IN THE HIGH COURT AT CALCUTTA ORDINARY ORIGINAL CIVIL JURISDICTION (ORIGINAL SIDE) Present : The Hon’ble Justice Nadira Patherya G.A.No.2615 of 2008 C.S.No.406 of 2000 Premium Exchange & Finance LTD.& Anr.
VERSUS M/S.S.N.Bagla & Co.& ORS.For the Judgment Debtor : Mr.Abhrajit Mitra, Adv., Mr.Sarvapriya Mukhopadhyay, Adv., Mr.Chayan Gupta, Adv., Mr.Jishnu Chowdhury, Adv., Mr.Sandip Dasgupta, Adv., Mr.B.Ray, Adv.For the Respondent : Mr.S.K.Kapoor, Sr.Adv., Mr.Joy Saha, Adv., Mr.S.Singhvi, Adv.Heard on : 23.02.2012, 24.02.2012, 01.03.2012, 06.03.2012, 12.03.2012, 19.03.2012.
Judgment on : 2nd September, 2016 Patherya, J.
: By this application the petitioner/judgment debtor (Bagla Group) seeks a declaration that the consent decree dated 26th April, 2002 be declared null and void or the same be set aside on the ground that the basis of valuation is not only incorrect but the valuers were biased against the petitioner as they are Chartered Accountants of 15 companies of the Birla Group, and therefore have acted in favour of the decree holder/respondent (Birla Group).No copy of the draft report was given to the petitioner/judgment debtor although it has been mentioned in the Report that the draft report has been given to the management of NHL.
By management the valuers could have meant only the Birla Group as the Bagla Group had relinquished management of the NHL project in October 2002.
The commissioning was in 2006 and the valuation is based on the DCF method, i.e., on financial projections instead of the NAV method.
As the valuation is as per the information given by the management, the Bagla Group ought to have been heard.
By letter dated 3rd July, 2003 the Birla Group informed the valuers of its appointment and requested it to enter upon the reference and value the shares of NHL.
As per the Power Purchase agreement dated 12th March, 1998 Texmaco was to purchase 70 lac units from NHL @ Rs.4/- per KWH in 2005-06.
The said was to increase by Rs.0.30 per unit per year and would be Rs.4.30 KWH for 2007-08 and Rs.4.60 KWH for 2009-10.
The application of the DCF method will be apparent from the Report of the Valuers and annexures thereto.
The DCF method followed has proved prejudicial to the Bagla Group as the net worth has stood decreased so also the profits calculated thereon.
On the contrary if the valuation had been undertaken by adopting the NAV method and the rates as agreed in the Energy Sharing Agreement not only would the profits have increased but also the net worth of NHL.
This aspect was totally ignored by the valueRs.It is unbelievable that Texmaco would purchase power @ 4.93 per KWH and sell it to WBSEDCL @ 1.14 P.
This no prudent businessman would do and in fact, this has not happened since the plant started producing electricity.
If the formula given in paragraph 17(d) of the supplementary affidavit had been followed the same would have enured to the benefit of the Bagla Group.
The valuers have also stated incorrectly in its Report that NHL would receive 2.5 crore on account of subsidy over 5 yeaRs.without scrutiny of the Annual Report for 2007-08 as the entire subsidy of Rs.2.5 crore was received by NHL in a single year.
This error in valuation has also affected the Report.
Carbon credit availed by NHL also finds no mention in the Report.
The Report is not only one sided but is based on assumption and presumption without reflecting true and correct facts.
An application under Section 47 C.P.C.had been filed wherein the Bagla Group sought for setting aside of the Valuation Report (Report).The Executing Court directed the valuers to re-value the shares after hearing both sides.
Appeal was filed and from the order of the Appeal Court a Special Leave Petition was filed.
The Supreme Court by its order dated 16th July, 2008 set aside the order of the Appeal Court and Executing Court and left it to the petitioners to adopt such remedy as advised and available in law.
It is because of the said that this application was filed within the time granted.
Therefore, orders be passed as sought.
Counsel for the Birla Group submits that the decree is dated 26th April, 2002.
The said decree was passed on the basis of Terms of Settlement filed in Court.
The relevant clause to be considered is Clause2 wherein the decretal amount has been set-out and the said amount was to carry interest of 15% per annum from the date of decree till payment.
As per Clause-4 of the Terms of Settlement the decree would stand satisfied if the Scheme annexed to the Terms of Settlement was fully worked out within 21 months from the date of decree, unless such time was extended by mutual consent.
NHL, Hanuman Tea and Texmaco were made parties to the Terms of Settlement and the Scheme as per consent given by them and signature appended through authorized representative.
The relevant clause of the Scheme is Clause-J and K.
As per Clause-K Ernst and Young were appointed valuers to value the shares of NHL as on 30th June, 2003 or on the date of commissioning whichever was earlier.
The decision of the valuers was to be final and binding upon both the Birla Group and the Bagla Group and none of the parties would be entitled to raise any objection in any manner with regard thereto.
The terms of reference to be made to the valuers was set out in the Schedule attached to the Terms of Settlement.
The petitioners are seeking to set aside the consent decree dated 26th April, 2002 to the extent set out in paragraph 58.
In paragraph 58 of the petition the petitioners seek to set aside the appointment of the valuer and a valuer to be appointed by the High Court.
In paragraph 59 particulars of fraud have been set out.
One of the particulars of fraud alleged is a representation made but when such representation was made, by whom and how has not been specified.
Therefore, the said cannot be considered.
It has been alleged that the appointment of Ernst and Young as valuers so also N.G.Khaitan is fraudulent.
N.G.Khaitan was a director on the board of Hanuman Tea Company Limited which is a company belonging to the Bagla Group as will appear from the balancesheet of 19th August, 1999.
It is true that by the order dated 16th July, 2008 it was left open to the Bagla Group to adopt a remedy as it may be advised and as entitled to in law, to challenge the valuation, by the Supreme Court of India.
Challenging the said valuation when application was not contemplated is not only bad but the said application is not maintainable.
The proper procedure would be to file a separate suit as a compromise decree is a contract between the parties.
Order 6 Rule 4 C.P.C.calls for particulars to be given with date and time in cases of fraud and the particulars given in paragraph 59 of the petition is not as per the provisions of Order 6 Rule 4 C.P.C.Sushil Kumar Bagla was a director in the Birla Group of Companies and it is because of his association with the Birla Group that the venture of NHL was undertaken.
In the Section 47 application the Bagla Group sought for settingaside the valuation of the shares by the valueRs.One of the reasons for setting aside the valuation of the valuers is that it was the in house financial advisor of the Birla Group and its assistance was taken only to benefit the decree-holdeRs.Therefore, this issue was raised before the Division Bench in appeal and it was categorically held that the parties had chosen their own valuer and one of the parties could not wriggle out of the bargain on the ground that the valuer was a man of the decreeholder.
This order was set aside by the Supreme Court for the incorrect procedure adopted but no comment was made on merits.
It was true that the valuer was chosen independently and though one of the parties was aggrieved, the finding of the valuer would be binding on the parties.
Particulars of fraud is to be pleaded.
AIR1962Supreme Court 630 and 19 CWN729has held that fraud must be pleaded clearly.
In its report the valuer also has categorically stated that a request was made to it to conduct and report on the valuation analysis of the business of NHL for the purpose of buying the stake of the Bagla Group using a generally accepted principle of valuation in case of Small hydel plants.
It is because of this reason that the DCF method had been followed and the projections considered.
The reasons have also been given for following the DCF method by the valuer but this has not been challenged.
Therefore, there is no fraud alleged to the valuers with regard to the DCF method followed.
The surplus assets have been added in the DCF valuation of NHL.
This also finds mention in the report of the valuer.
Reliance is placed on 15 Indian Appeals 119/121 and 42 Indian Appeals 35.
The personnel of the valuer was chosen by the parties and therefore, was by consent.
Setting aside of the valuer must also be by consent as held in AIR1934Cal 603, AIR1937Cal 720, AIR1943Cal 247, AIR1961Supreme Court 606 and (2006) 5 SCC566 Order 23 Rule 3 of C.P.C.be also considered.
According to the petitioners fraud has been practiced but no particulars of fraud has been set-out relevant to the reliefs claimed.
It has been alleged that the accounting method is incorrect as energy sold is at a lesser price though purchased at a higher rate.
The subsidy which was receivable in 5 years has been received in one year as projected and the subsidy therefore should have been split over a period of 5 yeaRs.The said issues are not germane in this application and need not be addressed.
Therefore, this application be dismissed.
In reply Counsel for the petitioners submits that from the report of the valuers it will appear that its conclusion is based on assumption and presumption and information given by the Birla Group, which has not given true or correct facts.
The assumptions were based on the management’s present expectation of future business event and circumstances and the management’s couRs.of action.
From the income statement annexed to the Report it will appear that projections have been considered in preparing the said report.
The bias alleged is legal bias and judicial interpretation will be needed.
The decisions cited on behalf of the Bagla Group is distinguishable.
AIR (1937) Cal 720 is distinguishable on facts.
AIR (1943) Cal 247 is also distinguishable on facts as in the reported decision the valuer was a statutory authority.
In AIR (1934) Cal 63 the valuer was appointed by Court and not by the parties.
Reliance is placed on AIR (1975) Cal 303.
As full particulars of fraud has been given, and fraud practised, orders be passed as sought.
Having considered the submission of the parties Neora Hydro LTD.(NHL) was the joint venture of the Bagla Group and the Birla Group.
NHL was to set up a hydro electric project on the River Neora called the Neora Hydro Electric Project which would generate energy for captive consumption of its members as per the agreed terMs.Six suits were filed by the Birla Group against the Bagla Group which suits were decreed by consent of parties on the basis of the Terms of Settlement and Scheme filed.
The Birla Group was to purchase the shares of the Bagla Group and valuation thereof was to be undertaken by Ernst and Young, Chartered Accountants.
It was agreed between the parties by Clause-K of the Scheme that the decision of the valuer would be final and binding on both the Groups and none would be entitled to raise any objection in any manner in respect thereof.
Accordingly the valuers were informed of their appointment and the terms of reference.
On basis thereof valuation was undertaken, and the method adopted was the Discounting Cash Flow (DCF) method and not the Net Asset Value (NAV) method.
Reasons have also been given for adopting the DCF method by the valuers in their Report.
The Bagla Group was dissatisfied with the Valuation Report as according to it the NAV method ought to have been adopted and a hearing ought to have been given to it before the final decision was taken or Report submitted by the valueRs.Accordingly an application was filed under Section 47 C.P.C.for setting aside the valuation and for appointment of valuer from the panel of valuers of this Hon’ble Court.
The Trial Court directed the valuer to re-value the shares after taking the parties to the dispute in confidence.
In appeal, the said finding was set aside and it was held that the NAV method ought to have been adopted instead of the DCF method and the valuer was called upon to submit a Report on the NAV method.
An SLP was filed from the order of the Appeal Court and the Supreme Court held that the application filed under Section 47 C.P.C.was misconceived and appropriate proceedings ought to have been filed for setting aside or modifying the consent decree before the competent Court.
It is only because of the observations of the Supreme Court in its order dated 16th July, 2008 that the instant application has been filed in C.S.406 of 2008 which has been decreed on 26th April, 2002.
An application under Section 47 of the C.P.C.was filed in Execution Proceedings.
Such application was also held not to be maintainable by the Supreme Court of India in its order dated 16th July, 2008.
This application has been filed in view of the observations of the Supreme Court in its order dated 16th July, 2008.
Order 23 Rule 3A C.P.C as amended in 1997 bars filing of a suit to set aside a compromise decree for being unlawful, therefore the application filed is maintainable and the next issue that is to be considered is whether the consent decree can be set aside on the ground of fraud.
In paragraph 58 of the application the petitioner has sought for setting aside the consent decree in its entirety or by modifying it as follows:- “a) The appointment of M/S.Ernst & Young by the Decree as valuer is liable to be set aside.
If that part of the decree is set aside, the valuation would be done by the valuer to be appointed by this Hon’ble Court, unless the parties can agree upon the valuation.
b) The decree to the extent it names Mr.N.G.Khaitan, Advocate as Special Officer should be set aside.” The said consent decree is sought to be set aside on the ground of fraud and misrepresentation which according to the petitioner was perpetrated upon the Bagla Group by the Birla Group at the time of entering into the agreement, i.e.the Terms of Settlement, the scheme and passing of the decree in terms thereof.
Particulars of fraud attributed to the Birla Group are set out below:- “a.
The Birla group had fraudulently suppressed from the Bagla Group that M/S.Ernst & Young is a chartered accountant and/or financial advisor of 16 numbers of K.K.Birla Group Concerns, more fully stated above.
On the other hand, representations were made that M/S.Ernst & Young has no connection with either the Birla Group or the Bagla Group.
Only by relying upon the said representation, Bagla Group agreed to M/S.Ernst & Young being the named valuer in the consent decree.
Had the Birla Group disclosed their close connection with M/S.Ernst & Young, the Bagla Group would never have agreed to such appointment.b.Representation was made by Birla Group as to the independence of M/S.Ernst & Young, by actively concealing their close connection with M/S.Ernst & Young.e.Had M/S.Ernst & Young been independent, then and in that case, the valuation of the shares belonging to the Bagla Group would have been fair and in consonance with the terms of the decree.
E & Y would not have valued the shares before the commissioning of the project and would not have adopted incorrect principles while conducting such valuation.
Had Mr.N.G.Khaitan been impartial, he would not have delivered the share certificates pertaining to 25 lacs equity shares on the mere asking of the Birla Group.
Only for this reasons, the Birla Group had made positive assertion as to their independence.f.The Birla group had committed acts fitted to deceive the Bagla Group and making then agree to the scheme and decree in terms thereof.” In the couRs.of hearing the Bagla Group did not press the allegations levelled against Mr.N.G.Khaitan, Advocate and, therefore, the said allegations have not been set out above.
On scrutiny of the aforesaid it cannot be said that the Bagla Group was not aware that M/S.Ernst and Young was the Chartered Accountant of the Birla Group or its Financial Advisor.
The balance sheets of the companies of the Birla Group would evidence the appointment of M/S.Ernst and Young as the Chartered Accountant and Financial Advisor of the Birla Group of companies.
In fact, Mr.Sushil Kr.
Bagla was a Director in some of the Birla Group of companies and Satyanarayan Bagla the father of Mr.Sushil Kr.
Bagla was a trustee of All India Hindu Dharamseva Sangha Trust which is a Birla trust.
Bagla was also a trustee of Mahadevi Birla Memorial and Charitable Trust and Satyanarayan Bagla was a close companion of Krishna Kr.
He would accompany K.K.Birla on holidays.
Therefore, it is unbelievable that the Bagla Group would not know that M/S.Ernst and Young was the Chartered Accountant and Financial Advisor of the Birla Group of companies, at the time when the Scheme was prepared, approved and signed by the parties or when the decree was passed or Terms of Settlement accepted.
Assuming that the two businessmen did not discuss their commercial ventures with each other, there was nothing to stop the Bagla Group from making a search in the office of the Registrar of companies and looking into the balance sheets so also the audited reports of the said companies.
It is unbelievable that they were not aware of M/S.Ernst and Young being Chartered Accountant of the Birla Group of companies.
Therefore, the question of any misrepresentation or any fraud being committed or facts being suppressed from the Bagla Group does not arise.
On appointment as valuer M/S.Ernst and Young assumed the role of persona designata and conducted the valuation as such.
In fact, in the Report which has been filed by M/S.Ernst and Young it has categorically stated that information has been sourced from the management of the company either in written form or through discussions and based on the information from the management the Report was filed.
At page 10 of the Report it has been categorically stated as follows:- “OTHERS : We owe responsibility to only the directors of the Company that has retained us and nobody else.
E & Y does not accept any liability to any third party in relation to the issue of this valuation report.” The reason for adopting the DCF method over the NAV method has also been set out in the said Report.
The said Report is not under challenge nor the reasons for reaching the conclusion challenged except by filing of a supplementary affidavit.
For convenience sake the reliefs sought in G.A.2615 of 2008 is setout below:- “a) Decree dated 28th June, 2002 passed in C.S.No.406 of 2000 be declared illegal, null and void and be set aside; b) Alternatively, the said decree dated 28th June, 2002 be set aside to the extent as mentioned in paragraph 58 above; c) All steps taken pursuant to the said decree including the report by the valuer M/S.Ernst & Young and the delivery / transfer of the said 25 lac shares of Neora Hydro LTD.be set aside and/or reversed and advantages received by Birla Group under the said decree be directed to be restored to the Bagla Group and in the further alternative suitable order for compensation to the petitioners / Bagla Group be made in lieu of the restoration of the benefits received by the Birla Group under the said decree; d) The purported transfer of the said 25 lakhs shares particulars whereof are given in paragraph 18 above in favour of the nominees of the Birla Group be adjudged, void, delivered up and cancelled; e) If necessary, the share certificates pertaining to those 25 lakhs shares mentioned in paragraph 18 above be cancelled and fresh share certificates issued in respect of those shares in the name of Hanuman Tea Company Limited, the original owner; f) A Special Officer be appointed to take possession of all the share certificates pertaining to 25 Lakhs shares mentioned in paragraph 18 above, be it the original share certificates, subject to further order of this Hon’ble court; g) Decree-holders be directed to return all the 25 lakhs shares mentioned in paragraph 18 above to the special Officer / Receiver; h) Mr.N.G.Khaitan, Advocate / Special Officer be discharged and / or removed and any other person be appointed as Special Officer in his place and stead; i) Injunction restraining the respondent/decree holder from taking any step or further step for execution of the decree dated 26th July, 2002 till the disposal of the present application; j) Ad-interim order in terms of prayers above; k) Such further or other order or orders be made and/or directions be given as this Hon’ble Court may deem fit and proper.” All that has been alleged to M/S.Ernst and Young the valuer is lack of independence but this from a look at its Report is difficult to fathom.
Therefore, in the absence of any challenge to the valuation by M/S.Ernst and Young which the petitioner has sought to do by a supplementary affidavit no fraud can be attributed to the valuer.
In the supplementary affidavit too it is only by way of a narration that an attempt has been made by the Bagla Group to challenge the Report on the ground of it being entirely incorrect, but no particulars of fraud has been set-out.
Therefore, in the absence of any fraud alleged to the Report and the reasons for setting aside the Report in the petition being absent the Report cannot be set-aside.
No objection was also raised by the applicant before the valuer with regard to its jurisdiction.
No amendment was also sought of the application.
The consent decree is of 26th April 2002 and the Terms of Settlement and Scheme is a part of such decree.
The Report of the valuer came in 2004 and it is unbelievable that the petitioner came to know of the valuer being the Chartered Accountant of the Birla Companies only thereafter.
AIR (1975) Cal 303 is distinguishable as therein the report had been challenged which is not so in the instant case.
For all the said reasons the appointment of M/S.Ernst and Young is not fraudulent and the consent decree cannot be set aside or modified.
In view of the aforesaid this application fails and is accordingly dismissed.