Ravinder Kumar Magoo vs Ama India Enterprises Pvt. Ltd & Anr

Shri Ravinder Kumar Magoo, S/o Late Sh C.L. Mangoo, R/o C-49, Sector 7 Noida, UP Appellant Vs

1. M/S AMA India Enterprise Pvt. Ltd. H.No.999/1, St No.4, Punjab Mata Nagar, Pakhowal Road, Ludhiana 141002

Mr Alessandro Malavolti, S/o Mr. Luciano Malavolti, R/o San Martino in Rio (RE), PZA Della Porta 3, San Martino in rio

Correspondence address in India: St No.4, Punjab Mata Nagar, Pakhowal Road, Luchiana 141002 Punjab India Respondent

For Appellant: Mr. Rakesh Kumar and MR. Ankit Sharma, Advocates for Respondent. For Respondents: Mr. NPS Chawla, Mr Aaryan Sharma, Mr. Suresh Kant, Advocates for appellant. And

Company Appeal (AT) No. 103 of 2019

IN THE MATTER OF:

M/S AMA India Enterprise Pvt. Ltd. Village Bhama Kalan, Kohara to Machhiwara Road, District Ludhiana 141113 Appellant

Vs

1. Shri Ravinder Kumar Magoo, S/o Late Sh C.L. Mangoo,

Company Appeal (AT) No.95 and 103 of 2019 2

R/o C-49, Sector 7 Noida, UP

2. Mr Alessandro Malavolti, S/o Mr. Luciano Malavolti, R/o San Martino in Rio (RE), PZA Della Porta 3, San Martino in rio

Correspondence address in India: Village Bhama Kalan, Kohara to Machhiwara Road, Distt. Ludhiana 141113 Respondent

For Appellant: Mr. NPS Chawla, Mr Aaryan Sharma, Mr. Suresh Kant, Advocates for appellant. For Respondents: Mr. Rakesh Kumar and MR. Ankit Sharma, Advocates for Respondent.

JUDGMENT

(11th February, 2020)

Mr. Balvinder Singh, Member (Technical)

1. The present set of 2 appeals has been preferred by Shri Ravinder Kumar

Magoo (hereinafter referred to as 'Appellant') and M/S AMA India Enterprise

Pvt. Ltd. (hereinafter referred to as 'Respondent No.1') & Mr. Alessendro

Malavolti (hereinafter referred to as 'Respondent No.2') against each other.

Appellant in Company Appeal (AT) no. 95/2019 is partly challenging the para

17, 27 and 33 of the impugned judgement, dated 21.01.2019 passed by NCLT,

Chandigarh Bench in CA No. 133/C-11/2015 [RT CA No. 04/CHD/PB/2017]

in CP NO. 89(ND)/2009 (Decided Matter) which is as under:

a) Modify the paragraph No.17, 27 and 33 of the Impugned Order

21.1.2019 passed by the Ld NCLT, Chandigarh Bench, Chandigarh

in CA No.133/C-II/2015 RT CA No.04/CHD/Pb/2017 in CP

No.89(ND)/2009 titled as "Shri Ravinder Kumar Magoo Vs M/s AMA

Company Appeal (AT) No.95 and 103 of 2019 3

India Enterprises Private Ltd & Anr" with the effect that the share

price of the appellant be restored back to Rs.26.07 per share as per

the valuation report of the value rated 5th February, 2016.

2. Whereas the Appellant in Company Appeal (AT) No.103/2019 is

challenging the above impugned judgment as a whole.

3. The brief facts of the case are that the Respondent No. 1, M/s AMA

India Enterprises Pvt Ltd, was incorporated on 26th day of February, 1999

(with the 50% shareholding of Respondent No. 2 and 25% shareholding of the

appellant(original petitioner) and 25% shareholding of one other partner,

namely Mr Mahinder Kumar Chopra), having its registered office at H.No.

999/1, ST. No. 4, Punjab Mata Mandir, Pakhowal Road, Ludhiana-141002

Punjab, India with an authorised share capital of Rs.6,00,00,000/- (Rupees

Six Crore only) divided into 60,00,000 (Sixty Lacs) Equity shares of Rs.10/-

(Ten) each. The legally issued, subscribed and paid up capital is

Rs.5,61,36,320/- (Rupees Five Crore Sixty One Lac Thirty Six Thousand

Three Hundred and Twenty) divided into 56,13,632/- (Fifty Six Lacs Thirteen

Thousand Six Hundred Thirty Two) Equity shares of Rs10/- (Ten) each.

Respondent No. 2 is an Italian Citizen and was the CEO of Respondent No. 1

company. Respondent No. 2(Original Respondent No.2) with the

Appellant(original petitioner) and Mr. Mahinder Kumar Chopra formed a Joint

Venture Company in the form of Respondent No. 1 Company.

4. Appellant (original Petitioner in CP) filed Company Petition No. 89 of 2009

before erstwhile Company Law Board under Section 397, 398, 402 & 408 of

the Companies Act, 1956 alleging oppression and mismanagement by the

Respondent No. 2 in the Respondent No. 1 Company. The said petition was

Company Appeal (AT) No.95 and 103 of 2019 4

disposed of by then the Ld. CLB vide order dated 2nd January 2015. In

pursuance of the said order, then the Ld. CLB had directed to provide the exit

to the appellant from the Respondent No. 1 company on fair valuation as on

31st March 2014. For valuation of the shares of the company M/s Seema

Naresh Bansal & Associates (R-13 & R-14, LGF, Ansal Chamber-II, Bhikaji

Cama Place, New Delhi) was appointed as valuer to value the shares on fair

valuation within two months from the date of order made available to the

parties.

5. Accordingly the aforesaid valuer had given its report on 16th April 2015. As

per the said report, the following value has been ascertained by the valuer:

S. Description Amount as at Amount of Amount as

No. 31.03.2014 valuation adjusted fair

audited, book adjustment value

value

A. Tangible Assets 11353 7434 18787

i) Factory Land

ii) Building 56844 -- 56844

iii) Plant & 12119 9603 21722

Machinery

iv) Other Tangible 17968 17967

Assets

Company Appeal (AT) No.95 and 103 of 2019 5

Total of 'A' 98283 17037 115321

B Other Non-Current 1177 -- 1177

Assets

C Current Assets 121261 -- 121261

D Total Assets (A+B+C) 220721 17037 237758

E Non-Current 3719 -- 3719

Liability

F Current Liabilities 112084 -- 112084

G Total Liabilities 115803 -- 115803

(E+F)

H Net Adjusted Assets 104918 17037 121955

(D-G)

Represented by:

Share Capital 56136 -- 56136

Reserves & Surplus 48782 -- 48782

Revaluation -- 17037 17037

Reserves

I Net Worth 104918 17037 121955

Company Appeal (AT) No.95 and 103 of 2019 6

J No. of Equity share 5613.632 5613.632

of Rs.10/- each

Value per share 18.689 21.725

The Control premium was also given by the valuer on the basis of the

following:

"Control Premium:

In the present situation where the respondent i.e. majority shareholder

is having 75% shareholding of the company. Since after transfer of 25%

shares from the petitioner the entire shareholding will be in the hand

of non-resident/foreign company, who is directly benefited by way of

full control on the Indian entity. In this case where AMA SPA Italy who

gives the specific orders, we have been intimated that the Indian

Company is not having any pricing policy.

From the balance sheet analysis, it seems the Indian entity is working

on a negligible profit. The Indian company has not readily available

market in India, but AMA SPA Italy is a well-known company in its area

and carrying a good reputation and ready market. It is also worth to

mention here that the Indian company manufactured all of its products

only for AMA SPA Italy, which will be owned by foreign promoters. It is

also worth to mention in a transection where a holding company gave

an open offer to a publically listed company Hindustan Liver Limited,

with a premium of 21% (for increasing its stake to 75%).

Company Appeal (AT) No.95 and 103 of 2019 7

In the present case it will be just and fair to assign/add a 20% control

premium on the equity value arrived.

Thus the Equity share value comes to under Adjusted NAV is = (21.725

+ 20%) i.e. Rs.26.07"

6. Both the Respondent No. 2 in CA No. 133/C-II/2015 and the appellant in

its application dated 14.07.2015 filed the objections to the valuation report.

The said valuer resubmitted his report on 12.10.2015. However, appellant

had withdrawn the objections on 5th February 2016 on the condition that if

Respondent No. 2 gives immediate payment at the arrived valuation price on

the basis of valuation report.

7. The objection of the Respondent No. 2 in CA NO. 133/C-II/2015 was

disposed of by the Hon'ble NCLT, Chandigarh by passing the impugned order

dated 21.01.2019. The Hon'ble NCLT though has upheld the valuation report

dated 12.10.2015 given by the valuer, but altered some of the valuation price

in para 17, 27, and 33 of the impugned Order whereby share price was

reduced from Rs.26.07 to Rs.21.483 per share.

8. Being aggrieved with the order appellants have filed this appeal.

9. It is stated by the appellant that he had the right in pursuance of the Joint

Venture Agreement with respect to the affairs of Respondent No. 1 Company.

That his position with respect to his 25% equity cannot be easily interfered

with. Thus reduction of the control premium @20% in the valuation report

was wrong.

Company Appeal (AT) No.95 and 103 of 2019 8

10. The Appellant further stated that the provisions of Section 101 and section

232 of Companies Act, 2013 which provide that for taking certain decisions,

the majority of 90% members are required in the company. The Respondent

No. 1 company could not take such decisions without the consent of the

appellant because he being the 25% equity shareholder.

11. The Appellant has also referred the ICAI Regulations on the share

valuation which particularly refers that in case of having the controlling

interest by the majority shareholders in the company, the controlling

premium would be given. The said aspect has not been dealt with in the

impugned Order. It has been further stated by the Appellant that in the year

2009, the Respondent No. 2 had given exit to Mr. Mahinder Kumar Chopra

on the share value of Rs.4,51,59,084/- (Rupees Four Crores Fifty One Lakhs

Fifty Nine Thousand and Eighty Four Only). Even in the year 2009 the offer

was made to the appellant for USD 740000.

12. The Appellant referred to the Judgement passed by Ld. CLB of the Mumbai

titled "Mr. Anup Bhaskaran Rana Vs, Faber - Castell Akiengesellschaft & Ors."

In the said matter, the valuer had not granted the control premium while

making the exit of the petitioner in the said petition. Then the Ld. CLB had

given the control premium to the petitioner in the said matter in the similar

circumstances.

13. Learned counsel for the appellant submits that the impugned order

proceeds on an incorrect premise and the valuation adjustment from

Rs.1,70,70,000/- (as per value report) to Rs.1,56,74,040/- on the base of cost

inflation index of Income Tax Act, 1961, in reference to Notification No.

44/2017 dated 5th June 2017 of Central Board of Direct Taxes, Department

Company Appeal (AT) No.95 and 103 of 2019 9

of Revenue, Ministry of Finance. It has taken into account the Cost Inflation

Index for the FY 2013-14 is 220 and for FY 2014-15 is 240. The Hon'ble NCLT

has failed to consider that as on 31st March 2015 in the valuation chart, there

was a book value of Rs.22,07,21,000/- and the adjusted value was coming to

Rs.23,77,58,000/-. The adjusted amount was of only Rs.1,70,37,000/-. The

said difference was due to arriving the current market value of the assets. The

Hon'ble Tribunal has arbitrarily reduced the said price from rs.1,70,37,000/-

to Rs.1,56,74,040/-. The view of the Hon'ble NCLT is wrong in removing of

the controlling premium of 20% from the arrived value price of Rs.26.07 per

share, whereby the per shareholding has been reduced to Rs.21.483 per

share. Ld. Counsel for the appellant also submits that NCLT has also erred in

granting the interest of 12% w.e.f. 01.03.2016, as the rate should have been

awarded @ 18% which the recognized statutory interest even under the

various statue.

14. Respondents filed their reply and rebutted in brief as under: -

a) Respondent stated that there are various discrepancies, objections

regarding methodology and infirmities in valuation report including the

apparent violation of the directions of the judgement.

b) Learned counsel for the respondents stated that Hon'ble NCLT partly to

the extent of not applying the control premium@20% is accordance with

law & fact and circumstances of the present case and merits no

interference. It is submitted that control premium is an amount that

buyer is usually willing to pay over the value otherwise determined, in

order to "acquire a controlling stake in the company", whereas in the

Company Appeal (AT) No.95 and 103 of 2019 10

present factual matrix of the case the Respondent No. 2 already holds

the controlling stake.

c) It is further stated that the ICAI regulations on share valuation which

inter-alia refers to the controlling interest held by the majority

shareholders in the Company, has been duly adopted and applied in

the present case. The said regulation deal with shares carrying

'controlling interest' and as already mentioned above, since the

Respondent No. 2 already holds 75% shares of Respondent No.1, the

controlling interest vests with respondent No. 2 without acquisition of

25% shares of the Appellant. It is further submitted that the said

Regulations itself provides that controlling interest is involved where

the shares to be valued constitute more than 50% of the equity shares

of a closely held company however in the present case the Appellant

holds only 25% shares of Respondent No. 1 Company.

d) Respondent also stated that past transection which was undertaken

between Respondent No. 2 and Mr Mahinder Kumar Chopra in the year

2008, has no relation whatsoever with the present valuation being

conducted.

e) Learned counsel for the Respondents submitted that Hon'ble NCLT had

wrongly directed for the payment of interest as the amount must not

only be owing but due to be paid. The right to claim interest will be

dependent on the valuation report attaining finality. The amount

became due and payable only when the impugned order was passed

subject to the outcome of the present valuation report and therefore,

the interest could not have been charged in retrospective manner.

Company Appeal (AT) No.95 and 103 of 2019 11

Interest cannot be awarded to the Appellant especially when the

Appellant has himself challenged the valuation report. Although the

Appellant i.e. original petitioner claims to have withdrawn his

objections to the valuation report, however, such withdrawal never

became effective as the same was subject to the payment of the value

as originally computed by the valuer. It is further submitted that in view

of the matter being sub-judice as the Application challenging the

original valuation filled by the Respondent had not been decided on

merits before passing of the impugned order, thus no interest should

have been awarded to the Appellant in the present case.

f) Learned counsel for the Respondents further submitted that the valuer

has wrongly applied the methodology for the purpose of final

determination of the value per share as there is erroneous application

of cost inflation index for reducing the value instead of determining the

fair value of the equity shares of the Respondent No. 1 as on

31.03.2014. The respondent contended that value cannot be

determined only on the basis of the NAV method, that too when the

valuation is not being done on liquidation basis. There is no basis at all

for linking the Cost Inflation Index method with valuation of equity

shares of a company.

g) It is contended on behalf of Respondents that the valuer has

categorically stated in its report submitted with the Hon'ble NCLT that

the said valuation report has been prepared in conformity with the

Corporate Affairs Standard (CAS)-1 on Business Valuation issued by

Institute of Chartered Accountant of India(ICAI). However, from a bare

Company Appeal (AT) No.95 and 103 of 2019 12

perusal of the provisions of the said CAS-1, it is evident that the valuer

has not followed the provisions of CAS-1, rather has apparently

contradicted many provisions of CAS-1.

15. Heard learned counsel for the parties and perused the record. There can

be no dispute with regard to the methodology adopted by the valuer in its

valuation report. It is a well settled law that valuer being an expert, if honestly

and in good faith fixes a value, then both the parties are bound by it because

the parties have agreed to be bound by the decision of an expert valuer unless

it is influenced by the fraud, collusion or partiality, that the result would be

different. However, after going through the facts and circumstances of the

particular case we have noticed that the calculation done by the valuer in its

report can be relied upon except the valuation adjustment and control

premium that was also given by the valuer to the Appellant. We note that the

NCLT has rightly done the valuation adjustment. NCLT has rightly given his

observations in para 17 of the Impugned Order that taking into consideration

the increase in cost inflation index, NCLT consider it appropriate to reduce

the valuation adjustment by8%. Adverting to the facts of the instant case be

it seen that the Hon'ble NCLT had rightly removed the control premium of

20% from the arrived value price of Rs.26.07 per share as Respondent No. 2

is already holding a controlling stake (i.e. 75%) in Respondent No. 1 Company.

NCLT has also given his observations in para 27 of the impugned order which

are as under:

"It is submitted that there is wrong application of control premium in the

valuation report. It is submitted that control premium of 20% on the fair

value has been added by the valuer which is not justified since control

Company Appeal (AT) No.95 and 103 of 2019 13

premium is an amount that a buyer is usually willing to pay over the

value otherwise determined, in order to acquire a controlling stake in the

company. Xxxxx It is submitted that R-2 is already holding a control in

stake (i.e.75%) in R1 company and by acquisition of the shares from the

petitioner (i.e. 25%), R-2 would not acquire the control stake of the

respondent company. Xxxxxx"

And by acquisition of the shares from the Appellant (original petitioner)

(i.e. 25%) Respondent No. 2 would not acquire the control stake of the

Respondent No. 1 company. We note that M/s AMA India Enterprises Private

company, original Respondent No.1, is an Indian Company incorporated

under the Companies Act and Mr. Alessandro Malavolti is a foreign national,

therefore, the original Respondent No.1 company will purchase the shares of

original petitioner and if the original Respondent No.2 is allowed to purchase

then it requires the permission from RBI and it will also be violation of FEMA.

15. Learned counsel for the original petitioner has argued that NCLT has

erred in granting the interest @ 12% from the date of 5.2.2016 as the rate

should have been awarded @ 18% which the recognized statutory interest

under various statue. We have considered this issue. We note that the rate

of interest of 18% has to be the rate prevalent in the economy. These rate of

interests have been successfully coming down in the last years whereas rate

of 18% would be justified at one of time or 12% could be justified at another

point of time. Seeing the overall scenario of the economy and the prevalent

rate of interest in the market, we deem it appropriate that the rate of interest

of 9% simple per annum is just and reasonable. Accordingly, we modify the

impugned order to that extent.

Company Appeal (AT) No.95 and 103 of 2019 14

16. In view of the aforegoing discussions and observations we find no merit

to interfere in the impugned order except the rate of interest as discussed in

para 15. Respondent company will make payment of consideration to the

appellant (Ravinder Kumar Magoo) alongwith interest within 30 days from the

date of receipt of this order. No order as to cost.

(Justice Jarat Kumar Jain) Member (Judicial)

(Mr. Balvinder Singh) Member (Technical)

(Dr.Ashok Kumar Mishra) Member (Technical)

New Delhi

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Company Appeal (AT) No.95 and 103 of 2019