Delve into the complex world of corporate law as we analyze a recent legal case focusing on interest calculation and share valuation. The court’s detailed examination of these aspects played a crucial role in shaping the final outcome of the dispute. Stay tuned to understand the nuanced legal analysis that underpins corporate decision-making.
Facts
- A valuer was appointed on 01.04.2011 to determine the fair price of the shares as on 14.03.2007.
- The Valuation Report dated 20.07.2012 valued the share price at INR 10.35 each.
- NCLT directed the Petitioners to sell their shares to the Respondents at the fair price of Rs. 10.35 per share.
- The CLB order dated 01.04.2011 accepted that the Appellants holding 14.62% of the paid-up share capital would agree to sell their shares.
- NCLAT held that the order of the CLB dated 01.04.2011 was not an executable order
- It was merely an order appointing a valuer of the Appellant’s shares
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Arguments
- Shri Nidhesh Gupta, learned senior counsel argued that no grounds have been made out for interest in equity by the clients of Sh. Nidhesh Gupta.
- Shri Ritin Rai, learned senior counsel raised a limited point regarding the share-holders he represents being affected by the NCLAT’s direction to remove the respondent company from buying back its own shares.
- The reduction of interest from 9% to 6% would be in order to prevent unjust enrichment of Shri Gupta’s clients, supported by cited judgements.
- Shri Nidhesh Gupta put forward that as Respondent Nos. 2 to 9 had not appealed the NCLT order to the NCLAT, the NCLAT could not reduce interest benefiting parties who did not appeal but accepted the order.
- Shri Jayant Mehta, representing the company, argued that interest in the matter could only be claimed in equity and supported his argument with citations of relevant judgements.
- Agreed to appoint a valuer and valuation date for Petitioners to exit the Company
- Company used Petitioners’ funds for business despite knowing they needed to be refunded
- Court of Equity cannot accept Respondents’ refusal to pay interest
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Analysis
- The NCLAT, following a Supreme Court decision, decided that the Respondent company could not be made to buy back its shares, shifting the responsibility to Respondent Nos. 2 to 9.
- Interest awarded to the Appellants was reduced from 9% to 6%, without reasons provided by the NCLAT.
- An argument proposed for awarding a pro-rata percentage of profits to the Appellants was deemed untenable by the Tribunal, highlighting the risk of potential losses for the company.
- The Tribunal directed the Respondent Nos. 1-9 to pay the Appellants the requisite consideration for the shares along with simple interest at 9% per annum from 01.04.2007 within four months from the decision date.
- The NCLAT’s reduction of interest to 6% per annum was found to lack justification, with a focus on an overall view and the interests of justice in the case.
- The court set aside the NCLAT’s order on reducing the award of interest from 9% to 6%
- Challenged the date from which interest was granted
- Company earnings do not directly impact the valuation of shares
- NCLT directed interest payable from 01.04.2007, shortly after the filing of the Company Petition
- More than a decade had passed since the petition was filed, allowing the respondent company to utilize the appellant’s funds
- All parties agreed on the filing date as the valuation date for shares
- No perversity found in NCLT’s reasoning
- Civil Appeal No 8907/2019 and Civil Appeal No 8912/2019 were allowed as NCLAT should not have raised a point without hearing the appellants
Also Read: Application for Stay in Civil Suit Rejected: Court’s Legal Analysis
Decision
- Civil Appeal No 5087/2019, Civil Appeal No. 8907/2019, and Civil Appeal No 8912/2019 are allowed in part.
- Civil Appeal No 9617/2019 is dismissed.
Case Title: VINOD KRISHAN KHANNA Vs. AMRITSAR SWADESHI WOOLLEN MILLS PRIVATE LIMITED (2021 INSC 110)
Case Number: C.A. No.-005087 / 2019
