Court rejects inclusion of control premium and brand value in share valuation, orders 9% interest for 12 months.

The High Court dismissed the appeal against the refusal of an interim injunction on the transfer of shareholding and vacated the ad interim injunctions. The valuation of shares was based on the intrinsic worth of the companies, giving more weight to earnings value. The court rejected the inclusion of a control premium and brand value in the valuation, upholding the valuer's methodology. Interest at 9% was ordered to be paid on the share value for 12 months. The settlement directed payment of Rs. 8.24 crores with interest within four weeks, dismissing suits and proceedings without costs.

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Issues Involved:
1. Interim Injunction on Transfer of Shareholding
2. Valuation of Shares
3. Objections to Valuation Report
4. Inclusion of Control Premium
5. Inclusion of Brand Value in Valuation
6. Method of Valuation
7. Payment of Interest

Detailed Analysis:

1. Interim Injunction on Transfer of Shareholding:
The petitioners sought an interim injunction to restrain the respondents from transferring/exchanging their shareholdings in the defendant companies pending the disposal of the suit. The trial court dismissed the application for an interim injunction in O.S. No. 551 of 2000, vacating the ex parte injunction granted earlier. However, the ad interim injunctions in the other two suits remained in force. The High Court dismissed the appeal against the refusal of injunction and allowed the appeals filed by the aggrieved defendants, vacating the ad interim injunctions.

2. Valuation of Shares:
The terms of settlement required the valuation of the intrinsic worth of the two companies and the value of 4.91% shares held by the petitioners. The valuation was to be done by Shri Y.H. Malegam, Chartered Accountant, who considered three methods of valuation: asset-based, earning-based, and market-based. The intrinsic value was determined by giving a higher weightage to earnings value (2/3) compared to asset value (1/3).

3. Objections to Valuation Report:
The petitioners objected to the valuation report, arguing for the inclusion of a control premium, the value of "Vertin" and "Colospa" brands, and the adoption of the discounted cash flow (DCF) method. They filed IA Nos. 2, 3, and 4 of 2002 to submit a supplementary valuation report addressing these points.

4. Inclusion of Control Premium:
The petitioners contended that the 4.91% shareholding should include a control premium as it formed part of the promoters' shareholding of 25%. The valuer refrained from deciding this contentious legal issue, and the court concluded that the terms of settlement did not explicitly require the addition of a control premium. The court emphasized that such an important aspect would have been expressly mentioned if agreed upon by the parties.

5. Inclusion of Brand Value in Valuation:
The petitioners argued for the inclusion of the value of "Vertin" and "Colospa" brands, which they claimed continued to be the property of DIL. The valuer excluded these brands, stating they were not assets of DIL as they had been transferred to Solvay Pharmaceuticals BV. The court upheld this exclusion, noting that the legality of the transfer was an extraneous issue not affecting the valuation of DIL's shares.

6. Method of Valuation:
The petitioners criticized the non-adoption of the DCF method, which the valuer described as a commonly accepted method for future earnings-based valuation. The valuer chose to capitalize past earnings due to the lack of reliable independent projections. The court found the valuer's reasons valid and noted that the profit-earning capacity of the company had not been excluded from consideration. The valuation was deemed to have followed standard methods and principles.

7. Payment of Interest:
The court directed the respondents to pay interest at the rate of 9% on Rs. 8.24 crores (the value of 4.91% shares) for a period of 12 months. This direction was given considering the bona fide nature of the dispute and the fact that the respondents retained the money during this period. The court dismissed IA Nos. 2, 3, and 4 of 2002 but included the interest payment in the final order.

Conclusion:
The S.L.Ps. were disposed of in terms of the settlement, with the direction to pay Rs. 8.24 crores along with 9% interest for 12 months within four weeks, subject to the receipt of share transfer forms and other formalities. The suits and proceedings mentioned in the memorandum of settlement were dismissed as withdrawn, and no order as to costs was made.

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