NCLT grants approval to capital reduction proposal of Mahindra Homes

22 Nov 2024 CW Team

The National Company Law Tribunal (NCLT) has approved a capital reduction proposal of Mahindra Homes, a subsidiary of Mahindra Group’s real estate and infrastructure development company Mahindra Lifespace Developers. Mahindra Homes had sought confirmation of a ‘special resolution’ passed by its equity shareholders proposing a reduction in the company's issued, subscribed, and paid-up equity share capital. This reduction would be achieved by cancelling and extinguishing a portion of series B and series C equity shares, held respectively by global investment major Actis and listed realty developer Mahindra Lifespace Developers. The company has clarified that advances worth nearly Rs 2.14 billion received from homebuyers were treated as current liabilities under Indian Accounting Standard (IND AS). These funds are categorised as revenue and will be adjusted as properties are handed over. Mahindra Homes assured that the reduction would not impact operations or project timelines, especially under RERA compliance. Notices were served to homebuyers as financial creditors, further safeguarding their interests.In July, the NCLT had directed Mahindra Homes to notify homebuyers regarding its proposed reduction of equity share capital. The company through advocates Hemant Sethi and Devanshi Sethi of Hemant Sethi & Co had proposed reducing its share capital by utilising the securities premium account and assured compliance with Section 52 of the Companies Act, 2013, which mandates that any use of the securities premium account for purposes other than specified--such as issuing bonus shares, writing off expenses, or share buybacks--must be treated as a capital reduction requiring NCLT approval. “Mahindra Homes, our joint venture between Mahindra Lifespace Developers and Actis, has received approval from NCLT for the capital reduction scheme, and this step aligns with MHPL’s strategy for efficient capital allocation,” the developer said in response to ET’s query. Following the reduction, the paid-up equity capital stands revised to Rs 84.45 lakh from Rs 86.85 lakh, and the securities premium balance is reduced to Rs 2.15 billion from Rs 3.35 billion. The shareholding structure and promoter composition remain unchanged. Mahindra Lifespace Developers had incorporated the special purpose vehicle, Mahindra Homes, in June 2010 with an objective to develop residential projects in key markets across India. The joint venture was formed with an economic interest of 50:50 between Mahindra and Actis. This ruling sets a precedent for future cases involving capital reduction and restructuring, highlighting the critical role of thorough communication with all affected parties, particularly homebuyers, in maintaining trust and compliance within the real estate sector.

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