A division bench comprising Justices Vineet Kothari and MS Ramesh before whom arguments prevailed on Friday based on a plea moved by AUM Capital Market Pvt Ltd., a retail investor holding shares in LVB, offered the interim direction after accounting that entire share capital value of LVB shareholders reduced to zero following the merger. However, making it clear that there would be no stay on the amalgamation, the bench directed DBS to create a separate reserve fund as security in its books of account on face value of shares of LVB.
“Completely reducing the shares is not an exercise which has happened in the public domain and the shareholders do not appear to be aware why this is so,” the bench observed . The bench led by Justice Vineet Kothari also noted that the amalgamation seems to have been done in just a week between November 17 and November 25, while keeping the LVB shareholders in the dark.
Appearing for AUM, senior counsel Arvind Datar submitted that there has never been a case where the shareholders’ value has been completely wiped out. He also pointed out that the merger has been done in contravention of Section 45 of the Banking Regulation Act, 1949 and Section 237 of the Companies Act which provides for shareholders of the transferor company to be given corresponding shares and voting rights in the transferee company. Senior advocate PS Raman also appearing for LVB submitted that it was a healthy bank, except for some accumulation of debts and the merger has come about without any reasons being assigned.
Senior Advocate ARL Sundaresan appearing for DBS said that once the RBI frames an amalgamation scheme in public interest, DBS Bank enters into it on the premise that old shareholders are not there. “If a stay is granted there would be two sets of shareholders which cannot be serviced by the bank,” he stressed. Advocate Ravi Kadam appearing for RBI said the merger was not sudden and for two years, LVB and its promoters tried to bring different parties to strengthen its financial position.