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TMI Blog2021 (3) TMI 264X X X X Extracts X X X X X X X X Extracts X X X X ..... atrix of the case: 2. Shri Kaushik Chatterjee, learned Counsel appearing for the Appellants submitted that they are aggrieved by the order passed by the learned NCLT and therefore have preferred this appeal before this Appellate Tribunal. He submitted that the Respondent Company proposed to reduce Company's issued, subscribed and paid-up equity share capital of the Respondent-Company comprising 11,81,036 equity shares constituting 3.59% of its entire shareholding held by the public shareholders of the Company mostly independent individual investors. He submitted that its selective capital reduction exercised under Section 66 of the Companies Act, 2013 targeted to squeeze out and thus get rid of the public shareholders. He submitted that the company was incorporated on 23.03.2000 and it was listed with the Bombay Stock Exchange (in short BSE). In June, 2007, the Company voluntarily de-listed itself from the Bombay Stock Exchange. On 18.05.2020, the ownership of the company shifted to the Chinese Government and in June-July, 2017, the Respondents decided to reduce its equity share capital as mentioned above. He submitted that the Promoter Group holds 96.41% and 3.59% held by the Pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering 2017 valuation of Rs. 2445 per share completely redundant. 6. Learned Counsel for the Appellants submitted that the valuation of shares is like balance sheet is always as on date. The PWC Report dated 25.10.2017 itself says that "this valuation Report, its content and the resolution herein are specific to the purpose of valuation agreed as per the terms of our engagement and the date of this Valuation Report are based on the unaudited financial statement of the Respondent Company as on 30.06.2017". It is also stated by the Valuer that the price of each equity share determined "as on the date of report". 7. Learned Counsel for the Appellants submitted that the valuation of the Company or its share cannot remain valid till eternity. Learned Counsel relied upon an audited financial statement for the year 31.03.2020 and the comparative chart has been extracted at paragraph - 8.1.7 of the Appeal Paper Book at page -9 which is reproduced hereunder: Syngenta India Limited FY 2018-19 FY 2016-17 Profit after Tax (PAT) Rs. 503.52 Crores Rs. 288.33 Crores Earnings per share (EPS) Rs. 152.84 Rs. 87.52 Net worth of the Company Rs. 3266.45 Crores Rs. 2523.07 Cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unjust and unfair on the part of the Respondent Company. 10. Learned Counsel for the Appellants further submitted that the Hon'ble NCLT failed to address the situation that suddenly emerged out of abolition of DDT w.e.f. 01.04.2020 which directly affected the interest of public shares of the Respondent, by substantially reducing net amount they were to receive for extinguishing the shares by the said Scheme of the capital reduction. 11. Learned Counsel for the Appellants further submitted that the Appellants preferred this Appeal under Section 421(1) of the Companies Act, 2013 on the grounds that the Appellants are aggrieved by the impugned order dated 27.10.2020 and as per the said provision of the Companies Act, any person aggrieved by and order of the Tribunal may prefer an appeal to the Appellate Tribunal. The Appellants herein volunteered their grievances as their interests are jeopardised and adversely affected due to impugned order. Learned Counsel for the Appellants also relied upon decisions of various Courts in support of their case. 12. Dr. U.K. Chaudhary, learned Senior Counsel appearing for the Respondent submitted that the Appellants have raised two issues i.e. the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the Respondent Company never promised nor admitted its liability to pay DDT even after the same may stand abolished, as sought to be alleged by the Appellants. Another statement made by the Respondent Company in 2017 in its explanatory statement regarding abolition of DDT was to be in compliance of its legal obligation and applicable laws in 2017 and cannot, by any means, considered to be promise/estoppel made by the Respondent Company to its shareholders or admission to its liability to pay DDT. 16. Learned Senior Counsel submitted that to show fairness and transparency, the Respondent Company engaged two independent Valuers namely, Price Waterhouse & Co. LLP, and Haribhakti & Co. LLP referred to as Independent Valuers to undertake separate valuation of the equity shares of the Respondent Company to determine the fair value of the shares for the purpose of share capital reduction. Both the valuers submitted their valuation report on 25.10.2017 and 26.10.2017 respectively. The Respondent Company also appointed Avendus Capital Private Limited, a SEBI registered merchant Banker to provide fairness opinion on the Valuation Reports of the independent Valuers. The fairness opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the report wherefrom it can be inferred that the projected value of 10 years was submitted by the Respondent Company. 22. Learned Counsel for the Appellant submitted that non-promotor/shareholders cannot be deprived the fruits of growth of the Respondent Company between 2017 to 2020. The DDT as per the prevailing law and as mentioned in the explanatory statement to the Notice calling for EGM, it is specifically mentioned that the Company will bear the DDT. The Respondents have to abide by the statements and cannot take a U-turn and say that in view of amendment to Section 115-0 and in view of abolition of DDT, the shareholders are liable to pay the DDT. 23. Learned Counsel for the Appellants relied upon the decision of the Hon'ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay reported in MANU/SC/0072/1954 at paragraph-8 it has been held as under: .. 8. ... It is true that the shareholders of the company have the sole determining voice in administering the affair of the company and are entitled, as provided by the Articles of Association, to declare that dividends should be distributed out of the profits of the Company to the shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order dated 27.10.2020 in so far as the Hon'ble NCLT failed to take into account the financial growth of the Respondents between 2017 to 2020 leading to substantial increase in the value of shares. However, the Appellants further prayed this Tribunal to appoint independent registered Valuer for the purpose of carrying out fresh (as on today) valuation of the Respondent Company. Appraisal: 25. Heard the learned Counsel for Appellants and learned Senior Counsel for the Respondent-Company, perused the records, documents and citations relied upon by them. 26. Paragraphs 28 & 29 of the impugned order dated 27.10.2020 passed by NCLT, Mumbai reads as under: ... "28. In the light of above, the bench is only concerned with the first issue of objection of the 3.59% of the minority shareholders as a whole, is with regard to their legitimate expectation to be adequately compensated with regard to value of shares. The rights of minority shareholders qua the Valuation of shares as per the two Valuers and the Fairness report has to be examined. 29. The second issue regarding method of valuation and assumptions carried out by the Valuers is examined below. The method of valuation by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares whether they get their legitimate expectation of the fair value and whether they have been paid the fair value considering the performance of the Company. 31. The objection of the Appellants that the Company adopted a selective method for the reduction of the share capital is concerned, we are not in the agreement with the submission of the Appellants. Sub-Section 1 of Section 66 of the Companies Act, 2013 reads as under: "66. Reduction of share capital (1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may- (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or (b) either with or without extinguishing or reducing liability on any of its shares,- (i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... values for the next 10 years. Further it is observed that the NCLT has no power or jurisdiction to exercise any appellate functions. It is not a valuer. It does not have necessary skills or expertise. It cannot substitute its own opinion for that of the shareholders. Its jurisdiction is peripheral and supervisory, not appellate. 35. Having observed, we have already indicated that we are not going into the merits of the valuation. However, public shareholders expect best price for their shares. The share is a movable property and the holders of the share has every right to expect best price and fair value of its shares. 36. In this regard, Hon'ble Supreme Court in the matter of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (AIR 1955 SC 74), at paragaraph-8 held as under: "The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that then profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny under the caption 'taxation' has clearly stated that at page-100, Volume-1 of the Appeal Paper Book that the Company will be liable to pay DDT in accordance with the provision of Section 115-O of the Income Tax, 1961. However, in the changed circumstances, the Company has stated that the DDT was abolished by the Central Government under the Finance Act, 2000 w.e.f. 01.04.2020, thereby the Company will not be in any obligation to pay DDT. In the Written Submission filed by the Respondent, vide diary No. 23805 dated 03.12.2020 at paragraph-4, page-2 it is stated that provision of Income Tax, 1961 as amended by the Finance Act, 2020, the obligation of the Respondent-Company to pay DDT has been abolished by an amendment in the provision of the Income Tax, Act, 1961. Unless the said amendment is challenged and declared as illegal, the amendment made in the Income Tax will exist and the same is enforceable and in operation by the said amendment. We agree with the submissions of the learned Senior Counsel for the Respondent. The Appellants have not questioned/challenged the amendment to the DDT. Therefore, we do not interfere with the said provision of law as amended unless the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,475 Other Income 21,641 16,869 13,066 9,197 10,589 Total Income 3,13,154 2,88,672 3,00,422 3,01,933 3,01,064 Profit before tax 73,897 44,003 45,087 46,519 46,086 Provision for tax 23,545 15,724 16,254 14,854 7,043 Profit after tax (excluding other comprehensive income) 50,352 28,279 28,833 31,665 40,043 Dividend (including distribution tax) 1,986 1,982 1,982 1,982 1,982 Dividend percentage 100 100 100 100 100 Share capital 1,647 1,647 1,647 1,647 1,647 Reserves/Surplus (excluding capital reserves) 3,24,997 2,76,570 2,50,660 2,24,100 1,94,105 Net worth (excluding capital reserves) 3,26,645 2,78,217 2,52,307 2,25,747 1,95,752 Capital employed-a 3,26,645 2,78,217 2,52,307 2,25,747 1,95,752 ROCE(percentage)-b 15.41 10.16 11.43 14.03 20.46 RONW (percentage)-c 15.41 10.16 11.43 14.03 20.46 EPS(Rs.) 152.84 85.84 87.52 96.12 121.56 45. We have considered the Annual Report of the Financial Year 2018-19 of the Company for the purpose of better appreciation. From the bird's eye view, it is crystal clear that the Profit After Tax (PAT) for the Financial Year 2016-17 has been shown as Rs. 288.33 lakhs whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fairness of the valuation reports and not finding fault with the valuation done by the Valuers. We also hold that the reduction of the share capital is in accordance with law and we do not interfere with the same. We are concerned that the public shareholders/non-Promotor shareholders, economic interest need to be protected by paying latest fair value arrived at by the independent valuers whichever is higher. 50. One of the submissions made by the learned Senior Counsel for the Respondent that post 2017 if the Company makes losses whether the public shareholders/non-promotor shareholders will bear the losses. In answer to the said query in a share market, the shareholders always expect better price. For example, if the shares are traded in stock exchange, the shareholders will not be having any control over the market. Essentially, one has to go by the trading of shares in the stock exchange, whereas in the case of unlisted shares, the shares are controlled by the Board/management and admittedly, from the Annual Report it shows that the Company is making profits and has good net worth. The shareholders in a Company has every right to sell their shares as and when they get good p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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