TaxTMI 
TaxTMI 
2021 (3) TMI 264
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....ave preferred the present appeal. Factual Matrix of the case: 2. Shri Kaushik Chatterjee, learned Counsel appearing for the Appellants submitted that they are aggrieved by the order passed by the learned NCLT and therefore have preferred this appeal before this Appellate Tribunal. He submitted that the Respondent Company proposed to reduce Company's issued, subscribed and paid-up equity share capital of the Respondent-Company comprising 11,81,036 equity shares constituting 3.59% of its entire shareholding held by the public shareholders of the Company mostly independent individual investors. He submitted that its selective capital reduction exercised under Section 66 of the Companies Act, 2013 targeted to squeeze out and thus get rid of the public shareholders. He submitted that the company was incorporated on 23.03.2000 and it was listed with the Bombay Stock Exchange (in short BSE). In June, 2007, the Company voluntarily de-listed itself from the Bombay Stock Exchange. On 18.05.2020, the ownership of the company shifted to the Chinese Government and in June-July, 2017, the Respondents decided to reduce its equity share capital as mentioned above. He submitted that the Promo....
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....ith regard to the Company's financial position thereby rendering 2017 valuation of Rs. 2445 per share completely redundant. 6. Learned Counsel for the Appellants submitted that the valuation of shares is like balance sheet is always as on date. The PWC Report dated 25.10.2017 itself says that "this valuation Report, its content and the resolution herein are specific to the purpose of valuation agreed as per the terms of our engagement and the date of this Valuation Report are based on the unaudited financial statement of the Respondent Company as on 30.06.2017". It is also stated by the Valuer that the price of each equity share determined "as on the date of report". 7. Learned Counsel for the Appellants submitted that the valuation of the Company or its share cannot remain valid till eternity. Learned Counsel relied upon an audited financial statement for the year 31.03.2020 and the comparative chart has been extracted at paragraph - 8.1.7 of the Appeal Paper Book at page -9 which is reproduced hereunder: Syngenta India Limited FY 2018-19 FY 2016-17 Profit after Tax (PAT) Rs. 503.52 Crores Rs. 288.33 Crores Earnings per share (EPS) Rs. 152.8....
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.... view of abolition of DDT, the independent shareholders will have to pay DDT. As on the date of EGM, the public shareholders/Non-promoters, as per the Valuation Report of the PWC would have got Rs. 2445 per share exclusive of DDT. Now, the stand taken by the Company is extremely unjust and unfair on the part of the Respondent Company. 10. Learned Counsel for the Appellants further submitted that the Hon'ble NCLT failed to address the situation that suddenly emerged out of abolition of DDT w.e.f. 01.04.2020 which directly affected the interest of public shares of the Respondent, by substantially reducing net amount they were to receive for extinguishing the shares by the said Scheme of the capital reduction. 11. Learned Counsel for the Appellants further submitted that the Appellants preferred this Appeal under Section 421(1) of the Companies Act, 2013 on the grounds that the Appellants are aggrieved by the impugned order dated 27.10.2020 and as per the said provision of the Companies Act, any person aggrieved by and order of the Tribunal may prefer an appeal to the Appellate Tribunal. The Appellants herein volunteered their grievances as their interests are jeopardised and ad....
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....at due to delay in passing of the impugned order, the DDT stands abolished w.e.f. 01.04.2020 which has resulted in possible tax burden for the shareholders as the dividend income is now taxable in the hands of the shareholders. 15. Learned Senior Counsel for the Respondent Company submitted that the Respondent Company never promised nor admitted its liability to pay DDT even after the same may stand abolished, as sought to be alleged by the Appellants. Another statement made by the Respondent Company in 2017 in its explanatory statement regarding abolition of DDT was to be in compliance of its legal obligation and applicable laws in 2017 and cannot, by any means, considered to be promise/estoppel made by the Respondent Company to its shareholders or admission to its liability to pay DDT. 16. Learned Senior Counsel submitted that to show fairness and transparency, the Respondent Company engaged two independent Valuers namely, Price Waterhouse & Co. LLP, and Haribhakti & Co. LLP referred to as Independent Valuers to undertake separate valuation of the equity shares of the Respondent Company to determine the fair value of the shares for the purpose of share capital reduction. Bo....
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.... submitted that 10 years projected value of the shares in the valuation report is concerned, he submitted that in the valuation report dated 25.10.2017 in the source of information it is mentioned that it received management projections from the Company. However, the period is not mentioned anywhere. There is nothing in the report wherefrom it can be inferred that the projected value of 10 years was submitted by the Respondent Company. 22. Learned Counsel for the Appellant submitted that non-promotor/shareholders cannot be deprived the fruits of growth of the Respondent Company between 2017 to 2020. The DDT as per the prevailing law and as mentioned in the explanatory statement to the Notice calling for EGM, it is specifically mentioned that the Company will bear the DDT. The Respondents have to abide by the statements and cannot take a U-turn and say that in view of amendment to Section 115-0 and in view of abolition of DDT, the shareholders are liable to pay the DDT. 23. Learned Counsel for the Appellants relied upon the decision of the Hon'ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay reported in MANU/SC/0072/1954 at paragraph-8 ....
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....the decision of the Hon'ble Supreme Court and the Financial Statement shows that the Company has strong networth and made good profits and the Appellants are entitled to share the profits of the Company. Learned Counsel for the Appellants submitted that in view of the fact, as stated above, he requested the Tribunal to set aside the impugned order dated 27.10.2020 in so far as the Hon'ble NCLT failed to take into account the financial growth of the Respondents between 2017 to 2020 leading to substantial increase in the value of shares. However, the Appellants further prayed this Tribunal to appoint independent registered Valuer for the purpose of carrying out fresh (as on today) valuation of the Respondent Company. Appraisal: 25. Heard the learned Counsel for Appellants and learned Senior Counsel for the Respondent-Company, perused the records, documents and citations relied upon by them. 26. Paragraphs 28 & 29 of the impugned order dated 27.10.2020 passed by NCLT, Mumbai reads as under: ... "28. In the light of above, the bench is only concerned with the first issue of objection of the 3.59% of the minority shareholders as a whole, is with regard to thei....
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.... a going concern and the learned NCLT, Mumbai ought to have considered the value of the shares for the current year. 30. In respect to the Second Issue, it is made clear that we have not gone into the merits/demerits of methodology adopted by the Auditors. We are concerned only the economic interest of the public shareholders who by virtue of cancellation and extinguishing the shares whether they get their legitimate expectation of the fair value and whether they have been paid the fair value considering the performance of the Company. 31. The objection of the Appellants that the Company adopted a selective method for the reduction of the share capital is concerned, we are not in the agreement with the submission of the Appellants. Sub-Section 1 of Section 66 of the Companies Act, 2013 reads as under: "66. Reduction of share capital (1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may- (a) extinguish or reduce the liability on any of its shares in respec....
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....tions over the scheme. It is not a valuer. It does not have the necessary skills or expertise. It cannot substitute its own opinion for that of the shareholders. Its jurisdiction is peripheral and supervisory." .. 34. Learned NCLT, Mumbai was of the view that the minority shareholders having not obtained an independent valuation report nor have pointed out the defects in the Valuation Report and fixed the share price looking at the past valuation and projected values for the next 10 years. Further it is observed that the NCLT has no power or jurisdiction to exercise any appellate functions. It is not a valuer. It does not have necessary skills or expertise. It cannot substitute its own opinion for that of the shareholders. Its jurisdiction is peripheral and supervisory, not appellate. 35. Having observed, we have already indicated that we are not going into the merits of the valuation. However, public shareholders expect best price for their shares. The share is a movable property and the holders of the share has every right to expect best price and fair value of its shares. 36. In this regard, Hon'ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commi....
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....air and unjust depriving the fruits of the Company to its shareholder's. The NCLT erred in not considering this aspect. 39. Learned NCLT, Mumbai allowed the application by reducing share capital. We are of the view that the learned NCLT ought to have taken latest financial statement of the company to analyse and arrive at a true and fair value of the company on the basis of current financial statement. 40. In so far as DDT is concerned in the explanatory statement to the Notice calling for the EOGM, the Company under the caption 'taxation' has clearly stated that at page-100, Volume-1 of the Appeal Paper Book that the Company will be liable to pay DDT in accordance with the provision of Section 115-O of the Income Tax, 1961. However, in the changed circumstances, the Company has stated that the DDT was abolished by the Central Government under the Finance Act, 2000 w.e.f. 01.04.2020, thereby the Company will not be in any obligation to pay DDT. In the Written Submission filed by the Respondent, vide diary No. 23805 dated 03.12.2020 at paragraph-4, page-2 it is stated that provision of Income Tax, 1961 as amended by the Finance Act, 2020, the obligation of the Respondent-Compa....
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....8 onwards. Page 99 of the same volume of the Appeal Paper Book shows the Five Years Highlights of the Company's Finance which is reproduced hereunder: "Syngenta India Limited Annual Report 2018-19 Securing the Future Through Growth, Sustainability and Safety. Notes to financial statements as at 31 March 2019 (continued) (Currency: Indian Rupees in Lakhs, except share data) Financials: Five years' highlights Year 2018-19 2017-18 2016-17 2015-16 2014-15 Sales 2,91,513 2,71,803 2,87,356 2,92,736 2,90,475 Other Income 21,641 16,869 13,066 9,197 10,589 Total Income 3,13,154 2,88,672 3,00,422 3,01,933 3,01,064 Profit before tax 73,897 44,003 45,087 46,519 46,086 Provision for tax 23,545 15,724 16,254 14,854 7,043 Profit after tax (excluding other comprehensive income) 50,352 28,279 28,833 31,665 40,043 Dividend (including distribution tax) 1,986 1,982 1,982 1,982 1,982 Dividend percentage 100 100 100 100 100 Share capital 1,647 1,647 1,647 1,647 1,6....
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.... Articles of Association that the profits or any portion thereof should be distributed by way of dividends among the shareholders." 49. The principle laid down by the Hon'ble Supreme Court is that the shareholders are entitled to the profit of the Company, the only way to do justice to the public shareholders/non-promotor shareholder is to revalue the shares of the Company by appointing independent valuers and whatever the fair price arrived at by independent valuers, the same shall be paid to the public shareholders. It is clear that if the Company makes profits, the same need to be shared with the public shareholders/non- promotor shareholders which are exiting from the Company by surrendering their shares. As stated supra, we are not going into the veracity of the fairness of the valuation reports and not finding fault with the valuation done by the Valuers. We also hold that the reduction of the share capital is in accordance with law and we do not interfere with the same. We are concerned that the public shareholders/non-Promotor shareholders, economic interest need to be protected by paying latest fair value arrived at by the independent valuers whichever is higher. 50.....