TMI Blog1983 (6) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... company to the individual respondents or their nominee or nominees or to the respondent company. In the event of the shares being purchased by the respondent company, there will be a corresponding reduction in the share capital of the respondent company. Shri A. Basu, F.C.A., partner of M/s. G. Basu Co. of 3, Chowringhee Approach, Calcutta 700 013, is appointed to ascertain the fair value of the shares of the petitioner in the respondent company as on December 8,1980. In ascertaining such value, the said valuer will take into consideration such factors as he considers relevant after hearing the parties in regard thereto. The valuation report is to be submitted to this court by the valuer on or before March 15, 1982. He will forward copies of the report to the advocates on record of both the parties. The fees of the valuer will be paid out of the funds of the company The initial remuneration of the valuer is fixed at Rs. 5,000.... By this order, the interim applications are disposed of and the main application will appear in the list on April 5, 19, for further orders." On February 27, 1982, the valuer held a meeting of the parties where the applicant, the company as al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: "In accordance with the order of hon'ble Mr. Justice T. K. Basu of the High Court at Calcutta dated February 1, 1982, in the matter of New Central Group Engineering P. Ltd., read with his Lordship's orders dated March 16, 1980, May 13, 1982, May 31, 1982, August 3, 1982, August 31, 1982, and October 8, 1982, I have, taking into consideration such factors as I considered appropriate after hearing the parties, ascertained the fair market value of one fully paid share of New Central Group Engineering P. Ltd., of Rs. 100 each held by Shri S. K. Basu, the petitioner at Rs. 283.55 (rupees two hundred eighty-three and paise fifty-five) as on December 5, 1980, and the fair market value of the aggregate 2,000 shares held by the petitioner at Rs. 5,67,100 (rupees five lakhs sixty-seven thousand one hundred) as on December 8, 1980." The applicant, aggrieved by the said valuation, has sought to impugn the same on the present application where the following orders are prayed for: "( a )The valuation report dated October 29, 1982, be set aside. ( b )Another valuer be appointed to value the shares of the petitioner in the company as on December 8, 1980. ( c )Alternatively, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an affidavit on January 25, 1983, which has been filed in opposition to the petition. In this affidavit, it is admitted that the company refused to send copies of its confidential documents to the petitioner. The contention of the petitioner that the plant and machinery of the company should be valued at 16 times their rental or hire charges has been disputed and such method, it is contended, is without any basis. It is alleged that the share of the petitioner in the outstanding claims of the company has already been taken by the petitioner from the till of the company and that the balance outstanding in the share of the petitioner will not be as large as claimed. It is alleged that 2,000 sq. ft. of the said flat of the company at 8, Camac Street, Calcutta, has been let out to a third party at a rent of Rs. 4 per sq. ft. per month. Taking into account corporation taxes, repairs, collection and service charges, etc ., and using a reasonable multiplier or years of purchase, the value of the said tenanted portion, it is alleged, will not exceed Rs. 3,11,500. The value of the balance portion of the said flat, it is contended, should be calculated on the basis of the original pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in any event the valuer appointed in the instant case was a persona designata nominated by the court, the court having delegated to him its own power and jurisdiction to make a valuation. His report was final and could not be impugned in court. In support of the respective contentions of the parties, several decisions were cited from the Bar which are considered hereafter : ( a ) Hopper, In re [1876] 2 QB 367. In this case, under a clause in a firm lease, the tenant was to quit on 6 months' notice from the lessor if the premises or any part thereof would be sold during the period of lease. The agreement further provided that each party would appoint a valuer to estimate the compensation payable to the tenant. The valuer had power to nominate an umpire. A valuation made pursuant to the above agreement was challenged in court. It was held that the proceedings before the valuer had the character of a judicial enquiry inasmuch as the parties had submitted their disputes for arbitration by the valuer, who, after hearing the parties and evidence, had come to a decision. The decision of the valuer was in the nature of a final award of an arbitrator, binding on the parties, subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mall that the only conclusion is that he must have gone wrong somewhere, then the court will interfere in much the same way as the Court of Appeal will interfere with an award of damages if it is a wholly erroneous estimate. These cases about valuers bear some analogy with the cases on domestic tribunals, except, of course, that there need not be a hearing. On matters of opinion, the courts will not interfere; but, for mistake of jurisdiction or of principle, and for mistake of law, including interpretation of documents, and for miscarriage of justice, the courts will interfere." ( c ) Sutcliffe v. Thackrah [1974] AC 727 ; [1974] 2 WLR 295 ; [1974] 1 All ER 859 (HL). The plaintiff in this case employed the defendants, a firm of architects to design a house to be constructed by the plaintiff. It was understood that builders would be employed and the defendants would have to supervise the construction. In the contract between the plaintiff and the builders,' it was provided, inter alia , that the defendants, would issue interim certificates at specified intervals stating the amount due to the builders in respect of work properly executed, within fourteen days of which the plai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the matter they agree to accept....... It follows that the task of an arbitrator may in some cases be the task of arriving at a valuation. In some circumstances, therefore, someone might be regarded both as a valuer and an arbitrator. But it by no means follows that everyone who has a duty of valuing, a duty which obviously must be fairly and honestly discharged, is an arbitrator. A valuer may not be exercising any judicial function....... In some circum stances, a valuer may be an arbitrator just as in some circumstances an architect may be. It must depend on the contract or arrangement which is made..... There may be circumstances in which what is in effect an arbitration is not one that is within the provisions of the Arbitration Act. The expression 'quasi-arbitrator' should only be used in that connection. A person will only be an arbitrator or quasi-arbitrator if there is a submission to him either of a specific dispute or of present points of difference or of defined differences that may in future arise and if there is agreement that his decision will be binding. The circumstance that an architect in valuing work must act fairly and impartially does not constitute him eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company had been grossly undervalued and sued the auditors for negligence claiming damages. The defendant's application for striking out the statement of claim on the ground that it disclosed no reasonable cause of action succeeded in the first court and also in the Court of Appeal. On further appeal, the House of Lords, following Sutcliffe v. Thackrah [1974] AC 727 ; [1974] 2 WLR 295 ; [1974] 1 All ER 859 (CA), held that the auditor of a private company who on request valued shares in the company with the knowledge that such valuation would determine the price to be paid for the shares under a contract for sale was liable to be sued by either party to the transaction if the valuation was made negligently. It was held by the majority that to establish immunity from such a suit, it was necessary for the valuer to show that a formulated dispute at least between the two parties had been remitted to him to resolve in such a manner that he was called on to exercise a judicial function and that the parties had agreed to accept such decision. The minority held that on principle there was no reason why even a person appointed by parties as an arbitrator to settle a dispute between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in my view, it would have made little difference as, in any event, the valuer could not be held to be an arbitrator appointed by the parties. Arbitration in India, except some statutory arbitrations, is governed exclusively by the Arbitration Act, 1940. There is no arbitration in common law as noted and recognised by the English courts. The Indian statute provides as a pre-condition that for a valid arbitration, there must be an agreement in writing between the parties to go to arbitration. There is no such agreement in the instant case. Even the provisions of section 21 of the Arbitration Act, 1940, which provide for arbitration of disputes which are the subject-matter of a pending suit, were also not complied with. There was no dispute between the parties on the valuation of the shares when the matter was referred to the valuer by the order dated February 1, 1982. It was not recorded in the order that the valuation was in dispute and that his decision will be final and binding or that the same would be conclusively accepted by the court. Next to be decided is whether the valuer in the instant case acted as a quasi-arbitrator and, if so, does his report acquire any extra imm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout the permission of the court or without the consent of the parties, it appears to me that the parties were not given a hearing by the valuer as was directed. The hearing was ineffective, incomplete and vitiated as the parties did not know and were kept unaware of the material evidence on which the valuer proceeded. This limited ground is sufficient for setting aside the report of the valuer. The contention of the petitioner that, ex facie, the assets of the company are of more value than has been found by the valuer is not without substance as by applying the known methods of valuation on the basis of years' purchase or multipliers, the assets of the company can be shown to be of a higher value than that determined by the valuer. For the reasons as aforesaid, the petitioner succeeds in this application. There will be an order setting aside the report of the valuer dated October 29, 1982. Mr. K. P. Bhargava, chartered accountant, is appointed valuer to value afresh the shares of this company and to submit a report to this court stating the fair value of the said shares within eight weeks from date. He is directed to include in his report the break-up of the value of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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