Companies Act, 1956 – ss.397 and 398 – Company Petition filed by Appellants in 2007 against Respondent-company and its’ eight directors before Company Law Board (CLB) – Appellants, who had 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 the shares to be Rs. 10.35 each – National Company Law Tribunal (NCLT), in 2018, directed Respondents to hand over purchase consideration to Appellants @ Rs.10.35 per share alongwith simple interest @9% per annum – Appeal before National Company Law Appellate Tribunal (NCLAT) by Respondent company, limited to grant of interest at the rate of 9% per annum – NCLAT reduced interest to 6% per annum – Justification – Held: Not justified – NCLAT reduced interest without giving any reasons – Argument of respondentcompany that if at all something is to be awarded to Appellants above the consideration for shares, it should be a pro-rata percentage of share-holding of Appellants in company’s share of profits from 2007 till 2018, not tenable – The company’s earnings have no direct relation with the valuation of shares which fluctuate in the share market depending on several factors – Challenge of respondent-company to the date from which interest was granted, also not tenable – NCLT directed that interest was payable from 01.04.2007, i.e. shortly after the date when the Company Petition was filed by the Appellants (14.03.2007) – This was for the reason that, as of the date of the NCLT’s directions, more than a decade had elapsed from the filing of the petition, during which time Respondent-company had effectively utilized the funds of Appellants in relation to its business – NCLT also noted that all parties had agreed upon the date of filing the petition as the valuation date for the shares in order to enable the Appellants to walk out of the WOOLLEN MILLS PVIVATE LIMITED
company – Nothing perverse in this reasoning of NCLT – Given the fact that this is a 2007 Company Petition, Respondent-company and its directors to pay to Appellants the requisite consideration for the shares, together with simple interest at 9% per annum from 01.04.2007 till the date of payment.
Disposing of the appeals, the Court
HELD: 1. The NCLT had awarded interest at the rate of 9% per annum. The NCLAT, however, reduced this figure to 6% per annum, without giving any reasons. [Para 8][714-B-C]
2. At this stage, it is important to point out yet another argument of respondent-company that if at all something should have been awarded to the Appellants above the consideration for the shares, what should be awarded is a pro-rata percentage of the share-holding of the Appellants in the company’s share of profits from 2007 till 2018. This argument has no legs on which to stand. What if the company ended up making losses instead of profits, would it then be equitable to award nothing to the appellants? Secondly, the company’s earnings have no direct relation with the valuation of shares which fluctuate in the share market depending on several factors. Thus, the order of the NCLAT on reducing the award of interest from 9% to 6% is set aside. [Para 9][714-C-E]
3. The challenge of respondent-company to the date from which interest was granted is not acceptable. The NCLT directed that interest was payable from 01.04.2007, i.e. shortly after the date when the Company Petition was filed by the Appellants (14.03.2007). This was for the reason that, as of the date of the NCLT’s directions, more than a decade had elapsed from the filing of the petition, during which time the Respondent company had effectively utilized the funds of the Appellants in relation to its business. Pertinently, the NCLT also noted that all parties had agreed upon the date of filing the petition as the valuation date for the shares in order to enable the Appellants to walk out of the company. There is nothing perverse in this reasoning of the NCLT. [Para 10][714-E-G]
4. Given the fact that this is a 2007 Company Petition, the Respondent Nos.1-9 before the NCLT will pay to the Appellants the requisite consideration for the shares, together with simple interest at 9% per annum from 01.04.2007 till the date of payment, within a period of four months. [Para 13][715-B]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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