Pralayankur Roychowdhury And Ors vs M.P. Jewellers Co. (1945) Pvt. Ltd. And Ors

Jinan K.R., J

The Ld. Sr. Counsel Mr. Abhrajit Mitra for the applicants-petitioners has moved an application on 24/07/2020 through Video Conferencing upon notice to the respondents and pleaded for urgent hearing of the unnumbered interim application. Upon hearing the submissions of the Ld. Sr. Counsel the following order was passed:

"Being satisfied with the urgency advanced on the side of the applicant, as requested by the Ld. Sr. Counsel the interim application along with the CP stand listed on 3rd August, 2020. Registry is directed to list this matter on 03.08.2020 accordingly. The applicant is directed to submit an e copy of the application as well as the valuation report and CP. Interim application mentioning for urgent hearing stands disposed off."

As directed, the petitioners have filed an e-copy of unnumbered I.A. No. ......./KB/2020 as well as the valuation report and CP, praying for the following reliefs :-

a) Order be passed directing the respondent Nos. 2 to 4 to sell their shareholding in the respondent No. 1 Company to the petitioners and/or their nominees at rate considered fit and appropriate by the Hon'ble National Company Law Tribunal in accordance with valuation report dated 30th December, 2019 filed before the Hon'ble NCLT;

b) Alternatively and only if order in terms of prayer (a) is not granted, directions for open bidding amongst the parties for buyout/sell out of shares followed by transfer of all the shares of the unsuccessful bidder/bidders to the successful bidder;

c) The following, amongst other, restrictions for ensuring that buy/sale of shares is in fact restricted to the existing shareholders and not to any third party:

i. Restriction on future transfer of shares in the respondent No. 1 company to any third party by the successful bidder for a period of at least 3 (three) years from the date of the auction.

ii. Restriction on transfer or assignment of the trademarks of the company by the successful bidder for a period of at least 3 (three) years from the date of buy/sale of shares;

iii. Restriction on any change in the composition of shareholders and management of the company for a period of at least 3 (three) years after the date of buy/sale of shares;

d) Leave be granted to the applicants to file this urgent application by e-filing in view of the prevailing pandemic caused by Covid-19 and the applicants undertake to file a duly affirmed copy of the same with the Court fees before the Registry of this Hon'ble Tribunal within 7 days from re-opening of the Hon'ble Tribunal;

e) Ad interim orders in terms of prayers above;

f) Such further and/or other order or orders be passed, direction or directions be given as Your Lordships may deem fit and proper.

Accordingly, the unnumbered interim application along with C.P. No. 492/KB/2017 was listed for hearing on today through Video Conferencing (VC).

Brief facts.

The petitioners have filed an application u/s. 241 and 242 of the Companies Act, 2013 for alleged oppression and mismanagement by the respondents in respect of the affairs of the R-1 company, which was numbered as C.P. No. 492/KB/2017. The matter was heard on 22/09/2017 and upon hearing the following order was passed:

"Upon hearing both sides, I am satisfied that prima facie ground is made out to issue such a direction pressed for from the side of the petitioner. Accordingly, respondents are directed to comply with Article 53 before holding any Board Meeting hereafter."

During the pendency of hearing of the main CP, an IA No. 513/KB/2019 was filed by the petitioners mainly praying for appointment of a Special Officer to take control of the affairs of the Company and handle the books of accounts and other reliefs. The respondents have also filed an IA No. 717/KB/2019 mainly praying to allow them to convene the Board Meeting in view of Section 174 of the Companies Act, 2013 in order to finalise the statement of accounts, Annual Returns, balance sheet for the year 2017-18 and other reliefs. Upon hearing both sides at length the following order was passed vide order dated 05/07/2019 (Annexure - 'A to this application):

"i) IA No. 513/KB/2019 and IA No. 717/KB/2019 are allowed partially;

ii) The Ld. Sr. Counsel, Mr. Shyamal Sarkar, hawing Mobile No. 98300-60931 is appointed as the Special Officer, who shall preside and hold the meetings of the Board of Directors of the Respondent No. 1 Company periodically (preferably within every four months) and to implement the resolutions passed in such meetings;

iii) The Special Officer to give 15 days' clear notice to all the Directors informing them the Agenda, date, time and venue of the meetings;

iv) Agenda to be finalised in consultation with parties to proceeding;

v) The Special Officer to implement resolutions passed in such meetings but he will take care of the fact that no resolution which is detrimental to the interest of either party to the proceeding is being passed;

vi) An amount of Rs. 1,00,000/- shall be paid to the as fees of the Special Officer from the Respondent No. 1, Company's account for each such meeting;

vii) The Special Officer to submit reports to this Bench as and when such meeting is held.

In the meanwhile, petitioners have filed an interlocutory application being IA No. 834/KB/2019 for further illegal acts committed by the respondents and in view of the continuing deadlock mainly praying for valuation of shares of R-1 Company and also for various other reliefs as set out hereunder.

(a) "A valuer be appointed for the purpose of determining the value of the petitioners' shareholding and the concerned respondents' shareholding in the respondent No. 1 Company as also the value of the company itself in the manner indicated in paragraph 24 above;

(b) Direction upon the Respondent Nos. 2 to 4 and their partnership firms i.e. the Respondent Nos. 6 to 8 to transfer the shareholding in the company to the petitioners or their nominees at the value that may be determined by the valuer;

(c) In the alternative and only if the direction in terms of prayer (b) is not granted, appropriate direction be given for by buyout/sellout of the shares of each side in the respondent No. 1 Company at the value of each side's shareholding as may be determined by the valuer to be appointed;

(d) In the further alternative, valuation of the shares of the Company be directed to be carried out in such manner and/or following such method as this Hon'ble Tribunal may deem fit and proper after taking into what has been stated in the petition followed by appropriate orders for buyout/sellout of shares of the company;

(e) Direction upon the respondent Nos. 2-4, 6-8 to produce their audited accounts and supporting documents for the last 5 years for the purpose of ascertaining their advertising expenses and their jewellery sales

(f) Ad interim orders in terms of prayers above;

(g) Such further and/or other order or orders be passed, direction or directions be given as Your Lordships may deem fit and proper."

Upon hearing the IA on 03/12/2019, this Adjudicating Authority has passed the following orders (Annexure - 'B' to this application):

"Ld. Counsel for the applicant and respondent No. 1 to 4 and 6 to 8 appeared.

IA No. 834/KB/2019 is filed by the petitioner for valuing the shares with an offer to buy back either to the respondent or he may buy the share. It is a family company and the Petitioner and Respondent cannot go together as it appears from the pleading.

We direct the Special Officer to appoint Valuer by taking names from Petitioner as well as respondents of their choice. Valuer to value all shares in terms of prayer A of this application and file report within 2 weeks.

Matter to come up on 03/01/2020."

The Respondents have not preferred any appeal against the aforesaid order.

In compliance of the aforesaid orders the petitioners have suggested names of valuer to the Learned Special Officer but the respondents did not give any suggestion for appointment of a valuer nor reverted on the petitioners' suggestion. Ultimately, the Learned Special Officer on his own appointed M/s. L.S.I. Financial Services Pvt. Ltd. having their Office at Sagar Trade Cube, 5th Floor, 104, S. P. Mukherjee Road, Kolkata 700026 requesting to submit report by 30/12/2019 to enable the Special Officer to file his report by 03/01/2020 before this Adjudicating Authority. The applicants-petitioners have annexed the minutes of the meeting held by the Learned Special Officer on 11/12/2019,13/12/2019 and 18/12/2019 and collectively marked as Annexure - 'C with this application. Upon receiving the valuation report from M/s. L.S.I. Financial Services Pvt. Ltd. (Annexure - 'D' to this application), the Learned Special Officer has filed the same along with his report (Annexure - 'E' to this application) and the same was recorded vide order dated 03/01/2020 as follows:

"Ld. Counsel for the Petitioner appeared. Mr. Bippabankur Roy Chowdhury appeared in person, Mr. Kumar Gupta appeared for the Special Officer.

The Special Officer produced the report. It is taken on record. Copies made available to the respondent. Respondent seeks time to file a response to the report. It is to be filed within 10 days.

Today a copy of the report is handed over to respondent No. 2 by Ld. Counsel for the Special Officer in Court.

Matter to come up next on 30/01/2020."

On 30/01/2020 the matter was taken up for consideration by this Adjudicating Authority and upon hearing directions were given to list the matter on 03/02/2020, interim order, if any, shall continue till the next date of hearing and any application, if pending shall be listed along with the CP, if it is numbered and defect-free. Thereafter, the matter was listed on 03/02/2020 wherein the following directions were passed :

"Ld. Counsel for the Petitioner appeared. Ld. Pr. CS for respondent No. 2 appeared. Ld. Pr. CS for respondent nos. 3 and 7 appeared. Ld. Counsel for respondent No. 4 and 8 appeared. Ld. Counsel for respondent No. 5 appeared.

Number of IAs being filed by the respondents.

We direct them to serve a copy of the applications to the Petitioner, if not served.

The Special Officer has produced his report. Copies of his report (valuation report) and all documents to be served to all the respondents.

Matter to come up next on 23/03/2020."

In the meanwhile, an appeal has been preferred before the Hon'ble NCLAT being Company Appeal (AT) No. 65 of 2020 (Pralayankur Roychowdhury & Anr. -vs- M.P. Jewellers & Co. (1945) Pvt. Ltd. & Ors.), which was heard on 12/03/2020 and disposed of with the following order:

"As we find that the petition is still pending consideration before the Tribunal (National Company Law Tribunal), Kolkata Bench, we are not inclined to decide the issue on merit. The Tribunal is expected to decide the Company Petition on merit on an early date, instead of adjourning the matter based on interlocutory Applications. The appeal stands disposed of."

However, pan-India Lockdown was declared due to pandemic COVID - 19 situations and the same is still continuing, the matter could not be taken up on 23/03/2020, as the normal functioning of the Tribunal was hampered. In the above background an unnumbered Application being IA No. ....... /KB/2020 in CP No. 492/KB/2017 has been filed praying for various reliefs, which was taken up for consideration on today.

Heard both sides. Perused the documents and valuation report. Despite direction to the respondents no written notes of defence filed.

The Ld. Sr. Counsel Mr. Abhrajit Mitra, submitted that there is nothing further that remains in the present company petition. R1 Company is a family concern and petitioners group and respondents group are held by brothers, who are not in good terms, and this Tribunal while passing an order dated 03.012.2019, for valuing the equity share of the R1 observed that: "It is a family company and the Petitioner and Respondent cannot go together as it appears from the pleading", and that the relationship between the group of brothers of R1 is still going worst and the respondents is filing frivolous applications one after the other, in order to cause delay in the disposal of the application and therefore in order to attain a finality, it is fair and just to allow one of the rival groups to exist by selling the shares held by the group at a competitive price fixed by the Tribunal or through an auction to be conducted by fixing the price of share valued by the valuer at the direction of Tribunal. According to him this is the only manner in which the proceedings can be concluded. Delaying the proceeding only to the advantageous to the respondent nos. 2 to 4. If the said respondents can delay the proceeding, business will be affected. Realising this the respondents have filed six frivolous applications, i.e., IA Nos. 172, 173, 174, 175 and 177/KB/2020 and Contempt Application No. 176/KB/2020.

Ld. Pr. CS. Mr. Sanjay Kumar Gupta, for the Respondent Nos. 2 and 6 submitted that in the Order dated 03-12-2019 only valuation has been ordered by appointing a Valuer by taking names from the Petitioner and Respondents. The Special Officer has himself chosen the names without permission from the AA. The Special Officer has no jurisdiction to choose the name of the Valuer instead of getting it from the Petitioner and Respondents. The Order of appointment of Valuer yet to be challenged by the respondents. According to him, the valuation report is not binding on Respondent Nos. 2 and 6. since the Special officer violated the direction a Contempt application was filed and it is pending. He referred IA 174 and 175 of 2020 filed for issuing directions to the special officer and therefore without disposing of that application the valuation report cannot be taken for consideration. He also highlighted various other applications and pressed for hearing of all the applications and to decide the CP on merit and asserted that the respondents are unwilling to sell out or buyout the shares.

He would further submit that respondent Nos. 2 and 6 disagree with the buying out and selling out of shares as per the Valuation report submitted by the Valuer appointed by the Special Officer. However what would be the fair price of the shares as per self valuation by the respondents he did not suggest any price.

Ms. Rekha Goenka Pr. CS appeared for Respondent Nos. 4 and 8 supporting the arguments advanced on the side of the R2 and R6 and submitted that on 03-02-2020, the IA 174 filed by Respondent Nos. 4 and 8 has been disposed of and it is not recorded. It is to be recorded and further submitted that as all the documents have not been received by Respondent Nos. 4 and 8, in respect of valuation done by the valuer, this Application filed by the Applicant is objected. Nothing was answered as to the query addressed to her as to buy out or sell out of shares of R1 as prayed for in the application and also not suggested any valuation on self valuation by the respondents 4 and 8.

No one appeared for Respondent Nos. 3 and 7.

Ld. Counsel Mr. Shaunak Mitra, appears for R5 and submitted that he is supporting the argument advanced on the side of the petitioners. He further submitted that Respondent No. 5 is a Partnership Firm and is a separate entity and is supporting the Application.

Ld. Sr. Counsel Mr. Abhrajit Mitra, in his reply submitted that excepting Respondent No. 5, all the Respondents are objecting to this Application. When the Valuation report has been received, no one filed any objection to the Valuation Report. The Respondents cannot object to buy out and sell out the shares because the valuation order was made on 03-12-2019 without anybody's objection. Whenever there is a valuation done, the valuation order implies that the parties agree to buy and sell. The Order dated 03-12-2019 did not dispose of the Application. The Application is pending. Nobody challenged the valuation, appointment of Valuer etc. For directing buying out and selling out on the basis of valuation report, no consent is required because when the valuation order is made, order is made for the purpose of implementing it unless the parties object to it. The valuation is done with an object in mind that after valuation, somebody can sell or buy the shares. Sofar as the oppression and mismanagement is concerned, if the Petitioner establishes that the Respondents are oppressors, the Petitioner has the right to buy out the shares. Oppression does not compel to sell the shares. If the buying and selling of shares is done through auction, everybody will participate in the auction bid. The Respondents did not challenge the Order dated 03-12-2019. Last six months have been spent on valuation without objecting to it. That cannot be done by the Respondents when this application was moved for conducting sale of the shares to resolve the dispute with a finality. The valuation has been done for a radical purpose. The Company is on the verge of being struck off. In the interest of the Company, without anybody's objection buying and selling of shares should be allowed on the basis of valuation report.

In the above said background of the case in hand and considering the objection to sell out or buy out the shares of shareholders who are willing to exist form R1 or takes over R1 company without the other rival shareholders, it appears to me that the objections of the respondents in arriving at a competitive price higher than the price fixed by the valuer is unsustainable under law and devoid of any merits. Highlighting the Hon'ble NCLAT order dated 12.03.2020 that the Tribunal is expected to decide the CP on merits instead of adjourning the matter based on IA's, the Ld. Pr. CS has submitted that this Tribunal is prevented from conducting bidding to enable the parties to sell or buyout the shares of the R1. However, what he pressed before me is to hear the applications already pending for consideration and that he is filing another application for early hearing. Altogether six (6) application filed is pending for consideration. To have a better understanding of those IA's pending for consideration, and for an eye view to understand the litigation instinct in the respondents not to exist from the R1 company by selling out their shares, or they themselves will not takes over the R1 buying the shares from the petitioners, even if a competitive price is arrived at upon conducting bidding between the parties, it is good to read some of the IA's.

IA No. 173/KB/2020 was filed for dismissal of the company petition. It may be a belated attempt to delay the proceedings filed by the respondent No. 2. IA Nos. 175 & 177/KB/2020 filed by the respondent No. 2 for review of orders and/or rectification of orders. The law is settled that the Tribunal has no power to review. One another application is Contempt Application No. 176/KB/2020. Pendency of these applications have nothing to do with the disposal of this application. If one group is allowed to legally exist from the R1 company, it amounts to ending the pending litigation of oppression and mismanagement as alleged. So allowing to conduct bidding is one step forward to dispose of the CP on merits. Accordingly, I do not find any force in the submission on the side of the contesting respondents.

An overall screening of the pending IA's, I am unable to find out any serious objections raised on the side of the respondents challenging the valuation done by the valuer. What is under challenge is that valuer has not given an opportunity to suggest the name of the valuer at their instances and appointing the valuer by the special officer is against the direction and hence the report of valuation is not binding on them. There are no averments in the application as to why the valuation done by the independent valuer is faulty. In fact, the valuer's report is unchallenged on merits and the only ground for challenging the valuation is that the respondents did not get adequate opportunity to give names of valuers. This objection is also found devoid of any merits. The Special Officer's records pertaining to valuation annexed with the application clearly go to show that the Learned Special Officer went out of his way to accommodate the respondents' demand. It appears that Learned Special Officer in fact adjourned the meetings twice, i.e., on 11/12/2019 and 13/12/2019, so as to enable the respondents to attend the meeting for appointment of Valuer, which ultimately was held on 18/12/2019. Documents and more particularly letters to go to show that the date 18/12/2019 was fixed for meeting only because that was the only date suitable to the respondents. The respondents have also not submitted any valuation report or even suggested any different valuation for the respondent No. 1 company's shares. In the above said factual background brought out from the case in hand the question is whether the prayer for bidding amongst the parties for buyout/sellout of shares followed by transfer of all the shares of the unsuccessful bidder/bidders to the successful bidder is allowed? If so in what manner the bidding is to be conducted?

The order in IA 894 of 2019 for appointing valuer dated 03.12.2019 no doubt became final. The valuation report filed by the Special officer also becomes final for want of filing objection within the period of time granted to the respondents. The Tribunal while passing the order directing to value the shares observed that the R1 company is a family company and the petitioners and respondents cannot go together. The challenge raised from the side of the respondents also shows that though they are brothers, they have no intention to have an amicable settlement in between them. It cannot be ruled out that the respondents would not like to allow a peaceful exit of the petitioners group or peaceful buyout of the respondents shares even if a competitive price is offered to them. The petitioners group and respondents group are brothers. They know each other better than me and their professionals. It is difficult to have a reunion when brotherhood between them is broken irrevocably. I am afraid they are controlled by their emotions despite the highs and lows of relationships between them. They want to add fuel to burning flame. In a situation brought out in the peculiar nature of the instant case why they disagree to buy the shares of the petitioners or selling out their shares to the petitioners not at a value fixed by the Tribunal or by the valuer, but in an auction in between them giving an opportunity to quote highest price to take over the company in their hand safely without any sort of interference from rival group of brothers? No valid explanation is forthcoming from the side of the respondents.

At this juncture the Ld. Sr. Counsel for the petitioners, cited a decision of Karnataka High Court at Bangalore (Equivalent Citation : ILR 2008 KARNATAKA 1187) in Company Appeal No. 3/2006, decided on 13/11/2007 (Namtech Consultants Private Limited and Ors. -vs- GE Thermometrics India Private Limited and Ors.). He takes me to para 30-31. it is good to read the said para. It is reproduced as follows:

"30. It would not be possible to achieve this object if particular group is directed to sell its shares to the other group at the price to be determined by the third party i.e., an independent firm of Chartered Accountant because though the price of shares would be determined by such Chartered Accountant most scientifically and impartially by taking all the relevant facts into consideration yet such price would only be an 'opinion price' as could be distinguished from the 'competitive price' at which a prospective buyer or seller would opt to buy or sell in competition with the other buyer or seller. This object of adequately compensating the outgoing group of shareholders could be achieved by making both the rival groups to compete with each other in the purchase of shares of the company at a price higher than the one determined by the independent chartered accountants. Therefore, we are of the considered view that the price at which the shares of the JV Co. should be ordered to be sold by one group to the another group should be 'competitive price and it should certainly be higher than the price determined by the independent chartered accountants. This competitive price can be arrived at by directing each rival group to quote in sealed cover its price (which should be higher than the one determined by the chartered accountants) at which it would agree to sell its shares to the other group and also agrees to buy the shares of the other group and then the group quoting higher price than the one quoted by the other group shall be given first option to buy the shares of the other group at such higher price as quoted by the former. Thus, the object of adequately compensating the outgoing group of the shareholders by the group of shareholders continuing to run the company could be achieved.

In view of our foregoing discussions we hold that though the CLB was justified in holding that in view of the strained relationship between both the rival groups, one of them should quit the JV Co. by selling its shares to the other group but it was not justified in directing the appellants' group to sell their shares in favour of the respondents' group at the price to be determined by the independent firm of chartered accountants. Therefore, the question of law in this appeal has to be answered partly in favour of the appellants and we answer the same accordingly. In the result, the present appeal deserves to be allowed in part. Accordingly it is allowed in part and consequently the impugned order and the direction therein that the appellants shall sell their shares in JV Co. to the second respondent and its nominees at the price to be determined by the independent firm of chartered accountants need to be modified as under:

The Company Petition No. 11/2006 filed by the appellants is allowed in part as against the contesting respondents-1 to 11 only. After the independent firm of chartered accountants namely M/s. Price Waterhouse Coopers, New Delhi-110002, appointed by the CLB by its order dated 19.6.2006 (Annexure- C, appended to the memorandum of appeal), submits its report determining the price of each share in JV Co. held by both the appellants' and respondents' groups, the same shall be made known to each group and then each group shall quote in sealed cover before the CLB the competitive price of each share in JV Co. which shall be higher than the price determined by the said firm of chartered accountants, agreeing to buy the shares of other group or to sell its shares to the other group at the said higher price and the group quoting its price higher than the one quoted by the other group shall have first option to buy the shares of the group quoting the lower price, thereafter the CLB shall pass appropriate order directing the group quoting higher price to purchase the shares of other group quoting lower price."

The proposition laid down in the cited decision is squarely applicable to the case in hand. By partly upholding the view of the CLB that "in view of the strained relationship between both the rival groups, one of them should quit the JV Co., by selling its shares to the other group but it was not justified in directing the appellants' group to sell their shares in favour of the respondents' group at the price to be determined by the independent firm of chartered accountants" the Hon'ble high court allowed bidding in between the Patrice to resolve the dispute finally. Here in this case also the relationship between the two groups of brothers is strained. Their relationship is irrevocably broken. There is no chance of settlement. Multiple litigation is encouraged between the parties. Fed up with the litigation the petitioners choose either to exist from the company or to fully own the company. Is it not a fair and just to allow the said prayer. I do not find any reasonable objections raised in this regard from the side of the respondents so as to disallow the said prayer.

The Ld. Sr. Consul for the petitioners also requests to impose certain restrictions and priority to buyout the shares of the respondents alleging that the petitioners who have single handedly contributed to the value of the said 5 (five) trademarks. He also submitted to insist earnest deposit to avoid any abuse of the auction process and to avoid any proxy bidding, i.e., purchase on behalf of outsiders along with reasonable restrictions may also be placed by the Tribunal as set out in the prayer (c) of this application. These prayers are not liable to be allowed for want of proof. More so to buyout and sell out is for a competitive price. Buy out and sell out is truly restricted only in between the shareholders and outsiders have no role in participating in the bidding process. In view of the said reasons the said prayers are liable to be disallowed.

In view of the matter and in view of the above position of law it appears to me that it is just and equitable in the peculiar circumstances of the case, this application is to be allowed in part upon the following orders:

i). The reserve price of share value of one equity share is fixed at Rs. 277.00 based on the valuation report;

ii). Petitioners group and respondents group each shall quote respective price for buyout/sell out which shall be higher than Rs. 277.00 per shares of R1, in a sealed cover with in one week from the date of this order before the Tribunal, with due intimation to the registrar, NCLT, Kolkata, preferably on or before 3 pm on 12.8.2020;

iii). The group quoting its price higher than the one quoted by the other group shall have first option to buy the shares of the group quoting the lower price and the group quoting higher price to purchase the shares of other group quoting lower price and the group quoted lower price shall transfer the shares to the successful bidder;

Unnumbered IA No. /KB/2020 in CP No. 492/KB/2017 is allowed in part, listed on confirmation of bidding and for hearing the CP along with the pending applications on 14.08.20.

The Registry is directed to send e-mail copies of the order forthwith to all the parties. So also directed to receive any sealed covers from the Patrice or from the authorised representative as above and place before me on 14.8.2020.

Certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities.