperz continues with the same tax history of the Paper Division.

Under GST, a transfer of a division on a going concern basis is treated as:

• A non-taxable supply and attracts 0% GST (exempt under Notification 12/2017). The Scheme confirms this classification.
•  All GST credits attached to the Paper Business shift to Magnum Paperz.
• All ongoing GST assessments, investigations or litigation relating to the Paper Business shift to Magnum Paperz Ltd.

Tax Treatment for Shareholders

Non-Convertible Debentures (NCD) Tax Position

• There is no tax impact NCD holders because NCD terms do not change.
• Transfer to Magnum Paperz occurs without modification to coupon, tenure, redemption, or security. even it continues to remain listed on the stock exchange.

Accounting Impact

All assets and liabilities of the Paper Business will be transferred at book values, ignoring any past revaluation. This maintains tax neutrality. Equity capital is reduced by 70% and CRPS is reduced by 90% and the net worth and balance sheet is recast as per Ind AS (Pooling of Interest method).

Sequence of Implementation

1. First demerger of the paper division takes effect.
2. As a result, Magnum Paperz will issue new shares to shareholders of Magnum Ventures Ltd.
3. Magnum Paperz shall cancel its existing paid-up capital.
4. Magnum Ventures reduces its share capital.

Conclusion

Magnum Ventures is hiving off its Paper Business into Magnum Paperz, issuing shares to its shareholders in a mirror shareholding structure, reducing its own capital, and transferring all paper-related assets, liabilities and NCDs to the new entity — with no impact on creditor or NCD rights.

The post The Great Unbundling: Why Magnum is Separating Paper from Hospitality first appeared on M&A Critique.

*The NCLAT judgement was covered in our May 2025 issue.

We now deep dive into the honorable Supreme Court’s Judgement

Issues

The core issues before the Court included:

• Validity of the Share Capital Reduction: Whether the reduction of share capital under Section 66 of the Companies Act 2013 was fair, transparent, and legally sound?
• Procedural Integrity (“The Manner”): Whether the notice for the general meeting was a “tricky notice” due to the non-supply of valuation reports and alleged misleading disclosures?
• Valuation Methodology (“The Method”): Whether the application of the Discount for Lack of Marketability (DLOM) was arbitrary and whether the share price was fixed at an unconscionably low value?
• Independence of Valuer: Whether the valuer was biased due to an alleged inextricable link with the company’s internal auditor?
• Jurisdictional Defect: Whether the composition of the National Company Law Appellate Tribunal (NCLAT) Bench—comprising two Technical Members and one Judicial Member—was illegal?

Facts

• Bharti Telecom Limited (BTL), a closely held company with only 1.09% of its shareholding held by individuals, decided to reduce its share capital under Section 66 of the Act of 2013
• The proposal involved cancelling over twenty-eight million equity shares held by identified minority shareholders.
• BTL initially proposed a price of Rs. 163.25 per share, but the NCLT directed a higher payment of Rs. 196.80 per share by removing an arbitrary tax deduction.
• A Special Resolution for the capital reduction was passed with a majority of more than 99.90%.
• The appellants, a group of minority investors, alleged they were being forcibly disgorged of their shares in an unfair manner.
• BTL’s primary business was investment in its subsidiary, Bharti Airtel Limited (BAL); while BAL was listed, BTL had been delisted since 1999-2000 and paid no dividends for years.
• In 2016, BTL had conducted a rights issue offering 115 shares for every single share held, which significantly increased the total volume of shares held by the appellants before the capital reduction.

Analysis and Arguments

• NCLAT Composition: The Court found the Bench composition valid under Sections 418A and 419 of the Act of 2013, noting that a Bench of two members (one Judicial and one Technical) is the minimum requirement, and the presence of an additional Technical Member did not invalidate the unanimous decision.
• Procedural Fairness: The Court rejected the “tricky notice” argument, stating that Section 66 does not statutorily mandate enclosing a valuation report with the notice 20, 21. The reports were kept at the registered office for inspection, which the Court deemed sufficient in the modern era of ease of travel.
• Valuer Independence: The Court ruled that the internal auditor is intended to be an independent agency under the Act. The mere fact that the valuer was an affiliate of the internal auditor did not prove bias, especially since the valuation was affirmed as fair by multiple independent agencies like ICICI Securities and SBI Caps.

Valuation and DLOM:

The “three Ms” challenging the share valuation fairness, as encapsulated by the Senior Counsel for the appellants, are the Manner, the Method, and the Matter.
These counts represent the following objections:

• The Manner (The Procedure): This refers to the procedural infractions alleged by the minority shareholders. The challenge included:
  • The claim that the notice for the General Meeting was a “tricky notice” because it did not include the valuation report or a summary of it and failed to disclose the methodology used.
  • The allegation that the Board’s notice was misleading, as it suggested shareholders had requested an exit route when no such formal request was documented in the Board resolution.
  • The hasty nature of the process, noted by the fact that the valuation report and fairness report were issued on the same date.
  • The use of an interested entity (an associate of the company’s internal auditor) to conduct the valuation, which raised concerns about bias.
• The Method (The Measure): This refers to the valuation methodology employed to determine the share price. The appellants argued that:
  • The use of the Discount for Lack of Marketability (DLOM) was arbitrary, without legal sanction, and contrary to accepted international norms for a “forced” exit.
  • The share price of Bharti Telecom Limited (BTL) should have been fixed with direct reference to the market value of its subsidiary, Bharti Airtel Limited (BAL), since investment in BAL was BTL’s only business.
• The Matter (The Price): This refers to the actual price determined, which the appellants styled as unconscionably low. Arguments under this head included:
  • The price was wholly deficient when compared to historical offers, such as Rs. Four hundred offers in 2006 or a private offer of Rs. 2,000 in 2007.
  • The price (Rs. 163.25/Rs. 196.80) was significantly lower than the Rs. 310 per share paid by SingTel for a 49% stake in BTL around the same time…
  • The low value was viewed as a “material defect” that resulted in the forced disgorgement of minority holdings for an unfair deal.

The court justified the 25% Discount for Lack of Marketability (DLOM) by ruling that it is a recognised, expert-driven accounting adjustment necessitated by the specific illiquid nature of Bharti Telecom Limited (BTL) shares.

The justification was based on the following key grounds:

Statutory and Professional Recognition

The court noted that the application of DLOM is not arbitrary but is supported by established legal and accounting frameworks:

• Indian Accounting Standards (Ind AS 113): These standards define “fair value” as a market-based measurement that must take into account characteristics such as restrictions on the sale of an asset.
• ICAI Valuation Standards: The court highlighted “ICAI Valuation Standard 103,” which explicitly lists DLOM as a valid adjustment based on the premise that readily marketable assets command a higher value than those that are difficult to sell.
• The “Dividend Distribution Tax” (DDT) deduction issue refers to a specific portion of the share valuation that the National Company Law Tribunal (NCLT) found to be arbitrary, leading to a significant increase in the final payout to minority shareholders.

The issue unfolded as follows:

Initial Deduction by the Company:

Bharti Telecom Limited (BTL) originally fixed the share price at Rs. 163.25 per equity share. This value was calculated after the company deducted the taxes it would have to pay (specifically Dividend Distribution Tax) from the determined fair value of the shares.

The NCLT’s Ruling:

The NCLT scrutinized this calculation and determined that deducting the company’s tax liability from the price offered to individual investors was arbitrary.

Price Adjustment:

Consequently, the NCLT directed BTL to pay the identified investors the full value without the tax deduction, which raised the price to Rs. 196.80 per equity share. BTL acceded to this order and adjusted the payout accordingly.

Reasonableness of Price:

The Court observed that the 2016 rights issue had exponentially increased the payouts for investors. For instance, one appellant who would have received Rs. Sixteen lakhs before the rights issue ended up with approximately Rs. 47.30 crores due to the increased share count. The rights issue changed the context for evaluating the “fairness” of the share price. The appellants pointed to historical offers of Rs. 2,000 per share from 2007, but the Court ruled that these were no longer relevant because the rights issue had so fundamentally altered the company’s share base.

In summary, while the per-share price might have appeared lower than historical peaks, the volume of shares gained through the 2016 rights issue ensured that investors received a “bountiful yield” and were placed in a “very favourable position” during the final capital reduction.

Rejection of the “Forced Exit” Argument

The appellants argued that DLOM should not apply in a “forced exit” scenario. However, the court ruled:

• Contextual Valuation: While some international jurisdictions (like Singapore in Kiri Industries) have declined DLOM in oppression cases, there is no universal international denouncement of the practice.
• Absence of Oppression: In this case, there was no finding of “oppressive action” by the majority, and the capital reduction was passed by a massive majority of shareholders.

The honourable court discussed the specific legal differences between Section 66 (Reduction of Share Capital) and Section 68 (Buy-back of Shares) of the Companies Act, 2013, centre on the nature of the shareholder’s exit and the procedural requirements for the company.

The primary differences identified in the judgment are as follows:

Nature of the Exit

• Section 66 (Involuntary/Forced Exit): This section involves an involuntary purchase of shares by the majority, which the court describes as a “forced exit” for the identified minority shareholders. It is a domestic corporate concern that depends on the decision of the majority to reduce capital.
• Section 68 (Voluntary/Optional Exit): In contrast, a buy-back under Section 68 is optional. It is entirely up to the individual shareholder to decide whether to accept the buy-back offer based on the price provided by the company.

Procedural Safeguards and Approvals

• Section 66 (Tribunal Confirmation Required): Because Section 66 can result in a forced exit, it is hedged with significant statutory safeguards. It requires a Special Resolution passed by the shareholders and, crucially, mandatory confirmation by the National Company Law Tribunal (NCLT). The Tribunal must also give notice to the Central Government and the Registrar of Companies to seek their opinions before sanctioning the reduction.
• Section 68 (Shareholder Choice): The sources note that Section 68 does not require the same level of judicial scrutiny (like Tribunal confirmation) because the transaction is voluntary; the shareholder is the final arbiter of whether the offer is acceptable.

Valuation Report Requirements

• Section 66: The judgment clarifies that Section 66 does not statutorily mandate a valuation report from a registered valuer. The process is considered valid if a Special Resolution is passed and the Tribunal is satisfied with the accounting treatment.
• Section 68: Similarly, Section 68 does not stipulate a valuation report, as the decision remains with the shareholder to accept or reject the offered value.

Summary of Legal Distinction

The court highlights that while both can result in an exit for shareholders, Section 66 is a majority-driven corporate action that requires judicial oversight to ensure it is not “prejudicial or unfair,” whereas Section 68 is a market-driven offer that leaves the final decision to the individual investor.

Under Section 66 of the Companies Act 2013, the reduction of share capital is considered a “strictly domestic concern” of the company, but it is hedged with several significant statutory and judicial safeguards to protect the interests of stakeholders.

The legal safeguards identified in the sources include:

Internal Corporate Approvals

• Articles of Association (AoA) Authorization: The company’s Articles must explicitly permit the reduction of share capital.
• Special Resolution: The reduction must be approved by a Special Resolution passed at a General Meeting of the company. This ensures that a super-majority (at least 75%) of the shareholders agree to the proposal.

Mandatory Judicial Scrutiny

• Tribunal Confirmation: Unlike a buy-back under Section 68, a reduction of capital under Section 66 requires mandatory confirmation by the National Company Law Tribunal (NCLT).
• Duty to Scrutinise: The Tribunal is legally required to scrutinise the scheme to ensure it is fair, just, and not unreasonable. It must be satisfied that the reduction is not against public interest and is not unfairly discriminatory or prejudicial against any class of shareholders.
• Ex Debito Justitiae: The Tribunal acts in the interest of justice, hearing all stakeholders to ensure that the majority is not “running roughshod” over minority rights.

Regulatory Oversight and Opinions

• Notice to Authorities: The Tribunal must give notice of the application to the Central Government and the Registrar of Companies (ROC).
• Right to Object: These authorities, along with the Regional Director, are entitled to offer their opinions and reports to the Tribunal regarding the company’s compliance with the prescribed procedure.

Creditor Protection

• Consent and Security: The Tribunal must be satisfied that every creditor of the company has either consented to the reduction or that their debt has been discharged, determined, or secured.
• No Objection Certificates: The company is typically required to obtain “No Objection Certificates” from its creditors before the scheme is confirmed.

Accounting and Audit Safeguards

• Compliance with Accounting Standards: Under the proviso to Section 66(3), the Tribunal cannot sanction the reduction unless the proposed accounting treatment is in conformity with the standards specified in Section 133.
• Auditor’s Certificate: The company must file a certificate from its auditor with the Tribunal, explicitly confirming that the accounting treatment is compliant with statutory standards.

Judgment

The Supreme Court rejected the appeals, upholding the concurrent findings of the NCLT and NCLAT. It concluded that the company had complied with all legal requirements of Section 66 and that the reduction was neither prejudicial nor unfair to the minority shareholders. The Court emphasised that valuation is an expert exercise and, unless it is egregiously wrong or off-track, courts should not interfere with plausible rationales provided by experts. The court found that Section 66 of the Companies Act 2013 does not restrict the use of DLOM, provided the accounting treatment is in conformity with prescribed standards.

The post Exit Opportunity or Forced Eviction? The Contentious Journey of BTL’s Minority Shareholders first appeared on M&A Critique.

Hinduja Leyland Finance Limited (HLFL) — The Transferor Company

Hinduja Leyland Finance Limited (HLFL or Transferor Company) was incorporated on 12 November 2008 under the Companies Act, 1956 in the state of Tamil Nadu. Its registered office is at Plot No. C-21, Tower C (1–3 Floors), G Block, Bandra Kurla Complex, Bandra East, Mumbai – 400051. HLFL was initially registered as a Systemically Important Non-Deposit Accepting Non-Banking Finance Company (NBFC-ND-SI) and was subsequently granted NBFC–Asset Finance Company (NBFC-AFC) status by the Reserve Bank of India (RBI) on 12 May 2014. The company is a subsidiary of Ashok Leyland Limited (ALL), which in turn is part of the broader Hinduja Group.

HLFL is primarily engaged in commercial vehicle financing and housing finance businesses. Its housing finance operations are carried out through a wholly-owned subsidiary, Hinduja Housing Finance Limited (HHFL). In addition, HLFL has nascent-stage operations in ancillary businesses, including:

• Gro Digital Logistics Limited — a transportation logistics services platform.
• Gaadi Mandi Digital Platforms Limited — an e-commerce platform for sale and purchase of repossessed vehicles.
• HLF Services Limited (HSL) — an associate company (~45.9% effective stake) engaged in manpower and support services.

The Non-Convertible Debentures (NCDs) of HLFL are listed on BSE Limited, making it a ‘high-value debt listed company’, though its equity shares are not listed on any stock exchange. As of September 30, 2025, HLFL’s paid-up equity share capital stood at ₹545.25 crore comprising 54.53 crore equity shares of ₹10 each, with promoters (Ashok Leyland and Hinduja Group entities) holding 73% and public/other shareholders holding 27%.

Key Financial Snapshot — HLFL (Standalone, ₹ Crore)

NDL Ventures Limited (NDL) — The Transferee Company

NDL Ventures Limited (NDL or transferee company) was incorporated as a public limited company on 18 July 1985 under the Companies Act, 1956 in the state of Maharashtra. Its registered office is at IN Centre, 49/50, MIDC, 12th Road, Andheri East, Mumbai – 400093.

The company has a long and winding corporate history, having undergone multiple name changes and business transformations:

At its peak as Hinduja Ventures Limited, HVL was a diversified Hinduja Group holding company with interests in media & communications, real estate, treasury, and IT/ITES. However, a landmark demerger in 2022 fundamentally altered NDL’s character (described in Section 2). Post-demerger, NDL holds only a land parcel in Bengaluru and has no operating business. NDL’s equity shares are listed on BSE Limited and the National Stock Exchange of India (NSE). Promoters (Hinduja Group) hold 66.2% and the public holds 33.8%. NDL’s net worth as on 31 March 2025 was ₹60.1 crore, primarily comprising the fair value of its Bengaluru land asset.

Importantly, with effect from 27 October 2022, NDL amended its main object clause to enable it to carry on financial services business, positioning itself as the intended vehicle for the NBFC business of the Hinduja Group.

The Hinduja Group — Common Parentage

Both companies trace their ultimate parentage to the Hinduja Group, one of India’s oldest and largest conglomerates with origins in trading and subsequently diversifying into banking and finance, automotive, IT and BPO, healthcare, media, and infrastructure. The Group’s principal listed Indian entities include Ashok Leyland Limited (commercial vehicles), IndusInd Bank, and Hinduja Global Solutions.

Ashok Leyland Limited (ALL), a Hinduja Group flagship, is the principal promoter of HLFL. NDL Ventures Limited is directly held by various Hinduja Group entities. The proposed merger is therefore fundamentally an intra-group consolidation within the Hinduja ecosystem.

Past Merger & Demerger History

Both HLFL and NDL (in its earlier avatars) have been active participants in corporate restructuring. Understanding this history is essential to appreciate the current transaction in context.

Corporate History of NDL (formerly Hinduja Ventures Limited):

The 2022 demerger of the media business from NDL into HGSL is particularly significant. By shedding its entire media and communications operations — which had been struggling financially for years — NDL was effectively hollowed out and simultaneously had its object clause amended to pivot to financial services. This restructuring was a deliberate preparatory step to receive the NBFC business of HLFL. The current merger, therefore, represents the culmination of a multi-year strategic repositioning of NDL as the Hinduja Group’s listed financial services vehicle.

Corporate History of HLFL:

HLFL was incorporated in 2008 as part of a joint venture between the Hinduja Group and Ashok Leyland to create a captive vehicle finance arm. It received NBFC-AFC status from the RBI in 2014. Over the years, HLFL has grown into one of India’s significant commercial vehicle (CV) finance companies with a pan-India presence and a substantial loan book supported by listed NCDs.

Transaction Overview — Scheme of Merger by Absorption

The Board of Directors of NDL Ventures Limited (NDL) and Hinduja Leyland Finance Limited (HLFL) have proposed a “Merger by Absorption” that will see the business operations of HLFL consolidated into NDL. This transaction marks a significant pivot for NDL, transitioning it from a company with residual real estate assets into a core player in India’s booming financial services sector.

The primary objective of this merger is to create a more robust and streamlined entity. Key strategic reasons include:

• Consolidation of Group Resources: Combining the financial strengths of both entities to enhance the capital base of the resultant company.
• Operational Synergies: Reducing administrative overheads and overlapping corporate functions to improve overall efficiency.
• Shareholder Value: Aiming to provide better returns to shareholders by creating a more diversified and financially stable listed entity.

Consideration and Valuation Methodologies

Two independent registered valuers — M/s SSPA & Co., Chartered Accountants and KPMG Valuation Services LLP were appointed to determine the equity share exchange ratio. Both valuers independently recommended identical ratios, which were confirmed as fair by Motilal Oswal Investment Advisors Limited as the independent merchant banker.

Given the very different nature of the two companies — HLFL being an operating NBFC and NDL being a near-shell entity — the valuers adopted distinct and asymmetric methodologies:

For HLFL:

• Comparable Companies Multiple (CCM) Method (50% weight): P/BV multiples of comparable listed CV finance companies (Mahindra & Mahindra Financial Services, Shriram Finance, Sundaram Finance, IndoStar Capital). Q1 multiple of 1.5x applied to the standalone net worth of ₹7,621.5 crore.
• Comparable Transaction Method (CoTrans) (50% weight): Preferential allotment at ₹200 per share (March 2025, 1 crore shares to Ashok Leyland) used as a reference transaction.
• Sum-of-Parts: HLFL valued incorporating standalone operations (₹11,432.2 crore) + HHFL stake (₹3,478.6 crore) + HSL stake (₹44.1 crore) + Gro Digital (₹13.6 crore) + Gaadi Mandi (₹0.1 crore) + ESOP proceeds (₹25.4 crore) = Equity Value ~₹14,994 crore. Per-share value: ₹237.

For NDL:

• Market Price Method (100% weight): 10-day VWAP (₹94.7) and 90-day VWAP (₹89.0) as per SEBI ICDR Regulations, with the higher taken. Per-share value: ₹94.7.
• NAV Method (reference only): Net asset value of ₹69.1 per share after fair valuing the Bengaluru land parcel (independent real estate valuation by Anmol Sekhri Consultants Pvt. Ltd.).

Shareholding Pattern

Following the merger, HLFL will cease to exist as a separate legal entity, and all its assets, liabilities, employees, contracts, NCDs, and regulatory registrations will vest in NDL.

• All promoters join NDL’s promoter group; Ashok Leyland becomes a major promoter of NDL.
• HLFL public shareholders gain listed NDL shares; first liquidity event for HLFL equity investors.
• ESOPs excluded from paid-up; if exercised, holders get 2.5× NDL shares per HLFL option.

NDL equity base expands ~41× from pre-merger; HLFL ceases to exist as a separate legal entity.

Strategic Rationale — Beyond the Stated Reasons

The official documents cite consolidation of financial services, simplification of corporate structure, operational streamlining, access to listed platforms, and alignment with group reorganization as the rationale. However, a deeper examination reveals a richer set of strategic and structural imperatives:

The Listed-Shell Play: A Vehicle Ready for an NBFC

NDL’s trajectory since 2022 — shedding its media operations, amending its objects clause for financial services, retaining its stock exchange listings — was not incidental. It was deliberate preparation. Creating a new listed NBFC from scratch would require significant time (RBI registration, SEBI listing approvals, minimum promoter holding compliance) and expense. NDL offered a ready-made listed shell with a clean balance sheet, legitimate promoter shareholding structure, and a compliant listed entity framework. The merger is effectively a reverse-insertion of an operating NBFC business into a listed shell, far more efficient than a traditional IPO or fresh listing route.

Unlocking Capital Markets Access for an Equity-Hungry NBFC

HLFL, despite being a large NBFC with a net worth of over ₹8,000 crore, has never had its equity listed. As a debt-heavy financial intermediary, its growth is capital-constrained — every incremental loan requires fresh equity capital to maintain regulatory capital adequacy ratios (CAR). Listing through this merger allows HLFL’s business to tap public equity markets, issue QIPs, rights issues, or follow-on offerings, and use stock as acquisition currency — none of which were available to it as an unlisted entity.

Promoter Holdings Rationalisation and Ashok Leyland’s Balance Sheet

Ashok Leyland Limited (ALL), the primary promoter of HLFL, holds a large investment in HLFL in its books. As a commercial vehicle manufacturer, ALL’s core business valuation suffers from the market’s tendency to ‘through the balance sheet’ discount its investment in HLFL. By merging HLFL into the separately listed NDL, ALL’s investment in HLFL converts into a listed stake in NDL — potentially unlocking value and providing ALL the flexibility to monetise or rebalance this stake over time in the secondary market. This deconglomeration benefit is not stated in the scheme documents but is a significant implicit rationale.

Resolving the Unlisted Minority Shareholder Conundrum

With 27% of HLFL’s equity held by public/non-promoter shareholders (approximately 14.77 crore shares), these shareholders had no liquid exit from their investment as HLFL equity was unlisted. The merger provides these shareholders with liquid, exchange-tradable NDL shares — effectively providing them an exit/liquidity mechanism that was previously unavailable. The 25:10 exchange ratio and the fairness opinion from Motilal Oswal serve to validate that these shareholders are not disadvantaged.

NCD Holder Continuity: A Regulatory Masterstroke

HLFL had approximately ₹19,000+ crore of listed NCDs outstanding as of September 2025, held by 5,177 holders across banks, mutual funds, insurance companies, pension funds, and retail investors. A liquidation or restructuring of HLFL would have caused immediate credit events on these instruments. The 1:1 NCD exchange ratio, with all terms preserved and credit ratings maintained at AA+, elegantly transfers this entire debt obligation to NDL without triggering any event of default, rating downgrade, or bondholder protection mechanism. This is a masterstroke of structuring that allows a ₹19,000+ crore debt book to migrate seamlessly.

RBI Regulatory Positioning

HLFL operates as an NBFC-AFC under the RBI’s regulatory framework. Post-merger, NDL will inherit HLFL’s NBFC registration and regulatory standing. This is significant because obtaining a fresh NBFC license, particularly for a large-scale business, is subject to the RBI’s evolving policy on new NBFC registrations. The merger effectively transfers an existing, well-established regulatory franchise rather than requiring a fresh application — a valuable asset in India’s tightening NBFC regulatory environment.

Timing — Post-Peak NPA Cycle

The commercial vehicle finance sector experienced significant stress during COVID-19 (FY 2020–22) with elevated NPAs and collection challenges. HLFL’s NPA profile has normalised as the CV sector recovered. The merger is timed when HLFL’s financials are at a cyclical high — a PAT of ₹408 crore in FY25 and improving net worth. Listing at a peak earnings cycle maximises the valuation for HLFL’s existing shareholders.

Income Tax Implications

For the merger to qualify as a tax-neutral amalgamation under the Income Tax Act, 1961 (ITA), it must satisfy the conditions prescribed under Section 2(1B):

• All assets and liabilities of the amalgamating company (HLFL) must be transferred to the amalgamated company (NDL).
• Shareholders holding not less than 75% in value of shares of the amalgamating company must become shareholders of the amalgamated company.
• The consideration for the amalgamation must be shares in the amalgamated company (not cash).

This merger satisfies all three conditions — all assets and liabilities of HLFL vest in NDL, HLFL shareholders receive only NDL equity shares (no cash), and given the 73% promoter holding plus the public shareholders, well over 75% of HLFL shareholders will become NDL shareholders. Accordingly, the merger qualifies as an ‘amalgamation’ under Section 2(1B) ITA.

Tax in Hands of HLFL Shareholders

Under Section 47(vii) of the ITA, transfer of shares of an amalgamating company in exchange for shares of the amalgamated company in a qualifying amalgamation is not treated as a transfer for capital gains purposes. Therefore, HLFL equity shareholders will not have any capital gains tax liability upon receiving NDL shares in exchange for their HLFL shares. The cost of acquisition and holding period of the original HLFL shares will be carried forward to the NDL shares received.

Tax in Hands of NDL (Transferee)

Section 72A of the ITA allows the amalgamated company to carry forward and set off the accumulated business losses and unabsorbed depreciation of the amalgamating company, subject to conditions including that the amalgamated company must hold at least 75% of the book value of fixed assets of the amalgamating company for 5 years. HLFL, being a profitable NBFC, does not appear to have material unabsorbed losses; accordingly, Section 72A benefits may be limited in this case.

Under Section 35D read with Section 35DD, NDL can claim amortisation of merger-related expenditure over 5 years. The accumulated depreciation on fixed assets of HLFL will be assumed by NDL at book value.

GST and Other Indirect Tax Aspects

The merger is effected under a court-sanctioned scheme under the Companies Act, 2013 and accordingly, the transfer of business as a going concern is generally exempt from GST under Schedule II Entry 2(f) read with the GST Act. No GST is expected to be payable on the transfer of HLFL’s business to NDL. HLFL’s pending input tax credits and GST registrations will need to be amended/migrated to NDL.

Stamp Duty Implications

This is one of the most significant tax aspects of large mergers in India. Under Article 25 of the Indian Stamp Act, 1899 (and state stamp duty laws), merger/amalgamation orders may attract ad valorem stamp duty on the market value or consideration of assets being transferred.

The assets of HLFL — which include a loan book of over ₹40,000+ crore, fixed assets, investments, and other assets — are being vested in NDL. In many Indian states, this vesting can trigger stamp duty. Key considerations include:

• Under the Maharashtra Stamp Act (applicable as both companies are registered in Maharashtra), amalgamation orders of the High Court/NCLT attract stamp duty. However, most states have rationalised this — Maharashtra levies duty at 0.7% of the higher of the consideration value or market value of the property, subject to a cap.
• The Appointed Date (1 April 2026) is critical — stamp duty is generally computed on the value of assets as at the Appointed Date. Given HLFL’s massive loan book, stamp duty on financial assets (loans/receivables) may be a significant cost unless specifically exempted.
• Immovable property transfers: HLFL, through its subsidiaries and ancillary businesses (Gro Digital, Gaadi Mandi), may hold some immovable property. Any such transfers will attract stamp duty at applicable state rates.
• Mortgage/charge-related stamp duty: HLFL’s secured borrowings are backed by charges on assets. When these charges are assumed by NDL, fresh charge registration documents may need to be executed, potentially attracting stamp duty.
• NDL should explore whether the NCLT order sanctioning the scheme can specifically address stamp duty implications, as courts have in some cases held that duty is payable on the NCLT order itself and not on each individual asset transfer.

Some Unique Features of the Transaction

• A ₹8,000+ Crore NBFC Merging into a ₹60 Crore Shell :
  Perhaps the most striking feature is the extreme size asymmetry. HLFL has a net worth of over ₹8,149.5 crore (September 2025) and a loan book exceeding ₹40,000 crore — dwarfing NDL’s modest ₹60 crore net worth. Technically, the smaller entity (NDL, as transferee) is absorbing the vastly larger HLFL (as transferor). This is a reverse merger in economic substance even though legally it is structured as HLFL merging into NDL to leverage NDL’s listed status. Post-merger, NDL’s character and business will be entirely that of HLFL — the listed entity shell is simply the surviving corporate vehicle.
• Massive NCD Liability Migration — 63 Series of NCDs
  The scheme involves the migration of 63 series of NCDs issued by HLFL, aggregating approximately ₹19,000+ crore in outstanding amount across 5,177 NCD holders, all carrying AA+ credit ratings (except a few rated AA), at coupon rates ranging from 7.89% to 9.75% per annum. Few Indian mergers have involved the simultaneous migration of such a large and diverse NCD book.  Statutory auditors (S K Patodia & Associates LLP) certified NDL’s capability to service its debt obligations post-merger. An exit option will be provided to NCD holders who vote against the resolution approving the Scheme. This option will be guided by the price and terms specified in the respective information memorandum and applicable laws.
• Promoter Shareholding Dilution — A Feature, not a Bug
  Post-merger, the Hinduja Group’s effective ownership in the enlarged NDL will be diluted (by 2% circa) relative to their current 73% in HLFL, as HLFL’s 27% public shareholders receive new NDL shares. This dilution is designed and welcomed — it creates a larger public float in the resulting entity and may improve liquidity and index eligibility of NDL’s stock. The group appears comfortable with a reduced percentage holding in a much larger and more valuable entity.
• The Bengaluru Land Parcel — A Hidden Asset
  Post-merger, the combined NDL will inherit the Bengaluru land parcel currently sitting in NDL. While NDL’s market value (₹94.7 per share) already prices in some portion of this land value above its NAV (₹69.1 per share), the land parcel represents an optionality for the enlarged entity — it could be used for developing HLFL’s corporate infrastructure, leased, or monetised depending on business needs.

Conclusion

The merger of Hinduja Leyland Finance Limited into NDL Ventures Limited is a landmark transaction in Indian NBFC and capital markets history. It is far more than a straightforward consolidation — it represents the culmination of a decade-long strategic restructuring of the Hinduja Group’s financial services portfolio, the unlocking of a listed platform for one of India’s significant vehicle finance NBFCs, and a sophisticated solution to multiple corporate objectives including equity listing, NCD continuity, minority shareholder liquidity, and group balance sheet rationalisation.

The KPMG valuation report reveals that this transaction was internally codenamed ‘Project Atlantis’ — a fitting name for what is essentially a submerged (unlisted) NBFC rising to the surface (public markets). The transaction is structurally elegant: a profitable, growing NBFC with ₹8,000+ crore of net worth and ₹19,000+ crore of listed debt is being folded into a nearly dormant listed shell that has been purpose-built to receive it.

The proposed merger is a sophisticated corporate restructuring designed to achieve a dual objective: providing the Transferor Company with an immediate listed platform while optimizing the high-value real estate assets held by the Transferee Company. This transaction effectively functions as a “reverse merger” style listing, allowing HLFL’s significant operating scale and robust cash flows to be integrated into a listed framework, thereby simplifying the Hinduja Group’s capital architecture and enhancing liquidity for stakeholders.

If the NCLT approves the scheme and regulatory clearances are obtained, the resulting NDL — essentially HLFL in a listed avatar — will emerge as one of India’s few large listed NBFC-AFCs focused on commercial vehicle financing, with the ability to raise equity capital from public markets for the first time, potentially catalysing its next phase of growth.

The post Reverse-Listing a Giant: The Absorption of Hinduja Leyland Finance by NDL Ventures first appeared on M&A Critique.

While earn-outs are a well-known tool for bridging that gap by tying part of the purchase price to future results, there is a parallel mechanism, far less discussed yet equally powerful, that directly shapes who ends up owning what: the ratchet.

What is a ratchet?

A ratchet is a contractual mechanism that adjusts equity ownership after an acquisition based on how the target company actually performs. Rather than tweaking the headline price, ratchets reshape the cap table — redistributing shares between buyer (Investors) and seller (Founders) depending on whether the business beats, meets, or misses its targets.

At their heart, ratchets are simple in concept, even if the legal drafting can be intricate. The deal documents set agreed performance targets — usually revenue, EBITDA, or growth milestones — to be measured over a defined window post-close (commonly 1 to 3 years). Based on the outcome, the cap table is restructured.

A common misconception is that ratchets are relevant only in distressed scenarios or “down rounds” (i.e., when the target company raises new capital at a valuation lower than the previous round). That is not the case. Properly structured, ratchets are a flexible, performance-linked tool that can be used in a range of situations, including healthy or even bullish deals. Broadly, they take several forms –

1.    Upside ratchet (Founder earn-ups) – Used frequently in PE buyouts to reward outperformance. Founders start with a smaller stake at closing and earn additional equity if they meet predefined financial targets (e.g., EBITDA, ARR in SaaS deals etc.). Ratchets can also be tied to founder retention (continued employment or involvement).

Illustration: Imagine X Pvt Ltd. acquired by a PE fund, whereby founders retain 15% and PE fund acquires 85%. The deal includes an upside ratchet:

If X hits ₹120 crore ARR within 24 months, founders get an additional 5% equity.

• Outcome A: X reaches ₹140 crore ARR.
  • → Founders’ stake increases from 15% to 20%.
  • → Their upside reflects the value they created, after the deal.

• Outcome B: Company Misses Targets – ARR hits ₹110 crore.
  • → No adjustment and Founders remain at 15%

Essentially, this structure is the mirror image of the buyer‑protection ratchet (Downside ratchets), which reallocates equity away from founders when performance falls short.

2.    Anti-dilution floors for founders – Founders negotiate a minimum ownership “floor” — a level below which their stake cannot fall, even after investor anti‑dilution adjustments. Though rare, this is seen where founders have strong leverage (e.g., valuable IP, strong metrics, or competing term sheets). Functionally, this operates like a ratchet preserving a minimum founder stake through future down rounds or recapitalisations.

3.       Symmetric Ratchets – These allow equity to move in either direction — from founders to investors or vice versa, depending on performance against agreed metrics. They create a balanced, performance‑driven risk–reward sharing.

Illustration: Consider G Pvt Ltd. acquired by a strategic investor. The deal includes a symmetric ratchet linked to EBITDA performance over three years:

• If EBITDA exceeds ₹100 crore → 3% equity shifts from investor to founders
• If EBITDA falls below ₹80 crore → 3% equity shifts from founders to investor
• If EBITDA falls in the middle → no shift

When a Ratchet Fires: Translating Economics into Equity

When a ratchet triggers, the agreed performance outcome must translate into an actual change in the cap table and that can happen in any of the ways given below:

1. Issuance of new shares
2. Transfer of existing shares or
3. Alteration of conversion terms of convertible instruments

Each path may appear mechanically simple on paper, but understanding its feasibility is crucial. The elegance of a ratchet in theory often collides with the practical realities of the Companies Act, FEMA, and Income Tax rules.

In the following sections, we’ll break down how each mechanism functions in practice and evaluate their feasibility within the Indian tax and regulatory framework.

1. Issuance of shares

(a) Issue of shares for nil consideration

At first glance, granting additional shares for no consideration appears to be the cleanest way to reflect the economics of downside protection. Conceptually, it resembles a selective bonus issue in favour of the beneficiary of the ratchet.

Companies Act:

Section 63 of the Companies Act, 2013 governs bonus issues and provides that a company may issue fully paid‑up bonus shares to its members. The moot question here is – whether a selective bonus issue i.e., in this case, issuing bonus shares only to founders and not all (or only to investors excluding others) – is permissible?

Section 63(1) states that “a company may issue fully paid‑up bonus shares to its members, in any manner whatsoever…”. A literal reading of the phrase “in any manner whatsoever” creates room to argue that differential or selective bonus allotments among members are not per se prohibited, so long as they are within the broader confines of the Act and general principles of fairness. It is interesting to note that under the Companies Act, 1956, there was no specific statutory provision on bonus issues. However, in 2008, Reliance Power announced a bonus issue in which the promoters effectively waived their entitlement, resulting in a de facto selective outcome that favoured public/retail shareholders.

In the case of HIMCON, a selective bonus was issued only to the State Government, public sector banks and financial institutions. The NCLT (Kolkata) did not ban selective bonus issues outright but stressed that such structures must satisfy tests of fairness, non‑oppression and transparency; where a selective bonus prejudices a class of shareholders, it risks challenge.

In principle, a selective bonus issue may be evaluated, if it demonstrably favours minorities, based on distinct share classes, backed by overwhelming fairness and transparency. That said, there is limited jurisprudence specifically blessing selective bonus issues for private commercial arrangements such as ratchets. Implementing a selective bonus purely to satisfy ratchet mechanics — especially where it disfavors a significant shareholder class — remains legally risky.

FEMA:

Under the FEM (Non‑Debt Instruments) Rules, 2019, shares issued to a non‑resident cannot be at a price below the fair market value (FMV) determined in accordance with the prescribed valuation method.

A nil‑consideration allotment pursuant to a ratchet poses two distinct regulatory concerns:

(a)   Nil‑consideration issue to a non‑resident investor (can be observed in the case of a downside ratchet)

A selective, bonus‑style nil‑consideration issuance in favour of a non‑resident, to the exclusion or detriment of resident shareholders, may be perceived as a disguised under‑pricing of equity or a backdoor transfer of value from residents to non‑residents without compliance with the FMV rules.

(b) Nil consideration issue to residents that dilutes a non‑resident

Conversely, if additional shares are issued for free to resident promoters (or other residents), thereby diluting a foreign investor, regulators may ask whether there has been an indirect, non‑arm’s‑length transfer of value from the non‑resident to residents without any corresponding consideration.

To date, these precise ratchet‑specific fact patterns have not been definitively tested before Indian courts or the RBI, but the risk cannot be overlooked.

Income Tax:

From a tax perspective, Indian courts have generally viewed pro‑rata bonus issues to be tax neutral:

• In Pr. CIT v. Dr. Ranjan Pai [2021] 124 taxmann.com 241 (Karnataka HC), the Court observed that Section 56(2)(x) of the Income-tax Act, 1961 (now reflected in Section 92(2)(m) of the Income Tax Act, 2025) does not apply to a bonus issue. The reasoning was that any gain to the shareholder from receiving bonus shares is offset by a corresponding reduction in the value of their existing shares; the company’s funds remain within the company, and there is no transfer of property to the shareholder.
• Similarly, the ITAT Mumbai in Sudhir Memon HUF v. Asstt. CIT [2014] 45 taxmann.com 176 held that where bonus shares are issued pro‑rata, there is no property “received” in the sense contemplated by Section 56 because the shareholder’s proportionate interest in the company remains unchanged.
• In ITO v. Rajeev Ratanlal Tulshyan [2022] 136 taxmann.com 42 (Mum. ITAT), the Tribunal noted that where there is no allegation of tax evasion or abuse, Section 56(2)(x) should not be invoked mechanically.
• In Pr. CIT v. Jigar Jaswantlal Shah (R) [2023] 154 taxmann.com 568 (Gujarat HC), the Court indicated that fresh allotment of shares, per se, should not attract Section 56(2)(x) in the absence of clear evidence of tax avoidance or unjust enrichment.

These authorities collectively support the view that a pro‑rata bonus issue or a bona fide fresh allotment generally does not trigger Section 56(2)(x), provided there is no taxable “property” being received at an undervalue and no abuse.

However, a selective bonus issue in the ratchet context is more nuanced. Where shares are not allotted pro‑rata and certain shareholders obtain a disproportionate benefit, tax authorities may scrutinize whether the selective allotment results in real, quantifiable enrichment of the favoured shareholder and whether there is a tax avoidance motive or abuse of form.

Therefore, while one can argue based on the above jurisprudence that Section 56(2)(x) of the IT Act, 1961 (section 92(2)(m) of the IT Act, 2025) should not apply mechanically to bonus or fresh issues, the commercial rationale and fairness of a selective ratchet‑driven issue must be convincingly documented.

In summary, while this option is theoretically possible and most intuitive, it looks most legally precarious once you actually try to implement it.

(b) Issue of shares for consideration

Companies Act:

Section 62(1)(a) deals with rights issues, i.e., offers made to existing equity shareholders in proportion to their existing shareholding. The section does not explicitly authorise a selective rights issue in favour of only one shareholder. In practice, promoters or other shareholders can renounce their rights in favour of a particular shareholder, effectively allowing that shareholder to increase its stake. However, this is more of a practical workaround than a clean, express statutory route to targeted issuance.

For a clearly selective issuance (e.g., ratchet‑driven top‑up shares to the investor alone), Section 62(1)(c) – preferential allotment may be the more appropriate and robust route. Preferential allotments require a special resolution of shareholders; adherence to prescribed disclosures, pricing, and procedural rules under the Companies (Share Capital and Debentures) Rules, 2014.

FEMA:

If additional shares are issued to a non‑resident, the issue price must not be below FMV as per FEMA valuation norms. A ratchet that conceptually gives “extra” shares to compensate for under‑performance cannot simply use a nominal or arbitrary price lower than FMV on the trigger date. Structuring a ratchet purely through differential pricing (e.g., giving the investor additional shares at a deep discount to FMV when the ratchet triggers) could attract scrutiny as an indirect value transfer from residents to the non‑resident.

If the additional shares are issued to a resident while the non‑resident is diluted, FEMA is less directly engaged on pricing, but one still needs to be cautious about how this might be perceived.

Income Tax:

On the same reasoning as in the selective bonus context, Section 56(2)(x) / Section 92(2)(m) should not automatically apply to fresh allotments, provided there is a coherent commercial rationale and no abusive undervaluation. But where residents receive shares at a substantial discount to FMV with no clear justification, tax scrutiny is likely.

(c) Pre‑issuing ratchet shares into escrow/trust

A frequently discussed variant is to issue the “ratchet” shares upfront, either:

• into an escrow account, or
• to a trustee holding the shares on behalf of the ultimate beneficiary,

With a vesting or release condition linked to the ratchet trigger. If the performance condition is met (or not met, depending on the design), the escrowed or trust‑held shares are released to the intended beneficiary (e.g., the investor or the promoter).

This approach offers some advantages:

• The Companies Act issuance event happens once, at the outset, following normal rules (rights/preferential as applicable).
• At the time of trigger, only a transfer from escrow/trust to the ultimate holder takes place, which can sometimes be easier to manage contractually and procedurally.
• From a FEMA perspective, if the shares are issued at compliant FMV and the escrow/trust arrangement is properly disclosed and documented, the subsequent transfer may be viewed as implementing a pre‑agreed commercial arrangement rather than a new, under‑priced issue.

However, this structure is not free of risk:

• The tax authorities may argue that the economic benefit accrued over time and that the timing of taxation should coincide with vesting/release rather than initial issuance.
• Depending on who is resident/non‑resident at each step, the eventual transfer (from escrow/trust to beneficiary) may need to satisfy FEMA pricing norms, particularly if it involves a transfer from resident to non‑resident or vice versa.
• GAAR‑type arguments could be raised if the escrow/trust is used primarily to sidestep pricing or tax consequences that would have arisen had the ratchet been executed through a direct issue or transfer at the time of trigger.

Overall, while escrow/trust structures can help operationalize complex ratchets, they require careful drafting and valuation support.

2. Transfer of shares

In practice, such transfers almost always happen at nominal or nil consideration, regardless of FMV, because parties view them as fulfilment of an earlier bargain rather than as fresh sales.

The Companies Act, 2013 does not prescribe minimum pricing for private share transfers. As long as the transfer complies with the articles, shareholder agreements and requisite corporate approvals, the Act does not, by itself, dictate price.

Income Tax:

Given that these shares would mostly be unquoted, the consideration is at a minimum required to be benchmarked to the Rule 11UA value. Otherwise, this may trigger capital gains implications u/s 50CA of the IT Act, 1961 (section 79 of the IT Act, 2025) in the hands of the transferor and deemed income implications u/s 56(2)(x) of the IT Act, 1961 (section 92(2)(m) of the IT Act, 2025) in the hands of the transferee. Importantly, the relaxations for start-ups mitigating “angel tax” provisions (super‑premium issues under Section 56(2)(viib) of the IT Act, 1961) do not extend to undervalued secondary transfers triggered by performance ratchets.

This creates a significant asymmetry: a ratchet designed to rebalance economics may, in tax terms, be treated as if one party made a taxable transfer at FMV and the other received a taxable “benefit” equal to the discount from FMV—despite the fact that both see it merely as fulfilment of an ex‑ante contractual bargain.

FEMA:

From a FEMA standpoint, the pricing rules differ based on the direction of cross‑border transfer:

• Resident to non‑resident (R → NR): Transfer price generally must not be less than FMV. A ratchet requiring resident promoters to transfer shares at a steep discount or nil consideration to a foreign investor directly conflicts with this minimum pricing rule.
• Non‑resident to resident (NR → R): There is usually no mandatory minimum price floor; in some cases a maximum cap may apply. Discounted or nil‑price transfers from foreign investors to residents are therefore more feasible from a FEMA pricing standpoint, though still subject to tax and anti‑avoidance scrutiny.

Overall, share transfer–based ratchets are usually the least tax‑efficient and often the most constrained under FEMA when the beneficiary is a non‑resident.

3. Alteration of conversion terms

Of the three mechanisms, altering the conversion terms of existing convertible instruments (e.g., CCDs, CCPS, optionally convertible instruments, or structured convertibles) is often viewed as the most structurally elegant way to implement a ratchet.

Instead of issuing or transferring fresh equity, the ratchet is embedded in the conversion formula of a convertible instrument issued at the time of the original investment. For example:

• At the time of investment, the terms may provide that each CCPS or CCD will convert into 1 equity share (1:1) at a specified time or upon a liquidity event, provided certain performance metrics are met.
• If the company under‑performs or the valuation falls below a threshold (down‑round scenario), the conversion ratio automatically steps up—say from 1:1 to 1:1.5 or 1:2—in favour of the investor.

In effect, the ratchet operates as a built‑in anti‑dilution or price protection mechanism. The investor pays the original subscription price for the convertibles, but the number of equity shares obtained on conversion adjusts based on the agreed formula.

From a Companies Act viewpoint, altering the conversion terms that were already baked into the instrument at issuance, and duly approved at that time (by board and shareholders as required), is relatively straightforward, provided the formula and its triggers are clearly stated upfront. If a post‑facto amendment to terms is required (e.g., to change the conversion ratio after issuance), it may require further board/shareholder approvals.

From a FEMA perspective, the key question is whether the pricing (on conversion) can be said to comply with the minimum pricing norms at the time of issuance. For compulsorily convertible instruments (like CCDs/CCPS) issued to non‑residents:

• The issue terms must be finalised upfront, and
• The resultant equity price on conversion should not be less than the FMV determined at the time of issuance

Properly drafted formula‑based conversion mechanics that are compliant with FEMA at the time of issue have generally been accepted in practice, as long as the floor price at the time of issue adheres to FMV and the formula is not structured to fall below that floor in a manner contrary to FEMA guidelines.

When the conversion ratio improves, say from 1:1 to 1:1.5 – for 1 share, the shareholder receives 50% more than what he originally invested – typically, seen in down rounds. But, a curious question is what is the consideration for those ‘extra’ shares? Typically, conversion is tax neutral u/s 47(x) of the IT Act, 1961 (Section 70 of the IT Act, 2025). The cost of acquisition of the resultant equity shares is usually taken as the cost of the original convertible instrument, apportioned appropriately. Thus, the “extra” shares under the ratchet would not, at the time of conversion, trigger a separate tax event; they simply reduce the effective per‑share cost when computing capital gains on eventual sale.

This route is often favoured by sophisticated investors and counsel for implementing downside protection in India, especially in cross‑border deals.

Summary:

In conclusion, while all three mechanical paths—issuance, transfer, and conversion adjustment—can, in theory, be used to implement ratchets in India, conversion‑based ratchets embedded in existing instruments generally offer the most legally and fiscally defensible route. Fresh issuance and secondary transfers can still be used, but only with carefully calibrated structures and a clear understanding of the attendant regulatory and tax risks.

Done thoughtfully, ratchets can be a sophisticated way to share risk and reward in emerging, high‑uncertainty sectors — but they must be engineered with regulatory realities firmly in view, not just term‑sheet elegance.

This article is written by CA Abhinaya M A, currently working with Price Warehouse & Co LLP, under the Tax and Regulatory practice, specialising in M&A.

You can reach him at – LinkedIn

The post Ratchets in M&A: Navigating the tax and regulatory field in India first appeared on M&A Critique.

Navneet Education Limited (NEL), the Resulting Company, is a prominent public limited company listed on the BSE and NSE and has served as a pioneer in India’s education and stationery sectors since 1959. NEL is a market leader in providing educational content for State board curricula, CBSE, and various entrance examinations, alongside a robust stationery business serving both domestic and international markets. Its extensive portfolio features flagship brands such as “Vikas” and “Gala” for publishing, and “YOUVA” and “HQ” for its paper and non-paper stationery products. In recent years, NEL has aggressively expanded into EdTech, offering digital learning platforms like TopSchool and innovative AI-driven tools such as Navneet AI to empower the educator community.

Indiannica Learning Private Limited (ILPL), the Demerged Company, is a wholly owned subsidiary of NEL that was originally incorporated in 1998 under the name “Encyclopaedia Britannica (India) Private Limited”. The company is primarily engaged in two business segments: Publishing and Digital Products and Trading.

The Demerged Undertaking consists of the Publishing Business, which focuses on creating, marketing, and distributing educational books and printed materials specifically tailored for the CBSE and ICSE curricula. Following the demerger, ILPL will continue to operate its “Remaining Business,” which involves the trading of educational books from various vendors and the acquisition and sale of licenses for educational software solutions.

Transaction Overview

This Scheme is an integrated and complete Composite Scheme of Arrangement under Sections 230 to 232, Section 66 and other relevant provisions of the Companies Act, 2013 rules framed thereunder (including any statutory modification(s) or re- enactment(s) thereof, for the time being in force) for:

• Demerger of Demerged Undertaking ୦୮ Indiannica Learning Private Limited (“ILPL”) INTO Navneet Education Limited (“NEL”); under Sections 230 to 232 of the Companies Act, 2013 and
• Reduction of equity share capital, preference share capital and securities premium ୦୮ Indiannica Learning Private Limited under Sections 66 of the Companies Act, 2013.

Appointed date of the scheme is proposed as 1^st April 2025.

Rationale of Scheme

Over the past decades, Navneet Education Limited has charted an amazing journey and it has emerged as the pioneer of providing educational curricula designed especially for the K-12 segment and beyond. NEL has expanded their offerings from traditional publishing to cutting-edge digital solutions, enhancing education through technology and content creation.

The demerger is proposed as part of a consolidation effort aimed at several strategic and operational goals –

• Strategic Consolidation and Operational Synergies for Publishing Business:
  The publishing businesses of both ILPL and NEL are complementary; while ILPL focuses on CBSE and ICSE, NEL has a strong legacy in State board curricula and entrance exams. Consolidating these into a single entity creates a more comprehensive market offering. It should help the seamless integration of content creation and technological development teams. It also streamlines the organizational structure by reducing management overlaps and preventing cost duplication.
• Growth and Efficiency for Publishing Business:
  Post demerger, the publishing business shall benefit of pooling of financial and human capital. It will help NEL to grow the Publishing Business quickling and efficiently.
• Specialized Business Focus for ILPL:
  ILPL will be able to focus only on its remaining Digital and Trading of Educational Software Business post the transaction.

Other than the above benefits, the scheme also allows for capital reduction of the Demerged Entity i.e., ILPL. The primary motivation for the capital reduction is to undertake financial restructuring to “right size” the company’s balance sheet.

• As of March 31, 2025, the Demerged Company had a significant debit balance in its retained earnings amounting to INR 1,26,77,45,948. The scheme aims to eliminate this debit balance—representing accumulated losses—to the extent of INR 1,26,77,45,942.
• The cancellation of 5,67,14,026 equity shares and 4,90,00,000 optionally convertible preference shares (OCPS).
• Reducing the balance in the securities premium account (INR 21,06,05,682) to nil.

This financial restructuring is a prerequisite that takes effect only after the demerger of the Publishing Business is completed.

CONSIDERATION

The Demerged Company is a wholly owned subsidiary of the Resulting Company, and the entire issued, subscribed and paid-up share capital of the Demerged Company is held by the Resulting Company directly and through its nominees. Upon the Scheme becoming effective, no shares of the Resulting Company shall be issued or allotted to the Resulting Company in lieu of the Resulting Company’s holding in the Demerged Company.

Transfer and carry forward of Income Tax losses

Transfer and carry forward of income tax losses of the demerged Undertaking to the resulting company is one of the primary reasons of the scheme and to ensure that the scheme makes it clear that carrying forward should be allowed and if any amendment in the law or applicability of new law should not be considered as a hindrance to such carry forward. In fact, the Appointed Date of 1st April 2025 is primarily because it falls within the provisions of Section 2 (19AA) of the Income Tax Act, 1961.

The Resulting Company (NEL) is entitled to tax benefits under Section 72A or any other provisions of the Income-tax Act (IT Act).

Any unabsorbed depreciation and losses of the Demerged Undertaking (the Publishing Business) will be treated as the unabsorbed depreciation and losses of Navneet Education Limited as of the Appointed Date.

NEL is entitled to set off and carry forward these specific losses and unabsorbed depreciation.

Accounting Treatment in the books of the Demerged Company and the Resulting Company

In the books of NEL

All assets and liabilities getting transferred as part of the scheme shall be accounted as per the applicable accounting principles as laid down in Appendix C of the Indian Accounting Standard 103 (Ind AS 103) (Business Combination of entities under common control) notified under section 133 of the Act, the Companies (Indian Accounting Standard) Rules, 2015 and/or any other applicable Indian Accounting Standard as the case may be.

In the books of ILPL

Notwithstanding the above, the Board of the Demerged Company in consultation with its statutory auditors, is authorized to account for any of these balances in any manner whatsoever, as may be deemed fit in accordance with the prescribed accounting standards as applicable to the Demerged Company.

Under Section 52 of the Act, the balance in the Securities Premium Account can only be utilized for the purpose specified therein and any utilization of the Securities Premium Account for any other purpose would be construed as a reduction in capital and Section 66 of the Act will be applicable. Such reduction of share capital and securities premium account of the Demerged Company shall be effected as an integral part of the Scheme.

Consequent to the above reduction and the acquisition of the Demerged Undertaking by the Resulting Company, the investment held by the Resulting Company in the Demerged Company shall get reduced to the extent of the capital reduction by the Demerged Company and shall be adjusted against the reserves of the Resulting Company.

The Phygital Consolidation Scheme in 2023

In 2023, Navneet Education Limited (NEL) initiated a Composite Scheme of Arrangement designed to consolidate its digital education operations and streamline its corporate structure. The transaction involved Navneet Education Limited (the Resulting Company), Genext Students Private Limited (GSPL), and Navneet Futuretech Limited (NFL).

The composite scheme was approved for the complete merger of GSPL (a step-down subsidiary) into NEL and the demerger of Edtech business undertaking, specifically the software and digital learning division from NFL (a wholly owned subsidiary) into NEL. The primary goal of this restructuring was to achieve a “phygital” education model by seamlessly blending traditional print publishing with progressive digital platforms. The above scheme was approved by the Mumbai Bench of the National Company Law Tribunal (‘NCLT’), through its order dated 6^th May 2024.

Conclusion

The rollout of the National Education Policy (NEP) 2020 is a major driver, with Navneet aligning its content innovation, pedagogy, and teacher support tools with government initiatives. Navneet Education Limited’s strategy is built on the core philosophy of “Past as Our Pillar, Future as Our Focus,” which aims to reimagine its 60-year legacy to remain relevant in a transforming educational ecosystem.

The Company’s strategy seems to invest in risky and new age businesses through subsidiaries. It allows the same to mature and ensure losses without having a direct impact on the holding company. Once it seems the business has stabilised, it consolidates those businesses into a holding company.

The post Navneet Education Absorbs Indiannica’s CBSE and ICSE Portfolio to Drive Growth Synergies  first appeared on M&A Critique.

Background

Mr. Chandran R (Reg. No. IBBI/RV/04/2019/10668), a Registered Valuer for Land & Building, conducted valuations of immovable assets for M/s Jeypore Sugar Company Ltd. during both CIRP (2019) and Liquidation (2020). The original valuation of one of the assets, termed the Rayagada assets, was ascribed to ₹1,090.54 crores. He later withdrew/marked these assets as ‘Not Valued’, leading to regulatory concerns. A Show Cause Notice was issued on 07.05.2025.

The regulatory scrutiny focused on three reports: an initial report (May 2019), a revised report (October 2019), and a liquidation report (October 2020). The core issue involved the Rayagada assets, which shifted from being valued at over ₹1,000 crore to being excluded entirely from the valuation.

Registered Valuer – Different Valuation Reports

Mr. Chandan R. gave different valuation reports over the years for the immovable assets of JSCo, especially Rayagada Assets. He has relied on legal opinions from Adv. Maheshwar Rao dated 11.05.2019, 13.05.2019 and 24.06.2019. These contained material inconsistencies about:

• Actual land in possession
• Effect of the High Court stay
• Extent of land under litigation

The valuer in his first valuation report in May 2019 relied on older legal opinions even after receiving newer opinions. The Rayagada Assets were valued at ₹1090.54 Crores and the overall realisable value of the immovable assets of JSCo at ₹1368.78 crores. In the Committee of Creditors (CoC) meeting dated 21.10.2019, the valuer was asked to revisit valuations considering legal opinions.

Revised valuation reports submitted by the valuer dated 28.10.2019 noted the realisable value of immovable assets of JSCo at ₹278.24 crores. In this report, the value of Rayagada Assets was marked as not determinable, considering pending Orissa Land Reforms (OLR) proceedings.

Again, on 30.10.2020, in Liquidation Valuation, Rayagada Assets were marked as “not valued” and the realisable value was reduced substantially to ₹166.08 Crores. This again was a substantial reduction from an earlier valuation report. The valuer applied a 55% cumulative discount on the realisable value mentioned in the Oct 2019 report based on:

• Distress sale
• Large land parcel hardship
• Stigma of liquidation
• COVID‑19 impact
• “Additional gloom” factor

Additionally, the valuer issued a letter dated 1^st November 2020 to the Liquidator stating, “Odisha Assets were valued at zero”. This was different from a valuation report which noted Rayagada Assets as “not valued”.

Findings of the Authority

IBBI found the following deficiencies in the approach, systems and procedures followed by the approved valuer.

Improper Exclusion of Rayagada Assets during CIRP

In his first report, Mr. Chandran valued the Rayagada assets at ₹1090.54 crore. However, he later withdrew this valuation, claiming the value could not be determined due to pending litigation under Orissa Land Reforms (OLR).

The Authority found this exclusion violated Section 36 of the IBC, which mandates that assets subject to ownership determination by a court must still be part of the liquidation of estate and require valuation. Mr. Chandran admitted there were no material developments or new legal improvements to justify the revision. He surprisingly relied on an earlier legal opinion to justify withdrawing the value in his revised report.

Deficient Valuation Methodology

During the liquidation process, Mr. Chandran estimated the realisable value by applying a 55% discount to the fair market value. The Authority found his methodology “questionable” and “deficient” because –

• Valuer had applied Overlapping Discounts of distress sale, stigma of CIRP and COVID-19.
• Valuer failed to verify contradictions ascertain factual accuracy.

Compromised Independence and Integrity

The most severe findings concerned Mr. Chandran’s professional conduct and independence. He revised the valuation and issued a letter on CoC direction without proper justification. The valuer admitted issuing a letter claiming Odisha assets were valued at zero, without adequate reason, which contributed to judicial misunderstandings. The sequence of events (CoC request → revised valuation → zero‑value letter) raised concerns of influence.

Regulatory Framework Applied and Deficiencies

Insolvency and Bankruptcy Code (IBC), Section 36(3)(e):

Assets under ownership dispute remain part of the liquidation estate and must be valued. Liquidation of the estate includes assets subject to ownership determination by a court/authority; such assets are not to be excluded from the estate and require valuation.

IBBI Liquidation Regulations, Reg. 35(3):

Valuers must independently estimate realisable value after physical verification. There was a failure to independently provide realisable value (by excluding Rayagada and lowering land values via arbitrary discounts).

Companies (Registered Valuers & Valuation) Rules, 2017:

• Rule 7(g): Compliance with conduct standards was not followed.
• As per Rule 15 & 17, there are enough grounds for disciplinary action.
• Model Code of Conduct (Annexure I): The authority came to the conclusion that Clause 6 (high standards/due diligence), Clause 12 (objectivity, no undue influence), Clause 14 (independence) were not followed.

The Order and Final Directions

The precedence for the suspension of a registered valuer is established through both regulatory rules and specific disciplinary orders issued by the Insolvency and Bankruptcy Board of India (IBBI). The legal basis for suspension is found in Rule 15 of the Companies (Registered Valuers and Valuation) Rules, 2017, which empowers the Authority to suspend registration for violating the provisions of the Act.

The Authority concluded that Mr. Chandran failed to exercise independent professional judgment and acted under external influence

• Suspension:
  His registration as a Registered Valuer is suspended for two years, effective 30 days from the order date.

• Further Investigation: The Board was directed to further investigate the circumstances surrounding the “zero value” letter and why Mr. Chandran failed to provide both “Fair Value” and “Liquidation Value” in his early reports as required by regulations.

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GAMCO Limited (“GAMCO” or Transferee Company, formerly known as Visco Trade Associates Limited) is a Kolkata-based, non-deposit-taking Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India since 1998. The company operates as a multi-asset management enterprise with a strategic focus on capitalizing on the “India Growth Story” through a diversified portfolio that includes equity investments, real estate, warehousing infrastructure, and glass manufacturing.

As of December 2025, GAMCO manages results for 7 subsidiaries and 6 associate companies, having expanded through acquisitions and internal restructuring. Recently, the acquisition of Uma Properties & Traders Limited (~96%) was completed in October 2025, which officially added it to the list of subsidiaries.

Complify Trade Private Limited (“CTPL” or Transferor Company), a wholly owned subsidiary of GAMCO, is used for managing surplus funds and trading activities. Hodor Trading Pvt Ltd was a wholly owned subsidiary of GAMCO until it was merged with CTPL in FY 2024-25.

Purpose & Rationale for the Merger

The primary benefits expected from the merger include:

• Enhanced Financial Strength and Flexibility:
  As CTPL is a wholly owned subsidiary with surplus funds utilized in various financial instruments, the merger aims to create greater combined financial strength and more efficient management of these resources to maximize shareholder value.
• Significant Increase in Net Worth:
  Upon approval of the amalgamation, the net worth of GAMCO is expected to increase by Rs 4,243.37 lakhs.
• Operational Synergies and Efficiency:
  The consolidation of activities is intended to lead to operational synergies, greater productivity, and more economical operations to support future growth.
• Cost Savings and Economies of Scale:
  The merger is expected to result in economies of scale and a reduction in overheads, including administrative and managerial expenditures, through simplified business processes and operational rationalization.
• Pooling of Resources:
  The companies will pool their managerial, technical, and financial resources, which is expected to increase the combined entity’s overall competitiveness.
• Simplified Regulatory Compliance:
  The amalgamation will lead to a significant reduction in the multiplicity of legal and regulatory compliances that both companies are currently required to carry out separately.
• Protection of Creditor Interests:
  The rationale notes that creditors will not be adversely affected by the merger, as there is no compromise involved in the scheme.

Appointed Date & Effective Date

• The scheme defines Appointed Date as 1st day of the relevant quarter of the financial year in which the sanction order is passed. This is unique and normally a specific date is considered as
• Effective Date:
   The date on which the RD/NCLT order is filed with the ROC.

Consideration

Since CTPL is a wholly owned subsidiary, no shares will be issued by GAMCO. The entire share capital of the Transferor Company held by the Transferee Company stands cancelled.

Authorised Capital Reclassification

Transferor’s authorised share capital is merged into the Transferee’s authorised share capital automatically. GAMCO’s authorised capital increases by ₹27,00,000 without extra stamp duty or fees.

Accounting Treatment

• Pooling of Interest Method (Ind‑AS 103) to be applied.
• Assets & liabilities recorded at existing carrying values.
• Reserves of the Transferor Company are preserved in the same form.
• Investment in a subsidiary is cancelled against reserves.
• Inter-company balances are eliminated.
• Complify Trade Private Ltd. stands dissolved without winding up on the Effective Date.

FAST TRACK Merger – Action by Transferor and Transferee companies

Both the transferor and the transferee companies hold a Board Meeting to approve:

• the Draft Scheme,
•  Approve issuance of Form CAA-9 (notice inviting objections)
•  Approve sending notice to ROC/OL/IT Department
•  Fix dates for members’ and creditors’ meetings
• Authorize directors and professionals for filings

Post the first board meeting, the following steps need to be taken:

Merger Approval Steps with Authorities

1.    The companies send notice of the proposed scheme (Filing of Form CAA-9) to:
Registrar of Companies (ROC), Official Liquidator (OL), Jurisdictional Income Tax Department and any other authority concerned. These authorities have 30 days to provide objections or suggestions. If no comments are received, then it means they have no objections or suggestions in relation to the scheme filed.

2.    After receiving comments (if any), companies incorporate suggestions and finalize the scheme. Prepare and approve:

• Declaration of Solvency (Form CAA-10)
• Statement of Assets & Liabilities
• Auditor’s Report on the Statement of Assets & Liabilities

3.    Member and Creditor Approvals

• Members’ Approval – EGM Hold General Meeting. The scheme must be approved by 90% or more of the total shareholding.
• Creditors’ Approval Obtain written NOC from: Secured creditors Unsecured creditors Representing 90% in value. NOC must be on stamp paper in the prescribed format.

4.    File Form MGT-14 for approval of resolutions passed under Section 117. Attach the special resolution and explanatory statement.

5.    File Form CAA-11 with the Regional Director (RD), attaching: Final Scheme Results of meetings NOCs from creditors Declaration of Solvency (CAA-10) CAA-9 and objections received.

6.    Examination by Regional Director (RD) The RD reviews the scheme along with comments from ROC/OL/IT. If satisfied → RD issues approval order in Form CAA-12 If objections remain unresolved → RD refers the scheme to NCLT in Form CAA-13.

7.    Filing of INC-28 Upon approval, both companies must file INC-28 with ROC, attaching the RD order. Once INC-28 is filed, the scheme becomes effective, and:

Conclusion

It is a simplified procedure for small companies and a merger between wholly owned subsidiary and a holding company. Whether these rules can be applied for demerger or not needs to be clarified.

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