IMPORTANT POINT
Valuer having approached the question of valuation of shareholding having due regard to the terms of settlement and applying the standard methods of valuation, objections filed held liable to be dismissed.

Headnote:Companies Act, 1956-Section 399(4)-Civil Procedure Code, 1908-Order 39, Rules 1 and 2-Transfer of shareholdings-Valuation-Dispute between shareholders of two pharmaceutical companies-Settlement-R1 and R3 agreed to purchase 4.91% shares held by petitioners in two companies-Chartered Accountant had to evaluate intrinsic worth of both the companies as going concerns and value of 4.91% shares held by petitioners in those two companies by applying standard and generally accepted method of valuation -Value of 4.91% shares arrived at Rs. 8.24 crores-Valuation was done without adding element of control premium-Method challenged-Valuer approached question of valuation having due regard to terms of settlement and applying the standard methods of valuation-Valuation has been considered from all appropriate angles-Plea that valuation is vitiated by fundamental errors rejected-Direction made for payment of interest by respondents purchasers.
       Held : We do not think that the valuation in the instant case runs counter to the principles laid down therein. As seen from Enclosures 6.1 and 6.2 to the valuation report, the Valuer had arrived at market based valuation in addition to the other modes of valuation and observed that the recommended value is the higher of the instrinsic value or the marked based value. Thus, the petitioners had the benefit of higher valuation. The first principle laid down in the above decision has been kept in view. Moreover, the profit earning method which has been referred to in the above decisions in the context of valuation of shares of a private limited Company has also been applied, though future earnings based valuation has not been done in the absence of reliable figures. As observed by us earlier, the profit earning capacity of the Company has not been excluded from consideration. Thus, the Valuer s mode of valuation does not in anyway infringe the principles laid down in the said decisions to the extant they are applicable. In final analysis, we are of the view that the Valuer approached the question of valuation having due regard to the terms of settlement and applying the standard methods of valuation. The valuation has been considered from all appropriate angles. No case has been made out that any irrelevant material has been taken into account or relevant material has been eschewed from consideration by the Valuer. The plea that the valuation is vitiated by fundamental errors cannot but be rejected. (Paras 18 and 19)
       However, there is one direction concerning the interest which we consider it appropriate to give in the given facts and circumstances of the case. Though the grant of interest, as prayed for by the petitioners, from 31.5.2002 -the stipulated date of submission of valuation report is not called for, we feel that the ends of justice would be adequately met if the respondents concerned are directed to pay the interest at the rate of 9 per cent on 8.24 crores, which is the value of shares fixed by the Valuer, for a period of 12 months. True, the petitioners contested the valuation and thereby delayed the implementation of settlement. However, having regard to the bona fide nature of the dispute and the fact that the respondents have retained the money otherwise payable to the petitioners during this period of 12 months and could have profitably utilized the same, we have given this direction taking an overall view. (Para 20)

JUDGMENT

P. Venkatarama Reddi, J.-The dispute is between the shareholders of two pharmaceutical companies which figure as respondents herein. Suits were filed by the petitioners, who are the wife and husband, in the City Civil Court, Hyderabad impleading the Companies and the third respondent by name Shri D. Vasant Kumar, the subject matter of the suits broadly being the transfer of shareholdings. The suit O.S. No. 551 of 2000 was filed by the petitioner in S.L.P. No. 18035/2000. Along with the suit the petitioner-plaintiff applied for an interim injunction restraining the defendants-respondents 1 and 3 (Solvay Pharmaceutical B.V. and Shri D. Vasant Kumar) from transferring/exchanging their shareholdings in defendant Companies 2 & 4 pending disposal of the suit. The other two Suits of similar nature were filed by the petitioner in S.L.P. Nos. 18041 & 18042 of 2000 and interim injunction was sought for. The I.A. filed in O.S. No. 551 of 2000 under Order 39 Rules 1 & 2 was dismissed by the learned trial Judge while vacating the ex-parte injunction granted earlier. However, the ad interim injunction granted in the suits filed by the petitioner in SLPs 18041 & 18042/2000 remained in force.

2. Aggrieved parties filed three appeals in the High Court under Order 43 Rule 1 C.P.C. The appeal filed by the petitioner in the first S.L.P. against the refusal of injunction was dismissed by the High Court and the other two appeals filed by the aggrieved defendants were allowed and the ad interim injunction in both the cases was vacated. Against this common order of the High Court, the present S.L.Ps. were filed by the plaintiffs namely, Mrs. Renuka Datla and Dr. Vijay Kumar Datla. On the initiative taken by this Court while hearing the S.L.Ps., the parties settled the disputes and the terms of mutual settlement were reduced to writing and they were signed by all the parties. This Court passed the following order on 15th July, 2002 to give effect to the settlement.

"Counsel for the parties state that the dispute between them has been settled. A copy of the terms of mutual settlement signed by the parties has been filed in Court and initialed by the Court Master. Terms of settlement are recorded. The terms contemplate valuation to be done of the intrinsic worth of the two companies and the value of 4.91% shares in the said two companies held by the petitioners. Valuation has to be completed within a period of four weeks. The terms of mutual settlement shall form part of this order. Copy of the order be sent to Shri Y.M. Malegam, Chartered Accountant, M/s. S.B. Billimoria & Co., Mumbai- 400038."

3. According to the terms of settlement, M/s. Solvay Pharmaceuticals (R1) and Mr. Vasant Kumar (R3) have agreed to purchase 4.91% shares held by the petitioners in the two companies namely Duphar Pharma India Ltd. (DPIL renamed as Solvay Pharma India Ltd.) and Duphar Interfran Ltd. (DIL), the petitioners having agreed to sell the said shares. Shri Y.H. Malegam, Chartered Accountant, Mumbai had to evaluate the intrinsic worth of both the Companies - DPIL and DIL as going concerns and the value of the said 4.91% shares held by the petitioners in those two Companies "by applying the standard and generally accepted method of valuation". Shri Malegam should give opportunity to the respective parties to make their submissions. The valuation of Shri Malegam shall be regarded as final and binding on all the parties to the settlement. The relevant date for valuation was fixed as 31st March, 2001. The payment for shares shall be made within two weeks of the submission of the valuation report and the statutory approvals thereof failing which the respondents shall pay interest at the rate of 15% p.a. simultaneously with receipt of the total consideration for 4.91% shares, the petitioner shall effect the transfer of shares. The respondent Shri Vasant Kumar shall withdraw the Suits filed in the City Civil Court, Hyderabad; likewise, the petitioners shall withdraw the Sui

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2003 Supreme(SC) 1071

IMPORTANT POINTValuer having approached the question of valuation of shareholding having due regard to the terms of settlement and applying the standard methods of valuation, objections filed held liable to be dismissed.

Cases Referred (2)

IMPORTANT POINT
Valuer having approached the question of valuation of shareholding having due regard to the terms of settlement and applying the standard methods of valuation, objections filed held liable to be dismissed.