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2015 (10) TMI 2257 - BOMBAY HIGH COURT

2015 (10) TMI 2257 - BOMBAY HIGH COURT - TMI - Valuation of Shares Petition filed under Section 397 and 398 of Companies Act, 1956 - Appellant challenges the order on grounds that CLB had no jurisdiction to entertain the application and order of disposal of petition had merged with appellate order which had since been complied Revenue contends that CLB has wide powers under provisions of Sections 397 and 398 read with Section 402 As per Regulations 29 and 44 of CLB Regulations, 1991, CLB h .....

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tion over the matter, it still retains its jurisdiction to issue further orders - CLB had not retained any seisin over the matter to enable parties to approach it upon valuation to be carried out by statutory auditor and as such it is not permissible for Jain group to approach CLB, if it is aggrieved by valuation of statutory auditor Valuer has determined the value of shares in accordance with the directions of the CLB as at the date of 31 March 1999 and after considering all relevant material .....

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or the Respondent : Mr. K.R. Bulchandani with Mr. Amit Nikam and Ms. Meena Sudhakara i/b. M/s. Kamal & Co. JUDGMENT The company appeal challenges an order passed on a company application filed in a disposed of company petition under Sections 397 and 398 of the Companies Act, 1956 ( the Act ). The company petition involved disputes between two groups of shareholders of the company. The petition was disposed of by the Company Law Board, Principal Bench ( CLB ) by directing one group to sell it .....

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ory auditor of Appellant No.1 company was set aside and a fresh valuation was ordered. So also, cancellation of 25000 shares held by Respondent No.1 in the company in pursuance of the order disposing of the company petition, was set aside. The order is challenged basically on the grounds that the CLB, having disposed of the company petition, had no jurisdiction to entertain the company application and secondly, the order of disposal of the company petition had merged with the appellate order pas .....

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the limits of city of Pune between Nehru Stadium and Parvati Hill. The company's tender was accepted by PMC. An agreement for lease dated 5 July 1991 was, accordingly, executed between the company and PMC. The estimated cost of the project was ₹ 6.05 crores. Rashid group was not in a position to fully meet the project cost. By an agreement dated 19 June 1993 between Rashid group and Lokhandwala group, Lokhandwala group agreed to invest in the company to the extent of ₹ 1.25 crore .....

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ment dated 28 November 1995 between Rashid group, Lokhandwala group and Respondent No.1 (hereinafter referred to as Jain group ), Jain group was brought in with a view to bring in the requisite funds. Jain group agreed to fulfill the financial liability of Lokhandwala group. Accordingly, Jain group bought 19,170 equity shares of Lokhandwala group. Mr.Mahendrakumar Jain, a nominee of Jain group, was thereupon appointed as an additional director of the company. Sometime thereafter, disputes arose .....

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suit involved a challenge to Jain group holding on to its shareholding. The prayer was to direct Jain group to relinquish the shares to Rashid group in accordance with the original finance agreement between the two groups. Around the same time, the captioned company petition was filed by Jain group alleging oppression and mismanagement against the company and Rashid group. By an order dated 8 December 2000, the CLB disposed of the company petition inter alia directing Rashid group to surrender .....

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ts share capital to the extent of such shares. The CLB also issued certain directions pending the valuation exercise. This matter was carried in appeal by Rashid group before this Court. The appeal (Company Appeal No.4 of 2003) was dismissed by this Court confirming the impugned order of the CLB and directing the statutory auditor to carry out the task of valuation of shares in accordance with the directions of the CLB in the impugned order. This Court also accepted an undertaking given by Rashi .....

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justing a sum of ₹ 3,76,820/- lying to the credit of Jain group with the company. 5,830 shares were thereupon surrendered by Rashid group and were reissued to Jain group. So also, the statutory auditor, after hearing the parties, by his order dated 2 August 2005, gave a valuation report. Immediately, after receipt of this valuation report, the company tendered payment to Jain group for purchase of its shares in accordance with the valuation report. Following such tender of payment, the com .....

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to decide the disputes between the company and PMC. Nearly two and half years after the order of the CLB, as confirmed by this Court, was implemented by the Appellants, Respondent No.1 - Jain group preferred the subject company application (Company Application No.275 of 2008) in the disposed of petition, in which the order impugned in the appeal herein came to be passed. By this application, Jain group prayed for setting aside of the valuation report of the statutory auditor and carrying out a f .....

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he CLB held that as and when an award is made by the new sole arbitrator, the same would have to be taken as the one available on 31 March 1999 for determination of the value of the shares. Considering the fact that it was too difficult to foresee the time that may be taken for conclusion of the arbitration proceeding, Jain group was given an option to receive a sum of ₹ 100 per share as a fair value (aggregating to ₹ 25 lakhs). Aggrieved by this order, the Appellants have preferred .....

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Besides, it is submitted that the original order of the CLB had merged with the appellate order passed by this Court and after such merger, it was not permissible to the CLB to have modified the original order. Learned Counsel relies on the judgment of the Supreme Court in the case of Abbai Maligai Partnership Firm vs. K. Santhakumaran (1998) 7 SCC 386) in this behalf. 4. On the other hand, Mr.Bulchandani, learned Counsel appearing for the Respondents, submits that the CLB has wide powers under .....

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to pass such orders to give effect to its orders, as may be necessary, for meeting the ends of justice and preventing abuse of the process of the Bench. It is submitted that the impugned order was necessary to give effect to the original order passed by the CLB. It is submitted that the valuer directed to determine valuation of shares in accordance with the original order has abused the order by not valuing the shares as at the specified date and to prevent this abuse, the CLB was well within i .....

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(AIR 1978 SC 375), in support of his submissions. 5. Section 397 of the Act enables a member of the company, who inter alia complains of an oppressive conduct on the part of the company and its directors, to apply for relief in respect of such oppression to the CLB. Section 402 of the Act gives extensive powers to the CLB to pass order for redressal of the grievance of the applicant. These orders may provide for regulation of the conduct of the company's affairs in future, purchase of shares .....

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put an end to the grievance of the oppressed. But these powers must be exercised by the CLB only when it is in seisin of the matter and not after it becomes functus officio. Once the CLB disposes of the petition complaining of oppression and mismanagement finally by making a final adjudication of the rights of the parties and ordering final relief under Section 402, it ceases to exercise any jurisdiction. Regulation 29(6) of the Regulations provides that the bench may make such order or may giv .....

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vent a possible abuse or to secure the ends of justice. The Regulation does not suggest that after the board divests itself of the jurisdiction over the matter by finally disposing of the petition, the board still retains its jurisdiction to issue further orders or directions either to give effect to its earlier order or to secure ends of justice or prevent abuse of the process. In the event an order passed by the CLB under Section 402 of the Act read with Regulation 29(6) is not implemented by .....

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the Bench, or under the original petition under Section 397 or 398 of the Act. Regulation 44 also does not take the case any further. Regulation 44 is a provision, which does not confer any further power on the Bench, but saves any inherent power that the Bench may have to make orders. It is trite to say that every court or tribunal may have powers to make such orders, as may be necessary, for securing the ends of justice or to prevent abuse of its process. What Regulation 44 does is to affirm .....

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Court under Article 142 of the Constitution of India. Under Article 142, the Supreme Court, in exercise of its jurisdiction, may pass such order as it deems necessary for doing complete justice in any cause or matter pending before it. In the case of Supreme Court Bar Association, the Court held that this power extends even to enforcement of its orders or directions. It extends to matters in which orders, though passed by the Supreme Court, are yet to be implemented, particularly when the orders .....

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es. These powers are said to exist independently of the statutes which provide for the powers of the Supreme Court with a view to doing complete justice between the parties. It is preposterous to invoke this special constitutional power belonging to the Supreme Court for jurisdiction to be exercised by a tribunal such as the CLB in the matter of passing orders under Section 402 of the Act. 7. The case of Madras High Court in Shoe Specialities P.Ltd. (supra) at the first blush does seem to suppor .....

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d holding of an extra ordinary general meeting where the majority could effectively exercise their majority rights . The Bench, accordingly, disposed of the petition with a direction to the board of directors to act on the requisition lodged by the petitioners. The Bench, in terms, observed that both the parties are at liberty to approach us in case of any difficulty in convening the general meeting . After this order was passed, apprehending that they would not be in a position to effectively e .....

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aordinary general meeting. In the circumstances, the Bench inter alia directed that the proceedings of EOGM should be conducted in a proper manner and the Bench should have an independent information as to the conduct of this meeting from an independent source. Accordingly, the Bench appointed an observer for the proceedings of the EOGM, directing him to send a report to the Bench within 15 days thereafter. This order was accepted by the parties and not carried in appeal any further. In pursuanc .....

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to entertain this company application, since it had become functus officio. It was submitted that when the rights of the parties were at stake, such rights should not be a subject matter of an interlocutory application in a matter which had already been disposed of. The argument on behalf of the opponents was that the application, under Regulation 44, which corresponds to Section 151 of the CPC, could only be filed in a pending proceeding and the same should not be a subject matter to investigat .....

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the CLB had become functus officio was, in terms, not correct. The CLB passed the directions prayed for. The matter was then carried in appeal before the Madras High Court. The High Court, after construing the provisions of Section 397 read with Section 402 and after taking into account various judgments on the point including the judgment of this Court in the case of Shanti Prasad (supra), came to a conclusion that the powers under Section 397 read with 402 of the Act were wide and extensive; .....

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y right . If that condition were not complied with, it was for the CLB to intervene and set the matter right. The High Court also noted that the order of the CLB passed on the first application on 15 July 1994 was not challenged by the parties; that on reading of that order it was clear that the Bench wanted to have a say even subsequent to the passing of the order. The Court felt that there was no necessity for the Bench to give directions so as to have an independent information as to the cond .....

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to take a final decision. Whether the meeting was held properly and whether the resolution had been voted out or not, were all matters to be informed to the Bench. If the Bench did not intend to pass any order subsequently, there was no necessity for doing all this. In other words, the Court was specifically of the view that the Bench had retained seisin over the matter and had not become functus officio. These facts are clearly distinguishable from the facts of our case. In our case, the CLB ha .....

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only escalate the strained relationship, with a view to put an end to the grievances, as and when the proceedings of the suit were concluded (where the shareholding of the Petitioner was under challenge), the company to purchase 50% shares held by Jain group at a valuation to be done by the statutory auditor of the company , the date of such valuation being 31 March 1999 being closest to the presentation date of the petition (filed in November 1998). (iii) Upon purchase of these shares, the comp .....

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by the company offering the share price at this valuation to Jain group; and by reducing its share capital to the extent of the shares so purchased. On these facts, it is not permissible for Jain group to approach the CLB, if it is aggrieved by the valuation determined by the statutory auditor and the share price offered to it on the basis of such valuation. 8. Learned Counsel for the Appellants accepts that correctness or otherwise of the valuation cannot be challenged per se before the CLB in .....

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es, namely, Market Based Method, Asset Earning Method and Asset Based Method, the valuer has adopted the Asset Based Method. Rightly so, since the shares not being listed, there was no reason for adopting the Market Based Method, and the company not having commenced any business or earned any profit and not having any immediate plans of future business, there was no question of adopting Asset Earning Method for valuation of its shares. Accordingly, the valuer has considered all assets and liabil .....

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1998, was for a sum of about ₹ 3.07 crores,. This award was in challenge as at 31 March 1999 and was subject to the final outcome of the case. The outcome was uncertain both in terms of the result and time. The award was clearly a contingent asset and called for the application of the principles of valuation applicable to contingent assets. There are two important considerations, as noted by the valuer, for valuation of contingent assets. In the first place, the assessment has to be on a c .....

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howed that the value of the declared award was zero as of date. The valuer, however, proceeded to consider various other factors, such as the possibility of the company going in for a fresh arbitration, since the award was set aside really on the ground of want of jurisdiction. The valuer, in the premises, considered the value of a possible fresh award as a contingent asset. The valuer then applied the various yardsticks on the basis of norms of the trade and estimated such value at ₹ 45,4 .....

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vant material. The valuation does not give rise to any ground to approach the CLB in challenge of the same. 9. The decision of this High Court in Shanti Prasad (supra) merely underlines the width of the powers of the CLB. This decision was rendered in a totally different context. In that case, it was contended that the exercise of powers by the CLB under Section 402 of the Act was to be subject to limitations contained in the other provisions of the Act. That was negatived by our Court. This jud .....

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urchase the shares of minority shareholders to relieve oppression, the procedure prescribed by Sections 100 to 104 was still required to be followed. This was negatived by the Supreme Court in that case. The case has no bearing on the facts of our case. 10. Apart from the question of powers of the Bench to exercise jurisdiction in the matter after having become funtus officio, there is also the question of doctrine of merger, namely, the original order of the CLB having merged with the appellate .....

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