1998 (3) TMI 538 - HC - Companies Law

Summary

Issues Involved:
1. Valuation of goodwill and tenancy rights.
2. Valuation of Udyog Nagar Plot.
3. Deduction of hypothetical capital gains.
4. Reduction of share value by 20% due to marketability restrictions.
5. Occupation rights of Golf Links property.

Issue-Wise Detailed Analysis:

1. Valuation of Goodwill and Tenancy Rights:
The appellants contended that the valuers failed to account for the value of the company's goodwill and tenancy rights. The court noted that the main business of the company, the TSU agency, had been terminated, thus eliminating any goodwill. The valuer concluded that the goodwill had no value due to the loss of the primary business. The court agreed, stating that the company would need to start afresh to create new goodwill. Regarding tenancy rights, the court found no evidence that these rights could be transferred or had any premium value, especially under Rent Control Legislations which typically prohibit sub-letting or assignment of tenancy rights.

2. Valuation of Udyog Nagar Plot:
The appellants argued that the Udyog Nagar plot was undervalued. The court acknowledged that the property was not assessed at market value but noted the absence of any substantial evidence from the appellants to indicate the correct market value. The court stated that it was the responsibility of the parties to provide sufficient material to ascertain the property's value and found no error in the valuer's assessment based on the book value.

3. Deduction of Hypothetical Capital Gains:
The appellants objected to the deduction of hypothetical capital gains from the value of the company's assets. The court explained that under the Income-tax Act, capital gains tax is applicable on the transfer of capital assets. The court distinguished between the transfer of assets by a partnership firm and a company, stating that the latter's transfer of assets to shareholders in exchange for shares does attract capital gains tax. The court upheld the valuer's deduction of capital gains from the asset value, emphasizing that such deductions are standard practice in asset valuation.

4. Reduction of Share Value by 20% Due to Marketability Restrictions:
The appellants argued against the 20% reduction in share value due to the company's private status and transfer restrictions. The court noted that private companies typically restrict share transfers, which depresses their market value. The court referenced the Wealth-tax Rules, which previously mandated an 80% valuation of unquoted equity shares. The court found no error in the valuer's decision to reduce the share value by 20%, considering the restrictions on marketability.

5. Occupation Rights of Golf Links Property:
The appellants claimed that under clause 14 of the settlement, Mr. Narender Nath Nanda should continue to occupy the Golf Links property. The court noted the impracticality of subdividing the leasehold property and the acrimony between the parties, which made cohabitation impossible. The court held that the interpretation of clause 14 by the appellants was not feasible and supported the decision that the Golf Links property could not be allocated to Mr. Narender Nath Nanda.

Conclusion:
The court dismissed the appeal, finding no merit in the objections raised by the appellants. It upheld the valuer's report and the judgment of the learned Single Judge, affirming the valuation and distribution of the company's assets and shares as per the settlement agreement. The court also left open the possibility for Mr. Narender Nath Nanda to claim any arrears of salary, commission, or dividend through appropriate applications before the executing court. The parties were directed to bear their own costs.