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TMI Blog2021 (3) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... ider the vital point that the valuation was done in the year 2017 and by the time learned NCLT, Mumbai passed the order, three years have passed. It is an admitted fact that the Company is a going concern and the learned NCLT, Mumbai ought to have considered the value of the shares for the current year. Method of valuation and assumptions carried out by the Valuers - HELD THAT:- It is made clear that we have not gone into the merits/demerits of methodology adopted by the Auditors. We are concerned only the economic interest of the public shareholders who by virtue of cancellation and extinguishing the shares whether they get their legitimate expectation of the fair value and whether they have been paid the fair value considering the performance of the Company - The objection of the Appellants that the Company adopted a selective method for the reduction of the share capital is concerned, we are not in the agreement with the submission of the Appellants. There is no discrimination adopted by the Company in the present case. It is also an admitted fact that the shares of the Company were de-listed from the BSE and the shares of the public shareholders cannot be tradable. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal (AT) No. 220 of 2020 - - - Dated:- 5-3-2021 - [Justice Jarat Kumar Jain] Member (Judicial) And (Kanthi Narahari) Member(Technical) For the Appellants : Mr. Kausik Chatterjee and Ms. Samridhi, Advocates For the Respondent : Mr. Janak Dwarkada, Dr. U.K. Chaudhary, Sr. Advocates with Mr. Gyanendra Kumar, Mr. Tapan Deshpande, Mr. Robin Grover, Ms. Shikha Tandon and Mr. Jitesh Dhingra and Mr. Ankit Shah Advocates JUDGMENT KANTHI NARAHARI, MEMBER (TECHNICAL) Preamble: The present appeal arises against the order dated 27.10.2020 passed by National Company Law Tribunal, Court No. 1, Mumbai Bench, Mumbai (in short NCLT) whereby NCLT Mumbai in C.P. No. 771 of 2017 allowed the Company Petition for reduction of share capital of the Respondent No. 1. Aggrieved by the same, the Appellants herein have preferred the present appeal. Factual Matrix of the case: 2. Shri Kaushik Chatterjee, learned Counsel appearing for the Appellants submitted that they are aggrieved by the order passed by the learned NCLT and therefore have preferred this appeal before this Appellate Tribunal. He submitted that the Respondent Company proposed to reduce Company s issued, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellants did not participate in the voting process. When the Respondents filed petition before the learned NCLT for final approval, a number of public shareholders intervened and objected to the scheme. However, the Appellants were not before the learned NCLT at the relevant point of time and in principle, they are not against the exiting the Company, the value arrived at by the PWC and decided by the Board in its Board meeting i.e., @ ₹ 2445 per share exclusive of Dividend Distribution Tax (in short DDT). However, the Appellants are against the time of valuation and exclusive of DDT which is now to be payable by the shareholders in view of change in law. 5. Learned Counsel for the Appellants submitted that between November, 2017 and October, 2020 when the learned NCLT passed the order, the circumstances drastically changed with regard to the Company s financial position thereby rendering 2017 valuation of ₹ 2445 per share completely redundant. 6. Learned Counsel for the Appellants submitted that the valuation of shares is like balance sheet is always as on date. The PWC Report dated 25.10.2017 itself says that this valuation Report, its content and the reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit after tax (excluding other comprehensive income) 50,352 28,279 28,833 31,665 40,043 Dividend (including distribution tax) 1,986 1,982 1,982 1,982 1,982 Dividend percentage 100 100 100 100 100 Share capital 1,647 1,647 1,647 1,647 1,647 Reserves/Surplus (excluding capital reserves) 3,24,997 2,76,570 2,50,660 2,24,100 1,94,105 Net worth (excluding capital reserves) 3,26,645 2,78,217 2,52,307 2,25,747 1,95,752 Capital employed-a 3,26,645 2,78,217 2,52,307 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by and order of the Tribunal may prefer an appeal to the Appellate Tribunal. The Appellants herein volunteered their grievances as their interests are jeopardised and adversely affected due to impugned order. Learned Counsel for the Appellants also relied upon decisions of various Courts in support of their case. 12. Dr. U.K. Chaudhary, learned Senior Counsel appearing for the Respondent submitted that the Appellants have raised two issues i.e. the valuation was done in the year 2017 and the reduction of share capital was approved by Hon ble NCLT in 2020 i.e., after a period of three years and in the intervening period the financial health of the Company have substantially improved. The Second objection of the Appellants is that due to amendment under Section 115-0 of the Income Tax Act, 1961, DDT, which was liable to be paid by the Company, has now been abolished w.e.f. 01.4.2020 which has resulted in tax burden for the shareholders as the dividend income is now taxable in the hands of the shareholders. 13. Learned Senior Counsel for the Respondent in answer to the first objection with regard to valuation done in the year 2017 and the same valuation is taken for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to undertake separate valuation of the equity shares of the Respondent Company to determine the fair value of the shares for the purpose of share capital reduction. Both the valuers submitted their valuation report on 25.10.2017 and 26.10.2017 respectively. The Respondent Company also appointed Avendus Capital Private Limited, a SEBI registered merchant Banker to provide fairness opinion on the Valuation Reports of the independent Valuers. The fairness opinion issued by Avendus dated 28.10.2017 confirmed that the valuation of shares provided by the independent valuers is fair and reasonable from a financial point of view. 17. Learned Senior Counsel for the Respondent Company further submitted in the EGM held on 08.12.2017, a special resolution was passed by the shareholders holding 99.87% of the shareholding in accordance with the provision of Section 66(1) of the Companies Act, 2013. A table showing the same is extracted hereunder: Number of valid votes (including those voted through e-voting option) at the EGM Number of shareholders who voted in favour of the resolution Votes in favour (in No. Votes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents have to abide by the statements and cannot take a U-turn and say that in view of amendment to Section 115-0 and in view of abolition of DDT, the shareholders are liable to pay the DDT. 23. Learned Counsel for the Appellants relied upon the decision of the Hon ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay reported in MANU/SC/0072/1954 at paragraph-8 it has been held as under: .. 8. It is true that the shareholders of the company have the sole determining voice in administering the affair of the company and are entitled, as provided by the Articles of Association, to declare that dividends should be distributed out of the profits of the Company to the shareholders but the interest of the shareholder either individually or collectively does not amount to more than a right to participate in the profits of the Company. The Company is a juristic person and is distinct from the shareholders. It is the Company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Reliance is placed on behalf of the appellant on a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enior Counsel for the Respondent-Company, perused the records, documents and citations relied upon by them. 26. Paragraphs 28 29 of the impugned order dated 27.10.2020 passed by NCLT, Mumbai reads as under: 28. In the light of above, the bench is only concerned with the first issue of objection of the 3.59% of the minority shareholders as a whole, is with regard to their legitimate expectation to be adequately compensated with regard to value of shares. The rights of minority shareholders qua the Valuation of shares as per the two Valuers and the Fairness report has to be examined. 29. The second issue regarding method of valuation and assumptions carried out by the Valuers is examined below. The method of valuation by both valuers is as extracted below for ready reference: 27. The first Issue as framed in paragaraph-28 is that the minority shareholders adequately compensated to their legitimate expectation with regard to valuation of shares. In paragraph-29, the Second Issue is with regard to method of valuation and assumptions carried out by the Valuers was examined. Learned NCLT, Mumbai has taken into consideration the report filed by M/s Price Wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: 66. Reduction of share capital (1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may- (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or (b) either with or without extinguishing or reducing liability on any of its shares,- (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly: Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon. . 32. In view of the above, we are of the view that the aforesaid Section permits the Company to reduce the share capital in any manner. We are also of the view that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are not going into the merits of the valuation. However, public shareholders expect best price for their shares. The share is a movable property and the holders of the share has every right to expect best price and fair value of its shares. 36. In this regard, Hon ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 74), at paragaraph-8 held as under: The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that then profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it. 37. As per the judgment of the Hon ble Supreme Court, the shareholder has every right and entitle to participate for the profits of the Company. 38. Learned NCLT, Mumbai in paragraph-36 has reproduced the judgement of the Hon ble Bombay High Court in W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. 01.04.2020, thereby the Company will not be in any obligation to pay DDT. In the Written Submission filed by the Respondent, vide diary No. 23805 dated 03.12.2020 at paragraph-4, page-2 it is stated that provision of Income Tax, 1961 as amended by the Finance Act, 2020, the obligation of the Respondent-Company to pay DDT has been abolished by an amendment in the provision of the Income Tax, Act, 1961. Unless the said amendment is challenged and declared as illegal, the amendment made in the Income Tax will exist and the same is enforceable and in operation by the said amendment. We agree with the submissions of the learned Senior Counsel for the Respondent. The Appellants have not questioned/challenged the amendment to the DDT. Therefore, we do not interfere with the said provision of law as amended unless the same is abolished and declared as void by the Competent Courts. 41. The stand of the Respondent that the statement made by the Respondent-Company in 2017 in its explanatory statement regarding payment of DDT was to be in compliance of its legal obligation and applicable law as in 2017 and cannot by any means considered promise/estoppel made by the Respondent-Company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 10,589 Total Income 3,13,154 2,88,672 3,00,422 3,01,933 3,01,064 Profit before tax 73,897 44,003 45,087 46,519 46,086 Provision for tax 23,545 15,724 16,254 14,854 7,043 Profit after tax (excluding other comprehensive income) 50,352 28,279 28,833 31,665 40,043 Dividend (including distribution tax) 1,986 1,982 1,982 1,982 1,982 Dividend percentage 100 100 100 100 100 Share capital 1,647 1,647 1,647 1,647 1,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs it was passed. We are of the view that there is a drastic change in the growth of the Company. We are also of the view that the public shareholders kept away from participation in the profits, which is against the principle laid down by the Hon ble Apex Court in Bacha F. Guzdar case. 48. As held by the Hon ble Supreme Court in Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 74), supra, on buying the shares an Investor becomes entitled to participate in the profits of the Company in which he holds the share if and when the Company declares, subject to the Articles of Association that the profits or any portion thereof should be distributed by way of dividends among the shareholders. 49. The principle laid down by the Hon ble Supreme Court is that the shareholders are entitled to the profit of the Company, the only way to do justice to the public shareholders/non-promotor shareholder is to revalue the shares of the Company by appointing independent valuers and whatever the fair price arrived at by independent valuers, the same shall be paid to the public shareholders. It is clear that if the Company makes profits, the same need to be shared with the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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