Point of Law: Company - Valuation of shares - It is fair and reasonable and supported by strong reasons and evidence. Court minded to accept that valuation and thus put an end to this litigation. Respondents/plaintiffs are entitled to Rs. 640/- per share sold by them to appellant and directing that each of respondents/plaintiffs be paid by appellant no. 1 Rs. 640/- per share of Bikaner Gypsums Ltd.

JUDGMENT :

I.P. MUKERJI, J.

1. The respondents/plaintiffs, in the early 70s, held ordinary shares in a company Bikaner Gypsums Ltd (the company).

2. The company, for its operation, increasingly became dependent on the appellant No. 1/defendant no. 1 (the appellant) for loans, advances and other forms of assistance. The latter accommodated them but insisted that it should have more control over it and that it should become a public sector undertaking. It informed the share holders of the company about its intention to buy their shares. A vast majority of them agreed to sell their shares. By April, 1973 the appellant had acquired 50% of the company’s issued and paid up share capital and by 14th June, 1973, 97% of its issued share capital. The Company’s name was changed to Rajasthan State Mines and Minerals Ltd, the appellant No. 2/Defendant No. 2.

3. The agreement between the parties was that the consideration for the sale of the shares would be determined by a reputed valuer to be nominated by the Institute of Chartered Accountants. Immediately, the face value of Rs. 10/- per share would be paid to the shareholders and the balance amount would be paid on determination of their value. Rs. 5,58,780/- (Rs. 6,53,780/- in the amended plaint) was received by the respondents/ plaintiffs as such consideration in 1973.

4. The subject matter of dispute between the parties in this proceeding is with regard to the valuation of those shares. The appellant declared that these shares had been valued at Rs. 11.50/- per share. It had been made by M/s B.D. Gargieya and Co. Jaipur a firm of Chartered Accountants nominated by it. Only the difference between Rs. 11.50 and the face value of Rs. 10/- per share was payable. This valuation, on its finalization, was communicated to them on 8th July, 1975, according to the respondents.

5. The respondents/plaintiffs contend that Rs. 11.50 per share could not have been the market price of or a fair value of each share on the date of its sale. It was Rs. 795.60/- per share. The agreement did not permit M/s B.D. Gargieya and Co. Jaipur to value the shares. The decision of the appellant regarding valuation and the whole process of it have been challenged in this proceeding.

6. Now, some relevant facts need to be stated.

7. By his letter dated 3rd/5th April, 1974 the Deputy Secretary to the Government of Rajasthan wrote to the Managing Director of the Company that the institute of Chartered Accountants did not appoint valuers and that the government had appointed M/s B.D. Gargieya and Co. Jaipur to value the shares. On 22nd April, 1974 the Managing Director wrote to the shareholders that according to his information from the Government of Rajasthan, the valuers were expected to submit their report to the state government by 31st May, 1974. The value would accordingly be intimated to them. On 21st May, 1974 one of the shareholders wrote to the Managing Director that they would like to be represented before the valuer before the valuation was made. On 3rd July, 1974 the government wrote a stern letter to the Managing Director of the company stating that the valuer would have to submit their report according to the principles of valuation. Their report would be an advice to the state government. The exercise of valuation was not an arbitration and that there was no question of any representation before the valuer. On 31st October, 1974 the government wrote to the Managing Director that the valuation report as submitted by the firm M/s. B.D. Gargieya and Co. had been accepted by the government. First, the difference between the value arrived at by the valuer and the face value which had been paid (Rs. 11.50 - Rs. 10.00 = Rs. 1.50) would be paid per share to the shareholders. On 18th December, 1974 the Managing Director wrote to one shareholder that the government was taking steps for payment of the balance amount.

8. On 17th January, 1975 one of the shareholders of the company wrote to the Managing Director of the company