2005 (6) TMI 282 - HC - Companies Law

Oppression and mismanagement - determination of market valuation - Whether the respondent would continue to exercise rights as Director of the appellant-company until the amount towards the valuation of his shares held by the respondent is paid over to him? - HELD THAT - The valuation report determining the market value of the share the valuation ex facie cannot be considered as just and proper. However, the contentions which are advanced before me by the parties indicate that there are different modes of challenge to the said valuation report of the Chartered Accountant and, thus, I propose to go into the details of the nature of challenge to valuation report. It is needless to state that the valuer will determine the valuation of the said assets as independent agency and on his own parameters and approach and would not seek any assistance either of the petitioner and/or of the respondent-company. I am of the further opinion that the valuation report prepared by the said valuer must be as of the date fixed as 31-3-2005 and the valuation must be taken into consideration as on the date of 31-3-2005. I am of the aforesaid opinion because the petitioner is a 40 per cent shareholder in the company. His shares have remained stagnant in the said company. Furthermore if the assets of the company have appreciated then the value of his shares must necessarily and correspondingly appreciate and therefore it is necessary that the valuation of the said assets must take place as on 31-3-2005 which is the end of the closest financial year. The said Chartered Accountant appointed by the Company Law Board as valuer shall hear both the parties and thereafter arrive at his own valuation. The respondent-company will provide all documents and papers, vouchers and any other material which is in their custody and possession as and when called upon by the said valuer. In an event if the valuer finds any difficulty in obtaining any of the material documents necessary then in that event the valuer will approach the Company Law Board for further necessary directions. Fees of the valuer will be shared by both the parties in their proportion of 40 per cent and 60 per cent, i.e., the original petitioner will pay 40 per cent and the respondent- company will pay 60 per cent of the fees charged by the valuer. The said valuation report once filed before the Company Law Board, the Company Law Board will hear the matter expeditiously and dispose of all objections thereto expeditiously as possible but in any event within six months from the date of filing of the valuation report. Remuneration of the director - It is not possible to ascertain whether the second respondent has drawn remuneration or not but second respondent has been enjoying all the facilities. I am therefore of the opinion that the ratio of two-third to the remuneration drawn by the second respondent fixed by the Company Law Board cannot be altered at this stage but the petitioner will be entitled to the said remuneration and or perquisites throughout the period till and until the shares are evaluated and payments are offered in respect of the shares. Thus, I direct the original respondent-company to make payment of the arrears, remunerations and of the perquisites up to the date of 31-3-2005 within a period of two months from today to the original petitioner in the ratio of two-third of the total remuneration and perquisites drawn by the second respondent. The said payments will be made by the respondent-company with interest at the rate of 12 per cent per annum to the petitioner herein since he has been deprived of the same all throughout. The remuneration as directed by the Company Law Board has also not been paid. In view thereof I pass the following order. Both the company appeals are disposed off as per the following directions (i) Insofar as the first question of law is concerned, I hold that the valuation report is not just and fair and is suffering from bias and non-independence of the valuer. I accordingly set aside the said valuation report in its entirety. I direct that the shares held by the petitioner will be re-evaluated by the Chartered Accountant appointed by the Company Law Board as on 31-3-2005. I further direct that the Company Law Board to appoint such Chartered Accountant for valuation of share price within a period of thirty days of the receipt of the present order. I further direct that the Company Law Board shall fix a time schedule within which the Chartered Accountant should complete the exercise of valuation of the said shares. The said Chartered Accountant shall file the valuation report in sealed cover with the Company Law Board in Company Petition No. 12 of 1998. (ii) Fees of the Chartered Accountant shall be shared by both parties, 40 per cent by the petitioner, 60 per cent by the respondent. (iii) Before finalising the report the said Chartered Accountant will give opportunity to both the parties to give their facts and figures pertaining to the valuation of his report and shall make the final valuation keeping in mind the submissions made by the parties. (iv) The said report shall be filed before the Company Law Board by the said Chartered Accountant within a period of two weeks from the date he has completed the said valuation. On the said report being filed, the Company Law Board will give notice to both the parties and furnish a copy of the valuation report to both the parties and thereafter invite objections from either of the parties within a stipulated period of time. If the objections are received then the Company Law Board will consider the same by itself without remanding back to the valuer and pass appropriate order on such valuation report prepared by the valuer. (v) The Company Law Board will pass final orders as expeditiously as possible but in any event within a period of six months from the date of the valuation report filed by the said Chartered Accountant before the Company Law Board. (vi) Insofar as the second question of law is concerned, I hold that the original petitioner is entitled to payment of remuneration and perquisites till the date his shares are evaluated as per the second option and the necessary amount paid by the company as per the valuation report. Arrears of the rumination as of 31-3-2005 shall be paid within 2 months along with interest at the rate of 12 per cent per annum from the date of impugned order till the date of payment. (vii) Furthermore on such payment offered by the respondent company to the petitioner the original petitioner will cease to claim any remuneration and will be entitled to the said price of his shares. The original petitioner on payment being made will effect transfer of all his shares and also will resign from the directorship of the company and will cease to have any claim in respect of the remuneration and perquisites as a director of the company. (viii) With the aforesaid directions both the appeals are disposed of with no order as to costs.

Summary

Issues Involved:
1. Whether the market value determined in respect of the shares held by the respondent can be said to be just and proper?
2. Whether the respondent would continue to exercise rights as Director of the appellant-company until the amount towards the valuation of his shares held by the respondent is paid over to him?

Detailed Analysis:

1. Market Value Determination of Shares:
The first issue revolves around the fairness and propriety of the market value determined for the shares held by the petitioner. Both parties were dissatisfied with the valuation report prepared by M/s. Price Water House (COOPER). The respondent-company argued that the valuation erroneously included plots A-9 and A-10 as assets of the company. They contended that these plots should not have been considered in the valuation, and even if included, the premium ratio fixed was incorrect. The petitioner criticized the valuation report entirely, arguing that the valuer lost its independent character and acted as an agent of the respondent-company, citing a letter dated 1-3-2001 as evidence. The court found that the valuer's approach lacked independence and bona fides, leading to the rejection of the valuation report in its entirety. The court directed the Company Law Board to appoint a new Chartered Accountant to re-evaluate the shares as of 31-3-2005, ensuring an independent and unbiased valuation process.

2. Rights and Remuneration of the Director:
The second issue concerned whether the petitioner was entitled to remuneration as a director after opting to sell his shares. The respondent-company argued that the petitioner should not receive any remuneration once he chose the second option of selling his shares. However, the petitioner contended that he should receive remuneration throughout the period until the shares were evaluated and payment was made. The court held that the petitioner, holding 40% of the shares, was entitled to remuneration and perquisites until the shares were evaluated and the payment was made. The court directed the respondent-company to pay arrears of remuneration up to 31-3-2005 within two months, with interest at 12% per annum. Upon payment, the petitioner would transfer his shares, resign from the directorship, and cease to have any claim to remuneration as a director.

Conclusion:
The court provided specific directions to ensure a fair and independent valuation of the shares and upheld the petitioner's right to remuneration until the completion of the share transfer process. The appeals were disposed of with no order as to costs.