Bharat P. Raut vs Madhu Silica Pvt. Ltd. & Ors

[Arising out of Order dated 24th January, 2018 passed by the National Company Law Tribunal, Ahmedabad Bench in I.A. No. 389 of 2018 in C.P. No. 69/241-242/NCLT/AHM/2017]

IN THE MATTER OF:

1. Mr. Bharat P. Raut Flat No. 173, Tower C, Santwani LIC Colony, Off Devidas Lane, Borivli West, Mumbai - 400013.

2. Bharat P. Raut (HUF) Flat No. 173, Tower C, Santwani LIC Colony, Off Devidas Lane, Borivli West, Mumbai - 400013.

3. Mrs. Vidya B. Raut Flat No. 173, Tower C, Santwani LIC Colony, Off Devidas Lane, Borivli West, Mumbai - 400013.

4. Mr. Manas B. Raut Flat No. 173, Tower C, Santwani LIC Colony, Off Devidas Lane, Borivli West, Mumbai - 400013. ....Appellants

Vs

1. M/s Madhu Silica Private Limited Plot No. 147, GIDC Estate, Vill. Vartej, Bhavnagar - 364060.

2. Mr. Rameshchandra V Shah, 1899/A, Vasudha, Rupani Circle, Opp. Akash Ganga, Bhavnagar - 364001. -2-

3. Mr. Rameshchandra V Shah, (HUF) 1899/A, Vasudha, Rupani Circle, Opp. Akash Ganga, Bhavnagar - 364001.

4. Rameshchandra Shah Family Trust, 1899/A, Vasudha, Rupani Circle, Opp. Akash Ganga, Bhavnagar - 364001.

5. Mrs. Kalpna R. Shah, 1899/A, Vasudha, Rupani Circle, Opp. Akash Ganga, Bhavnagar - 364001.

6. Mr. Darshak Rameshchandra Shah, 1899/A, Vasudha, Rupani Circle, Opp. Akash Ganga, Bhavnagar - 364001.

7. Darshak Rameshchandra Shah, (HUF) 1899/A, Vasudha, Rupani Circle, Opp. Akash Ganga, Bhavnagar - 364001.

8. Mrs. Reena Darshak Shah, 1899/A, Vasudha, Rupani Circle, Opp. Akash Ganga, Bhavnagar - 364001.

9. Darshak Finstock Private Limited, Plot No. 147, GIDC Estate, Vill. Vartej, Bhavnagar - 364001. ....Respondents

Present: For Appellants: Mr. Rahul Chitnis and Mr. Asditya Pande, Advocates. For Respondents: Mr. Saurabh Kalia and Ms. Parika Thakral, Advocates. Mr. Kiran Shah, FCA.

Company Appeal (AT) No. 104 of 2019 -3-

BANSI LAL BHAT, J.

This appeal is directed against disposal of I.A. No. 389 of 2018

preferred by the Appellants (Petitioners) during the pendency of C.P. No.

69/241-244/NCLT/AHM/2017 by the National Company Law Tribunal,

Ahmedabad Bench (for short 'the Tribunal') by virtue whereof the Appellants'

application for release of interim payment of Rs.5.95 Crore deposited by the

Respondents towards the share price conversion in separate escrow account

with HDFC Bank, Bhavnagar Branch with further prayer of directing the

Respondents to provide Bank Guarantee for securing payment of balance

amount of consideration pending disposal of I.A. No. 127/2017, came to be

rejected as being not maintainable.

2. Heard learned counsel for the parties and perused the record.

3. It is not in controversy that the Appellants had filed the Company

Petition under Section 241 r/w Section 244 of the Companies Act, 2013

(hereinafter referred to as the 'Act') with one of the prayers seeking

prohibitory injunction against Respondents from effecting transfer of shares

of the Appellants. It transpires that an exit offer had been made by the

Respondents on 30th March, 2017. The parties appear to have reached an

amicable settlement culminating in passing of order dated 12th October,

2017 by the Tribunal based on consent terms entered into between the

parties. It is also not disputed that a Valuer was sought to be appointed in

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regard to the valuation of business of Respondent No. 1 (Company), which

shall be binding on all the parties and unassailable except on the ground of

fraud. As agreed by the parties, no issues survived for the consideration of

the Tribunal. However, the Company Petition was kept pending for the

purpose of exchange of share/ consideration whereafter the Tribunal would

dispose of the petition. It further appears that M/s Deloitte Touche

Tohmatsu India LLP. Ahmedabad (hereinafter referred to as 'Deloitte') was

appointed as an Independent Valuer for valuation of the Company.

Valuation Report came to be submitted on 25th January, 2018. The Valuer

estimated the valuation of the Company at Rs.18,76,10,00,000/- and the

value of shares held by the Appellants at Rs.39,20,00,000/- The Appellants

prayed before the Tribunal that since the order dated 12th October, 2017

passed by the Tribunal on the basis of Consent Terms amounted to a

decree, the Appellants were entitled to get the amount deposited by the

Respondents on the direction of the Tribunal as an interim measure towards

share price consideration in separate escrow account with HDFC Bank,

Bhavnagar Branch till final disposal of the matter. However, the

Respondents resisted the application on the ground that they had filed I.A.

No. 127 of 2018 challenging the report of Independent Valuer and

subsequently filed another pursis for withdrawal of offer to acquire the

shares of minority shareholders, which were pending consideration and

without adjudication of the same no order could be passed for release of the

sale consideration deposited by the Respondents in the Escrow Account.

Company Appeal (AT) No. 104 of 2019 -5-

4. The Tribunal, though noticed the factum of appointment of

Independent Valuer on the basis of Consent Terms in terms of order dated

12th October, 2017 and the fact that the Respondents No. 1 to 4 had filed

I.A. 127 of 2018 on 6th April, 2018 strongly objecting to the Valuation Report

and alleged fraud played by the Independent Valuer in the report dated 21st

January, 2018, undertook an elaborate exercise qua acquisition of shares of

minority shareholders within the ambit of Section 236 of the Act. The

course adopted by the Tribunal cannot be supported, moreso as it is on

account of challenge thrown to the Valuation Report by Respondents

followed by filing of pursis for withdrawal of offer to acquire the shares of the

minority shareholders that the consent terms had not been acted upon and

transfer of the minority shareholding has not been accomplished within the

prescribed time frame. It is queer that Appellants have been deprived of the

part payment of consideration lying in deposit in an Escrow Account without

any fault attributed to them. There is nothing on record to even faintly

suggest that the Appellants had resiled from the consent terms or taken any

step which demonstrated unwillingness on their part to adhere to the Terms

of Consent. The Valuation Report has admittedly been assailed by the

Respondents on the alleged ground of fraud. While we do not want to

express ourselves as regards the ground available to Respondents to

challenge the Valuation Report, the fact that the Independent Valuer applied

CCM Methodology and did not resort to other methodologies including NAV

and CDF does not, in itself, affect the credit and worth of the Valuation

Report. Many protocols may be available to an Expert in arriving at the fair

value of shareholding. It is left to his discretion to adopt the methodology

Company Appeal (AT) No. 104 of 2019 -6-

which in his fair judgment is suitable in a given situation. However, this

does not apply to the mandatory parameters and methodologies required to

be employed in terms of the Companies (Compromises, Arrangements and

Amalgamations) Rule, 2016 applicable in the instant case. Non-application

of appropriate methodology or even an error in application of proper

methodology would not be an act of misdemeanor unless the same is

influenced by any extraneous consideration. Of course the Independent

Valuer was required to take into account the valuation parameters duly

recognized under law and in practice as is customary and that he was to

justify the valuation but the Tribunal ought not to have ignored the

hardship encountered by the Independent Valuer, who had specifically

stated in the report that the ignored methodologies were skipped due to

want of information and necessary records. Once this explanation was

offered, the Independent Valuer should have not been blamed for not

applying all the methodologies.

5. It is not in controversy that Para IX of the Consent Terms recorded by

the Tribunal in its order dated 12th October, 2017 specifically excluded any

challenge to the Valuation of shares of Appellants in the Company carried

out by the Independent Valuer other than in the event of fraud in such

valuation. The Respondents application challenging the Valuation Report

on the alleged ground of fraud is pending consideration before the Tribunal.

Order dated 12th October, 2017 passed by the Tribunal while recording the

Consent Terms clearly provides that the Consent Terms reached inter-se the

parties to bring an end to the matters raised in the petition, in terms

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whereof it was agreed that the shares held by the Appellants in the

Company shall be purchased by the Respondents at a value determined by

the Independent Valuer form part of the Consent Order of the Tribunal.

This leaves no room for doubt that the Company Petition alleging oppression

and mismanagement stands determined in terms of the consent order

passed by the Tribunal with the Appellants holding less than 10%

shareholding in the Company exiting the Company by transfer of

shareholding for a fair value determined on the basis of Valuation Report

drawn up by an Independent Valuer. Admittedly, Deloitte was one of the

nominated valuers in the panel. Thus, we find force in the contention of the

Appellants that the Consent Terms recorded by the Tribunal amount to a

Consent Decree notwithstanding the fact that the Company Petition was

kept pending for formal disposal after admitting the Valuation Report and

follow up action. Since, part consideration admittedly stands deposited by

the Respondents in an Escrow Account, there was no justification in

withholding its release in favour of the Appellants. Of course, the Tribunal

could have insisted upon simultaneous delivery of share certificates by the

Appellants while releasing such part payment and made provision for the

balance payment either by furnishing of Bank Guarantees or any other

appropriate mode. Any infirmity in the Valuation Report, more so, when it

was restricted to alleged fraud only in the context of non-application of

proper methodology would not warrant withholding of the part consideration

as any variation in the value of shares would not affect the Appellants right

to claim/ recover the same.

Company Appeal (AT) No. 104 of 2019 -8-

6. For the foregoing reasons, we are of the considered opinion that the

impugned order suffers from grave legal infirmity and same cannot be

supported. We accordingly allow the appeal, set aside the impugned order

and pass order in the following terms:-

(i) Respondents to release the amount of Rs.5,95,00,000/- to the

Appellants immediately against the share price.

(ii) The Appellants are directed to handover the shares alongwith

duly singed Transfer Forms to the Registry of the Tribunal

(National Company Law Tribunal, Ahmedabad Bench).

(iii) After the share price is determined and approved by the

Tribunal, it will ensure that after differential amount towards

purchase of shares has been paid, Shares are handed over to

the Respondents.

(iv) The Tribunal shall ensure that these directions are carried into

effect with utmost expedition.

Appeal is allowed and disposed of in aforesaid terms.

[Justice Bansi Lal Bhat] Member (Judicial)

[Balvinder Singh] Member (Technical)

[Dr. Ashok Kumar Mishra] Member (Technical) NEW DELHI 29th November 2019

AM

Company Appeal (AT) No. 104 of 2019