2021 (1) TMI 514 - Tri - Companies Law

Oppression and mismanagement - Section 241 and 242 of the Companies Act, 2013 - prayer for appointment of a Special Officer to take control of the affairs of the Company and handle the books of accounts - HELD THAT - Considering the objection to sell out or buy out the shares of shareholders who are willing to exist form R1 or takes over R1 company without the other rival shareholders, it appears to me that the objections of the respondents in arriving at a competitive price higher than the price fixed by the valuer is unsustainable under law and devoid of any merits. Highlighting the Hon'ble NCLAT order dated 12.03.2020 that the Tribunal is expected to decide the CP on merits instead of adjourning the matter based on IA's, the Ld. Pr. CS has submitted that this Tribunal is prevented from conducting bidding to enable the parties to sell or buyout the shares of the R1. However, what he pressed before me is to hear the applications already pending for consideration and that he is filing another application for early hearing. Altogether six (6) application filed is pending for consideration. To have a better understanding of those IA's pending for consideration, and for an eye view to understand the litigation instinct in the respondents not to exist from the R1 company by selling out their shares, or they themselves will not takes over the R1 buying the shares from the petitioners, even if a competitive price is arrived at upon conducting bidding between the parties, it is good to read some of the IA's. What is under challenge is that valuer has not given an opportunity to suggest the name of the valuer at their instances and appointing the valuer by the special officer is against the direction and hence the report of valuation is not binding on them. There are no averments in the application as to why the valuation done by the independent valuer is faulty. In fact, the valuer's report is unchallenged on merits and the only ground for challenging the valuation is that the respondents did not get adequate opportunity to give names of valuers. This objection is also found devoid of any merits. The reserve price of share value of one equity share is fixed at ₹ 277.00 based on the valuation report - Petitioners group and respondents group each shall quote respective price for buyout/sell out which shall be higher than ₹ 277.00 per shares of R1, in a sealed cover with in one week from the date of this order before the Tribunal, with due intimation to the registrar, NCLT, Kolkata, preferably on or before 3 pm on 12.8.2020 - Petition allowed in part.

Summary

Issues Involved:
1. Urgent hearing request.
2. Alleged oppression and mismanagement.
3. Appointment of a Special Officer.
4. Valuation of shares.
5. Buyout/sellout of shares.
6. Objections to the valuation process.
7. Competitive bidding for shares.

Issue-wise Detailed Analysis:

1. Urgent Hearing Request:
The petitioners moved an application on 24/07/2020 for an urgent hearing of an unnumbered interim application. The tribunal acknowledged the urgency and listed the matter for 03/08/2020, directing the petitioners to submit an e-copy of the application, valuation report, and CP.

2. Alleged Oppression and Mismanagement:
The petitioners filed an application under sections 241 and 242 of the Companies Act, 2013, alleging oppression and mismanagement by the respondents concerning the affairs of the respondent company (R1). The tribunal had previously directed the respondents to comply with Article 53 before holding any Board Meeting.

3. Appointment of a Special Officer:
During the pendency of the main CP, the petitioners filed IA No. 513/KB/2019 requesting the appointment of a Special Officer to manage the company's affairs. The respondents filed IA No. 717/KB/2019 for permission to convene a Board Meeting. The tribunal appointed Mr. Shyamal Sarkar as the Special Officer to preside over and hold the Board meetings periodically and implement the resolutions passed.

4. Valuation of Shares:
The petitioners filed IA No. 834/KB/2019 requesting the valuation of shares of R1 Company. The tribunal directed the Special Officer to appoint a valuer to determine the value of the shares. The Special Officer appointed M/s. L.S.I. Financial Services Pvt. Ltd. to conduct the valuation, which was completed and submitted to the tribunal.

5. Buyout/Sellout of Shares:
The petitioners sought an order directing the respondents to sell their shareholding to the petitioners or their nominees at a rate determined by the tribunal or through open bidding. The tribunal considered the strained relationship between the parties and the necessity for one group to exit the company.

6. Objections to the Valuation Process:
The respondents objected to the valuation process, arguing that the Special Officer appointed the valuer without their input, making the valuation report non-binding. The tribunal found no merit in these objections, noting that the respondents had ample opportunity to participate in the valuation process but failed to do so.

7. Competitive Bidding for Shares:
The tribunal referred to a Karnataka High Court decision, emphasizing that competitive bidding ensures a fair price for shares. The tribunal directed that the reserve price for one equity share be fixed at ?277.00 based on the valuation report. Both groups were instructed to submit their buyout/sellout prices in sealed covers, with the higher bidder getting the first option to buy the shares of the lower bidder.

Conclusion:
The tribunal allowed the application in part, setting a reserve price for the shares and directing a competitive bidding process. The matter was listed for confirmation of bidding and further hearing on 14/08/2020. The registry was directed to send e-mail copies of the order to all parties and receive sealed covers for the bidding process.