2018 (3) TMI 1436 - AT - Companies Law

Oppression or mismanagement - illegal transfer of shareholding by Appellant no. 3 in favour of Appellant no. 2 - Held that - The Respondent, by engaging in research devised products initially providing company to gain foothold in the market but that was expected of him as an employee of the status of Vice President who also held 5% shareholding. The contribution made by him for emergence of the company during its early days cannot be termed something for which he could expect a windfall. Finding recorded by learned NCLT to award ₹ 20 lakhs in favour of Respondent as a fair and reasonable amount in lieu of his professional qualification utilized during the initial days of establishment of Appellant no. 1 Company is unsustainable and cannot be supported. The claim set up by the Respondent for Severance Pay of ₹ 26,75,000 in lieu of past services and as compensation for alleged unjustified termination is unsustainable and the same is to be rejected. We find ourselves in complete agreement with the learned NCLT in holding that nothing has been brought on record to establish that the transfer of shareholding by Appellant no. 3 in favour of Appellant no. 2 was not enforceable in law. No financial irregularity has been brought to our notice and there is no proof of oppression or mismanagement. There is nothing on record to arrive at a finding that the transfer of shareholding by Appellant no. 3 Company in favour of Appellant no. 2 Company was legally unenforceable. Contention raised on this count is accordingly repelled. There is no legal infirmity in the impugned order in so far as direction to Appellant no. 2 to accept the offer of transfer of 500 shares by the Respondent is concerned. As regards valuation, it has rightly been noticed by the learned NCLT that the valuation report dated 16th February 2015 has been drawn up merely for purpose of payment of stamp duty and not with the intention to determine the transfer price of shares. Be it seen that in terms of first valuation report dated 1st February, 2014 fair and reasonable price for transfer of shares was determined at ₹ 2064.74. Same was adopted by the concerned parties. In the face of same, the subsequent valuation report dated 16th February, 2015 has rightly been held as farce and undervalued to evade proper stamp duty. We accordingly find no infirmity in the finding recorded by learned NCLT that valuation report dated 1st February, 2014 at the rate of ₹ 2064.74 was to be taken into account for arriving at consideration amount of 500 shares to be transferred by the Respondent. This finding is accordingly upheld. This appeal is partly allowed. The impugned order is set aside to the extent of directing the Appellants to disburse ₹ 20 lakhs in favour of Respondent in lieu of his professional qualifications utilized during the initial days of establishment of Company. The impugned order is maintained in so far as direction to Appellant no. 2 to accept the offer of transfer of 500 shares by the Respondent at the rate of ₹ 2064.71 per share is concerned. Respondent is also held entitled to simple interest on the cost of such shares at the rate of 9% per annum from the date of impugned order. The appeal is disposed of in the aforesaid terms

Summary

Issues Involved:
1. Entitlement of the Respondent to ?20 Lakhs in lieu of past services.
2. Obligation of Appellant No. 2 to purchase shares held by the Respondent at ?2064.74 per share.

Issue-wise Detailed Analysis:

Issue No. I: Entitlement of the Respondent to ?20 Lakhs in lieu of past services

The Respondent, a minority shareholder with 5% shares and Vice President (Research & Development) of Appellant No. 1, alleged oppression and mismanagement after Appellant No. 3 transferred shares to Appellant No. 2 without his consultation. The Respondent claimed he was integral to the company's growth and was unfairly terminated without proper compensation.

The NCLT found that the Respondent was an employee, not a director, and his termination followed due legal process. The Respondent was paid full and final settlement of salary, gratuity, and royalty. The NCLT awarded ?20 Lakhs to the Respondent in lieu of his professional qualifications utilized during the company's initial days. However, the Appellate Tribunal found no justification for this award, as the Respondent had already been compensated per his employment contract. The Respondent's professional contribution during the early days of the company did not entitle him to additional compensation beyond the agreed terms.

Issue No. II: Obligation of Appellant No. 2 to purchase shares held by the Respondent at ?2064.74 per share

The Respondent alleged that the valuation of shares at ?1165 per share was unfair and was only for stamp duty purposes. The NCLT directed Appellant No. 2 to accept the transfer of 500 shares at ?2064.74 per share based on an earlier valuation report. The Appellate Tribunal upheld this decision, noting that the second valuation was undervalued to evade proper stamp duty and did not reflect the fair value of the shares. The first valuation report was deemed appropriate for determining the transfer price.

Conclusion:

The appeal was partly allowed. The direction to disburse ?20 Lakhs to the Respondent was set aside, while the direction to Appellant No. 2 to purchase the Respondent's 500 shares at ?2064.74 per share was upheld. The Respondent was also entitled to simple interest at 9% per annum on the cost of the shares from the date of the impugned order. No orders as to costs were made.