2000 (3) TMI 930 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the amalgamation order.
2. Interest of the shareholders of AIL.
3. Non-convening of creditors' meeting.
4. Valuation of assets of AIL.
5. Non-disclosure of shareholding interests.
6. Amalgamation of profit-making companies into a loss-making company.
7. Preliminary objection regarding the existence of AIL post-amalgamation.

Issue-wise Detailed Analysis:

1. Validity of the Amalgamation Order:
The appellants challenged the order dated 6-12-1999, which sanctioned the amalgamation of Arvind Intex Ltd. (AIL), Arvind Cotspin Ltd. (ACL), and Arvind Polycot Ltd. (APL) into Arvind Products Ltd. (APRL). The learned Single Judge had considered objections from various shareholders, including the appellants, before sanctioning the scheme.

2. Interest of the Shareholders of AIL:
The appellants argued that the amalgamation was not in the interest of AIL's shareholders due to an unfavorable share exchange ratio and lack of proper information. However, the court found that the scheme had been approved by a requisite majority of shareholders. Specifically, 419 out of 440 shareholders representing shares worth Rs. 4,90,70,110 supported the scheme, while only 15 shareholders opposed it. The court presumed that shareholders are aware of their interests and would not have approved the scheme without understanding its implications.

3. Non-convening of Creditors' Meeting:
The appellants contended that no creditors' meeting was convened. In response, it was noted that the scheme was duly advertised, and institutional creditors like ICICI, UTI, and IDBI had sanctioned the scheme. No creditor objected to the scheme, indicating their approval.

4. Valuation of Assets of AIL:
The appellants questioned the valuation methods used by Chartered Accountants C.C. Chokshi & Co. and Bansi S. Mehta & Co., claiming they did not follow accepted accounting principles. The court observed that different methods are typically used for valuing different assets and found no fault in the valuation process. The appellants failed to provide an alternative valuation report to substantiate their claims.

5. Non-disclosure of Shareholding Interests:
The appellants alleged non-disclosure of Shri Sanjay Lalbhai's substantial shareholding in APRL. The court found that these details were communicated to the objectors, as noted by the learned Single Judge, and thus, there was no non-disclosure of relevant facts.

6. Amalgamation of Profit-making Companies into a Loss-making Company:
The appellants argued against merging profit-making companies (AIL, ACL, APL) into a loss-making company (APRL). The court noted that the transferee company was a shell company, and the merger was intended for synergic advantages. The shareholders had approved the scheme, and the court should not override their decision unless the scheme was found to be unconscionable, unfair, or illegal.

7. Preliminary Objection Regarding the Existence of AIL Post-amalgamation:
The respondent's counsel raised a preliminary objection, asserting that AIL no longer existed as it had already merged into APRL. The court acknowledged that it would be impossible to restore the pre-amalgamation status and thus found the appeal non-maintainable.

Conclusion:
The court concluded that the learned Single Judge had not committed any error or illegality in sanctioning the scheme. The objections raised by the appellants lacked substance, and the court should not interfere with the shareholders' decision. The appeal was rejected with no order as to costs, and the request for staying the implementation of the order was also denied, considering the amalgamation had already been executed.