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Judgment
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
The Appellants have filed the appeal under Section 421 R/w Section 247 of the ‘Companies Act, 2013’ (hereinafter referred as to the ‘Act’) against the impugned order dated 01.07.2022 passed by the ‘National Company Law Tribunal, Bench -VI, New Delhi (hereinafter referred as to ‘the Tribunal’) in C.P No. 879/59/ND/2019.
The Appellant has sought the following reliefs:
To set aside and quash the impugned order dated 01.07.2022 passed by the Tribunal in CP No. 879/59/ND/2019 titled as “Amrex Marketing Private Limited Vs. Universal Conveyor Beltings Limited & Ors.”
To hold the CP No.879/59/ND/2019 titled as “Amrex Marketing Private Limited Vs. Universal Conveyor Beltings Limited & Ors” as not maintainable and accordingly dismiss the CP No.879/59/ND/2019 pending adjudication before the Tribunal etc.
The Appellant company is aggrieved with the order passed by the Tribunal asking an Independent Valuer be appointed forthwith from the list of approved valuers of IBBI by the Appellant Company, the services of which will be compensated by the Appellant Company and has directed the Appellant company to take further action as per the valuation arrived at by the Independent valuer.
The shares of the Appellant company were listed on New Delhi Stock Exchange in 1975 and the said stock exchange was derecognized in the year 2016. The SEBI vide circular dated 30.05.2012 issued guidelines for facilitating exit to the shareholders of the listed companies by allowing them to get listed on nationwide stock exchanges after complying with the diluted listing norms of nationwide stock exchanges or alternatively they be moved to the Dissemination Board (DB).
The Appellant company was declared Sick Industrial Unit by the BIFR and was governed by the Sick Industrial Companies Act, 1985 (SICA). The case of the Appellant company is that it has valued its shares through an Independent valuer from the panel of expert valuers of the BSE who has determined the fair value of the shares of the Appellant Company and based on which a few public shareholders have sold their shares to the promoters of the said company at the fair value. The Appellant company has also stated that it has no problem even if the Respondent continue to remain the shareholder of the company, if they don’t want to exit the company.
The Ld. Sr. Counsel for the Appellant has also stated that it has followed the SEBI Circular and has done its valuation of shares by the empaneled independent valuer of Bombay Stock Exchange (BSE).
The Ld. Sr. Counsel for the Appellant has stated that the Appellant company has complied with the SEBI circular, appointed valuer and the Promoter have purchased the shares. He also stressed that the Respondent No.1 has also made a complaint to the ‘Registrar of Companies’ (ROC), ‘Ministry of Corporate Affairs’ (MCA) which has been closed by them.
The Ld. Sr. Counsel also stated that the valuation report was available for inspection to the public shareholders at the registered office of the Appellant company during the tendering period but the Respondent No.1 did not avail the said opportunity as meant for all public shareholders. However, Respondent No.1 didn’t inspect the valuation report either during that period or thereafter. As per the Ld. Sr. Counsel for the Appellant, the sole object of the Respondent No.1 is to advance its own ulterior motive and cause nuisance to the Appellant.
The Ld. Sr. Counsel for the Appellant has cited the following judgments:
Union of India and Anr. Vs. Paras Laminates (P) Ltd.1 held at para 8:
“8.There is no doubt that the Tribunal functions as a. Court within the limits of its jurisdiction. It has all the powers conferred expressly by the statute. Further- more, being a judicial body, it has all those incidental and ancillary powers which are necessary to make fully effective the express grant of statutory powers. Certain powers are recognised as incidental and ancillary, not because they are inherent in the Tribunal, nor because its jurisdiction is plenary, but because it is the legislative intent that the power which is expressly granted in the assigned field of jurisdiction is efficaciously and meaningfully exercised. The powers of the Tribunal are no doubt limited. Its area of jurisdiction is clearly defined, but within the bounds of its jurisdiction, it has all the powers expressly and impliedly granted. The implied grant is, of course, limited by the express grant and, therefore, it can only be such powers as are truly incidental and ancillary for doing all such acts or employing all such means as are reasonably necessary to make the grant effective. As stated in Maxwell on Interpretation of statutes (11th edn.) “where an Act confers a jurisdiction, it impliedly also grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution”.
Nimish H.Shah and Anr. Vs. Securities and Exchange Board of India & Anr.2 para 36. “36.The pleas of Mr. Vashisht as noted above are not appealing. The exit circulars nowhere expressly state that all the public shareholders need to be given complete exit. The reliance was placed on the words "number of outstanding public shareholders" in clause (VII) of Annexure A of 2016 circular. The words have to be read in the context when exit offer is given an escrow account shall be opened in favour of the valuer / designated stock exchange wherein, deposit of the amount on the basis of exit price and number of outstanding public shareholders shall be made. This is keeping in view, all the public shareholders shall be given option to sell their share but it is not necessary all the public shareholders shall opt to sell their shares. It was rightly pointed out by Mr. Sethi that shareholder is also free to reject the buy-back offer and continues to be a shareholder. So, it follows the circulars do not contemplate the exit of all public shareholders. This I also say, in view of the stipulation in the impugned SEBI Circular "investors who are willing to remain shareholders of a company and do not want to exit, should be allowed". I do not find any illegality in such a stipulation as it is not necessary for a shareholder to seek his exit.”
GL Sultania and Anr. Vs. Securities & Exchange Board of India and Ors.3 para 32 and 84:
“32-These decisions clearly lay down the principle that valuation of shares is not only a question of fact, but also raised technical and complex issues which may be appropriately left to the wisdom of the experts, having regard to the many imponderables which enter the process of valuation of shares. If the valuer adopts the method of valuation prescribed, or in the absence of any prescribed method, adopts any recognized method of valuation, his valuation cannot be assailed unless it is shown that the valuation was made on a fundamentally erroneous basis, or that a patent mistake had been committed, or the valuer adopted a demonstrably wrong approach or a fundamental error going to the root of the matter. Where a method of valuation is prescribed the valuation must be made by adopting scrupulously the method prescribed, taking into account all relevant factors which may be enumerated as relevant for arriving at the valuation.”
84.We have only referred to some of the objections raised by the appellants and we must observe that several other similar objections were raised by them. We have also noticed the reply of the respondents and in most cases the observations of the valuer. It appears to us that the appellant expects this Court to act as an expert itself. This, we are forbidden from doing. Unless it is shown that some well accepted principle of valuation has been departed from without any reason, or that the approach adopted is patently erroneous or that relevant factors have not been considered by the valuer or that the valuation was made on a fundamentally erroneous basis or that the valuer adopted a demonstrably wrong approach or a fundamental error going to the root of the matter, this court would not interfere with the valuation of an expert. As noticed in Miheer H. Mafatlal (supra), valuation of shares is a technical and complex problem which can be appropriately left to the consideration of experts in the field of accountancy. So many imponderables enter the exercise of valuation of shares.”
With all the above submissions, the Ld. Sr. Counsel was very much assertive that the order of revaluation is neither maintainable in law nor maintainable on fact and hence prayed for allowing the Appeal.
Ld. Counsel for the Respondent No.1 submitted that the Appellant has not intentionally placed on record the documents filed by the answering Respondent alongwith the Company petition. The Appellant has concealed that during the relevant period where the fair valuation has been done in the relevant period in 2018, the earning per share was Rs. 25.21 and its exit offer was only Rs.18.42 per share which reflects a wrong valuation on the face of it. The Appellants Company has deliberately concealed material facts that they are allowing concentrating of the equity share capital of the Appellant company in the hands of its promoters.
The Ld. Counsel for the Respondent has submitted that they have provided to the Appellant Company the details of purchase of shares by Mrs. Sunita Mundhra, Promoter of the Company from public shareholder 43,000 shares of Bank of Maharashtra on 17.08.2018, one day before issuing the exit offer. Certain other facts as stated below were also stated by the Ld. Counsel for the Respondent.
The specific case of R1 which is not denied before the Tribunal that R4 approached R1 for purchase of shares @ Rs.125/- per share.
The argument of the Appellant is that once a valuation has been done, even if the same is illegal and shares are undervalued, it is beyond judicial review. Such a proposition of law would render the provisions of the Act, and the SEBI Circular dated 10.10.2016 nugatory. There cannot be a situation where the interest of the minority shareholders is violated and the Tribunal is compelled to shut its eyes. The Appellant Company is de-listed and public share-holders are deprived of getting the market value of the shares.
The Appellants continue to act in the most malafide manner and are guilty of blatant misrepresentation and concealment from this Tribunal as well.
It is clarified that the SEBI circular dated 10.10.2016 is not subject of challenge. Thus, Appeal u/s 15(T) of the SEBI Act is not the appropriate remedy. Further, the case of Nimish H.Shah (Hon’ble Delhi High Court) does not state that a manipulated valuation report is beyond judicial review.
In the most misleading manner, Appellants have simplicitor stated that SEBI Complaint has been closed. They have concealed that the complaint was closed as SEBI no longer has jurisdiction for the reason that the Appellant company is not a listed company. Thereafter, R1 approached ROC Delhi, which directed that the issue may be raised before the Tribunal. The Tribunal has rightly noted that Section 247 of the Act was enacted to protect the interest of non-promoter shareholders, when fair valuation is required for exit offers. The minority public shareholder would be left remediless if the independent valuer is not appointed. In Chembra Peak Estates Ltd – CP No. 459/BB/2018) the Tribunal has examined the applicability of this very circular in other case and upheld the liability of the promoters to give an exit offer and comply with the SEBI Regulations to protect the interests of the minority shareholders.
A. The Ld. Counsel for the Respondent has also cited the SEBI Circular No. CIR/MRD/ DSA/18/2014 dated 22.05.2014 at para 3(v) which is extracted below:
“3(v).As per the ‘Exit Circular’ the exclusively listed companies, which fail to obtain listing on any other stock exchange, which do not voluntary delist or which are not considered as ‘Vanishing Companies’, will cease to be listed company and will be moved to the dissemination board by the existing stock exchange. It shall be the responsibility of the exchanges which are being derecognized either on voluntary or compulsory basis, to place their exclusively listed companies on the dissemination board. These exchanges shall ensure that the database of the exclusively listed company is transferred to SEBI and to those stock exchanges on whose dissemination board, the shares of these companies are available.”
B. The ld. Counsel for the Respondent has also cited the SEBI Adjudication Order No. PJ/VP/02/2016 dated 29.02.2016 in respect of para 12 as depicted below:
“12.In view of the above, I note that SEBI has jurisdiction and power to initiate Adjudication proceeding on a listed companies or those companies which intend to get their securities listed on any recognized stock exchange. In the case in hand, SEBI had introduced electronic dealing of the complaints of the investors, by the respective companies vide Circular No. CIR/OIAE/2/2011 dated 03.06.20111 R/w Circular No.CIR/OIAE/1/2012 dated August, 13, 2012 R/w Circular No.CIR/OIAE/1/2013 dated April 17, 2013. Further I note from the records that, the trading in the scrip of the Noticee company discontinued w.e.f.03.09.2010 and the scrip was delisted w.e.f 13.09.2010 on BSE and 15.05.2008 on Calcutta Stock Exchange Limited i.e. much before the issuance of the said circular and initiation of adjudication proceeding against the noticee. Thus the present adjudication proceedings are in respect of unlisted company where SEBI has no jurisdiction.”
C. The ld. Counsel for the Respondent has also cited the judgment of this Tribunal in Devinder Prakash Kalra and Ors. Vs. Syngenta India Limited4 held at para 53:
“53.The principle laid down by the Hon'ble Supreme Court is that the shareholders are entitled to the profit of the Company, the only way to do justice to the public shareholders/non-promotor shareholder is to revalue the shares of the Company by appointing independent valuers and whatever the fair price arrived at by independent valuers, the same shall be paid to the public shareholders. It is clear that if the Company makes profits, the same need to be shared with the public shareholders/non- promotor shareholders which are exiting from the Company by surrendering their shares. As stated supra, we are not going into the veracity of the 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.”
We have carefully gone through the submissions made by Ld. Sr. counsel/Ld. Counsel for the parties, pleadings available on record, the order passed by the Tribunal and have the following observations:
a. It is not in dispute that the Appellant company has made exit offer.
b. It is also not in dispute that one day before the exit offer, its promoters have purchased lot of shares from Bank of Maharashtra and similarly inter se purchase has been made during exit offer from specific persons by the promoters as stated supra.
c. The Tribunal has given lot of thrust on lower valuation of shares and it seems that it is even less than earning per share. A doubt has also arisen to the Tribunal why the Appellant company has not provided Annual Returns and Balance Sheet to the Petitioners for the years 2014-2018 as also the valuation report of the Appellant company. For brevity and clarity certain observations of the Tribunal is placed herein below:
10.The above, coupled with the fact that the Petitioner had already been made an offer of Rs. 125 per share and subsequently the Exit Offer was only of Rs. 18.42 per share are significant and sufficient enough grounds to cast doubts about the veracity of the valuation of shares got done by the Company for its Exit Offer. Therefore, in the interest of equity, justice and fair play for the Applicant and other public shareholder a revaluation of the shares by an independent valuer is necessitated and the independent valuer should also take into account under-valued transactions or bogus expenses if any, incurred, before the earlier valuation was done.
11.The issue which has been strongly contended by the Respondents is that the Petition does not come within the ambit of Section 59 of the Companies Act and therefore should be dismissed. The Respondents have, contended that no 'public shareholder' has availed of the Exit Offer and hence there is nothing to be rectified in the Register. The Petitioner has however claimed that the promoters have purchased shares during the period of the Exit Offer and that for the purpose of Section 59, rectification is not limited only to 'public shareholders', but includes promoters and Members of the Company. Be that as it may, such rectification would only follow consequentially and be contingent upon the findings of a fresh valuation in respect of the fair price of the shares. We are therefore of the view that the matter needs to be considered on the strength of the factual position apparent from the oral and written submissions of the parties.
12.While considering the options available to the Petitioner for seeking redressal to his grievance it is pertinent to mention that the Petitioner could not have approached this Tribunal under the Provisions of Chapter XVI of the Companies Act, 2013 as he did not have the requisite numbers. Also, since the Respondent No.1 Company is now delisted, the Petitioner and other public shareholders are deprived of the benefit of getting the market/traded value of their shares and must perforce have to be content with value of shares in the Exit Offer. Further, the Petitioner vide its letter dated 25.02.2019, had filed a complaint against the Respondent No. 1 company with the Registrar of Companies, New Delhi (being Respondent No. 10 of this instant Petition) bringing to its knowledge the discrepancies with respect to the Valuation Report as prepared by the Respondent No. 7 and requested for appropriate action in this regard. Thereafter, the Authorized representative of the Petitioner via Application under Right to Information Act, 2005 was informed by the Respondent No. 10 vide its letter dated 30.08.2019 that necessary Notices have been issued by it to the Respondent No. 1 company and its Directors; however it also informed the authorized representative of the Petitioner to approach this Tribunal for appropriate action in the matter.
13.The Respondents have also contended that valuation cannot be ordered under Section 247 of the Companies Act, 2013 since valuation under Section 247 would be limited to valuation required to be done under the provisions of the Companies Act and the valuation prayed for by the Petitioner is a valuation to be done under the SEBI Circular (which has been issued under the provisions contained in the SEBI Act). It is noteworthy here that while Section 59(4) of Companies Act provides for rectification of Register if transfer of securities is in contravention of the provisions of the SEBI Act. Section 247 or other provisions of the Companies Act or Rules do not specifically provide for conducting valuation if it is required under the provisions of the SEBI Act. It therefore follows that if the Register contains entries in respect of valuation done in, contravention of the SEBI Act, then in order to rectify those entries fresh valuation should be permissible under the Companies Act since Section 59(4) of the Companies Act provides for such rectification.
14.The Standing Committee of Finance in its 57th Report on the Companies Bill 2011 has placed its comments on Section 247 of the Companies Act in which it has been stated:
“These provisions are relevant for arriving at value of consideration for issue of securities for consideration other than cash and for right offer/Exit Offer etc. The intent behind this provision is to ensure fair valuation of such shares/assets/properties to protect interest of non-promoter shareholders.”
So while specifically, valuation for an Exit Offer may not be provided for under the Companies Act, the intention as set forth in the report of the Standing Committee is amply clear that in order to protect the interest of non-promoter shareholders (as in the instant case) fair valuation for Exit Offer is also required to be done. In the light of the above, we are of the view that in the present case, where there is sufficient cause to show that the valuation of shares done earlier was suspect and its veracity is doubtful, a fresh valuation by an independent valuer needs to be done in the interest of justice and in order to protect the interest of non-promoter shareholders. This Tribunal is convinced that in such a matter it will be in the interest of justice and fair play to invoke the powers of the Tribunal under Rule 11 of NCLT Rules, 2016 and direct the Respondent No. 1 Company to appoint a valuer registered with IBBI for re-valuation of the price of shares of the company.
15.It has also been contended by the Respondents that since the matter does not come within the ambit of Section 247 of the Companies Act it is liable to be dismissed. Here it would be appropriate to cite the following orders of the Hon'ble Supreme Court:
The Hon'ble Supreme Court in the case of J. Kumaradasan Nair and Ors. Vs. IRIC Sohan and Ors. reported at (2009)12SC C 175, has had the occasion to observe that it is a well-settled principle of law that mentioning of a wrong provision or non-mentioning of any provision of law would, by itself, be not sufficient to take away the jurisdiction of a court if it is otherwise vested in it in law. Further, in the case of N. Mani Vs. Sangeetha Theatre and Ors. reported at (2004) 12 SCC 278 a three judge bench of the Hon'ble Supreme court has held that "It is well-settled that if an authority has a power under the law merely because while exercising that power the source of power is not specifically referred to or a reference is made to a wrong provision of law, that by itself does not vitiate the exercise of power so long as the power does exist and can be traced to a source available in law."
In the light of the above cited orders of the Hon'ble Supreme Court it is clear that the power of the Tribunal to appoint an independent valuer is not vitiated so long as it exists and can be traced to a source available in law. Such power of the Tribunal can be traced to the Companies Act and Rule 54 of NCLT Rules, 2016 (framed under the provisions of the Companies Act, 2013). Hence invoking of Rule 11 of NCLT Rules, 2016 in the instant case for meeting the ends of justice by appointing an independent valuer is legally tenable, reasonable and exercise of the power by tribunal is justified in the facts and circumstances of the case.
16.This Tribunal therefore orders that an independent valuer be appointed forthwith from the list of approved valuers of IBBI by Respondent No. 1 Company, the services of whom will be compensated by the Respondent No. 1 Company. The independent valuer will submit his report on the valuation of shares of the Respondent No. 1 Company within a period of 3 months from the date of his appointment. The Respondents will fully cooperate with him and provide him access to all necessary documents and facilitate his work in all respects so that he can complete his task in a free and fair manner. He will submit a copy of the Report to the Applicant and the Respondent No. 1 Company and its Directors. The Respondent No. 1 Company will compensate him for his services with a fair and reasonable package. The Respondent No. 1 Company will take all further necessary action on the basis of the valuation of shares arrived at by the independent valuer. The Applicant will be at liberty to approach the appropriate authority or legal forum for any grievance necessitated on the basis of the valuation report.
d. The Respondent has sought the followings reliefs before the Tribunal comprising of 6 reliefs mainly and the Tribunal has granted only one relief i.e. appointing an independent valuer from the panel of valuers of IBBI in terms of Section 247 of the Act, the cost of which to be borne by the Appellant Company:
That one or more an independent valuer be appointed to evaluate the fair price per equity share of the R1 Company in terms of Section 247 of the Act the cost of which to be borne by the R1 Company;
In the event such Fair Price as determined by the Independent Valuer in terms of prayer(a) above is higher than that of the R7, necessary orders be passed against the R7 in terms of Section 247, 447 and 448 of the Act.
In the event such Fair Price as determined by the Independent valuer in terms of Prayer (a) above is higher than that of the R7, an order be passed to rectify the Register of Members of R1 company by cancellation of the shares acquired, if any, by the R3 in terms of the purported exit offer as floated by the said Respondent at an unfair price.
In the event such Fair Price as determined by the Independent valuer in terms of Prayer (a) above is higher than that of the R7, necessary orders be passed against the R1 to R6 under Section 447 and 448 of the Act.
That an order be passed disqualifying the R2 to R6 from being a Director in any Unlisted Public Company in the event they are held liable for fraud in terms of Section 447 and 448 of the Act.
That an order be passed disqualifying the R9 from being appointed as an Auditor of any company and be held liable for fraud in terms of Section 447 of the Act.
That such orders as to costs be passed as in the premises the Tribunal may deem fit and proper etc.
e. We are not commenting at the moment what will be the valuation of shares but apparently it is difficult to perceive as to how the fair value can be lower than the earning per share.
f. It is an incumbent duty to the Appellant company to disclose all material information to its shareholders disclosing thereon even the justification for the existing price offered by the Promoters which also seems to be missing in this case.
g. We can only add that if the revaluation done by the valuer registered with IBBI results into more than 100% increase in the value so determined by the ex-valuer than the matter for investigation against the ex-valuer also be referred to SEBI & BSE for necessary inquiry by them.
h. In view of above facts and circumstances, we do not find any inconformity in the order and the appeal deserves to be dismissed and is dismissed. No order as to costs.
The Registry is directed to forward a copy of this order to the Registrar of Companies, Delhi and the SEBI and BSE. Pending application, if any, stands disposed of.