Devinder Parkash Kalra & Ors vs Syngenta India Ltd

[Arising out of order dated 27th October, 2020 passed by National Company Law Tribunal, Court No. 1, Mumbai Bench, in CP No. 771 of 2017]

IN THE MATTER OF:

1. Devinder Parkash Kalra S/o late Sahib Dayal Kalra, R/o 100, Model Town Panipat- 132 103 Haryana .. Appellant No. 1

2. Manish Mittal, S/o late Raj Kumar Mittal, 117, Lohiya Building, Railway Road, Samalkha - 132 101, Haryana .. Appellant No. 2

3. Pradeep Kumar Jain HUF, Represented by Pradeep Kumar Jain, Karta, R/o Flat No. 1002, Tower Eternia, Mahagun Maple, Sector-50, Noida- 201 301, UP .. Appellant No. 3

4. Vinay Khanna, S/o late Jitendra Nath Khanna, R/o 6A, N.S.C. Bose Road, Flat No. 403, Tollygunge, Kolkata - 700 040 .. Appellant No. 4

Vs.

Syngenta India Limited, Regd. Office at Amar Paradigm, 110/11/3, Baner Road, Baner, Pune - 411 045 .. Respondent

Company Appeal (AT) No. 220 of 2020 Page 1 of 30 Present:

For Appellants: Mr. Kausik Chatterjee and Ms. Samridhi, Advocates

For Respondent: Mr. Janak Dwarkada, Dr. U.K. Chaudhary, Sr. Advocates with Mr. Gyanendra Kumar, Mr. Tapan Deshpande, Mr. Robin Grover, Ms. Shikha Tandon and Mr. Jitesh Dhingra and Mr. Ankit Shah Advocates.

JUDGMENT

(5th March, 2021)

KANTHI NARAHARI, MEMBER (TECHNICAL)

Preamble:

The present appeal arises against the order dated 27.10.2020

passed by National Company Law Tribunal, Court No. 1, Mumbai

Bench, Mumbai (in short NCLT) whereby NCLT Mumbai in C.P. No.

771 of 2017 allowed the Company Petition for reduction of share

capital of the Respondent No. 1. Aggrieved by the same, the Appellants

herein have preferred the present appeal.

Factual Matrix 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

Company Appeal (AT) No. 220 of 2020 Page 2 of 30 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 Public/Non-

Promoter shareholders.

3. The Respondent Company appointed two Valuers namely, Price

Waterhouse & Co. LLP (in short PWC) and Haribhakti & Co. LLP (in

short Haribhakti) independently to determine the value of the shares

of the Company for the purpose of its proposed reduction of share

capital. Both the Valuers have submitted their valuation Report on

25.10.2017 by PWC and on 16.10.2017 by Haribhakti. As per the

valuation exercise undertaken by the PWC, the value of each equity

share of the Respondent Company was Rs. 2444.70 per equity share

as on 25.10.2017. While Haribhakti valued at Rs. 2333.36 per equity

shares. Further, the Respondent Company obtained a fairness opinion

on the valuation exercised undertaken by PWC and Haribhakti from

an emerging Banker Avendus Capital Private Limited (in short

Company Appeal (AT) No. 220 of 2020 Page 3 of 30 Avendus). The Respondent Company in its Board Meeting held on

01.11.2017 adopted the PWC Valuer and passed the requisite

resolution and subject to the passing of Special Resolution by the

equity shareholders in EGM to be held on 08.12.2017 and finally

subject to approval by the Hon'ble NCLT. The Company issued notice

calling for EGM in the Explanatory Statement under the caption of

'consideration', the valuation of the equity shares rounded off to Rs.

2445/- to be paid to the Minority/Public shareholder by cancelling and

extinguishing 11,86,036 shares.

4. While so, EGM held on 08.12.2017, the Resolution was passed

reducing the share capital to the extent of 3.59%. However, the

Appellants did not participate in the voting process. When the

Respondents filed petition before the learned NCLT for final approval,

a number of public shareholders intervened and objected to the

scheme. However, the Appellants were not before the learned NCLT at

the relevant point of time and in principle, they are not against the

exiting the Company, the value arrived at by the PWC and decided by

the Board in its Board meeting i.e., @ Rs 2445 per share exclusive of

Dividend Distribution Tax (in short DDT). However, the Appellants are

against the time of valuation and exclusive of DDT which is now to be

payable by the shareholders in view of change in law.

5. Learned Counsel for the Appellants submitted that between

November, 2017 and October, 2020 when the learned NCLT passed the

order, the circumstances drastically changed with regard to the

Company Appeal (AT) No. 220 of 2020 Page 4 of 30 Company's financial position thereby 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 Rs. 503.52 Crores Rs. 288.33 Crores (PAT) Earnings per Rs. 152.84 Rs. 87.52 share (EPS) Net worth of the Rs. 3266.45 Crores Rs. 2523.07 Crores Company

Company Appeal (AT) No. 220 of 2020 Page 5 of 30

8. In this regard, learned Counsel for the Appellants also relied

upon the Financial Statement as on 31.03.2019 at page 99 of the

Appeal Paper Book which shows 5 years' highlight. The said financial

statement as on 31.03.2019 is reproduced hereunder:

Year 2018-19 2017-18 2016-17 2015-16 2014-15 Sales 2,91,513 2,71,803 2,87,356 2,92,736 2,90,475 Other 21,641 16,869 13,066 9,197 10,589 Income Total 3,13,154 2,88,672 3,00,422 3,01,933 3,01,064 Income

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 50,352 28,279 28,833 31,665 40,043 (excluding other comprehensive income) Dividend (including 1,986 1,982 1,982 1,982 1,982 distribution tax) Dividend percentage 100 100 100 100 100 Share capital 1,647 1,647 1,647 1,647 1,647 Reserves/Surplus 3,24,997 2,76,570 2,50,660 2,24,100 1,94,105 (excluding capital reserves) Net worth (excluding 3,26,645 2,78,217 2,52,307 2,25,747 1,95,752 capital reserves)

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)- 15.41 10.16 11.43 14.03 20.46 c EPS(Rs.) 152.84 85.84 87.52 96.12 121.56

9. Learned Counsel for the Appellants also heavily harped upon the

growth of the Company after the valuation report submitted by the

independent Valuers. However, the learned Counsel also submitted

that Dividend Distribution Tax (in short DDT) which was to be paid by

the Company, however, in view of amendment to the Income Tax Act,

the shareholders have to bear the said DDT. If the independent

Company Appeal (AT) No. 220 of 2020 Page 6 of 30 shareholders bear the said DDT, after deduction of DDT shareholders

will get a meagre amount which is a great hardship and prejudicial to

their economic interest. In the EGM notice dated 01.11.2017 under

the caption 'taxation' it has been specifically mentioned that the

company will be liable to pay DDT @ 20.358 % in accordance with the

provision of Section 115-0 of the Income Tax Act, 1961. However, the

Respondent Company now says that in view of abolition of DDT, the

independent shareholders will have to pay DDT. As on the date of

EGM, the public shareholders/Non-promoters, as per the Valuation

Report of the PWC would have got Rs. 2445 per share exclusive of DDT.

Now, the stand taken by the Company is extremely 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

Company Appeal (AT) No. 220 of 2020 Page 7 of 30 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 valuation was done in the year 2017 and the reduction of share

capital was approved by Hon'ble NCLT in 2020 i.e., after a period of

three years and in the intervening period the financial health of the

Company have substantially improved. The Second objection of the

Appellants is that due to amendment under Section 115-0 of the

Income Tax Act, 1961, DDT, which was liable to be paid by the

Company, has now been abolished w.e.f. 01.4.2020 which has resulted

in tax burden for the shareholders as the dividend income is now

taxable in the hands of the shareholders.

13. Learned Senior Counsel for the Respondent in answer to the first

objection with regard to valuation done in the year 2017 and the same

valuation is taken for the purpose of paying fair value to its non-

promoter/shareholders even in the year 2020 when the Hon'ble NCLT

allowed the Application. It was submitted that the delay in achieving

the approval of the Hon'ble NCLT and thereby giving effect to the

reduction of the share capital was not at the behest of the Respondent

Company but on account of frivolous objection raised by certain

objectors before he Hon'ble NCLT including the Appellants in Company

Company Appeal (AT) No. 220 of 2020 Page 8 of 30 Appeal (AT) No. 208 of 2020. He submitted that during the pendency

of the petition before the Hon'ble NCLT, the Respondent Company had

taken reasonable steps to get the approval of the Hon'ble NCLT.

Therefore, the Respondent Company cannot be held liable in any

change of law. During the pendency of the Petition before the Hon'ble

NCLT, it is submitted, that it is the settled principle of law of 'actus

curiae neminem gravabit' (act of Court shall prejudice no man) being

fundamental to the system for justice is clearly applicable to the facts

of the present case. As such, the Respondent Company cannot be

prejudiced any imagined delay as alleged by the Appellants in passing

of the impugned order by the Hon'ble NCLT, especially, when the same

was not on account of Respondent Company.

14. In answer to the second objection i.e., DDT has to be borne by

the shareholders as per the existing applicable laws, he submitted that

due to delay in passing of the impugned order, the DDT stands

abolished w.e.f. 01.04.2020 which has resulted in possible tax burden

for the shareholders as the dividend income is now taxable in the

hands of the shareholders.

15. Learned Senior Counsel for the Respondent Company

submitted 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

Company Appeal (AT) No. 220 of 2020 Page 9 of 30 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 opinion issued by Avendus

dated 28.10.2017 confirmed that the valuation of shares provided by

the independent valuers is fair and reasonable from a financial point

of view.

17. Learned Senior Counsel for the Respondent Company further

submitted in the EGM held on 08.12.2017, a special resolution was

passed by the shareholders holding 99.87% of the shareholding in

accordance with the provision of Section 66(1) of the Companies Act,

2013. A table showing the same is extracted hereunder:

Number of Number of Votes in Votes Number of Votes Votes valid votes sharehold favour (in in sharehold against against (including ers who No. favour ers who the the

Company Appeal (AT) No. 220 of 2020 Page 10 of 30 those voted voted in (in %) voted resolutio resolu-

through favour of against n (in Nos. tion e-voting the the (in%) option) at resolution resolution the EGM 3,18,35,043 48 3,17,92,365 99.8 87 42,678 0.13 7

18. Learned Senior Counsel for the Respondent also referred to e-

voting pattern as mentioned in paragraph-16 of the Reply at page-6.

19. Learned Counsel also submitted that the Appellants failed to

establish before this Tribunal that the valuation arrived at by the two

independent valuers is ex facie unreasonable, as such, the same

cannot be accepted despite the fact that the Valuation Report is of

2017 and the reduction of the capital shares has been approved in

2020. He submitted that this Appellate Tribunal cannot be called upon

to validate the valuations determined by the independent experts.

Learned Senior Counsel submitted that the valuation of Rs. 2445 per

share as arrived by the valuers factors in view of protection of the

Respondent Company. Therefore, by getting the fair value of the shares

as determined by the Independent Valuers, the public shares of the

Respondent Company are ifso facto keep the benefit by the expected

future growth of the Respondent Company.

20. In view of the above reasons, leaned Senior Counsel for the

Respondent requested the Bench to dismiss the Appeal as it is devoid

of merits.

Company Appeal (AT) No. 220 of 2020 Page 11 of 30

21. Learned Counsel for the Appellants, by way of Rejoinder,

submitted that 10 years projected value of the shares in the valuation

report is concerned, he submitted that in the valuation report dated

25.10.2017 in the source of information it is mentioned that it received

management projections from the Company. However, the period is

not mentioned anywhere. There is nothing 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

Company Appeal (AT) No. 220 of 2020 Page 12 of 30 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 shareholders but the interest of the shareholder

either individually or collectively does not amount to

more than a right to participate in the profits of the

Company. The Company is a juristic person and is

distinct from the shareholders. It is the Company

which owns the property and not the shareholders.

The dividend is a share of the profits declared by the

company as liable to be distributed among the

shareholders. Reliance is placed on behalf of the

appellant on a passage in Buckley's Companies Act,

12th Ed., page 894, where the etymological meaning of

dividend is given as dividendum, the total divisible

sum but in its ordinary sense it means the sum paid

and received as the quotient forming the share of the

divisible sum payable to the recipient. This statement

does not justify the contention that shareholders are

owners of a divisible sum or that they are owners of

the property of the company. The proper approach to

the solution of the question is to concentrate on the

plain words of the definition of agricultural income

which connects in no uncertain language revenue with

the land from which it directly springs and a stray

Company Appeal (AT) No. 220 of 2020 Page 13 of 30 observation in a case which has no bearing upon the

present question does not advance the solution of the

question. There is nothing in the Indian law to warrant

the assumption that a shareholder who buys shares

buys any interest in the property of the company which

is a juristic person entirely distinct from the

shareholders. 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 assets

of the company which would be left over after winding

up but not in the assets as a whole as Lord Anderson

puts it."

24. Learned Counsel for the Appellants submitted that in view of the

decision of the Hon'ble Supreme Court and the Financial Statement

shows that the Company has strong networth and made good profits

and the Appellants are entitled to share the profits of the Company.

Learned Counsel for the Appellants submitted that in view of the fact,

as stated above, he requested the Tribunal to set aside the impugned

order dated 27.10.2020 in so far as the Hon'ble NCLT failed to take

Company Appeal (AT) No. 220 of 2020 Page 14 of 30 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

Company Appeal (AT) No. 220 of 2020 Page 15 of 30 examined below. The method of valuation by both

valuers is as extracted below for ready reference:

27. The first Issue as framed in paragaraph-28 is that the minority

shareholders adequately compensated to their legitimate expectation

with regard to valuation of shares.

In paragraph-29, the Second Issue is with regard to method of

valuation and assumptions carried out by the Valuers was examined.

Learned NCLT, Mumbai has taken into consideration the report

filed by M/s Price Waterhouse & Co. LLP, and the method adopted by

the said Auditors in their Valuation Report. We have seen that the

Valuation Report filed by M/s Price Waterhouse & Co. LLP, which it

arrived at a fair value of share Rs. 2444.70. However, in the valuation

Report (para-6/7) under the caption - Asset Approach- Net Asset Value

Method, Second part of that report reads as under:

"SIL is a going concern with positive earnings and the

historical book values of assets and liabilities are not

considered representative of the earnings potential of

the Company. Accordingly, the NAV method has not

been adopted"

28. From the NAV method it is amply clear that the Company is

going concern with positive networth. Learned NCLT has taken into

consideration the valuation report which was made in the year 2017

which was submitted on 25.10.2017 by PWC and on 26.10.2017 by

Haribhakti. Learned NCLT, Mumbai passed its order on 27.10.2020,

Company Appeal (AT) No. 220 of 2020 Page 16 of 30 almost three years after the submission of valuation report. In our view

the valuation reports as made in 2017 are not as on date, when the

learned NCLT passed its order on 27.10.2020.

29. We have not gone into the veracity of the methodology adopted

by the Valuers. Even though the learned NCLT framed an issue with

regard to whether the public shareholders constituting 3.59 %

adequately compensated or not. However, the learned NCLT, Mumbai

failed to consider the vital point that the valuation was done in the year

2017 and by the time learned NCLT, Mumbai passed the order, three

years have passed. It is an admitted fact that the Company is a going

concern and the learned NCLT, Mumbai ought to have considered the

value of the shares for the current year.

30. In respect to the Second Issue, it is made clear that we have not

gone into the merits/demerits of methodology adopted by the Auditors.

We are concerned only the economic interest of the public

shareholders who by virtue of cancellation and extinguishing the

shares 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.

Company Appeal (AT) No. 220 of 2020 Page 17 of 30 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:

Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon."

....

32. In view of the above, we are of the view that the aforesaid Section

permits the Company to reduce the share capital in any manner. We

are also of the view that there is no discrimination adopted by the

Company in the present case. It is also an admitted fact that the shares

Company Appeal (AT) No. 220 of 2020 Page 18 of 30 of the Company were de-listed from the BSE and the shares of the

public shareholders cannot be tradable.

33. Learned NCLT, Mumbai in paragraph-31 at page 29 (running

page 65 in Appeal Paper Book) has given its views, which is reproduced

as under:

..

"In view of the ratio laid down in the above

judgements, this bench is of the view that the objector

to the scheme has not shown that the valuation is ex-

facie unreasonable, i.e., so unreasonable that it cannot

on the face of it be accepted, the valuation method

adopted by the valuers are unacceptable, or are based

on patently erroneous assumptions and lastly if the

Valuations are vitiated by fraud or malafides. The

Minority shareholders are objecting to the said scheme

on three basic grounds that the petitioner company

after a lapse of 10 years and post delisting are opting

for reduction of capital, that the China Chem company

is buying out the petitioner company and the scheme

is sanctioned by CCI and finally their legitimate

expectation of receiving certain amounts in lieu of

rights attached to the shares in comparison to the price

offered by Buyer. The minority shareholders have not

obtained an independent Valuation Report nor have

Company Appeal (AT) No. 220 of 2020 Page 19 of 30 they pointed out the defects of the valuation reports

and fixation of share price looking at the past values

and projected values for the next ten years. This Court

has no power or jurisdiction to exercise any appellate

functions over the scheme. It is not a valuer. It does not

have the necessary skills or expertise. It cannot

substitute its own opinion for that of the shareholders.

Its jurisdiction is peripheral and supervisory."

..

34. Learned NCLT, Mumbai was of the view that the minority

shareholders having not obtained an independent valuation report nor

have pointed out the defects in the Valuation Report and fixed the

share price looking at the past valuation and projected 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.

Company Appeal (AT) No. 220 of 2020 Page 20 of 30

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

assets of the company which would be left over after

winding up but not in the assets as a whole as Lord

Anderson puts it."

37. As per the judgment of the Hon'ble Supreme Court, the

shareholder has every right and entitle to participate for the profits of

the Company.

38. Learned NCLT, Mumbai in paragraph-36 has reproduced the

judgement of the Hon'ble Bombay High Court in Wartsila India

Limited Vs. Janak Mathuradas reported in 2011(1) Bom. C.R. 600

as under:

...

Company Appeal (AT) No. 220 of 2020 Page 21 of 30

"whether the special resolution which proposes to wipe

out a class of shareholders after paying them just

compensation can be terms as unfair and inequitable"

In the affirmative observed that "... In our opinion,

once it is established that non-promoter shareholders

are being paid fair value of their shares... the court will

not be justified in withholding its sanction to the

resolution."

Even the Hon'ble Bombay High Court is also of the view that a

non-promotor shareholders are being paid fair value of their shares...

the Court will not be justified in holding its sanction to the Resolution.

The vital point from the judgment of the Hon'ble Bombay High Court

is that even non-promotor shareholders shall be paid fair value of the

share. What constitutes fair value?

Definition of a fair value (fair market value): "As per

Wharton's law lexicon, the fair market value of a property, other than an

immovable property means the value determined in accordance with the

method as may be prescribed". If a fair value arrives 3 years prior, can

the fair value still subsists or even long lasts for eternity. Even after 3

years, even though the company as a going concern making good

profits and whether the shareholder's are not entitled to the profits of

the Company? as held by the Hon'ble Supreme Court, (supra) in

Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (AIR

1955 SC 74). In our view it is unfair and unjust depriving the fruits of

Company Appeal (AT) No. 220 of 2020 Page 22 of 30 the Company to its shareholder's. The NCLT erred in not considering

this aspect.

39. Learned NCLT, Mumbai allowed the application by reducing

share capital. We are of the view that the learned NCLT ought to have

taken latest financial statement of the company to analyse and arrive

at a true and fair value of the company on the basis of current financial

statement.

40. In so far as DDT is concerned in the explanatory statement to

the Notice calling for the EOGM, the Company 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

Company Appeal (AT) No. 220 of 2020 Page 23 of 30 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 abolished and declared as void by the

Competent Courts.

41. The stand of the Respondent that the statement made by the

Respondent-Company in 2017 in its explanatory statement regarding

payment of DDT was to be in compliance of its legal obligation and

applicable law as in 2017 and cannot by any means considered

promise/estoppel made by the Respondent-Company to its

shareholders.

42. While so the valuation was done and reports have been

submitted by M/s Price Waterhouse & Co. LLP, and Haribhakti & Co.

LLP on 25.10.2017 and 26.10.2017 respectively taking into

consideration the Company's performance prior to October, 2017.

Whether the Company's stand is justified that the valuation report

which was done in 2017 and even after three years, the same report

could be taken into consideration. We are of the view that the said

stand is against the Principles of equity and fair play and also violates

principles of natural justice.

43. In our view when the statement made in the explanatory

statement with regard to payment of DDT by the Company now taken

a stand that the said DDT was abolished and the shareholders are

under the obligation to pay the same. When in such a situation, the

Company Appeal (AT) No. 220 of 2020 Page 24 of 30 Company takes its stand in a changed scenario, the Company also

should follow the same principles by adopting a method of re-

valuation of shares. The Company cannot take duel stand to its

advantage.

44. The Appellants in their Written Submissions, vide diary No.

23722 dated 25.11.2020 at page-3 at paragraph-h have given a table

showing fair value of shares. However, the Appellants at page-9,

paragraph- 8.1.7 of Appeal Paper Book, the audited financial

statements for the years 2018-2019 and Financial Year 2016-17, a

comparative chart in a tabular form has been produced and detailed

notes to Financial Statements as on 31.03.2019 has been filed at

Annexure-A6 at page 98 onwards. Page 99 of the same volume of the

Appeal Paper Book shows the Five Years Highlights of the Company's

Finance which is reproduced hereunder:

"Syngenta India Limited

Annual Report 2018-19

Securing the Future

Through Growth, Sustainability and Safety.

Notes to financial statements as at 31 March 2019

(continued)

(Currency: Indian Rupees in Lakhs, except share

data)

Financials: Five years' highlights

Company Appeal (AT) No. 220 of 2020 Page 25 of 30 Year 2018-19 2017-18 2016-17 2015-16 2014-15 Sales 2,91,513 2,71,803 2,87,356 2,92,736 2,90,475 Other 21,641 16,869 13,066 9,197 10,589 Income Total 3,13,154 2,88,672 3,00,422 3,01,933 3,01,064 Income

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 50,352 28,279 28,833 31,665 40,043 (excluding other comprehensive income) Dividend (including 1,986 1,982 1,982 1,982 1,982 distribution tax) Dividend percentage 100 100 100 100 100 Share capital 1,647 1,647 1,647 1,647 1,647 Reserves/Surplus 3,24,997 2,76,570 2,50,660 2,24,100 1,94,105 (excluding capital reserves) Net worth (excluding 3,26,645 2,78,217 2,52,307 2,25,747 1,95,752 capital reserves)

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)- 15.41 10.16 11.43 14.03 20.46 c 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 for the Financial Year 2018-19 it shows Rs. 503.52 lakhs. The

earning per shares (EPS) for the Financial Year 2016-17 has been

shown as 87.52 lakhs whereas for the Financial year 2018-19 it shows

as Rs. 158.24 lakhs. The net worth of the Company for the Financial

Year 2016-17 is shown as Rs. 2,52,307 lakhs whereas for the Financial

Year 2018-19 it is shown Rs. 3,26,645 lakhs. In a broad look at the

Company Appeal (AT) No. 220 of 2020 Page 26 of 30 figures, it is amply clear that the Company had made its growth

substantially and also made good profits.

46. As held by Hon'ble Bombay High Court Wartsila India Limited

Vs. Janak Mathuradas reported in 2011(1) Bom. C.R. 600, supra,

once it is established that non-promoters' shareholders are being paid

fair value of their shares, Court will not be justified in withholding its

sanction to the resolution.

47. We are of the view that the public shareholders/non-promotors'

shareholders have not been adequately compensated for the reason

that the valuation done in the year 2017 had been taken into

consideration even after three years it was passed. We are of the view

that there is a drastic change in the growth of the Company. We are

also of the view that the public shareholders kept away from

participation in the profits, which is against the principle laid down by

the Hon'ble Apex Court in Bacha F. Guzdar case.

48. As held by the Hon'ble Supreme Court in Bacha F. Guzdar Vs.

Commissioner of Income Tax, Bombay (AIR 1955 SC 74), supra,

"on buying the shares an Investor becomes entitled to participate in

the profits of the Company in which he holds the share if and when

the Company declares, subject to the Articles of Association that the

profits or any portion thereof should be distributed by way of dividends

among the shareholders."

Company Appeal (AT) No. 220 of 2020 Page 27 of 30

49. 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.

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

Company Appeal (AT) No. 220 of 2020 Page 28 of 30 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 price meaning thereby the

shareholders have every right to trade shares as and when they get

good price. However, in the present case the Company passed its

resolution for reduction of the share capital to an extent of 11,81,036

equity shares constituting 3.59 %. Since in the EGM, the majority

shareholders approved the reduction of share capital, public

shareholders/non-promotor shareholders have no option except to

surrender their shares to the Company by extinguishing their shares

and exit from the Company whatever price is fixed by the Company.

Therefore, the shareholders in the present case expects justification

from the Courts/Tribunals. Even though the public shareholders/non

promotor shareholders had objected to the reduction of share capital

in the EGH but the majority shareholders i.e. promotor group having

majority, passed the resolution in favour of reduction of share capital.

CONCLUSION:

51. In view of the foregoing reasons, we pass the following orders:

i) The Company is hereby directed to revalue the shares by

a registered/independent valuers to value the shares of

the Company and the Company shall pay the fair price

Company Appeal (AT) No. 220 of 2020 Page 29 of 30 arrived at by the valuer based on the latest audited

accounts of the Company;

ii) The Company is directed to place all the audited accounts

of the Company as required by the valuer to value the

shares;

iii) Further the Company is directed to pay higher value of

share arrived at by the valuer.

iv) We accordingly modify the order dated 27th October, 2020

passed by National Company Law Tribunal, Mumbai in

above terms.

52. We clarify that we do not interfere with the reduction of share

capital as allowed by the learned NCLT Mumbai. However, we only

direct to revalue the shares by taking into consideration the latest

balance sheet and statement of accounts. Further, we do not interfere

with respect to the Dividend Distribution Tax (DDT) since there is an

amendment to the Income Tax Act, 1961. The Appeal is allowed in

above terms.

No orders as to cost.

[Justice Jarat Kumar Jain] Member (Judicial)

(Kanthi Narahari) Member(Technical)

Akc

Company Appeal (AT) No. 220 of 2020 Page 30 of 30