TaxTMI 
TaxTMI 
2019 (5) TMI 606
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....ondents or their nominees as per the Valuation Report dated 20.07.2012, which had been received. The NCLT rejected the objections raised by the original Petitioners to the Valuation Report and directed the Petitioners to sell their entire shareholding held by them in original Respondent No.1 Company as on the date of filing of the Petition to the Respondents jointly or severally at the fair price of Rs. 10.35 per share as arrived at by the Independent Valuer appointed by consent by CLB. The NCLT also directed that the fair value of the shares should be paid along with interest calculated at 9% per annum (simple interest) from 01.04.2007 till actual date of payment. The present Appeal has been filed by the Company seeking setting aside and modification of the Order passed by the NCLT to the limited extent of grant of interest. A Few Facts 2. The Respondents - original Petitioners filed the Company Petition on 14.03.2007 making grievances of oppression and mismanagement against the Appellant and other 8 Respondents arrayed in the Company Petition. The Petition was filed before the Company Law Board. It appears that after some hearings, on 1st April, 2011, CLB passed the followi....
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....ting the petitioners and other shareholders of their group to transfer their entire shareholding to the Respondents or to their nominees." 5. Present Respondents - original Petitioners filed Reply to such Application which was seeking final directions and raised various objections to the Valuation Report. Copy of the same is at Page - 350 of the Appeal. The original Petitioner No.1 who signed the Reply made following prayer:- "In view of the submissions made above, it is prayed that the Hon'ble Board may be pleased to: (i) reject the valuation of Rs. 10.35/- ("Ten rupees and forty-four paise") (sic) made by the valuer, S.C. Vasudeva & Co., and approve the fair value worked out by the petitioner through a professional Chartered Accountant, having regard to the prevailing market rates of real assets (land), as well as machinery and structures, and direct the company accordingly. (ii) In the alternative, direct the respondents to transfer the shares of all the other shareholders to the petitioners at the share price worked out by S.C. Vasudeva & Co. (iii) Pass orders for any other relief the Hon'ble Board deems appropriate in the facts and circum....
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....isdiction, this Tribunal is unable to accept the stand of the Respondents that they are not inclined to pay any interest. In this connection, this Tribunal would once again wish to refer to the decision of Hon'ble Supreme Court passed in the matter of Dr. Renuka Datla v. Solvay Pharmaceuticals B.V. cited earlier and be guided by it particularly paragraph 19 which is extracted hereunder: "19. In the result, IAs Nos. 2 to 4 of 2002 are liable to be rejected. However, there is one direction concerning interest which we consider appropriate to give in the given facts and circumstances of the case. Though the grant of interest, as prayed for by the petitioners, from 31.05.2002 -the stipulated date of submission of valuation report - is not called for, we feel that the ends of justice would be adequately met if the respondents concerned are directed to pay the interest at the rate of 9 per cent on 8.24 crores, which is the value of shares fixed by the valuer, for a period of twelve months. True, the petitioners contested the valuation and thereby delayed the implementation of settlement. However, having regard to the bona fide nature of the dispute and the fact that the responde....
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....rder. It is argued that the original Petitioners had expressed willingness to quit and because of that, the Order dated 1st April, 2011 was passed. On 11.08.2011 substituting S.C. Vasudeva as Valuer in place of S.S. Kothari Mehta & Co. took place, but other terms of the Order dated 01.04.2011 were directed to continue to be in operation. It is claimed that when the Valuer prepared draft Valuation Report, the original Petitioners - present Respondents did not object and the Report came to be finalized and was filed in NCLT. The present Appellant filed CA 405/2012 for execution of the Valuation Report and the original Petitioners for the first time filed Reply raising objections and made various grievances. It is claimed that as per Section 634-A of the Companies Act, 1956 ('old Act', in brief), any Order passed by CLB was in the nature of a decree and thus NCLT could not have given any direction which was not included in the original Order. According to the Counsel, the Orders dated 01.04.2011 and 11.08.2011 should be treated as final Orders. Unlike Section 31 of the Arbitration and Conciliation Act, 1996 in the Companies Act, there is no provision for grant of interest on valuation....
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....n Report, could not be a reason to not grant interest which they were entitled to. The learned Counsel for the Respondents referred to the Reply filed by the Respondents in NCLT to demonstrate that the objections raised by the Respondents (Petitioners) were valid objections and the Valuer had not given basis for the valuation and thus, the Respondents were objecting. It is argued that as the present Impugned Order accepted the Valuation Report but granted interest which compensated the Respondents and thus, though Respondents were aggrieved by the acceptance of the Valuation Report, they have not filed the Appeal and only because they have not filed the Appeal cannot be calculated as acceptance that the objections raised by them were not valid. It has been submitted by the learned Counsel for the Respondents that copies of the orders filed by the Appellant to show that delay was because of the Respondents in NCLT, has no substance as out of the 13 Orders referred, in 8 of the Orders, it can be seen that the Respondents were not responsible for the adjournments. The Counsel at the time of arguments put on record copies of other 12 Orders passed in NCLT during the relevant time to sh....
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....ing company and cannot claim hardship in payment of interest. Relying on Section 402 of the old Act and Section 242 of the new Act, it is claimed that the NCLT has all the powers to pass suitable Orders including directions to pay interest. The learned Counsel stated that the Respondents wanted to end the litigation and although the Valuation amount as has been recorded by the Valuer is less, the Respondents decided to be content with the interest granted and thus, did not file Appeal. The money to which the Respondents were entitled was used for commercial purposes by the Company and thus that the interest awarded is justified. The Counsel for Respondents - Petitioners has also relied on certain Judgements to support the grant of interest by NCLT. 14. Learned Counsel for the Appellant relied on Judgement in the matter of "Manish Mohan Sharma and Others versus Ram Bahadur Thakur Ltd. and Others" reported as (2006) 4 SCC 416 and Judgement in the matter of "Byram Pestonji Gariwala versus Union Bank of India and Others" reported as (1992) 1 SCC 31 to submit that in view of Section 634-A as was existing under the old Act, NCLT could not go beyond the said order and which, according ....
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.... Hon'ble Supreme Court observed as under:- "25. The order dated 19-8-1999 was in fact a preliminary decree. Final disposal of the matter or the final decree would be after full implementation of the terms of MOFA and the Transfer Document. The interim orders passed relating to joint management were therefore directed to be continued until such time. 26. Significantly, the Company Law Board in the order dated 19-8-1999 had itself recorded that if there was any difficulty in the implementation of the order "the parties shall be at liberty to apply to us for implementation of this order". Yet when the application was made for such implementation, the Company Law Board did not abide by its own direction." 15. In this context, Hon'ble Supreme Court referring to Section 634-A observed that CLB when it deals with an application under Section 634-A sits as an executing Court and is subject to all the limitations to which the Court executing a decree is subject. The Hon'ble Supreme Court first found that the CLB and High Court in that matter had erred in refusing to execute the Order dated 19.08.1999. 16. Judgement in the matter of Byram Pestonji (supra) was referred....
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....e Hon'ble Supreme Court. The learned Counsel arguing for the Appellant then referred to the Judgement in the matter of "Rameshwar Dass Gupta versus State of U.P. and Another" Reported as (1996) 5 SCC 728 and submitted that the executing Court has no power to enlarge the decree. 18.1 Perusal of that Judgement shows that it was a service matter and the UP Public Service Tribunal had passed the following Order:- "The petition is partly allowed. The OPs Nos. 1 and 2 are directed to consider the confirmation of the petitioner on Group 1 post and consequent promotion to Class II and Class I post from the date on which his junior Sri Ram Niwas was promoted to such post with all consequential benefits of seniority, salary, pension etc., arising therefrom." At the time of execution, the Executing Court in addition to the salary, gratuity and pension, awarded interest at 12% per annum from the date of the execution till the date of the Order. This was challenged and the High Court observed in that matter that the Executing Court had no power to enlarge the decree. In SLP to the Supreme Court, Hon'ble Supreme Court observed that it is well settled legal position that an executi....
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....4. At the time of execution, the said Respondent claimed the arrears of salary and other benefits with compound interest of 12% per annum. The objection of the same was rejected by the executing Court. In this context, the Hon'ble Supreme Court observed in the absence of pleadings and directions in the Judgement or Decree which is under execution, it is not open to the executing Court to award interest. 22. Reliance is placed by the Appellant on Judgement in the matter of "State of Orissa and Another versus Mamata Mohanty" Reported in (2011) 3 SCC 436 to buttress the argument that without there being pleadings, relief could not be granted. It was a service matter relating to Lecturers and the High Court had in some of the matters granted benefit of UGC scale w.e.f. 01.06.1984 which was a date prior to 01.01.1986 which could not be granted, being beyond the recommendations of the UGC relied on. 23. In the matter of "Messrs. Trojan & Company versus RM. N.N. Nagappa Chettiar" reported in 1953 SCR 789, on which Appellant relied, the amount of Plaintiff therein had been credited in the sum of Rs. 6762-8 on account of purchase of the shares. The Plaintiff had pleaded that the trans....
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.... worth of the two Companies as going concerns, the value of 4.91% shares was arrived at, at Rs. 8.24 crores. The Hon'ble Supreme Court then referred to the salient features of the valuation in that matter. Para - 12 of the Judgement shows that the Petitioners objected to the valuation by filing IA Nos.2, 3 and 4 of 2002 wherein a prayer was made to submit the supplementary valuation report for reasons as mentioned in the para. Petitioners submitted before the Hon'ble Supreme Court that notwithstanding the finality attached to the decision of the Valuer, the Court can intervene if the valuation was made on a fundamentally erroneous basis or a patent mistake has been committed by the Valuer. Hon'ble Supreme Court observed that even accepting the principle, it was unable to hold that the valuation in that matter, was vitiated by a demonstrably wrong approach or a fundamental error going to the root of the valuation. The Hon'ble Supreme Court after considering the Report in that matter, concluded that the Valuer approached the question of valuation having due regard to the terms of settlement and applying standard methods of valuation and that the valuation had been considered from all....
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....y court has power to take note of even subsequent events to give appropriate directions; (ii) the complete loss of substratum of the assets of the company could be sufficient ground for directing winding up of the company for just and reasonable cause as provided under Section 433(f) of the Companies Act; (iii) where the company is run by the members of the family or between close friends and relatives, the partnership principles thereby applicable for dissolution of a partnership, shall equally apply for winding up of the affairs of the company ; and (iv) the complete lack of transparency and systematic disposal of the assets of the company without involving the shareholders in the decision making would constitute oppression and mismanagement." The learned Counsel for the Respondents relied on the above para of the Judgement to submit that the Company Court had powers to take note of subsequent events to give directions and thus, according to the Counsel, NCLT rightly exercised its powers to give directions for payment of interest. 27. Reliance was then placed by the Respondents on the Judgement in the matter of "Rakhra Sports Private Ltd. and others Vs. Khraitilal Rakhra an....
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....rt in reducing the interest from 24% to 12%. The Hon'ble Supreme Court while dismissing the Appeal, held that the interest would be payable even in equity and on the basis of the principle of restitution, which is recognized in Section 144 of the Code of Civil Procedure. In para - 26 of the Judgement, Hon'ble Supreme Court observed:- "26. Section 144 of the C.P.C. is not the fountain source of restitution; it is rather a statutory recognition of a pre-existing rule of justice, equity and fair play. That is why it is often held that even away from Section 144 the Court has inherent jurisdiction to order restitution so as to do complete justice between the parties." Thus, apart from Section 144 of CPC, the source of restitution is rule of justice, equity and fair play. 29. Counsel for Respondents relied on Judgement in the matter of "Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta and Ors." reported in MANU SC 1123/2018: 2018 (13) SCALE 381 and referred to para - 83 of the Judgement to refer to the principle that the act of Court shall harm no man is a maxim firmly rooted in our jurisprudence. It is further argued by the Counsel for Respondents that under t....
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....d as a consent Order. Sometimes, draft Order is prepared and consents of the Counsel for both sides are recorded that they agree to passing of such Order and then the same is treated as consent Order. In the present matter, there is only consent recorded of the original Petitioners, which is also to the limited extent that they are willing to go out of the Company on receipt of the fair valuation. In fact, except for the initial part of such willingness of the original Petitioners, rest of the Order shows that the parties were not even on Board even as to the name of Valuer and CLB proceeded to take up the name from the list of 3 Valuers referred to by the Petitioners. The CLB recorded that the original Respondents have not provided the CLB with any list, nor are they willing to provide one. The CLB then proceeded to record that S.S. Kothari Mehta & Co. have consented to take up valuation on record and thus proceeded to appoint the said CAs directing "valuer to determine the fair value of the shares of R-1 Company as on 14.03.2007 (the date of filing of the petition) within a period of 30 days". The Order of 01.04.2011 does not record that the original Petitioners and/or Respondent....
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....t is or rejected as a whole. It would amount to putting fetters on the powers of the Tribunal. There is no Section shown under the new Act with wordings like Section 634-A of the old Act. In fact, even under the old Act, Proviso inserted in Section 634A vide Section 124 of Act 11 of 2003 mentioned that:- "Provided that the provisions of this section shall not apply on and after the commencement of the Companies (Second Amendment) Act, 2002" Now the Tribunal while dealing with a Company Petition complaining oppression and mismanagement covered in Section 241 read with Section 242 of the new Act, Section 242 has wide enough powers to pass Orders with regard to any matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. In fact, although the Counsel for Appellant stressed that Order dated 01.04.2011 was consent Order and that it was a final Order which required to be implemented as it is, the record shows that this very Order on 11.08.2011 (Page - 68 of the Appeal) underwent a change when CLB modified this Order dated 01.04.2011 to the extent that it changed the Valuer so as to then appoint S.C. Vasudeva in place of S.S. Ko....
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.... from the Appellant Company to submit copies of Valuation Reports of the approved Valuer to the Respondents - Petitioners, but the Company had by letter dated 28.06.2012 strongly objected. These facts are borne out from the exchange of e-mail (copies of which are available in the Appeal at Pages - 494 to 497). The Reply filed by the original Petitioners in NCLT claimed that the draft Report was finalized without taking into account views of the Respondents - Petitioners. They claimed that they were able to get the copy of the final report only from the CLB. (It needs to be recalled that the Order dated 01.04.2011 had specifically directed the Valuer to give copy of the Valuation Report to R-1 Company and the Petitioner and the CLB). The Reply filed by original Petitioners then raised disputes regarding the valuation done and other comments on various aspects. The Reply sought rejection of the valuation of Rs. 10.35 and requested to approve fair value obtained by the original Petitioners through CA having regard to prevailing market rates of several assts. The Impugned Order passed by NCLT shows that it went into various details to discard the objections raised by the original Pe....
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....nd the Statutory provisions thereof "failing" which, the Respondents shall pay interest @ 15% per annum. Still the Petitioners in that matter objected to the valuation by filing Interim Applications as can be seen from para - 12 of the Judgement and the Hon'ble Supreme Court heard the matter and while rejecting the IAs did consider grant of interest which was claimed by the Petitioners from 31.05.2002 - the stipulated date of submission of Valuation Report, but did not grant the same from that date and found that the ends of justice would be adequately met if the Respondents were directed to pay interest @ 9% on 8.25 Crores which was the value of shares fixed by the Valuer, for a period of 12 months. The learned Counsel for the Appellant submitted that in this matter, the Hon'ble Supreme Court granted interest but it was only for 12 months. The submission which was made in alternative by the Counsel for Appellant is that if at all interest is to be granted, it should be only for 12 months. Going through the Judgement in the matter of "Renuka Datla", we find that it can be compared with the facts in the present matter. As regards 12 months mentioned in para - 20 of that Judgement, w....
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....the Companies Act. What is the effect?" 38. We have then further heard Counsel for both sides on the above Court query. Learned Counsel for the Appellant Company has submitted with regard to the Court query that no such objection has been raised by the Respondents and it should be deemed to be waived by the Respondents. However, we are discarding this because it is a Court query raised by us on the basis of record. 39. Going through the Impugned Order as a whole and the final Order, which has been passed by the learned NCLT, which we have reproduced in this Judgement - para -7 (supra), it is clear that the learned NCLT was not articulate when it directed the Petitioners to sell their entire shareholding held in the Respondent No.1 Company to "the Respondents". It was necessary for NCLT to clearly identify the Respondents as Respondent No.1 was a Company and the other Respondents were shareholders. Rights and Procedure for Company to buy back its shares and Rights and Procedure for sale of shares inter-se shareholders are different. The Impugned Order nowhere even slightly or in the passing indicates that the learned NCLT had in its mind to order buy back of shares by the Comp....
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....mmon to all.-Where there are more plaintiffs or more defendants than one in a suit, and the decree appealed from proceeds on any ground common to all the plaintiff or to all the defendants, any one of the plaintiffs or of the defendants may appeal from the whole decree, and thereupon the Appellate Court may reverse or vary the decree in favour of all the plaintiff or defendants, as the case may be. .................................... 33. Power of Court of Appeal.-The Appellate Court shall have power to pass any decree and make any order which ought to have been passed or made and to pass or make such further or other decree or order as the case may require, and this power may be exercised by the Court notwithstanding that the appeal is as to part only of the decree and may be exercised in favour of all or any of the respondents or parties, although such respondents or parties may not have filed any appeal or objection [and may, where there have been decrees in cross-suits or where two or more decrees are passed in one suit, be exercised in respect of all or any of the decrees, although an appeal may not have been filed against such decrees:]" Relying on the ab....
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....e other Respondents. The argument is that provisions of Order XLI Rules 4 and 33 would not apply considering the facts of the present matter and the said provisions cannot be so applied so as to reopen decree which has become final. 44. Looking to the provisions of the Companies Act and settled principles, there is no difficulty in stating that rights of shareholders to purchase and sell shares of the Company are clearly distinct from the provision as to when a Company may purchase its own shares or other specified securities by way of buy back under Section 68 of the Companies Act, 2013. When the NCLT directs the Company to buy back shares and when the NCLT directs the shareholders to buy out each other, these are two distinct factors giving rise to different reasons for being aggrieved by the Orders. Thus, an appeal by the Company that it could not have been directed to buy back, would not be on the same ground as that of a shareholder. However, in the present mater, as we have mentioned, it was not a case of buy back which has by error crept in the Impugned Order. 45. In the circumstances of the present matter, although only the Company....