1958 (12) TMI 26 - HC - Companies Law

Company Membership of and Winding up Power of liquidator to accept shares, etc., as consideration for sale of property of company

Summary

Issues Involved:
1. Competency of the appeals.
2. Validity of the remittal order.
3. Determination of the price of dissentient shareholders' interest.

Detailed Analysis:

Competency of the Appeals:
The respondents raised a preliminary objection regarding the competency of the appeals, relying on Section 17 of the Indian Arbitration Act, which states that no appeal shall lie from a decree based on an award except on the ground that it is in excess of, or not otherwise in accordance with, the award. The appellants contended that the revised award was not in accordance with the original award due to an invalid remittal order. The court held that the term "award" in Section 17 refers to the award accepted by the court, and the validity of the remittal order cannot be questioned in these appeals. However, the court recognized that objections to the revised award could be deemed as applications to set aside the award, making the appeals maintainable under Section 39 of the Act.

Validity of the Remittal Order:
The court examined whether the remittal order by Balakrishna Aiyar J. was justified. Under Section 16 of the Indian Arbitration Act, the court may remit an award for reconsideration if it is indefinite, leaves undetermined matters referred to arbitration, or has an apparent legal objection. The arbitrator had initially valued the dissentient shareholders' interest based on the net assets of the company, which was found to be incorrect. The court held that the arbitrator's basis for valuation was legally flawed, justifying the remittal order for reconsideration.

Determination of the Price of Dissentient Shareholders' Interest:
The arbitrator initially valued the interest of dissentient shareholders by estimating the company's net assets and dividing it by the number of ordinary shares. This approach was rejected by the court, which held that the value of the interest should not be a fraction of the net assets. Instead, the arbitrator should have determined the price that a reasonable buyer would pay for the interest immediately before the resolution to wind up was passed. The court emphasized that the value of the assets is a material factor but not the sole determinant of the price. The revised award, which valued the shares at Rs. 12 each, was based on a more comprehensive consideration of various factors, including market conditions and the potential value of the company's assets.

Conclusion:
The appeals were dismissed as the remittal order was valid, and the revised award was upheld. The court concluded that the arbitrator's initial method of valuation was legally incorrect, and the revised award appropriately determined the price of the dissentient shareholders' interest. The appeals were dismissed with costs.