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TMI Blog1958 (12) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. The company had no factory of its own in which the green tea leaf grown on its estate could be processed into marketable tea. The Company used to sell its tea leaves to a neighbouring company called Kil Kotagiri Tea and Coffee Estates Company Ltd., which will hereinafter be referred to as the Kil Kotagiri Company. Perumal held 14,900 ordinary shares and Mahajan held 5,900 ordinary shares in the company on the material date. On August 31, 1955, the Neergundi Company passed a special resolution which ran as follows: "1.That the company be wound up voluntarily. 2.That it is expedient that the business of the company should pursuant to section 208C of the Indian Companies Act, 1913, be transferred to the Kil Kotagiri Tea and Coffee Estates Co. Ltd., upon the terms and subject to the conditions contained in the draft agreement expressed to be made between the company and its liquidators of the one part and the said Kil Kotagiri Tea and Coffee Estates Co. Ltd., of the other part, which draft is verified by the signature of Lionel Aldred a director of the company. 3.That Messrs. John Deavin, Norman Blenkinsop and John Ashton of Messrs. Fraser Ross, Madras, be appointed liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tu or by arbitration. On these two applications Balakrishna Aiyar J., passed an order on January 6, 1956, appointing Sri P.S. Chandrasekhara Iyer, retired District Judge and advocate, as the sole arbitrator for determining the price to he paid for 5,900 and 14,900 shares held by D. R. Mahajan and R.T. Perumal respectively in the company. In accordance with this. order Sri P.S. Chandrasekhara Iyer after an elaborate, enquiry passed his award on June 17, 1956. In and by that award he fixed the amount payable as the price of the shares held by Mahajan at Rs. 1,11,731-4-0, and the amount payable for the shares held by Perumal at Rs. 2,82,168-12-0. It may be stated briefly that he arrived at the value of Rs. 18-15-0, per share by first valuing the gross assets of the company and subtracting there from the liabilities thus arriving at the net value of the estate and dividing the same by the number of ordinary shares, namely, 1,08,538. He then took out an original petition, 0. P. No. 275 of 1956, praying that his award may be received and suitable orders may be passed on the petition. This petition was filed under section 14(2) of the Indian Arbitration Act and rule 5 of the rules framed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties herein excepting the arbitrator do pay and receive the proportionate costs of these petitions as per the award both before this court and before the said arbitrator when severally taxed and noted in the margin hereof with interest thereon at six per cent, per annum from the date of taxation to the date of payment; and in taxing the said costs, advocate's fee at Rs. 5,000 (Rs. five thousand) for each party (treating D.R. Mahajan and R.T. Perumal as one party) be allowed and that the said costs do also include the amounts paid to the arbitrator already by the respondents 3 to 5 in O. P. No. 275 of 1956; 3. That the liquidators, respondents 3 to 5 in O.P. No. 275 of 1956, shall be entitled to set off or adjust the payments they have made to the arbitrator herein in the first instance in the said manner." Respondent 1 is D.R. Mahajan, respondent 2 is R.T. Perumal and respondents 3 to 5 are the liquidators of the Neergundi Company. The appeals now before us were then filed by the two shareholders respectively. Mr. O.T.G. Nambiar, learned counsel for the respondents-liquidators took up a preliminary objection that the appeals were not competent. He mainly relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)that an arbitrator or umpire has misconducted himself or the proceedings ; (b)that an award has been made after the issue of an order by the court superseding the arbitration or after arbitration proceedings have become invalid under section 35 ; (c)that an award has been improperly procured or is otherwise invalid. Section 39 confers a right of appeal from certain orders and from no others passed under the Act to the court authorised by law to hear appeals from original decrees of the court passing the order. Such appealable orders include : an order setting aside or refusing to set aside an award. Section 44 enables the High Court to make rules consistent with the Act inter alia as to the filing of awards and all proceedings consequent thereon or incidental thereto. "Court" is defined in section 2( c ) as meaning a civil court having jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit. Mr. Nambiar's contention was that the appeals purport to be against the decree passed by Balakrishna Aiyar J. agreeing to the award and section 17 of the Act prohibits an appeal from such decree except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aiyar J. accepting the revised award must be deemed to be also an order refusing to set aside the revised award. There was no formal application as such to set aside the revised award but admittedly objections were filed to the revised award by the two appellants before us mainly on the ground that the order of remittal was itself bad. These objections can be deemed to be applications to set aside the award. He relied on a decision of Chandra Reddi J. in Ramaswami Servai v. Muthiralayee [1954] 1 MLJ 7 , in support of his contention. In that case notice of the filing of the award was served on the party. He filed a counter affidavit attacking the genuineness and validity of the award and prayed that the court may be pleased to dismiss the petition but there was no application as such to set aside the award. The learned judge held that the counter affidavit can be tantamount to an application for setting aside the award within the meaning of section 17 of the Arbitration Act. A similar view was taken in Ram Alam Lal v. Dukhan ILR [1952] 2 All 664 . It is true that there was no formal order refusing to set aside the revised award but in the circumstances the order accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the award to the arbitrator. He also had to admit that the court would have jurisdiction to remit an award only on one of the grounds specified in section 16 and under no other ground. If, therefore, the court remitted an award on any ground other than those specified in that section such an order would be without jurisdiction. We then asked Mr. Nambiar what was the remedy of the party aggrieved by such an invalid remittal. Mr. Nambiar frankly stated that there was no remedy so far as he could see. We do not think that we could subscribe to this result unless we are forced to. In our opinion one of the grounds on which a revised award can be sought to be set aside is that it was the result of an invalid order of remittal. That was the first objection which the appellants took in their counter affidavits. In this view it is not necessary to consider the other contention of Mr. Gopalaswami Aiyangar that section 39 of the Act would have no application to an appeal under the Letters Patent as it deals only with appeals from one court to another. We hold that the appeals are competent. On the merits the only question which arises is whether Balakrishna Aiyar J. was justified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the Neergundi Company and deducted therefrom the liabilities of the company and took the balance as the net value of the estate. He divided the amount of this value by the number of ordinary shares to fix the value per each share. The following extract from his award gives details of the calculation: The valuation will be as follows: Fixed assets. Freehold land ... Rs. 16,87,750 Buildings ... 1,54,935 Plant and machinery ... 19,627 Furnitures ... 10,801 Rs. 18,73,113 Add motor cycle, etc . as per liquidators' statement Rs. 6,28,365 Rs. 25,01,478 Less liabilities Rs 4,44,617 Net value of estate as on 1 7 1955 Rs. 20,56,86 Number of ordinary shares at Rs. 2 each Rs. 1,08,538 Value per share : Rs. 18-15-0 (omitting pies in the calculation) The amount payable for Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to be paid only out of the amount actually realised in exchange for the properties of the company, and not a proportionate portion of their market value. The learned Judge pointed out what the arbitrator should have done but which he did not do. He stated : "He should have tried to find out what the price was which the interests of the dissentients would have fetched immediately before the resolution to wind up was passed. He should have posed the question, how much would a reasonable man have been prepared to pay for that interest. No doubt a prudent purchaser would take into account the value of the assets of the company in making his offer, but that would be only one consideration and the price of the interest cannot be expressed as a fraction of the net assets of the company." After holding that the arbitrator had proceeded on a completely wrong legal basis in determining the value of the interest of the dissentient member he proceeded to indicate the various considerations and factors which should be taken into account in arriving at the proper price to be fixed. The learned judge wound up his judgment thus: "I recognise that it is not at all easy to make allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the business or the property of the company is proposed to be transferred or sold to another company. In the case of a company which is not being wound up it is appropriate to speak of the shares as being acquired, the price being the price of the shares at the market value, but when the company is being wound up there can be no question of sale or acquisition of shares as such. Hence the use of the word "interest". What is the interest of a shareholder by virtue of his holding the shares in a company ? Farwell J. in Borland's Trustee v. Steel Brothers and Co. Ltd. [1901] 1 Ch. 279 , observed at page 288 : "A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with section 16 of the Companies Act, 1862. The contract contained in the articles of association is one of the original incidents of the share. A share is not a sum of money settled in the way suggested, but is an interest measured by a sum of money and made up of various rights contained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( Vinning's case ) [1870] LR 6 Ch. App. 96 , a company having resolved on a voluntary winding up, and reconstruction of the company, with a new capital, new articles and new name, a dissentient shareholder gave notice to the liquidators under section 161 of the Companies Act, 1862, requiring them to purchase his interest in the company. The liquidators took a transfer of his shares. After the transfer the dissentient shareholder's name was placed on the list of contributories on the ground that he was still liable to any future calls for payment of the liabilities of the company. Sir Malins V.C. held that as the shares were sold by him to the liquidators after the transfer he ceased to be a member of the company and his name must, therefore, be taken off the list of contributories. The court of appeal reversed the decision of the Vice Chancellor and held that under section 161 the liquidators had no power to release the dissentient shareholder from his liability to the creditors but only to purchase such interest as he had in the assets of the company and consequently that the shareholder's name must be put on the list of contributories. The following observations of Mellish L.J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed inter alia that three of the shares of the new company were to be given in respect of two fully paid up shares in the old company. The holders of certain shares in the old company served on the liquidator notice of dissent from the scheme calling upon the liquidator either to abstain from carrying into effect the resolution for reconstruction or to purchase their interest at a price to be determined by arbitration. The arbitration was commenced and during the course of the arbitration for the purpose of ascertaining the value of the company's assets which consisted of gold mines in India and shares in another company having gold mines in India, the liquidator took out summons for liberty to issue a commission to India for the examination of witnesses there. It was held by Chitty J. that the court had jurisdiction to order such a commission. In the course of his judgment Chitty J. dealt with an argument that the liquidator must value the interest of the dissentient member according to the valuation which had been made in the agreement between the old company and the new company of the interest of the other non-dissentient members thus : "Now I think that the fact of such a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities but he will have to take into account several other factors as well. It is not necessary for disposing of these appeals to give an exhaustive list of such factors. Indeed Balakrishna Aiyar J. after mentioning a few such factors concluded by saying that they were not exhaustive. It is sufficient for the disposal of these appeals to say t hat the basis of the arbitrator's first award was totally wrong in law, namely, the determination of the price by dividing the estimated market value of the net assets of the company by the number of ordinary shares. Adopting that basis he has practically equated the position of a shareholder to that of a tenant-in-common along with other shareholders in respect of the company's assets. Balakrishna Aiyar J. was, therefore, justified in remitting the award back to the arbitrator for reconsideration inasmuch as the award which the arbitrator had made was, vitiated by the adoption of a wrong legal basis in fixing the price of the interest of the dissentient members. If the order of remittal was valid and proper Mr. Gopalaswami Iyengar did not contend that he should ask the court to set aside the revised award on any of the grounds mention ..... X X X X Extracts X X X X X X X X Extracts X X X X
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