2022 (7) TMI 1038 - Tri - Companies Law

Seeking appointment of one or more Independent Valuer(s) to valuate the fair price per equity share of the Respondent Company - low valuation of shares in the exit offer - Valuation ordered under section 247 of Companies Act, valid or not - scope under section 59 of Companies Act - HELD THAT - The Respondent No. 1 Company in the first instance failed to act as per the obligatory requirement in terms of the SEBI Circular and it was only after repeated request by the Petitioner that the Respondent No. 1 Company provided its shareholders with an Exit Offer. Reluctance on the part of the Respondent company to provide copies of the annual returns and balance-sheet for the years 2014-17 to the Petitioner creates doubts about the bona fide intentions of the Respondent. The Respondents also refused to provide the Valuation Report of its shares to the Petitioner. This also does not reflect well on the bona fide intentions of the Respondent Company and its Directors with respect to justifying the share price it offered in the Exit Offer. The Petitioner had already been made an offer of Rs. 125 per share and subsequently the Exit Offer was only of Rs. 18.42 per share are significant and sufficient enough grounds to cast doubts about the veracity of the valuation of shares got done by the Company for its Exit Offer. Therefore, in the interest of equity, justice and fair play for the Applicant and other public shareholder a revaluation of the shares by an independent valuer is necessitated and the independent valuer should also take into account under-valued transactions or bogus expenses if any, incurred, before the earlier valuation was done. Whether the present petition comes within the ambit of Section 59 of the Companies Act? - HELD THAT - The Petitioner has claimed that the promoters have purchased shares during the period of the Exit Offer and that for the purpose of Section 59, rectification is not limited only to 'public shareholders', but includes promoters and Members of the Company. Be that as it may, such rectification would only follow consequentially and be contingent upon the findings of a fresh valuation in respect of the fair price of the shares - the matter needs to be considered on the strength of the factual position apparent from the oral and written submissions of the parties. It is also pertinent to mention that the Petitioner could not have approached this Tribunal under the Provisions of Chapter XVI of the Companies Act, 2013 as he did not have the requisite numbers. Also, since the Respondent No. 1 Company is now delisted, the Petitioner and other public shareholders are deprived of the benefit of getting the market/traded value of their shares and must perforce have to be content with value of shares in the Exit Offer - the Authorized representative of the Petitioner via Application under Right to Information Act, 2005 was informed by the Respondent No. 10 vide its letter dated 30.08.2019 that necessary Notices have been issued by it to the Respondent No. 1 company and its Directors; however it also informed the authorized representative of the Petitioner to approach this Tribunal for appropriate action in the matter. Valuation ordered under section 247 of Companies Act - HELD THAT - The Respondents have also contended that valuation cannot be ordered under Section 247 of the Companies Act, 2013 since valuation under Section 247 would be limited to valuation required to be done under the provisions of the Companies Act and the valuation prayed for by the Petitioner is a valuation to be done under the SEBI Circular (which has been issued under the provisions contained in the SEBI Act). It is noteworthy here that while Section 59(4) of Companies Act provides for rectification of Register if transfer of securities is in contravention of the provisions of the SEBI Act. Section 247 or other provisions of the Companies Act or Rules do not specifically provide for conducting valuation if it is required under the provisions of the SEBI Act. It therefore follows that if the Register contains entries in respect of valuation done in, contravention of the SEBI Act, then in order to rectify those entries fresh valuation should be permissible under the Companies Act since Section 59(4) of the Companies Act provides for such rectification. This Tribunal therefore orders that an independent valuer be appointed forthwith from the list of approved valuers of IBBI by Respondent No. 1 Company, the services of whom will be compensated by the Respondent No. 1 Company. The independent valuer will submit his report on the valuation of shares of the Respondent No. 1 Company within a period of 3 months from the date of his appointment - The Respondent No. 1 Company will take all further necessary action on the basis of the valuation of shares arrived at by the independent valuer. The Applicant will be at liberty to approach the appropriate authority or legal forum for any grievance necessitated on the basis of the valuation report.

Summary

Issues Involved:
1. Maintainability of the application under Section 59 of the Companies Act, 2016.
2. Alleged undervaluation of shares and request for revaluation.
3. Rectification of the Register of Members.
4. Disqualification of directors and auditors for alleged fraud.
5. Jurisdiction and powers of the Tribunal to appoint an independent valuer.

Detailed Analysis:

1. Maintainability of the Application:
The Respondents argued that the petition is not maintainable under Section 59 of the Companies Act, 2016, as no cause of action has arisen to invoke this section. They contended that Section 59(1) pertains to rectification of the register of members only if a name is entered without sufficient cause or omitted, which is not the case here. The Petitioner, however, claimed that the undervaluation of shares by Respondent No. 7 and the refusal to provide the valuation report necessitated invoking Section 59 for rectification of the register of members. The Tribunal noted that the Petitioner's primary grievance was the low valuation of shares in the exit offer and the subsequent refusal by the Respondent Company to provide necessary documents, which justified the need for revaluation.

2. Alleged Undervaluation of Shares and Request for Revaluation:
The Petitioner alleged that the valuation report prepared by Respondent No. 7 undervalued the shares to defeat the rights of minority shareholders. The Tribunal observed that the Respondent Company's reluctance to provide the valuation report and other financial documents raised doubts about the bona fide intentions of the Respondents. The Tribunal found sufficient grounds to cast doubts on the veracity of the valuation and deemed a revaluation by an independent valuer necessary to ensure equity, justice, and fair play.

3. Rectification of the Register of Members:
The Respondents argued that since no public shareholder availed of the exit offer, there was nothing to rectify in the register of members. The Petitioner contended that rectification was not limited to public shareholders but included promoters and members of the Company. The Tribunal held that rectification would be a consequential relief contingent on the findings of the independent valuer's report.

4. Disqualification of Directors and Auditors for Alleged Fraud:
The Petitioner sought disqualification of certain directors and the auditor for alleged fraud under Sections 447 and 448 of the Companies Act, 2013. The Tribunal decided that these reliefs were dependent on the outcome of the independent valuer's report and would not be considered at this stage.

5. Jurisdiction and Powers of the Tribunal to Appoint an Independent Valuer:
The Respondents contended that the Tribunal did not have jurisdiction to order a valuation under Section 247 of the Companies Act, as the valuation was required under a SEBI Circular. The Tribunal noted that Section 59(4) allows for rectification if the transfer of securities is in contravention of SEBI Act provisions. The Tribunal cited Supreme Court judgments to assert that mentioning a wrong provision does not vitiate the exercise of power if it exists under law. The Tribunal invoked its powers under Rule 11 of the NCLT Rules, 2016, to appoint an independent valuer from the list of approved valuers of IBBI to revalue the shares.

Conclusion:
The Tribunal ordered the appointment of an independent valuer to revalue the shares of the Respondent No. 1 Company, with the costs to be borne by the Respondent Company. The independent valuer is to submit the report within three months, and the Respondents are to fully cooperate. All other reliefs sought by the Petitioner are to be considered post the submission of the independent valuer's report.