TMI Blog2001 (3) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... machines. Originally it was registered at Bombay. Subsequently, the provisions of memorandum of association with respect to the place of registered office were amended and the registered office was changed from the State of Maharashtra to the Union Territory of Delhi. The authorised capital of the company is Rs. 6 lakhs divided in 60,000 equity shares of Rs. 10 each. It is also relevant to point out that 2,000 equity shares in the first respondent company were subscribed by the petitioner constituting 33.33 per cent of the shareholding. Similarly, 20,000 equity shares were subscribed by the second respondent and the remaining 20,000 were subscribed by the third respondent and his family members, Shri Om Prakash Sharma and Smt. Kailash Devi Sharma collectively. The first respondent commenced commercial production of modems in the year 1987 from its registered office at Anand Niketan, New Delhi. In August 1989, the first respondent company applied for allotment of land in Udyog Vihar, Gurgaon, for setting up of a factory. The land was allotted in the year 1990 over which construction has been carried out. In February 1990 the manufacturing operations were shifted to Gurgaon. But ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. It is claimed that in January 1994 the second respondent along with his relatives passed resolutions to reduce the emoluments of the petitioner and his entitlement to share in the profits of the company in contravention of the agreement. It is alleged that the petitioner offered to withdraw from the company provided he was given his share. The petitioner claims that it was agreed between the parties that a sum of Rs. 1 crore in full and final settlement of all the claims would be paid by the first respondent to the petitioner and the petitioner would withdraw from the company by the close of 31-3-1994. In view of the agreement, a statement was released to a computer magazine, namely, Dataquest , that the petitioner and the respondents have resolved their disputes and the respondents have agreed to take over the share of the petitioner in the Indian company. The petition alludes to the fact that in view of the agreement between the parties the petitioner tendered his resignation on 18-2-1994 to the Board of Directors of the first respondent stating that his resignation shall be effective from 31-3-1994. After tendering the resignation the petitioner found that the second re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany called by the Respondent No. 3 by notice dated July 28, 1994; 3. pass such other order/orders as this Hon ble Court may deem fit and proper in the circumstances of the case; 4. grant cost of the present Petition." During the course of the proceedings of the company petition the parties resolved their disputes and filed a joint application under Order 9 of the Company Court Rules being C.A. No. 804 of 1995, which in the first instance was returned under some objection and subsequently re-filed on 12-10-1995. The above compromise application was taken on record. According to the aforesaid application, the petitioner agreed to transfer his entire shareholding of 33.33% in the Indian company to the respondents. In lieu of the transfer the petitioner agreed to receive value of the shares. For the purposes of valuation and settlement of petitioner s share and stock in the Indian company it was agreed to appoint M/s. Arthur Anderson Co. In anticipation of the report, the respondents deposited a sum of Rs. 10 lakhs with the Registrar of this Court and the petitioner deposited his 20,000 shares and 21 scrips along with 5 blank transfer deeds in accordance with the compromise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fier. ( iv )Water cooler. ( v )Air-conditioner - 3 Nos. ( vi )Time Keeping Machine. ( vii )Personal Computer PC286 with monitor Keyboard. ( viii )Printer. ( ix )Fax Machine. ( x )Taxes due on the transfer of assets will be paid for by the company. 5. ( a ) The petitioner will be paid upon determination of valuation, salary up to 31-3-1994 and commission/bonus for the year ending 31-3-1994 on the basis of the board resolution passed on 15-1-1994. 5. ( b ) The computation of salary and commission/bonus and tax deductible at source, therefrom shall immediately be made by the statutory Auditors of MTCPL and shall be paid to the petitioner upon valuation of shares. 6. Rent payable to Mr. C.L. Sawani for the residence at C-14, Westend Colony, New Delhi - 110021, occupied by the petitioner will be made and borne by MTCPL upto the date of payment to the petitioner for the shares and shall be made at such rate as MTCPL settles with Mr. C.L. Sawani. Thereafter the petitioner is liable to pay the rent and all other charges and hereby indemnify the company against any claim or demand by the said Landlord. 7. ( a ) Payment for the shares of the Petitioner will be made w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. On payment of the amount payable to the Petitioner as fixed by the Valuer together with amount payable to him, under clause 5( c ) herein-before, less the amount to be deducted for the cards and other articles, the winding up petitioner shall automatically stand dismissed without any further orders and all stay orders passed therein stand vacated. Respondents may, however, if they think necessary, apply for formal orders. 14. Both parties retain the liberty to apply to this Hon ble Court for appropriate direction to enforce the terms and conditions of this compromise. 15. That this Hon ble Court on the application of the respondents may vacate or vary the injunction Orders either, either unconditionally or on such terms as it thinks fit, if it considers that same is working oppressively, either on account of delay by the Petitioner in the proceedings relating to valuation or otherwise for any just reason. 16. The Petitioner will not institute any litigation relating to the affairs of the company arising from his association with the Company as shareholder, director or Managing Director. 17. The parties will bear their own cost. 18. During the intervening period the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their determination could be impugned in the litigation between the parties affected by their determination or opinion. The learned counsel further argued that the aforesaid principle has been discarded in England and the position, as made clear by the House of Lords, is that an expert can be sued for damages when he acts negligently in performance of his duties. In support of his submissions, Mr. Khanna relied on the following decisions : 1. Sutcliffe v. Thackrah [1974] 1 All ER 859 (HL) (Pages 29 to 57) 2. Burgess v. Purchase Sons (Farms) Ltd. [1983] 2 All ER 4 (pages 58-66) 3. Jones v. Sherwood Computer Services plc. [1992] All ER 170 (Pages 67 to 79) Mr. Khanna also submitted that the position in India is no different from the one which is prevailing in England. In this regard he referred to the decision of the Supreme Court in K.K. Modi v. K.N. Modi [1998] 92 Comp. Cas. 30. 7. On the other hand, Mr. Sanghi, the learned counsel for the petitioner, contended that the court can go behind the valuation report and look at the reasons offered by the valuer in support of the valuation arrived at by him. He contended that since the valuation made by the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functions of arbitrator would not have come into operation at all. If, on the other hand, the fruit tendered was rejected as not complying with the contract, the opinion of the referee either way would be a binding decision on the matter; and for any mistake which he might make he clearly would not be liable. Brett J . The ruling upon that was, not that the defendant was in the strict sense of the term an arbitrator, but that he was a person filling a position which brought him within an exception well know to the law of England, viz., that a person who is appointed and is acting as an arbitrator to determine a matter in difference between two or more persons does not enter into an implied promise to bring to the performance of the duty entrusted to him a due and reasonable amount of skill and knowledge. The question is merely one of implied undertaking; and the law says there is none such. Was, then, the defendant within that exception ? I apprehend that every person falls within it who has taken upon himself to determine a disputed matter between two person who have agreed to be concluded by his opinion. The parties had so agreed here: and that opinion could not be call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleted and the contractor is entitled to receive payment of final balance, it was held by a majority of 3:1 that the architect was not the mere agent of the owner of the building. He was not to look after the owner s interest alone as against that of the contractor s. He owed a duty to both of them. His task was not merely ministerial or clerical or one of arithmetic, but involved technical skill and knowledge; and therefore his position was that of a quasi-arbitrator between the owner and the contractor who had undertaken to exercise judicial functions impartially between the parties in determining the matters specified in the clause. In this regard, the majority observed as follows : Per Sir A.L. Smith, M.R. " In my judgment, the present case is covered by those words. When acting under clause 20 of this building contract, the plaintiff was in the position of one who had undertaken to exercise judicial functions with regard to the questions that had arisen between the owner and the builder, and, therefore, he is not liable to an action for negligence in respect of the way in which he exercised those functions..... Per Henn Collins, L.J. ......The case seems to me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttempt to create a liability on an alleged warranty is really one to evade the well established rule that a person in the position of this defendant cannot be made liable for the sort of thing with which he is charged here." It appears that up to this time Romer, L.J. s dissenting judgment in Chamber s ( supra ) was probably the only judgment which clearly took the view that the architect was liable to be sued for negligence as he owned a duty of care in the performance of his duties towards the owner of a building while certifying the work done by the contractor in terms of money. Then several decades later came the decision in Arenson s case ( supra ) which was sort of a repeat of the decision in Chamber s case ( supra ). The question raised before the Court of Appeal was whether an auditor appointed to value shares could be sued for negligence. In this case Lord Denning MR followed the line adopted by Romer, L.J., but it was a voice of dissent as the majority still followed the rule which prevailed in the aforesaid decisions. Before adverting to the principle enunciated by the Court of Appeal in this case it will be necessary to refer to the factual matrix of the case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y one of the parties is greatly damnified - why should he not be liable to damages?" It seems that Lord Denning entertained serious doubts about the principle which gave immunity to the experts from being sued when they decide a matter as between two persons fairly and impartially but negligently. However, the other members of the Bench, Buckley LJ and Sir Seymour Karminski took the view that experts cannot be sued in negligence and the claim of the nephew as it stood then disclosed no cause of action against the auditors. While concluding, the two judges held as follows : Per Buckley LJ - "...The position of cassons in the present case is in my view indistinguishable in essentials from the position of the defendant in Finnegan v. Allen [1943] 1 All ER 493. It follows in my judgment that they cannot be sued in negligence and that the statement of claim as it stands discloses no cause of action against them ." [Emphasis supplied] Per Sir Seymour Karminsky, J "The duty of a valuer or arbitrator in a case of this kind is to give an impartial judgment and an honest decision between the parties: See Finnegan v. Allen [1943] 1 All ER 403. So far it has not been sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contractors in order to enable them to receive payments from the appellant for the work done by them. The case arose because of two certificates issued by the architects dated May 25, 1964 for pound sterling 2620 and 18-7-1964 for pound sterling 1837 in favour of the contractors. On the basis of the certificates the appellant paid the aforesaid amount to the contractors. Shortly thereafter the contract of Walbank was terminated by the appellant on good ground. Later it was discovered that the interim certificates of the architects even covered the defective work executed by Walbank. The cost incurred by the appellant in removing the defects could not be recovered from Walbank as in the meantime Walbank became insolvent with the result the appellant in 1968 sued the architects for the loss caused to him by their negligence in issuing the certificates. The architects pleaded that while issuing the certificates they were functioning in an arbitral capacity and were not liable to the owner, assuming that they had been negligent. The House of Lords overruled the decision rendered in Chamber s case ( supra ) and held that the valuer would be liable in tort for negligence. While hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tect or surveyor or valuer has by agreement been appointed to act as an arbitrator...." [Emphasis supplied] Per Lord Salmon "As in the case of the valuer, it is said that the architect is performing much the same functions and must, therefore, be regarded as being in the same position as a judge or arbitrator and must accordingly be accorded the same immunity. I confess that I can see no more reason for regarding the architect as being in the same position as a judge or arbitrator than there is for so regarding the valuer. No reason has ever been suggested. I suspect that this is because none exists. The descriptions quasi-arbitrator and quasi-judicial functions have been invoked but never defined. They cannot mean more than in much the same position as an arbitrator or judge. In reality, however, there are the most striking differences between the roles of the valuer and architect in the circumstances to which I have referred and the role of a judge or arbitrator. Judges and arbitrators have disputes submitted to them for their examination and consideration. They then give their decision. None of this is true about the valuer or the architect who were merely carrying ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Campbell s case ( supra ), where both parties had agreed that valuer was to fix the price of the property and the valuer accordingly gave his valuation without specifying the reasons for the same, Lord Denning MR, speaking for the Court of Appeal, held that the valuation could not be set aside at the instance of either of them on the ground that the valuer made a mistake. It was further observed that the valuation was binding on the parties in the absence of allegation of fraud and collusion. Again in Jone s case ( supra ), where the parties expressly agreed that certain matters arising in relation to the contract were to be determined by an independent expert whose determination was to be conclusive and final and binding for all purposes, it was held that in absence of fraud or collusion, the expert s determination could only be challenged on the ground of mistake if the same was clear from the evidence. 18. At this stage it will be convenient to summarize the legal position prevailing in England. 19. For a long period of time English courts held the view that a valuer while determining the valuation of shares of a company, or property, or an article was not liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Appeal in Campbell s case ( supra ), which was a case of a non-speaking award, Lord Denning MR accepted the position that if a valuer gives a speaking valuation and one can show on the face of it that the reasons were wrong, it was possible to upset the valuation. In this regard it was held as follows : "In former times (when it was thought that the valuer was not liable for negligence) the courts used to look for some way of upsetting a valuation which was shown to be wholly erroneous. They used to say that it could be upset, not only for fraud or collusion, but also on the ground of mistake. See for instance what I said in Dean v. Prince [1954] 1 All ER 749. But those cases have to be reconsidered now. I did reconsider them in the Arenson case [1973] 2 All ER 235. I standby what I there said. It is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom they agree, and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it. If there were fraud or collusion, of course, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which no court of justice could make. Take for example the valuer who proceeds on a fundamentally erroneous construction of the agreement which it is not within his professional competence to detect. In such case there could be no invariable rule that the valuer was liable in negligence. Of greater practical significance, take the valuer who only agrees to act on terms that he is not to be liable in negligence, a protection which the law does not deny him. That example seems to me to be the clearest exposure of the plaintiff s plight and the surest ground for saying that the suggestion cannot be correct." 23. Mr. Khanna, the learned counsel for the respondents, contended that the challenge to the valuation report of the valuer should be thrown out in view of the decision of the Supreme Court in K.K. Modi s case ( supra ), since it has taken a view which is in tune with the decisions of the House of Lords in Sutcliffe s case ( supra ) and Arenson s case ( supra ). 24. K.K. Modi s case ( supra ) represents a case where disputes arose between members of a family having controlling interest in number of public limited companies. Negotiations took place between two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere issued by the Chairman, IFCI, filed an application under section 33 of the Arbitration Act, 1940, challenging the legality and validity of the decision of the Chairman, IFCI. That apart, a suit was also filed by the same group to challenge the said decision of the Chairman, IFCI. A learned Single Judge of this Court held that the decision of the Chairman, IFCI, could not be considered as an award in arbitration proceedings. According to the learned Single Judge all the disputes were settled through the memorandum of understanding and the only thing which remained was valuation of shares and the division of the companies as agreed to in the memorandum of understanding. As per the learned Single Judge the parties had agreed that the Chairman and Managing Director, IFCI, would issue clarifications and render his decision in relation to the valuation under clause 9 of the memorandum of understanding. The learned Single Judge held that the application was not maintainable as the impugned decision was not an award within the meaning of the Arbitration Act, 1940. He also found that the allegations contained in the arbitration application and the plaint were identical. He was of the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Chairman and Managing Director, IFCI, was not to be considered as an award, then in that event that decision as a decision should be set aside in the suit. The Supreme Court, while disagreeing with the decision of the High Court striking out the suit, held as follows : "According to the appellants, however, the suit is not confined only to challenging the award or steps taken pursuant to the award by the Chairman, Modipon Ltd., in order to enforce it. According to the appellants, in the suit there is an alternative plea that if the impugned decision of the Chairman and Managing Director, IFCI, is not considered as an award, then that decision as a decision should be set aside. It is contended that the suit, in so far as it challenges the decision of the Chairman and Managing Director, IFCI, as a decision and not as an award is maintainable. In support, the appellants have relied upon the submissions in paragraph 55 of the plaint which we have set out earlier. The plaint in the suit, to the limited extent that it challenges the decision as a decision, would not amount to abuse of the process of court. We are not called upon to examine whether this alternative sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons which had been given in the notes and the court was entitled to look at them. In this regard, while holding the valuation to have been made on wrong basis and was not binding on the plaintiff, Lord Denning observed as follows : "In this case the auditors made their valuation on the basis that the company was to be wound up immediately and that the buyer of the deceased s shares would have no control over the fortunes of the business. In both those matters they were wrong, and, in my judgment, the valuation cannot stand. I propose, therefore, to declare that the valuation is not binding on the plaintiff, and, if necessary, to restrain the defendant company from acting on the valuation. The plaintiff desires the court to take on itself the burden of ascertaining the value of the shares, i.e., to make a declaration of the basis on which the valuation should be made, and then direct an inquiry on that footing. I decline to do either of those things. I do not see what jurisdiction the court has to put itself in the place of the valuer whom the parties have chosen. I do not propose to do more at this stage than to relieve the plaintiff of any obligation that may be on her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mr. Khanna, the learned senior counsel for the respondents, refuted this position and submitted that the appointment of the valuer was made by this court order on the basis of the terms of the compromise arrived at between the parties and the same was not made under order 26 Rule 9 C.P.C. It is not necessary to examine the submissioins of the learned counsel for the parties in view of the aforesaid determination. 27. Keeping in view the aforesaid discussion, I am of the view that a decision of the valuer in arriving at the valuation of the shares of the company can be challenged in these proceedings. Therefore, the preliminary objection of the respondents fails and is hereby rejected. 28. The learned counsel for the respondents argued that the challenge to the report of the valuers cannot be made in the absence of the valuers, namely Coopers Lybrand P. Ltd. who are not party respondents in the case. Elaborating his submission, the learned counsel contended that it is the valuer who is the best person to explain its decision relating to valuation of various assets of the company. The learned counsel also submitted that the valuer has adopted break up method which is bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promise : ( i )Maruti 1000 Car. ( ii )Contessa Classic Car. ( iii )Water purifier. ( iv )Water cooler. ( v )Air-conditioner - 3 nos. ( vi )Time Keeping Machine. ( vii )Personal Computer PC286 with Monitor Keyboard. ( viii )Printer. ( ix )Fax Machine. According to the compromise, the petitioner ceases to have any interest in the company. Under the compromise, the respondents have been made entitled to receive shares of the company which were held by the petitioner. The petitioner is only entitled to receive the value of the shares. In case the valuation has been made wrongly, the same can be rectified so that the petitioner could be given correct value of the shares which he has agreed to transfer to the respondents. In the circumstances, therefore, there is no reason to continue the aforesaid interim orders. The interim orders dated 30-1-1995 and August 8, 1996 are hereby vacated, subject to the respondents taking out an FDR in the sum of Rs. Fifteen lakhs in the name of the Registrar of this Court and filing the same before the Registrar within seven days. In the first instance the FDR should be taken out for a minimum period of six months. The Registrar shal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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