2023 (4) TMI 1141 - AT - Companies Law

NCLT upholds valuer's appointment in Company Appeal, stresses expert judgment in valuation matters

The National Company Law Tribunal (NCLT), Hyderabad Bench-I, dismissed the Company Appeal challenging the appointment of a valuer for share valuation. The ... Valuation of shares - Appointment of registered valuer - Oppression and mismanagement - Interim orders under company law - Effect of tribunal orders on rights and liabilities - Admissions recorded in proceedings - Tribunal's supervisory role over valuationValuation of shares - Appointment of registered valuer - Oppression and mismanagement - Validity of the NCLT order directing appointment of a registered valuer and directing valuation of shares prior to any final adjudication on allegations of oppression and mismanagement. - HELD THAT: - The Appellate Tribunal held that a direction for appointment of a registered valuer and for submission of a valuation report is within the NCLT's power as an interim or supervisory measure and does not amount to final determination of claims of oppression or mismanagement. The Tribunal observed that valuation is primarily an expert exercise and the tribunal's role is peripheral and supervisory; valuation reports assist determination of remedies but do not themselves decide entitlement on allegations under Section 241. The court further noted that an order directing valuation, to be considered by the NCLT after report submission, does not resolve disputed factual questions or finally adjudicate rights arising from allegations of oppression. [Paras 33, 34, 35, 36]The impugned order appointing a registered valuer and directing valuation is valid as an interim/supervisory step and does not pre-empt or decide the question of oppression and mismanagement.Effect of tribunal orders on rights and liabilities - Interim orders under company law - Whether the impugned order affects the Appellant's rights and liabilities and is therefore appealable/maintainable. - HELD THAT: - On review of the record and surrounding facts, the Appellate Tribunal concluded that the NCLT's direction to appoint a valuer and to obtain a valuation report does not alter or adjudicate the Appellant's substantive rights or liabilities. The Tribunal applied the principle that administrative or interlocutory directions that do not affect rights or liabilities are not a ground for a substantive appeal and found no prejudice to the Appellant from the impugned order. Consequently, the appeal was held to be without merit on maintainability and substance. [Paras 60]The impugned order does not affect the Appellant's rights or liabilities; the appeal is not maintainable on that ground and fails on merits.Admissions recorded in proceedings - Binding effect of statements/ admissions recorded in the NCLT proceedings and the Appellant's opportunity to challenge the record. - HELD THAT: - The Tribunal reiterated that statements of fact recorded in the Tribunal's order form part of the judicial record and are conclusively binding unless a party promptly seeks correction before the same forum. The Appellant's plea that there was no consent or agreement regarding valuation was addressed by reference to admissions in the counter-affidavit and the hearing record; the Tribunal observed that it was for the Appellant to seek correction of the record if it was incorrectly stated during the hearing. [Paras 57, 58, 59]Recorded admissions and statements in the proceedings operate as evidence against the maker; the Appellant should have sought correction before the Tribunal and cannot now overturn those recorded facts.Tribunal's supervisory role over valuation - Valuation of shares - Extent to which a tribunal may interfere with or second-guess a valuer's methodology and report. - HELD THAT: - The Tribunal emphasized that valuation is not an exact science and lies within the expertise of the valuer. A tribunal will not substitute its view for that of an expert valuer except where there is manifest unreasonableness, fraud, or a contrived valuation that artificially depresses value. Valuation may be impeached for fraud, mistake or miscarriage of justice, but absent such compelling circumstances the valuer's opinion provides a reasonable basis for valuation. [Paras 37, 38, 39, 41]The NCLT's appointment of a valuer and acceptance of expert valuation methodology will ordinarily be respected; interference is limited to cases of manifest fraud or gross unreasonableness.Final Conclusion: The Company Appeal is dismissed. The Appellate Tribunal affirmed that the NCLT's direction to appoint a registered valuer and obtain a valuation report was a permissible interim/supervisory measure that does not affect the Appellant's substantive rights or liabilities; recorded admissions in the proceedings stand unless timely corrected before the Tribunal; interference with a valuer's opinion is permissible only in cases of manifest fraud or unreasonableness. The connected IAs are closed; no costs. Issues Involved:1. Validity of the order for the appointment of a registered valuer.2. Relevance of oppression and mismanagement findings for valuation orders.3. Alleged consent and procedural fairness in the appointment of the valuer.4. Impact of the impugned order on the rights and liabilities of the appellant.Summary:1. Validity of the Order for the Appointment of a Registered Valuer:The Appellant challenged the impugned order dated 29.07.2022 by the National Company Law Tribunal (NCLT), Hyderabad Bench-I, which appointed Mr. Mallikarjuna Setty Nethi as the valuer for the valuation of shares of the 2nd Respondent Company. The Tribunal directed the valuer to submit the report within one month, with the fee to be borne equally by both parties. The Appellant contended that the Tribunal could not order valuation without a finding of oppression and mismanagement under Section 241 of the Companies Act, 2013.2. Relevance of Oppression and Mismanagement Findings for Valuation Orders:The Appellant argued that an order for valuation could only be made if the Tribunal found the Appellant's conduct to be oppressive under Section 241. They also contended that the impugned order was premature, as it determined matters pertaining to final relief without addressing disputed questions of fact and entitlement.3. Alleged Consent and Procedural Fairness in the Appointment of the Valuer:The Appellant maintained that the impugned order erroneously presumed their consent and lacked reasoning for the appointment of the valuer, rendering it an unreasoned order. They highlighted that the Articles of Association stipulated that valuation must be conducted by the company's auditors, M/s. Italia and Associates, and not an external valuer. The Appellant also pointed out procedural irregularities, such as the 1st Respondent's unilateral discussions with the valuer without their knowledge and the payment of the valuer's fee by the 1st Respondent.4. Impact of the Impugned Order on the Rights and Liabilities of the Appellant:The Tribunal noted that the impugned order did not affect the rights and liabilities of the Appellant and that no prejudice was caused by the direction to the valuer. The Tribunal emphasized that valuation is an approximation based on an expert's judgment and that it would not interfere with the expert's views unless there was manifest unreasonableness or fraud. The Tribunal concluded that the impugned order was not appealable as it was an administrative order that did not affect the rights or liabilities of the parties.Disposition:The Tribunal dismissed the Company Appeal (AT) (CH) No. 76 of 2022, along with the connected pending applications IA No.722 of 2022, IA No.723 of 2022, and IA No.752 of 2022, with no costs.