AI Drafter 
TaxTMI 
TaxTMI 
1993 (2) TMI 334
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....Mohinder Nath, Narender Nath, Virender Nath and Rajinder Nath. The contest is between Narender Nath on the one side and the other three brothers and their mother on the other side (hereinafter, Narender Nath will be referred to as "the NN group" and Mohinder Nath, his brothers and mother will be referred to as "the MN group"). The main income of the company was admittedly commission from the agency business of Thyssen Stahl Union of Germany (hereinafter referred to as "TSU"). I have used the word "admittedly" in view of the averments made by "the NN group" in the winding up petition filed by it which was registered as C.P. No. 28 of 1988. All the brothers were carrying on the business of Kidarsons together till the stage was reached when Narender Nath wanted to separate. It appears that Narender Nath succeeded in his efforts to outsmart his other brothers and to get the TSU agency exclusively to himself. 2. Thyssen Stahl Union of Germany served a notice on Kidarsons terminating their agency with effect from June 30, 1988. From July 1, 1988, the agency was given by TSU to Hansa Industries Pvt. Ltd., a company exclusively belonging to Narender Nath. This was not the end of the mat....
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....ompromise. 4. The other shareholders, Shri Mahinder Nath Nanda, Shri Virender Nath Nanda and Shri Rajinder Nath Nanda groups, will give their acceptance and for this purpose this agreement will be filed in Company Petition No. 28 of 1988, as well and no further proceedings will be taken in the said Company Petition No. 28 of 1988. 5. The plaintiff company, Kidarsons Industries Private Limited, Shri Mahinder Nath Nanda, Shri Virender Nath Nanda and Shri Rajinder Nath Nanda agree on behalf of themselves and their respective groups as well as Shri Narender Nath Nanda and his group agree that the defendants in the suit will retain the agency of Thyssen Stahl Union and the company, Kidarsons Industries (P) Ltd., its directors and shareholders will have no concern with the same after June 30, 1988. 6. That Shri P. N. Khanna, a retired judge is at present acting as a mediator. He will act as a Commissioner, to separate 30.14 per cent of the assets of the company to be given to Shri Narender Nath Nanda group as set out hereinbefore. 7. The fee of the Commissioner will be paid by the company and in the first instance shall be Rs. 30,000. The court may, ho....
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.... 19. This agreement will be filed in Suit No. 1310 of 1988 and C.P. No. 28 of 1988, and appropriate orders will be passed in the suit. 20. That the implementation and execution of any decision, order or judgment passed under this compromise will be made by any judge on the original side of the High Court of Delhi. 21. The parties are agreed that personal papers of Shri Narender Nath Nanda will be taken away by him upon the Commissioner handing the same over to him. All the original documents of title or otherwise, which belong to or relate to the assets of the company, shall be returned by Shri Narender Nath Nanda to the company. In the first instance, they shall be kept with the Commissioner who will, after settlement regarding share transfer, hand them over to the company." 4. In pursuance of the said compromise, the matter went into the hands of Justice P. N. Khanna, a retired judge of this court, in terms of para 6 of the compromise. Justice Khanna filed his report dated April 12, 1990, in this court concluding that he was unable to have the matter finalised in terms of the settlement. Justice Khanna had requested both the parties to give the valuation of i....
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....ified order only). "I have seen the list of senior chartered accountants which is maintained by the company section. Parties have not agreed upon the name of any chartered accountant for the purpose of valuation. V. Shankar Aiyar and Company who are on the said panel are appointed as chartered accountants for the purposes of valuation of the assets of the company. They will also give valuation of the shares according to the valuation of the assets and liabilities of the company. This valuation of the shares is needed to determine the value of 30.14 per cent of the assets of the company. The chartered accountant will determine the value of the shares keeping in view the provisions of clauses 2 and 14 of the agreement between the parties. The report of the chartered accountant shall be given in terms of orders dated June 9, 1988, and August 9, 1990. The report to be given by the chartered accountant within two months. The chartered accountant will intimate the parties of their fees, which amount will be paid by the parties in equal shares." 7. V. Sankar Aiyar and Co. who were appointed as the chartered accountants to determine the value of the shares, fi....
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....ered accountants. On the other hand, the stand taken by the MN group is that though according to them the value of shares ought to have been much less than what has been determined by the valuers, in order to put an end to litigation, they accept the valuation as fixed by the expert valuers. 12. The following objections have only been pressed by the NN group against the report of the valuers V. Sankar Aiyar and Co. : 1. Shares of the company were not required to be valued. Only the assets had to be valued and 30.14 per cent thereof had to be given to the NN group. 2. The valuers were acting as a local Commissioner. The parties should have been given notice of the proceedings before them and should have been given opportunity to place relevant material before them along with opportunity of hearing. 3. Valuation of the immovable properties of the company was not done independently. 4. The function of valuation of shares, assuming that the shares were to be valued, is a judicial function and should not have been delegated by the court to a local commissioner. 5. The valuers did not take into account the value of goodwill and tenancy righ....
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....pany. It was further observed that this valuation of the shares was needed to determine the value of 30.14 per cent of the assets of the company. This order was not challenged by any party and became final. The objector cannot be permitted to raise this objection, specially now when he finds that the report of the valuers has gone against him. The objection is misconceived and is rejected. 2. Valuer was acting as a local Commissioner and ought to have given notice and opportunity to the parties. Great emphasis had been placed on this objection. The thrust of the argument is that the appointment of the valuers has to be taken to be under Order XXVI of the Code of Civil Procedure, and, Therefore, as a local Commissioner the valuers were obliged to give notice to the parties and give opportunity to them to place material on record and for oral hearing. In support of this argument, learned counsel for the objector has relied on A. Venkata Seshamma v. A. Appa Rao,: AIR1925Mad125 , Valliappa v. Maruda Pandian, AIR1934Mad548 , Sm. Mandera v. Sachindra Chandra, AIR1962Pat211 , Sardar Singh v. Chandan [1982] 84 PLR 473, Maroli Achuthan v. Kunhipathumma, AIR1968Ker28 and S.....
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.... November 12, 1990. During all this period, when the matter remained pending before the valuers, if any party was aggrieved that the valuers was not giving any opportunity to the parties by calling them or associating them, it was always open to such a party to approach this court for suitable directions to the valuers. Secondly, at the time of passing of the order by court, if any opportunity to appear before the valuers or for making representations before them is desired, normally the parties ensure that such measures are recorded in the order itself. No such opportunity was sought. It is also worth mentioning that actually Justice Khanna, when the matter was pending before him gave opportunity to the parties for inspection of records as also for suggesting valuation of the properties. While the MN group offered inspection as well as gave the report of Ray and Ray, chartered accountants, regarding valuation of shares and properties, the NN group neither showed any interest in inspection of records nor gave any counter suggestions regarding valuation of properties. Even during the course of protracted hearing in this court, except criticism of the report, there was no co....
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.... and Ray, chartered accountants, were before the court and he left it to the court to arrive at a reasonable figure rather than refer the matter back to the valuers. Having regard to the three figures on record, I approve the valuation of V. Sankar Aiyar and Co. as correct. In the background of the facts stated above the objection has no substance. The same is hereby rejected. 4. The share valuation is a judicial function which could not be delegated : This objection is not open in view of the orders dated August 9, 1990, and September 4, 1990. On August 9, 1990, the court specifically observed that valuation of shares should be done by professional valuers. This order was never challenged, rather it was acted upon. The same has become final and the matter cannot be permitted to be reopened. I do not agree that share valuation is a purely judicial function and could not be entrusted to an expert. Even otherwise, I do not find any substance in this objection. The chartered accountant is the most suitable person for the job. He is supposed to be conversant with sound principles of accountancy coupled with judicial pronouncements, if any, in this connection.....
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....oes not have money value even if transferred and so will not attract capital gains tax. Apart from this legal position the reasons given by the valuers appear to be sound for non-inclusion of value of goodwill as an asset of the company. Similarly, I find myself in agreement with the reasons stated in the valuers' report that the value of tenancy rights need not be included in the value of assets of the company. An additional factor in this connection is the order of the court dated August 9, 1990, wherein it is stated that immovable properties "owned" by the company had alone to be considered for purposes of valuation of shares. Tenancy premises are not owned by the company. The tenancy rights are also not reflected in the balance-sheets of the company. Normally there are restrictions on transfer of tenancy rights. Therefore, the tenancy rights were rightly not taken into consideration by the valuers while evaluating the assets of the company. 6. Value of the Udyog Nagar plot taken at a very low figure. The property has been valued at Rs. 40,000. There may be something to say in favor of the objector that the value of this property is more. ....
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....res are of a public company and are quoted on the stock exchange and there are dealings in them, the price prevailing on the valuation date is the value of the shares. (2) Where the shares of a public company which are not quoted on a stock exchange or of a private company, their value is determined by reference to the dividends, if any, reflecting the profit earning capacity on a reasonable commercial basis. But if the profits are not reflected in the dividends which are declared and a low earning yield is shown by the company, which is unrealistic on a consideration of the financial affairs disclosed for the relevant year, the Wealth-tax Officer can, on an examination of the balance-sheet, ascertain the profit-earning capacity of the concern and, on the basis of the potential yield, fix the valuation. In other words, the profits which the company has been making and should be making will ordinarily determine the value. The dividend and earning method or yield method are not mutually exclusive; both should help in ascertaining the profit-earning capacity. If the results of the two methods differ, an intermediate figure may have to be computed by adjustment of unreasonable....
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....ourt in arriving at the value of shares of the company. The valuers have for purposes of the report taken into consideration the value of the assets of the company as on July 1, 1988. The valuers have further determined the liabilities of the company whether actual or notional. The fixed assets of the company have been taken at market value as against their book value which was much lower. Similarly the market value of the stock-in-trade has been taken into consideration as against the book value which was much lower. Therefore, the valuers have taken into consideration the liability on account of capital gains tax (notional). The valuers have also taken into consideration the cost of realisation of market value, i.e., expenses in the event of sale or transfer of assets. These items are inherent in market value and cannot be ignored whenever one talks of market value of assets for purpose of valuation of shares of a company. The main objection on behalf of the objector in this connection is regarding deduction on account of capital gains tax. According to him there is no sale or purchase of any fixed asset or immovable properties of the company. Therefore, the que....
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....account. According to learned counsel, these things are an essential element of the market value. The moment one talks of market value of a property these elements cannot be left out or ignored. In other words they are impregnated in the market value. To illustrate, the moment one talks of sale or transfer of a lease hold plot, the charges payable to the superior Lesser for obtaining its permission to transfer are automatically understood as payable. The market value of such a property cannot be considered de hors these charges. The use of the words "market value" would be understood to mean the price plus or minus, as the case may be, such charges. Thus in the context of market value of the properties under consideration, liabilities on account of capital gains tax and cost of realisation of the market value have to be provided for. The market value will be minus such liabilities. The value of assets of the company has been raised from book value to market value. When the objector wants to have the benefit of market value of assets being taken into consideration, he must provide for the basic elements of market value, i.e., the elements which form part of the market value. ....
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....e, in any event, to remain with him as owner/deemed owner and he cannot be asked to leave the same. It is further submitted that the valuers should have ascertained the value of the said portion independently so that the same could be adjusted against the value of shares of the NN group. On a plain reading of this clause the submission on behalf of the objector may be possible. However, if the effect of such a construction of clause 14 could be to scuttle the entire settlement or if literal implementation of the said clause would mean that the settlement cannot be effectuated at all, the court will have to find out if within the frame work of the settlement, it is possible to implement the same. Clause 20 of the settlement gives such powers to the court because under the said clause the implementation and execution of the settlement and any orders or decisions etc. therein has to be done by the court. Clause 14 has to be considered along with other relevant clauses so that the settlement can be implemented as far as possible maintaining its spirit and content. Clause 2 of the settlement is another relevant clause in this behalf. Under clause 2 the price of the shares of the NN grou....
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....ent of value of the portions claimed to be occupied by Narender Nath is practically impossible. 14. Secondly, sub-division of the property on the basis of occupation of its portions by Narender Nath is legally not possible. On final implementation of the settlement each group has to become exclusive owner in law of the portion falling to it. The Golf Links property is a lease-hold property. The lease deed does not permit sub-division of the properties. Therefore, there cannot be two separate owners of separate portions of the same property. 15. Thirdly, there is so much acrimony between the parties, that as per the case of both the parties, it is practically impossible for them to live together in the same house. Justice Khanna has adverted to this aspect in his report and has observed in para. 15 thereof that it is impossible for all the members of the family to live in one house. He has also observed that it is not possible nor desirable that all the family members should live in the same house. There have been various incidents when violence has been used and bad and undesirable incidents are reported to be taking place daily. In the same para, Justice Khanna has noted tha....
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....50 lakhs. The total value of the shares of the NN group is about Rs. 40.78 lakhs. This shows that still this is unworkable. The value of the portion occupied by Narender Nath comes to much more than what he is entitled to. Clause 14 of settlement has to be read in harmony with the other clauses of the settlement so as to implement the settlement rather than throw it over-board and leave the parties to start the litigation from square one. Clause 2 of the settlement requires payment of price of the value of the shares of the NN group in specie. This can be done by allocating and transferring any property of the company which may be nearest in terms of value of the shares of the NN group with a sum of Rs. 5 lakhs plus or minus as an equalisation amount. Clause 2, Therefore, leaves it to the court to allocate any property of the company which is near to the value of shares of the NN groups to the said group. Clause 2 in fact suggests that any property may ultimately fall to the NN groups. Mention of the equalisation amount in the said clause supports this view. In view of this provision in clause 2 of the settlement and in view of the difficulties expressed above in allocation of the ....
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....r and Co. on behalf of the NN group are rejected and the report is hereby accepted. The parties are left to bear their own respective costs of these proceedings. 22. This brings me to the question of implementation of the settlement on the basis of the report of V. Sankar Aiyar and Co. On the basis of the value of shares of the company fixed by the valuers (Rs. 733 per share) the total value of 5564 equity shares belonging to the NN group comes to Rs. 40,78,412. The market value of the defense Colony, New Delhi property has been taken by the valuers as Rs. 36,33,200. This property is thus within the range fixed under clause 2 of the settlement. On transfer of the defense Colony property to Shri Narender Nath or his nominees as per clause 2 of the settlement, the company will have to pay a sum of Rs. 4,45,212 which is the difference between the value of shares belonging to the NN group and the market value of the defense Colony property. This difference is within the range of Rs. 5 lakhs prescribed in clause 2 of the settlement. The defense Colony property, I gather from Justice Khanna's report, is the house in which the family was previously residing and which has been lying....