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TMI Blog1979 (9) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire issued capital was held by different members of the family. The company maintained steady progress and all went well until the deceased died on March 6, 1976. He was survived by a widow and two sons, for short, the heirs. The total holding of the heirs on the date of death was less than 40%. The brothers and the wives of two of them between them held more than 60%. On the date of death, Suresh Kumar Ahuja, eldest son of the deceased, was a young man of about 24 years pursuing his Post Graduate studies but nevertheless, either on account of their sentiment for the elder brother, or in recognition of the fact that the deceased was the originator of the business and the heirs admittedly held shares constituting the largest single block, a question on which there was some controversy, Suresh Kumar Ahuja was unanimously appointed managing director of the company. Three of the brothers were the other directors of the company. It may be pointed out that one of the four brothers, Shiv Prakash Ahuja, and the deceased had married real sisters. The new set up did not appear to have a smooth sailing because problems were thrown up in November, 1977, and two of the brothers came to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. That such certificates can be easily obtained is now common knowledge. That the law still recognises such a mode of service only shows that in the race for supremacy between the law and its breakers, the breakers are far ahead of the law. It is necessary to apportion blame in this case, because what has happened has more or less followed the set pattern. Both factions held meetings. The meeting on the side of the four brothers, excluded the representatives of the other group from the board and the meeting sponsored by the heirs doing one up by not only eliminating the other side from the board but also neutralising their majority hold on the company by the issue of further shares to themselves for consideration other than cash on account of advances said to have been made by them to the company in the past, a matter about the existence of which there was no dispute but the parties were at variance with regard to the quantum of it. Parties have attributed to each other a number of illegal and improper actions but without going into the details, it is sufficient to say that when the matters came to this court, the heirs claimed that while their nominee continued to be the managin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue the business separately, parties were not unaware of various difficulties that may come in the way of such a solution of the problem. There was, therefore, some dialogue as to the best manner to resolve the difficult situation. Both parties laid claim to buy out the other, the claim by the brothers being based on the fact that they collectively held over 60% of the holding. Similar claim by the heirs was based on the admitted fact that the deceased was the one who had laid the foundation of the business. Various other reasons were attributed why one or the other of the parties would be entitled to buy out the other. On behalf of the brothers, it was said that the heirs had already started their independent competitive business and were, therefore, able to look after their needs. The ability of the heirs to pay off the four brothers immediately was canvassed as a good reason to let the heirs buy out the brothers. The brothers, while anxious to retain the management of the company, with or without the admitted holding of the heirs, expressed their inability to pay off the heirs immediately, if they were to be bought out, but agreed to submit to all reasonable directions that may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lented and their effort to cut him to size produced violent reaction. Ordinarily, on a petition like this, the court would naturally go into the allegations and adjudicate the question as to whether there was an act of oppression or mismanagement before deciding as to the future course of action. Such an exercise, however, appears to be unnecessary in the peculiar circumstances of this case. Parties are closely related to each other and are reconciled to the idea of one or the other of them holding the company exclusively. The question as to which of them should hold it obviously could not possibly be determined with reference to who did what in the scramble for power that ensued the surfacing of differences between the groups. Once the scramble started, both the parties were caught in a vicious circle, obviously trying to outdo the other. That the meetings held on both sides on or after October 16,1978, do not represent the normal functioning of the company but were motivated by the factional desire to exclude the other or to neutralise the strength of the other is so obvious from the decisions arrived at, if not the course preceding the holding of the meetings. Parties were also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a deadlock, it would be unfair to compel a minority holder to retain his holding against his wish and run the risk of being deprived of not only the return on the investment but also the benefit of direct participation in management and certain peripheral benefits arising out of it. In the circumstances, it would be unfair to compel the heirs to retain their holding in the fond hope that their investment would bear fruit or would in course of time attract accretions to it. Ordinarily, open bidding ensures the best price. The highest bidders should, a fortiori, be entitled to stay. Such a method may be all right where the property is to be sold to a third person. Where, however, the property is to be sold to one of the two existing owners, such a method may, in certain circumstances, work out to be inequitable. In such a situation what is necessary is that the group that has to go out must be paid by the group that retains control, a fair price. This also eliminates the inequity that the right to buy out is determined by the capacity to buy out. What then are the other factors which would be determinative of the right to retain? Both the groups have articulated the points ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssor, architect or other specialised agency. Parties had also exchanged a list of chartered accountants but were unable to arrive at an agreed name and, therefore, desired that the court may nominate any firm of chartered accountants of proven competence and integrity for the purpose and their estimate of the fair value would be acceptable to the parties, subject to any direction that this court may make in that behalf. The rider was necessary with a view to enable the parties to obtain the directions of this court, if any of the parties genuinely felt that the valuation deserved to be modified one way or the other, since the parties, perhaps otherwise, would not have a right of review with regard to the determination of value. There is then the question of the manner of payment to the outgoing group. The brothers categorically expressed their inability to buy out the heirs by an outright payment, whatever be the value of their holding. Such an arrangement was apparently beyond their financial capacity and was, in any event, likely to cause financial difficulties in the existing industrial activity. Counsel for the brothers, therefore, made no secret of the anxiety of the brother ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving regard to the fact that a substantial part of the payment would be deferred, the brothers are required to pay reasonable interest on the reducing balance to the heirs to compensate the heirs for the blockage of funds. Interest at the rate of 10% would appear to be reasonable if the company does not declare dividend. If the company declares dividend at a rate less than 10% the interest would be payable at a rate by which the dividend falls short of that percentage. There are a number of other matters which deserve to be dealt with as a consequence of the proposed course of action with regard to the company. A. Completion and audit of accounts : ( i )Parties are agreed that the books of account of the company be completed and suitably audited so as to, inter alia , ensure that both the groups have accounted for whatever business they had conducted for and on behalf of or in the name of the company and the realisations made by them and the withdrawals made out of the existing bank accounts or the new account or accounts that may have been opened by one or both of the groups since the disputes came to surface and the accountability of the parties to each other and of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )There can be no doubt that the interfaction disputes must have caused injury to the company, both material and in its reputation. In view, however, of the manner in which it is proposed to resolve the disputes, it is unnecessary to apportion blame or take the matter any further. D. Option : ( iv )It may be possible that on the value being determined, the brothers may not be interested or even if interested may not be in a position to exercise the first option to buy out the heirs. In such an eventuality, it would be open to the brothers to exercise the option to be bought out on the same terms and conditions. In such an event the heirs would be entitled to buy out the brothers on the same terms and conditions. Such an option could be exercised within a week of the receipt by the brothers of the acceptance by the heirs of the valuation. E. Default : ( v )If the brothers make default in the payment of any of the installments of the heirs' entitlement on account of their holding, the entire amount of the entitlement would become due and payable forthwith. If the brothers make further default in the payment of such amount forthwith, the brothers would forfeit the right of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the brothers or their nominees as indicated above which would also be subject to the same conditions. ( f )The accounts would be completed and audited and the value would be determined by V. Sankar Aiyar Co., Chartered Accountants, for which they would be paid remuneration as may be agreed upon between the said Chartered Accountants and counsel for the parties, failing which by this court. ( g )Shri S. L. Bhatia, Senior Advocate, is appointed chairman of the company until the entire amount due and payable has been paid and the other rights and obligations arising out of the directions have been enforced and discharged, as the case may be. He would preside over all the meetings of the board of directors of the company and generally oversee the conducting of its affairs. The company would not carry out for a week any decision of the board to which the chairman takes exception to enable the aggrieved party to obtain directions from this court. The chairman would be paid such remuneration as may be agreed between him and counsel for the parties, and failing that as fixed by this court. ( h )The company and the brothers would not alienate any of its and their assets ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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