1993 (2) TMI 334 - HC - Companies Law

Summary

Issues Involved:
1. Valuation of shares versus valuation of assets.
2. Procedure followed by the valuers.
3. Independent valuation of properties.
4. Delegation of judicial function.
5. Inclusion of goodwill and tenancy rights in asset valuation.
6. Valuation of the Udyog Nagar plot.
7. Method of share valuation and deduction for capital gains tax.
8. Deduction for restriction on transfer of shares.
9. Interpretation of clause 14 of the settlement.

Detailed Analysis:

1. Valuation of Shares versus Valuation of Assets:
The objection that only assets, and not shares, needed to be valued was dismissed. The court order dated August 9, 1990, explicitly required the valuation of shares of Kidarsons Industries Pvt. Ltd. and its immovable properties. The valuation needed to account for both assets and liabilities, and the objection was deemed misconceived.

2. Procedure Followed by the Valuers:
The court clarified that V. Sankar Aiyar and Co. were appointed as chartered accountants for valuation purposes, not as local commissioners under Order XXVI of the Civil Procedure Code. Therefore, they were not required to give notice or provide an opportunity for oral hearings to the parties. The valuation was based on records maintained by the company, and the objection was rejected.

3. Independent Valuation of Properties:
The valuers accepted the valuations done by other approved valuers close to the relevant date. The MN group had provided these valuations, while the NN group did not offer any counter-suggestions. The court approved the valuation of V. Sankar Aiyar and Co. as correct, and the objection was dismissed.

4. Delegation of Judicial Function:
The court held that the valuation of shares is not a purely judicial function and can be entrusted to an expert like a chartered accountant. The orders dated August 9, 1990, and September 4, 1990, which were not challenged, had become final. Therefore, the objection was considered misconceived and rejected.

5. Inclusion of Goodwill and Tenancy Rights in Asset Valuation:
The valuers did not include the value of goodwill and tenancy rights in the assets. The court agreed with the valuers' reasoning, noting that the company was no longer a viable unit after losing the TSU agency, which constituted 70% of its income. The court also noted that tenancy rights are not owned by the company and are not reflected in its balance sheets. The objection was rejected.

6. Valuation of the Udyog Nagar Plot:
The property was valued at Rs. 40,000. Although the objector argued that this was too low, no alternative value was suggested. The court found no significant impact on the overall valuation of shares and rejected the objection.

7. Method of Share Valuation and Deduction for Capital Gains Tax:
The court directed the valuers to use the value of assets and liabilities for share valuation. The valuers followed this direction and included notional liabilities like capital gains tax and realisation charges. The court found this approach justified and dismissed the objections.

8. Deduction for Restriction on Transfer of Shares:
The valuers made a 20% deduction due to restrictions on the transfer of shares in a private limited company. The court found this deduction well-recognized in law and rules regarding share valuation. The objection was rejected.

9. Interpretation of Clause 14 of the Settlement:
The court interpreted clause 14 as a transitory provision, allowing Narender Nath to continue occupying portions of the Golf Links property until the settlement was fully implemented. The court held that the Golf Links house could not be exclusively allotted to Narender Nath due to its high value and the impracticality of subdividing the property. The objection was rejected, and the court directed the transfer of the Defense Colony property to Narender Nath or his nominees, along with a payment of Rs. 4,45,212 by the company.

Conclusion:
The court rejected all objections raised by the NN group against the report of V. Sankar Aiyar and Co. and accepted the report. The court directed the implementation of the settlement based on the valuers' report, transferring the Defense Colony property to Narender Nath or his nominees and requiring him to vacate the portions of the Golf Links property he occupied. The applications for interim directions were dismissed as they no longer survived.