2010 (8) TMI 163 - HC - Companies Law

Court rules lack of fair value method makes consent order unenforceable under Companies Act.

The court held that the lack of a determined fair value or mechanism rendered the consent order unenforceable for the sale of shareholding under the ... Whether the proceedings taken by the Board on 12-2-2008 and 13-5-2008 amounts to a concluded contract? Held that:- the order of the learned Board holding that there was a conclusive settlement and, thus, execution by the respondent is maintainable before the Board is not sustainable in law. The order passed by the learned Tribunal on 13-5-2008 regarding willingness of the appellants to go out of the company at fair value does not amount to a concluding executable agreement. In the order dated 13-5-2008, the appellants have expressed their willingness to go out of the company for a fair value. What would be the fair value was not agreed to which is apparent from the subsequent order dated 21-5-2008 when a sum of ₹ 12 crores offered by the respondents was not accepted. Order dated 25-2-2009 passed by the Board is not sustainable in law. The Board has wrongly presumed that the proceedings before it stands settled and led to an executable order in favour of the respondents. Consequently, the application filed by the respondents under section 634A of the Act is dismissed. The matter is remitted back to the Company Law Board to decide the petition filed by the appellants under sections 397 and 398 of the Act in accordance with law. Issues Involved:Interpretation of consent orders for sale of shareholding at fair value under Companies Act, 1956.Detailed Analysis:Issue 1: Consent Order and Executable AgreementThe appellant argued that an executable order was necessary for enforcement under section 634A of the Companies Act. They contended that without a determined fair value or mechanism, no executable order existed. The respondents claimed that the consent order for fair value sale was conclusive and enforceable. The court held that mere willingness to sell at fair value did not amount to a concluded executable agreement. The lack of agreement on fair value or determination mechanism rendered the consent order unenforceable.Issue 2: Validity of Consent DecreeThe court analyzed the proceedings under the Indian Contract Act, emphasizing the need for certainty in agreements. It cited examples from the Act to illustrate void agreements due to uncertainty. The court found that the lack of agreement on fair value determination method made the consent order void. The court rejected the argument that fair value could be determined by a Chartered Accountant without explicit agreement by the appellants.Issue 3: Precedents and Case LawThe court examined relevant case law, including Kuki Leather (P.) Ltd. v. T.N.K. Govindaraju Chettiar & Co. and Smt. Shanti Devi Mehra v. Gyan Prakash Mehra. It noted that these cases involved different circumstances and did not support the respondents' argument. The court also discussed Ahmadasahab Abdul Mulla v. Bibijan, clarifying its lack of relevance to the present case.Conclusion:The court ruled that the Board's presumption of a settled proceeding leading to an executable order was incorrect. The application under section 634A of the Act was dismissed, and the matter was remitted back to the Company Law Board for a decision on the petition under sections 397 and 398 of the Act. The judgment emphasized the necessity of a clear agreement on fair value and determination mechanism for consent orders to be enforceable under the Companies Act.