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2004 DIGILAW 1118 (PNJ)

Amartax Industries Ltd. v. Amar Gawri

2004-10-01

HEMANT GUPTA, N.K.SUD

body2004
Judgment Hemant Gupta, J. 1. The present appeal under Section 10F of the Companies Act (hereinafter referred to as the Act) is directed against the order dated 18.10.2001 passed by the Company Law Board, Principal Bench, New Delhi (hereinafter referred to as the Board) in C.P. No. 46 of 1999 and C.A. No. 101 of 2001 directing the appellants herein to purchase the shares held by the respondents at the rate of Rs. 20/- per share on or before 31.12.2001. 2. The respondents herein filed a C.P. No. 46 of 1999 complaining oppression and mismanagement by the appellants herein. In the said petition, it was pleaded that the appellants are shareholders of M/s Amar Tax Industries Ltd. holding in aggregate, 1,96,928 Equity Shares of Rs. 10/- each credited as fully paid up as on 30.9.1996 in the share capital of the Company forming 27.05 per cent of the total paid-up Share Capital. It was pleaded that Amar Tax Pvt. Ltd. (hereinafter referred to as the Company) was incorporated on 27.1.1988. There are two groups of the shareholders in the Company Amar Gawri and his Associates and Arun Grover and his Associates. It was pleaded that the appellants being persons-in-charge of affairs of the company became greedy and started conducting the affairs of the Company in a manner oppressive to the interests of the respondents.Various allegations were mentioned in the petition filed under Sections 397 and 398 of the Act. Said petition came to be decided by virtue of compromise on 14.12.1999 when both the counsel for the parties and the parties agreed that the respondents group will go out of the company by selling their shares to the appellants group on a valuation to be made by the statutory auditors of the company. The agreement was also in respect of the date of valuation as 31.3.1998 and that two additional issues of shares made in October, 1997 and January, 1998 will not be taken into account. The statutory auditors were directed to determine the value of shares on the basis of accepted principles of valuation and shares taking into consideration the family relationship between the parties and also holding of respondents of about 27% share of the company. The parties were given opportunity to make oral as well as written submissions to enable a draft valuation report and to circulate the same to the parties. The parties were given opportunity to make oral as well as written submissions to enable a draft valuation report and to circulate the same to the parties. After making representation on the basis of draft report, the valuer was to submit final valuation report. For facility of reference the entire order reads as under: "When the petition was taken up for hearing, considering the family relationship between the parties, we advised the counsel as well as the parties present to settle the dispute amicably. Both the counsel and the parties present have agreed that the petitioner group will go out of the company by selling their shares to the respondents group on a valuation to be made by the statutory auditor of the Company. They have also agreed that the date of valuation would be 31.3.1998 and that for valuation purposes the two additional issues of Shares made in end October, 1997 and January, 1998 will not be taken into account. Accordingly, we appoint the statutory auditors of Company, named M/s. Bassi and Associates to determine the value of the shares on the basis of accepted principles of valuation of shares, taking into consideration the family relationship between the parties and also the holding of the petitioners of about 27 percent shares of the Company. Both the parties will be at liberty to make both oral as well as written submission before and prepare a draft valuation report and circulate the same to the parties. The parties are at liberty to make further representation on the basis of draft report and the valuer, thereafter taking into consideration this submission, will submit a final valuation report. He is at liberty to engage the service of experts for the valuation of the Company Assets. The fees payable to the valuer will be negotiated and paid by the Company. The valuer should submit his report latest by 31.3.2000. All the interim orders passed by us are vacated. In the meanwhile parties will not pursue any of the complaints or other proceedings against each other. 14.12.1999 Sd/- A.K. Banerji Sd/- A.K. Banerji 3. In pursuance of said order, the statutory auditors assessed the value of the shares at Rs. 30.80p. but both the parties raised objections on such valuation. On 1.11.2000 both the sides agreed that the Board may fix fair price of the shares. 14.12.1999 Sd/- A.K. Banerji Sd/- A.K. Banerji 3. In pursuance of said order, the statutory auditors assessed the value of the shares at Rs. 30.80p. but both the parties raised objections on such valuation. On 1.11.2000 both the sides agreed that the Board may fix fair price of the shares. The said order reads as under: "Since both the side have not agreed at the price of the shares inspite of valuation report, the counsel for both the sides submit that the Bench may fix fair price of the shares. We shall accordingly determine the fair value. One of the shareholders has agreed for being added as the petitioner. The counsel for the respondent desire to file reply. To be done by 10.11.2000. The application will be heard on 16.11.2000 at 4.30 p.m." 4. Thereafter, the Board vide order dated 14.12.2000 fixed the value of the shares at Rs. 20/- per share. The Board fixed such value after taking into consideration the submissions made by the parties and also taking into consideration the value per share on the basis of net worth of the company. The Board has taken into consideration that the respondents amongst themselves held 27 per cent of shares and would be going out of the company once for all. The relevant extract of the order dated 14.12.2000 reads as under: "In the hearing held on 1.11.2000, the counsel appearing for the parties submitted that the Bench itself may fix the fair price on the basis of the various submissions made by the parties. Accordingly, taking into consideration the submissions made by the parties, and also taking into consideration the value per share on the basis of net worth of the company, we consider that it would be equitable to both the sides to fix the price per share at Rs. 20/- per share and accordingly we do so. While doing so we have also taken into consideration the family relationship between the parties and also the fact that the petitioners among themselves hold 27 per cent share and they would be going out of the company once for all. We make it abundantly clear that the price fixed by us is not based on any calculation but purely on the basis of equitable considerations. We make it abundantly clear that the price fixed by us is not based on any calculation but purely on the basis of equitable considerations. The parties will appear before us on 22nd December, 2000 at 4.30 PM to decide on the mode and the time frame for payment of the total consideration for the shares held by the petitioners." 5. The Board fixed 22.12.2000 to decide on the mode and time frame for payment of total consideration for the shares held by the respondents herein. However, on 22.12.2000, the appellants disputed the value of shares fixed by the Board and offered to pay Rs. 18/- per share subject to the condition of payment of all the dues of the company along with interest at the rate of 18 per cent per annum. The order dated 22.12.2000 reads as under:- "The respondents are not willing to accept the value of Rs. 20 per shares, but are proposed to Rs. 18/- per share provided the petitioners are willing to repay to the company the amounts due from them together with 18 per cent interest accruing to the petitioners that matter is already before the Civil Court and as such we are not willing to accept the demand of the respondents, regard clearing of the dues of the petitioner. The parties are at liberty to pursue whatever cause of action as they may chose to adopt. The petition is therefore disposed of in terms of our order dated 14.12.2000 Sd/- Sd/- Chairman Vice Chairman 22.12.2000. 6. Thereafter, the respondents herein moved an application under Sections 634-A read with Section 397, 398 and Hi of the Act for enforcement of the order dated 14.12.2000 passed by the Board or as an alternate to send the said order for execution to the courts of Union Territory, Chandigarh within whose jurisdiction the Registered office of the company is situated. Learned Company Law Board has passed the impugned order on the said application on 18.10.2001 directing the petitioners to purchase the shares held by the respondents at the rate of Rs. 20/- per share on or before 31.12.2001 failing which the respondents herein were given liberty to move the appropriate civil court for execution of the order dated 14.12.2000. 7. Learned Company Law Board has passed the impugned order on the said application on 18.10.2001 directing the petitioners to purchase the shares held by the respondents at the rate of Rs. 20/- per share on or before 31.12.2001 failing which the respondents herein were given liberty to move the appropriate civil court for execution of the order dated 14.12.2000. 7. Learned counsel for the appellants has vehemently argued that the order passed by the Board on 14.12.2000 is not an order, the enforcement of which can be sought by the respondents. It is sought to contend that the parties were not ad idem on the valuation of the shares, therefore, there could not be any order to direct the appellants to purchase the share of the respondents at the rate of Rs. 20/- per share. There was never any con- sent on behalf of the appellants to pay Rs. 20/- and that there was no final settlement or compromise between the parties. Such fact is evident from the order dated 22.12.2000 whereby the parties were given an option to choose appropriate remedy in the facts and the circumstances of the case. It was also argued that the order fixing the value of the share is beyond the scope and jurisdiction of the Company Law Board and therefore, is not sustainable in law. 8. Before proceeding further it would be beneficial to reproduce sections 397, 398 and 634-A of the Act, which read as under:- 397. Application to Board for relief in cases of oppression.- (1) Any member of a company who complain that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves may apply to the Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1) the Board is of opinion (a) that the companys affair ( are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that: otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the Board may, with a view to bringing to an and the matters complained of, make such order as it thinks fit. 398. Application to Boar for relief in cases of mismanagement.- (1) Any member of a company who complaint; (a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or (b) that a material change not being a change brought about by. or in the interest of, of any creditors including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of directors or manager, or in the ownership of the companys shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company; may apply to the Board for an order under this section, provided such members have a right so to apply in virtue of section 399.(2) If, on any application under sub section (1), the Board is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Board, may , with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. 634-A. Enforcement of orders of Company law Board.- Any order made by the Company Law Board may be enforced by that Board in the same manner as if it were a decree made by a Court in a suit pending therein, and it shall be lawful for that Board to send, in the case of its inability to execute such order, to the Court within the local limits of whose jurisdiction, (a) in the case of an order against a company, the registered office of the company is situated, or (b) in the case of an order against any other person, the person concerned voluntarily resides, or carries on business or personally works for gain: 9. On 14.12.1999, the parties and the counsel for the parties persuaded the Board to pass a consent order whereby the respondents opted to go out of the company by selling their shares to the appellants on a valuation to be made by the statutory auditors as on 31.3.1998. Such order was within the competence and jurisdiction of the Board under Section 397 and 398 of the Act as the Board is competent to pass such order as it thinks fit with a view to bring to an end matters complained of and with a view to bring to an end or preventing the matter complained of or apprehend. Therefore, the consent order passed by the Board cannot be said to be suffering from any illegality or lack of jurisdiction. Once the Board has passed an order on the basis of consent, it is not open to the appellant to wriggle out of consent subsequently. The order dated 14.12.1999 was given effect to by the parties in as much as the parties submitted to the jurisdiction of the statutory auditors to enable him to fix valuation of the shares. The parties even submitted objections to the report of the statutory auditors, when the matter was before the Board, the counsel for the parties submitted that the Bench may fix a fair price of the shares. The Board decided to determine the fair value. The parties thereafter were pre- sent before the Board on 14.12.2000 when the Board fixed Rs. 20/- as value per share keeping in view various factors. The order has been reproduced above. The Board decided to determine the fair value. The parties thereafter were pre- sent before the Board on 14.12.2000 when the Board fixed Rs. 20/- as value per share keeping in view various factors. The order has been reproduced above. Therefore, it is not open to the appellants now to challenge that the Board was not competent to fix valuation of the shares. The order has been passed by the Board from time to time with a view to bring to an end the matters complained of and to prevent the matters complained of or apprehended which falls within the jurisdiction of the Board under Sections 397 and 398 of the Act. 10. The argument that the appellants never accepted the valuation of Rs. 20/- per share is not tenable in law. The parties including the appellants through their counsel requested the Board to fix the fair price of the shares. Once the appellant has consented to a valuation of shares to be made by the Board, it is not open to the appellants to approbate or reprobate and to allege that there was no consent of the appellants in respect of the valuation of shares of Rs. 20/-. Clear categorical, unequivocal consent is available on record to the effect that the valuation be fixed by the Board. The Board having fixed the valuation in terms of the offer made by the parties including the appellants, it is not open to the appellants to wriggle out of the consent given by the appellants. 11. Under Section 634-A of the Act, the orders made by the Board may be enforced by the Board in the manner as if it were a decree made by a Court in a suit pending therein or on account of its inability to send to the court to execute such order to the Court within local limits of jurisdiction the company has its registered office. Since in terms of the order dated 14.12.2000, the valuation of the shares stands finalised, the said order of the Board is in the nature of money decree in favour of the respondents and against the appellants which is enforceable in terms of second part of Section 634-A of the Act. 12. Since in terms of the order dated 14.12.2000, the valuation of the shares stands finalised, the said order of the Board is in the nature of money decree in favour of the respondents and against the appellants which is enforceable in terms of second part of Section 634-A of the Act. 12. Therefore, we do not find any illegality or irregularity in the orders passed by the Board granting time to the appellants to make the payment of shares on the valuation fixed by the Board failing which permitting the respondents to seek execution of the order from the competent court, 13. There is no error of jurisdiction or any illegality or irregularity in the findings re- corded by the Board. 14. Consequently, we do not find any merit in the present appeal, which is hereby dismissed.