TaxTMI 
TaxTMI 
2017 (6) TMI 1319
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....ic limited company which is listed on BSE and NSE. R3 is the chairman and managing director of R1 and R2. R4 is an investment fund owned and controlled by R3. The authorized share capital of R1 Company is Rs. 1 Crore and the paid up capital of the Company is Rs. 1 Crore. R2 held 51% shareholding of R1 Company, R4 held 39% of R1's shareholding which in turn is owned and controlled by R3 and he Petitioner holds 10% shareholding of R1 by virtue of which the Petitioner is eligible to file the present Company Petition under Section 399 of the Companies Act, 1956. 3. The Petitioner contended that he was requested to join as a partner with R2 to develop an entrepreneurial model utilizing his unique expertise and vast experience from his time as an IAS officer. Therefore, he joined the same on and from September 1, 2006. The Petitioner contended that in due course of time with his expertise he was transferred to R1 Company as the Chief Executive Officer. Eventually, the Petitioner invested Rs. 10 Lakhs in lieu of 10% shareholding in the Company and worked efficiently to strengthen the finances of the Company. The Petitioner submitted that R2 committed acts of oppression onto the Petit....
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....th July, 2008, R1, R2 and a listed Company called Sadbhav Engineering Ltd. decided to form a consortium under a Memorandum of Understanding to participate in a bid for modernisation and renovation of border check-posts in the State of Maharashtra which had been issued by the Maharashtra State Road Development Corporation (MSRDC). 8. The Petitioner contended that the said consortium had been successful in its bid in August, 2008 and was awarded a Rs. 1500 Crore contract with MSRDC whereby a joint venture was entered into by the parties called MBCNL (Maharashtra Checkpost Network Limited), 51% shares of which were held by Sadbhav, 39% by R2 and 10% by R1. However, the Petitioner contended that unbeknownst to him, this shareholding pattern was changed and the pattern that was approved by MSRDC was that Sadbhav would now hold 90% of shares of MBCNL, whereas the holding of R2 and R1 had been reduced to 5% each. The Petitioner further contended that the Petitioner came to know on 7th September, 2009 that Sadbhav had filed a disclosure with Bombay Stock Exchange mentioning an "Amended Memorandum of Understanding" in which Sadbhav had increased its stake to 90% from 51% and the stake of R....
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....eting called on the same day. The Petitioner contended that in the said meetings resolutions were passed in terms of which R2 invested Rs. 9 Crores in R1 Company which eventually resulted in the dilution of Petitioner's shareholding. The Petitioner contends that the issuance of the shares pursuant to the aforementioned meeting is illegal and in violation of the Companies Act, 1956 and the Articles of Association of R1. 11. In the present application C.A. No. 923/2015 the Petitioner has reiterated the reliefs sought by him in the main petition C.P. No. 259 of 2011. The Petitioner has prayed for relief against the alleged oppressive acts of the Respondents. The Petitioner contends that the Respondents have behaved in an oppressive manner by replacing R1's bank loans at 8% interest from bank with shareholder loan from R1 at 13.5% interest rate. The Petitioner has further alleged that the transfer of R1's share in a joint venture company, MBCNL, to a third party without the consideration money being received in R1 was also oppressive towards the Petitioner who is a shareholder of R1. In addition to the aforementioned the attempt to dilute the shareholding of the Petitioner....
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....nted out by his letter dated 2nd April, 2014, impeded the purpose of the valuation. The Petitioner contended that the valuer in his letter on 9th May, 2014 had sought to rationalize the said Terms on the premise that "forecasts are the responsibility of the client" and that it was a "standard clause in all... engagement letters and an acceptable practice across all valuation engagements". 14. The Petitioner contended that in the facts and circumstances, he had filed a C.A. No. 511/2014 praying for valuation of shares to be done as per auditing standards, independent investigation and verification of information and statements provided by R1 for their accuracy and completeness before arriving at a valuation for its shares, and amendment to the Terms in the engagement letter regarding the aforementioned. 15. The Petitioner contended that on 9th April 2015 the valuer had filed such valuation report before the then Company Law Board and the same was an untrue and incorrect valuation of the said company as it did not take into consideration the basic premise on which such an independent valuation analysis was directed by the Company Law Board. The Petitioner contends that for valuatio....
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....r actual information available post the valuation date to avoid a bias as the company will then be prone to being undervalued or overvalued considering that the expectations over the forecast period may be either lower or higher than the perceived or projections that were prevalent as of the valuation date. The Petitioner contends that the actual financial information is available at present while carrying out the valuation, the assumptions should not be benchmarked with the actual to test reasonability. The Petitioner contended that the valuation analysis in the present case was not acceptable as the DCF methodology of valuation was based on projections of revenue, expenses and profitability, usually for 10 years post the Valuation date and in this case the valuer used the actual performance figures from 2010-11 to 2014-15, which was not according to the prevailing circumstances as of the valuation date. 17. The Petitioner further submitted that from 2015-16 to 2019-20 the valuer projected revenue, expenses and EBIDTA figures without any clearly stated assumptions. The Petitioner went on to contend that the EBIDTA projections through the entire period of nine years leaving 2011-1....
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....ers of the Company Law Board concerning the process of valuation of the shares of the Company, and as directed by the Company Law Board through its order dated 24th June, 2011, fair valuation had to be carried out on the basis of paid-up capital as on 31st March, 2010 and will also take into consideration the bad debts, doubtful advances, expenses, customer claims provided for in the books of the Company during the year 2010-11 which pertains to earlier years including unrecovered debtors above 730 days. The Respondent contended that there was no compulsion on the valuer to use any purported figures as furnished by the Petitioner in the application as the basis for conducting valuation and the same was also not a part of the order passed by the Company Law Board. The Respondent contended that the valuer had obtained information from the management of the Company and it was an accepted practice and also as per the terms of Engagement Letter as had been signed by both the parties. The Respondent further contended that the valuer was not an adjudicating authority and could not have allowed subjective opinion to influence the valuation. The Respondents contended that submission made by....
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....10 was Rs. 31.5 million however such value had been intentionally and in an allegedly mala fide manner driven into negative by the valuer in collusion with the Respondents in as much as the valuer had taken into account actual bad debts, write offs and losses made by R1 for the years subsequent to 2010 when R1 had been driven into losses by its management then run by the Respondents. 25. The Respondent in the written notes have contended that the present Company Application No. 923 of 2015 had been filed to challenge the final valuation report submitted by Grant Thornton under cover of letter dated 8th April, 2015. The Respondent further contended that the valuer had strictly adhered to the directions contained in the order of 24th June, 2011 and had not travelled beyond the scope of such order in conducting the valuation exercise. 26. The Respondents went on to reiterate the method of valuation as had been employed by the valuer. The Respondent went on to discuss case laws in the notes wherein it was observed that the scope for challenge of a valuation conducted pursuant to an order of the Company Law Board was extremely limited and such valuation could only be challenged under ....
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....tion of the shares of the Company in terms of prescribed auditing standards and to independently investigate and verify the information provided by the Company before arriving at the valuation. However, C.A. No. 511 of 2014 was disposed of by an order of 1st July, 2014 by the Company Law Board which directed the valuer to proceed in accordance with accepted accounting standards and to submit its valuation report. However, no direction whatsoever was passed on the valuer to independently verify the information provided by the Company as had been prayed for by the Petitioner. Eventually Grant Thornton submitted its final valuation report on 8th April, 2015 which was subsequently challenged by the Petitioner by filing C.A. No. 923/2015, which is the present company application, where the principal contention of the Petitioner was that the valuer was required to value the shares of the company as on 31st March, 2010 and that it had taken into consideration figures beyond 31st March, 2010 which was allegedly not permitted and that the valuer had taken the actual figures from the audited balance sheets instead of the projected figures as is required under the Discounted Cash Flows method....