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It is also admitted that in December 1999 a Technical Expert KSA Technopak was appointed as consultant to carry out techno-economic viability study of the company at the instance of some of the lenders, including the objectors. Thereafter, in January 2000 the Company appointed Jardine Fleming (P.) Ltd. a firm of financial consultants to devise the package for revival of the company. After receipt of the report of the said consultants in March 2000, two meetings of the lenders of the company were held and a Core Group of the major lenders by the name 'Steering Committee' ('SC') was formed to examine reports of the experts of majority lenders, including the objectors. The SC which met five times all the representatives of the objectors attended these meetings but refused to be the part of the SC as members thereof. Request of the objectors for better terms as it is revealed from Pages 00005, 6 and 49 of Document File, Part-I was refused by the SC. The objectors raised allegation of illegality of sale and lease back transaction, spin-off garment division and diversion of funds. The objections raised by the objectors did not find favour with the SC which consisted of foreign currency lenders also, and the SC approved terms of restructuring.

28. One more objection under the head of Cloak to cover up and legitimize fraud is the spin off of the Garment Division by the company. It is submitted on behalf of the objectors that between the years 1997-98, 1998-99 and 1999-2000 the company diverted up to Rs. 395 crores to its subsidiaries as loans and investments which in fact amounts to spinning off of the cash available with the company. The garment business spin-off is reflected from para-1 of Exhibit 'C-I' which is at page-327. Perusal of the same suggests the details of sale of Garment Division by the company for Rs. 361 crores to Arvind Brands Ltd. (ABL). It further suggests that the company owns the brands New port. Flying Machine, Ruggers, Excalibur and Ruf-N-Tuf; that the company under the loan agreement was prohibited, without prior written consent of the agent (Objector No. 2) acting on instructions of the majority of Syndicate other than in the ordinary course of business and for full market consideration, from selling, transferring, lending, surrendering or otherwise disposing of its material undertakings or any of its material assets and despite being such prohibition the petitioner sold the Garment Division to ABL. Exhibit 'C-2' at page-332 is in respect of Information Memorandum for Creditors by Jardine Fleming relating to garment business spin-off. It is suggested therefrom that the garment business spin-off involved three entities, AML's garment division, Arvind Clothing Ltd. (ACL) and Arvind Fashions Ltd. (AFL). The performance of the AML garment division, ACL and AFL have been detailed on pages 333 to 335. It is suggested from the transaction details that the existing shell company Evergreen Growfine (P.) Ltd. was renamed as Arvind Brand Ltd. (ABL), which has been taken over by the garment division of AML and held 100 per cent stake each in ACL and AFL and the AML engaged the services of Arthur Andersen to assist it in valuation, identifying investors and negotiating the transaction. The transaction structure involving both selling AML's garment business to ABL and selling ABL's 40 per cent equity to the potential investors. The AML had two offers, one from an international private equity fund and the other from ICICI. ICICI's valuation and terms were superior to the former and the AML decided to favour the ICICI.

30. Exhibit-'D' at page 343 is the letter dated 10-3-2000 of the petitioner Company to The Bank of Nova Scotia Asia Ltd., Singapore and to Deutsche Bank AG, Hong Kong (both the objectors). It is suggested therefrom that the meeting of the off-shore lenders was convened on 3-3-2000 and some of the lenders present requested for information on certain matter and the information provided related to assets cover ratio. The position of asset cover ratio as on 31-3-1998, 31-3-1999 and 31-12-1999 was attached with the said letter. That the information was also supplied of directors' resolutions on sale and leaseback thereof. The information provided contain relating to sale of fixed assets and leaseback related to period 24-9-1998 for the first sale and lease back of September 1998, 16-3-1999 and 25-3-1999 and both the above transactions were noted by the Board of Directors on 29-5-1999 and 14-9-1999. That the information was also supplied as regards assets sale and leaseback with the list of plant and machineries in respect of which sale and leaseback transactions were executed with ICICI group also attached with the said letter. The information was also supplied as regards Regulatory Returns on end-use which include details of returns filed with Reserve Bank of India in form ECB 2, including inter alia the end use of the USD 75 million syndicated loan also attached, further slating that the end use amount stated in the returns filed with RBI have been audited by the statutory auditor of the company. That the details were also furnished as regards two offers of garment spin-off, further stating that the comparative salient features of the two alternative garment spin-off transactions are provided in Annexure-D and the terms offered by ICICI Ltd. were superior in terms of valuation, milder covenants and trunkey financing package. The details were also furnished as regards Security provided on lease transactions with ICICI group. Said letter also states that no security was provided for lease transaction in September 1998. The transaction of March 1999 and December 1999 were secured by (1) the company and its subsidiaries were to pledge certain equity shares they held in erstwhile Arvind Polycot, Arvind Intex and Arvind Cotspin. These companies have now been merged into Arvind Products. Post merger the holding is 70 per cent of which 54 per cent has been pledged; (2) the promoters of Arvind Mills were to pledge 5 per cent of their equity holding in Arvind Mills immediately and other 10 per cent as and when released from their current encumbrances and the mill company was to create charge on certain unencumbered commercial real estate and movable assets of the value of approx. Rs. 376 million,

As observed earlier, a Sub Committee has scrutinised the books of account of the company and transactions were checked and nothing was found objectionable in any of the transactions entered into by the company and the Sub Committee approved the Financial Projections. It is pertinent to note that the objectors though requested to join the Sub Committee to scrutinise the books of account of the Company, have declined to join the Sub Committee. Document File Part-II (page-271) Appendix II and information Memorandum of Document File Part-III (page-875) suggests the inventory, advances, other loans and advances current assets, investments by each of the Company, investment in bonds and investment in other equity shares etc. Perusal of the same suggest that there is no transfer of funds/assets to AIL, and that, the company transferred amount of its investments in AIL for a total consideration of Rs. 1,752.3 million in the financial year 1998-99. Most of the investments were in AIL. While total exposure of the company to AIL was Rs. 2,506 million at the end of December, 1999. It is suggested from sub para 4.2 that major investments transferred included Arvind Products Ltd., Arvind Clothing Ltd., Arvind Fashions Ltd., Arvind Intex Ltd., Arvind Polycot Ltd. and Arvind Cotspin Ltd. Convertible debentures, loans and receivables, all from Company paying for acquisition. That, Arvind Intex, Arvind Polycot and Arvind Cotspin were subsequently merged into Arvind Products Ltd., as pointed out above. That, neither the merger nor sale of investments had any positive or negative impact on the company, and after above merger Arvind Products Ltd. will become 70 per cent owned by the company through AIL. All these information relating to all the transactions was available with the members attending the meeting, since information memorandum was circulated to all the members which also included information relating to Spin-off of garment business as pointed out above. The record does not suggests any details have been asked by any of the secured creditors or for that matter unsecured creditor or working capital lenders relating to the diversion of funds namely Spin-off garment business. It is also suggested that there was discussion in August, 1999 with the Syndicate about transaction entered into by the petitioner company. The Document File Part-II (page-00449) para-43 suggests that there was sufficient knowledge by correspondence to the Syndicate about the transactions relating to sale/the garments spin-off transactions. It is also suggested that there was extensive correspondence relating to the proposed Spin-off of Garment division which would bestow knowledge on the Syndicate about the sale of garment business.