Supreme Court of India
VINOD KRISHAN KHANNA & ORS. versus AMRITSAR SWADESHI WOOLLEN MILLS PRIVATE LIMITED on 23 February 2021
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SUPREME COURT REPORTS
[2021] 1 S.C.R.
AVINOD KRISHAN KHANNA & ORS.
v.
AMRITSAR SWADESHI WOOLLEN MILLS PRIVATE LIMITED
(Civil Appeal No. 5087 of 2019)
BFEBRUARY 23, 2021
[R.F. NARIMAN AND B.R. GAVAI, JJ.]
Companies Act, 1956 – ss.397 and 398 – Company Petitionfiled by Appellants in 2007 against Respondent-company and its’eight directors before Company Law Board (CLB) – Appellants, whoChad 14.62% of the paid-up share capital of Respondent-company,agreed to sell their shares and go out of Respondent-company –Independent valuer, appointed by CLB, determined fair price of theshares to be Rs. 10.35 each – National Company Law Tribunal(NCLT), in 2018, directed Respondents to hand over purchaseDconsideration to Appellants @ Rs.10.35 per share alongwith simpleinterest @9% per annum – Appeal before National Company LawAppellate Tribunal (NCLAT) by Respondent company, limited to grantof interest at the rate of 9% per annum – NCLAT reduced interest to6% per annum – Justification – Held: Not justified – NCLAT reducedinterest without giving any reasons – Argument of respondent-Ecompany that if at all something is to be awarded to Appellantsabove the consideration for shares, it should be a pro-ratapercentage of share-holding of Appellants in company’s share ofprofits from 2007 till 2018, not tenable – The company’s earningshave no direct relation with the valuation of shares which fluctuateFin the share market depending on several factors – Challenge ofrespondent-company to the date from which interest was granted,also not tenable – NCLT directed that interest was payable from01.04.2007, i.e. shortly after the date when the Company Petitionwas filed by the Appellants (14.03.2007) – This was for the reasonthat, as of the date of the NCLT’s directions, more than a decadeGhad elapsed from the filing of the petition, during which timeRespondent-company had effectively utilized the funds of Appellantsin relation to its business – NCLT also noted that all parties hadagreed upon the date of filing the petition as the valuation date forthe shares in order to enable the Appellants to walk out of theH
VINOD KRISHAN KHANNA & ORS. v. AMRITSAR SWADESHIWOOLLEN MILLS PVIVATE LIMITED
company – Nothing perverse in this reasoning of NCLT – Given thefact that this is a 2007 Company Petition, Respondent-companyand its directors to pay to Appellants the requisite considerationfor the shares, together with simple interest at 9% per annum from01.04.2007 till the date of payment.
Disposing of the appeals, the Court
HELD: 1. The NCLT had awarded interest at the rate of9% per annum. The NCLAT, however, reduced this figure to6% per annum, without giving any reasons. [Para 8][714-B-C]
2. At this stage, it is important to point out yet anotherargument of respondent-company that if at all something shouldhave been awarded to the Appellants above the considerationfor the shares, what should be awarded is a pro-rata percentageof the share-holding of the Appellants in the company’s share ofprofits from 2007 till 2018. This argument has no legs on whichto stand. What if the company ended up making losses instead ofprofits, would it then be equitable to award nothing to theappellants? Secondly, the company’s earnings have no directrelation with the valuation of shares which fluctuate in the sharemarket depending on several factors. Thus, the order of theNCLAT on reducing the award of interest from 9% to 6% is setaside. [Para 9][714-C-E]
3. The challenge of respondent-company to the date fromwhich interest was granted is not acceptable. The NCLT directedthat interest was payable from 01.04.2007, i.e. shortly after thedate when the Company Petition was filed by the Appellants(14.03.2007). This was for the reason that, as of the date of theNCLT’s directions, more than a decade had elapsed from thefiling of the petition, during which time the Respondent companyhad effectively utilized the funds of the Appellants in relation toits business. Pertinently, the NCLT also noted that all partieshad agreed upon the date of filing the petition as the valuationdate for the shares in order to enable the Appellants to walk outof the company. There is nothing perverse in this reasoning ofthe NCLT. [Para 10][714-E-G]
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A4. Given the fact that this is a 2007 Company Petition, theRespondent Nos.1-9 before the NCLT will pay to the Appellantsthe requisite consideration for the shares, together with simpleinterest at 9% per annum from 01.04.2007 till the date of payment,within a period of four months. [Para 13][715-B]
BCIVIL APPELLATE JURISDICTION : Civil Appeal No.5087of 2019.
From the Judgment and Order dated 01.04.2019 of the NationalCompany Law Appellate Tribunal in Company Appeal (AT) No.256 of2018.C
With
Civil Appeal Nos.9617, 8907 And 8912 of 2019.
DNidhesh Gupta, Ritin Rai, Sr. Advs., Venkita Subramoniam T. R.,Rahat Bansal, Likhi Chand Bonsale, Jayant K. Mehta, Sharath Sampath,Pratyaksh Sharma, Adity Krishna, Ms. Anu Shrivastava, Ms. NidhiMohan Parashar, Ms. Charu Ambwani, Tushar Singh, Advs. for theappearing parties.
EThe Judgment of the Court was delivered by
R. F. NARIMAN, J.
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1. The point that has been raised in these appeals lies in a verynarrow compass. The Appellants in Civil Appeal No.5087 of 2019 filedFa Company Petition No. 25 of 2007 against the Respondent companyand eight directors of the company (arrayed as Respondents 2-9 in thepetition) before the Company Law Board (“CLB”), in which prayerswere made on grounds taken under sections 397 and 398 of theCompanies Act, 1956. Various orders were passed in this petition by theGCLB, Principal Bench at New Delhi. By an order of the CLB dated01.04.2011, it was finally accepted that the Appellants, who have 14.62%of the paid-up share capital of the Respondent company, would agree tosell their shares and go out of the Respondent company. Consequently, avaluer was appointed on 01.04.2011 (who was the substituted with adifferent valuer on 11.08.2011) to determine as to what would be the fairH
price of the shares as on 14.03.2007, i.e. the date of filing of the CompanyPetition.
2. The proceedings culminated in an order dated 08.06.2018 bythe National Company Law Tribunal (“NCLT”), in which it took onrecord the Valuation Report dated 20.07.2012 (which was filed beforethe NCLT on 23.07.2012), which valued the share price at INR 10.35each. After finding that this valuation was in order, the NCLT finallydirected as follows:
“(I) The Petitioners are directed to sell their entire share-holding held by them in Respondent No. 1 Company as onshare the date of filing the Petition to the Respondents eitherjointly or severally at the fair price of Rs. 10.35 per share asarrived at by the Independent valuer upon consent appointedby CLB.
(II) The Petitioners shall hand over their share certificate(s)along with duly executed share transfer forms to theRespondents and the Respondents shall simultaneously handover crossed demand draft/pay order favouring the petitionersfor the amounts payable as purchase consideration ascomputed in accordance with the fair value of share ofRs.10.35 per share along with interest calculated @9% perannum (simple interest) from 1.4.2007 till the actual date ofpayment within a period of 2 months from the date of thisorder.
(III) The compliances, as above, shall be made before theBench Officer of this Tribunal.”
3. An appeal was filed before the National Company LawAppellate Tribunal (“NCLAT”) against this order by the Respondentcompany alone, limited to the grant of interest at the rate of 9% perannum, and the date from which the said interest was granted. It isimportant to note that Respondent Nos. 2 to 9 to the Company Petition,who were also governed by the NCLT order, did not file any appealagainst the aforesaid order.
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A4. By the impugned judgment dated 01.04.2019, the NCLAT heldthat the order of the CLB dated 01.04.2011 was not an order in thesense of being an executable order, but merely an order appointing avaluer of the Appellant’s shares. However, despite the fact that nochallenge had been made on the ground that the Respondent companycannot be made to buy-back its shares, the NCLAT suo moto decidedBto raise such a ground and answer it, stating that the Respondent companycould not be made to buy-back its own shares, as a result of which, thepurchase would now only be made by Respondent Nos. 2 to 9 (i.e. thedirectors of the company) and not by the company itself. Also, the interestthat was awarded to the Appellants at the rate of 9% per annum simpleCwas reduced to 6%.
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5. We have before us four appeals. Shri Nidhesh Gupta, learnedsenior counsel appearing for the Appellants in Civil Appeal No. 5087/2019 [Item No.5], has put one simple point before us, namely, that asRespondent Nos. 2 to 9 had not appealed against the order of the NCLTDto the NCLAT, the NCLAT could not reduce interest from 9% to 6%,which would benefit parties who did not appeal against the NCLT order,but had instead accepted it.
6. Shri Jayant Mehta, learned counsel appearing on behalf of theEcompany in Civil Appeal No. 9617/2019 [Item No. 5.1], has argued thatinterest in this matter could only be claimed in equity, and cited severaljudgments to buttress his arguments. He went on to add that no groundshave been made out for interest in equity by the clients of Sh. NidheshGupta, learned senior counsel, as a result of which they should not havebeen awarded interest at all. In any case, the reduction from 9% to 6%Fwould clearly be in order on the facts of the case as otherwise, ShriGupta’s clients shall be unjustly enriched, on which proposition also, hehas cited several judgments.
7. Both counsel then went into each other’s conduct in takingadjournments before the CLB. Shri Ritin Rai, learned senior counsel,Gwho appeared in Civil Appeal No. 8907/2019 [Item No. 5.2], raised onlya limited point, i.e. that the share-holders whom he represents are a thirdgroup who are not Respondent Nos. 2 to 9, but who have been affectedby the NCLAT’s direction to remove the Respondent company suo motofrom being a person who was to buy-back its own shares.H
8. Having heard all the learned counsel appearing for the parties,the limited point before us is whether the interest at the rate of 9% couldhave been granted by the NCLT. The NCLT awarded interest at therate of 9% per annum on the following basis:
“……… However, it is to be seen that both parties have agreedto a valuer to be appointed and have also consciously agreedto a valuation date in order to enable the Petitioners to walkout of the Company. Thus, Company has effectively utilizedthe funds of the Petitioners in relation to its business fullyknowing that the funds are required to be refunded back. Inthe circumstances, being a Court of Equity in relation tomatters touching upon oppression and mismanagementPetition and exercising equitable jurisdiction, this is unableto accept the stand of the Respondents that they are notinclined to pay any interest. In this connection, this Tribunalwould once again wish to refer to the decision of Hon’bleSupreme Court passed in the matter of Dr. Renuka Datla Vs.Solvay Pharmaceuticals B.V. cited earlier and be guided by itparticularly paragraph 19 which is extracted hereunder:
19. In the result, IA Nos. 2 to 4 of 2002 are liable to berejected. However, there is one direction concerninginterest which we consider appropriate to give in the givenfacts and circumstances of the case. Though the grant ofinterest, as prayed for by the petitioners, from 31.5.2002
– the stipulated date of submission of valuation report - isnot called for, we feel that that the ends of justice wouldbe adequately met if the respondents concerned aredirected to pay the interest at the rate of 9 per cent an Rs.8.24 crores, which is the value of shares fixed by the valuer,for a period of twelve months. True, the petitionerscontested the valuation and thereby delayed theimplementation of settlement. However, having regard tothe bona fide nature of the dispute and the fact that therespondents have retained the money otherwise payableto the petitioners during this period of twelve months andcould have profitably utilized the same, we have given thisdirection taking an overall view.
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SUPREME COURT REPORTS
A19. Going by the above decision of Hon’ble Supreme Courtsince the monies which were otherwise payable to thePetitioners having been retained all along by the Respondentsand having utilized the same, we feel that the ends of justicecould be adequately met if the Respondents in the main C.P.are directed to pay interest @9% per annum on simple InterestBbasis.”
The NCLAT, however, reduced this figure to 6% per annum,without giving any reasons.
9. At this stage, it is important to point out yet another argumentCof Sh. Jayant Mehta, that if at all something should have been awardedto the Appellants above the consideration for the shares, what should beawarded is a pro-rata percentage of the share-holding of the Appellantsin the company’s share of profits from 2007 till 2018, which according tohim would amount to a figure of approximately INR 48.98 lakhs. ThisDargument has no legs on which to stand. What if the company ended upmaking losses instead of profits, would it then be equitable to awardnothing to the appellants? Secondly, the company’s earnings have nodirect relation with the valuation of shares which fluctuate in the sharemarket depending on several factors. Thus, we set aside the order ofthe NCLAT on reducing the award of interest from 9% to 6%.E
10. We have also heard Shri Jayant Mehta’s challenge to the datefrom which interest was granted. We are not inclined to accept thesame. The NCLT directed that interest was payable from 01.04.2007,i.e. shortly after the date when the Company Petition was filed by theAppellants (14.03.2007). This was for the reason that, as of the date ofFthe NCLT’s directions, more than a decade had elapsed from the filingof the petition, during which time the Respondent company had effectivelyutilized the funds of the Appellants in relation to its business. Pertinently,the NCLT also noted that all parties had agreed upon the date of filingthe petition as the valuation date for the shares in order to enable theGAppellants to walk out of the company. We do not find anything perversein this reasoning of the NCLT.
11. We also allow Civil Appeal No. 8907/2019 [Item No. 5.2] andCivil Appeal No. 8912/2019 [Item No. 5.3], as the NCLAT should nothave suo moto raised a point by itself and answered it without hearingHShri Ritin Rai’s clients.
12. In the result, Civil Appeal No. 5087/2019 [Item No. 5], CivilAppeal No. 8907/2019 [Item No. 5.2] and Civil Appeal No. 8912/2019[Item No. 5.3] are allowed to the extent indicated by this judgment. Thecompany’s appeal i.e. Civil Appeal No. 9617/2019 [Item No. 5.1] isdismissed.
13. It is also made clear that given the fact that this is a 2007Company Petition, the Respondent Nos.1-9 before the NCLT will bemade to pay to the Appellants the requisite consideration for the shares,together with simple interest at 9% per annum from 01.04.2007 till thedate of payment, within a period of four months from today.
Bibhuti Bhushan Bose
Appeals disposed of.
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