TaxTMI 
TaxTMI 
2003 (10) TMI 46
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....ondents Nos. 1 and 3 (Solvay Pharmaceutical B.V. and Shri D. Vasant Kumar) from transferring/exchanging their shareholdings in defendant-companies Nos. 2 and 4 pending disposal of the suit. The other two suits of similar nature were filed by the petitioner in S.L.P. Nos. 18041 and 18042 of 2000 and interim injunction was sought for. The I.A. filed in O.S. No. 551 of 2000 under Order 39, rules 1 and 2 was dismissed by the learned trial judge while vacating the ex parte injunction granted earlier. However, the ad interim injunction granted in the suits filed by the petitioner in S.L.Ps. Nos. 18041 and 18042 of 2000 remained in force. The aggrieved parties filed three appeals in the High Court under Order 43, rule 1 of the Code of Civil Procedure. The appeal filed by the petitioner in the first S.L.P. against the refusal of injunction was dismissed by the High Court and the other two appeals filed by the aggrieved defendants were allowed and the ad interim injunction in both the cases was vacated. Against this common order of the High Court, the present S.L.Ps. were filed by the plaintiffs namely, Mrs. Renuka Datla and Dr. Vijay Kumar Datla. On the initiative taken by this court wh....
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....C.A. Nos. 8316-8321 of 2001 as well as the application filed by Smt. Renuka Datla under section 399(4) of the Companies Act before the Central Government. It was agreed that the S.L.P. shall be kept pending for passing the final orders in terms of the settlement. Mr. Malegam submitted his valuation report with his covering letter dated September 28, 2002. After assessing the intrinsic worth of the two companies as going concerns, the value of 4.91 per cent. shares was arrived at at Rs. 8.24 crores. A brief reference to the salient features of valuation may be appropriate. The valuer considered three methods of valuation. (1) asset based; (2) earning based; (3) market based. While working out the earning based valuation, the value on the basis of capitalization of past earnings was adopted. The discounted cash flow method which is the commonly used methodology for future earnings based valuation was eschewed from consideration. The reasons given by the valuer are: (1) no independent (third party) projections have been provided; (2) both parties have provided projections which differ substantially as illustrated in Tables 1.1 and 1.2. The basic principle and method of eva....
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....' shareholding. The respective contentions in this regard have been analysed by the valuer as follows: "If the shares are to be valued on the basis of a holding of 4.91 per cent., then this holding does not give any special advantage to the holder or in this case even to the purchaser since the respondents collectively hold in the two companies 60.5 per cent. of the share capital of each company. On that consideration, the value of the shares can only be 4.91 per cent. of the intrinsic worth of the two companies. On the other hand, if the shares are to be valued on the basis that the 4.91 per cent. forms part of the combined holding of 25 per cent. and therefore carries special rights, then there has to be a premium attached to the value of the shares. Accordingly, the value of the 4.91 per cent. shareholding would be the value determined by taking 4.91 per cent. of the intrinsic worth of the two companies and adding thereto a control premium." The valuer concluded that he was not competent to decide upon this controversial legal issue and therefore, the valuation was done without adding the element of control premium. Another aspect debated before the valuer was wh....
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....elf on the non-addition of control premium. It is the contention of the petitioners that 4.91 per cent. shareholding which the respondents Mr. Vasant Kumar and another have agreed to purchase is part of the promoters' shareholding of 25 per cent. and they consciously avoided buying the other shares which were acquired by the petitioners from the market. Certain special rights and privileges were attached to these promoters' shareholding and, therefore, the intrinsic worth of the shares should have been assessed by adding the control premium. As already noticed, the valuer has adverted to the respective contentions in this regard and indicated the implications of treating or not treating 4.91 per cent. shares as part of the combined shareholding of the promoters. The valuer rightly refrained from going into this contentious issue. However, the court has to necessarily address itself to this issue canvassed before us. In answering this question, the terms of settlement must be kept uppermost in the mind. It may be that the respondent Shri Vasant Kumar agreed to purchase only 4.91 per cent. shares of the petitioners on account of these shares forming part of the promoters'....
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....o thwart the terms of the settlement by inviting the valuer or this court to go into the extraneous issue as regards the validity of the transfer or incidental matters. The assets as per the relevant records have to be taken into account by the valuer and that has been done. We, therefore, find no apparent error in excluding those brands. The other objection is about DCF method of valuation which the valuer has described as a commonly accepted method in adopting "future earning based valuation". This involves" discounting the net free cash flow of a business at an appropriate discount rate". We have already adverted to the reasons given by the valuer for not adopting this method of valuation. Those reasons cannot be said to be irrelevant. It is contended that if the data and projections furnished by the parties is not reliable the valuer should have secured the relevant data from independent sources or could have called for further particulars. We find no merit in this argument. The DCF method is adopted while resorting to valuation based on future earnings. It is not the case of the petitioners that the future earning based valuation is the only reliable method of "earnings bas....
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.... to the other modes of valuation and observed that the recommended value is the higher of the intrinsic value or the market based value. Thus, the petitioners had the benefit of higher valuation. The first principle laid down in the above decision has been kept in view. Moreover, the profit-earning method which has been referred to in the above decisions in the context of valuation of shares of a private limited company has also been applied, though future earnings based valuation has not been done in the absence of reliable figures. As observed by us earlier, the profit-earning capacity of the company has not been excluded from consideration. Thus, the valuer's mode of valuation does not in any way infringe the principles laid down in the said decisions to the extent they are applicable. In the final analysis, we are of the view that the valuer approached the question of valuation having due regard to the terms of settlement and applying the standard methods of valuation. The valuation has been considered from all appropriate angles. No case has been made out that any irrelevant material has been taken into account or relevant material has been eschewed from consideration b....