1 IN IN IN THE HIGH COURT OF JUDICATURE OF BOMBAY THE HIGH COURT OF JUDICATURE OF BOMBAY THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION ORIGINAL CIVIL JURISDICTION COMPANY APPEAL NO.7 OF 2003 IN COMPANY PETITION NO.90 OF 2000 WITH CROSS-OBJECTIONS Mr.V.Natrajan ..Appellant. V/s. Nilesh Industrial Products Pvt.Ltd. & Ors. ..Respondents. Mr.Vinay Bhate i/b. ANS Law Associates for appellant. Mr.S.Malik for respondents. CORAM: CORAM: CORAM: A.M.KHANWILKAR,J A.M.KHANWILKAR,J A.M.KHANWILKAR,J DATE DATE DATE : NOVEMBER 20, 2008. : NOVEMBER 20, 2008. : NOVEMBER 20, 2008. P.C. P.C. P.C. : : : 1. Heard Counsel for the parties. 2. This Appeal takes exception to the Judgment and Order passed by the Company Law Board, Principal Bench dated 28th June, 2002 in Company Petition No.90 of 2000. The Original Petitioner has questioned the correctness of the approach adopted by the Board by way of present Appeal. While admitting this Appeal, the Court formulated question of law, which would arise for consideration, whether the CLB was justified in quantifying the amount towards compensation of loss of office of Director as Rs.1 Lakh, as also regarding the valuation of shares only as Rs.17,000/- without any basis for determination. 2 3. During the pendency of the Appeal, the original Respondent has filed cross-objection amongst other questioning the view expressed by the Board holding that the Petitioner is entitled to compensation for loss of office as Director. 4. Having considered the rival submission for the nature of order that I propose to pass, it may not be necessary to advert to all the factual matrix which led to the filing of the Company Petition and the finding recorded by the Board on the issue of oppression of minority shareholders and mismanagement. In that the original Petitioner has limited his Appeal to the issue of determining compensation for loss of office as Director. That amount has been limited to Rs.One Lakh without any tangible reason recorded by the Board in that behalf. Besides, the original Petitioner is questioning the correctness of the finding regarding amount specified by the Board in lieu of valuation of shares. By offering only simple interest at the rate of 12% from the date of investment of Rs.17,000/- made by the Petitioner. Accordingly, this Judgment would consider the appropriateness of the direction contained in paragraph-13 of the impugned decision and nothing more. 3 5. Insofar as direction issued by the Board of offering amount of compensation for loss of office as Director to the original Petitioner quantified at Rs.One Lakh is concerned, the Petitioner contends that no basis has been recorded by the board to limit the compensation amount to only Rs.One Lakh. On the other hand, the Respondent contends that awarding compensation for loss of Office as Director is unknown to the scheme of Company law and impermissible in view of Section 318 of the Act. I shall deal with the later argument little later though the same goes to the root of the matter. The argument of the Petitioner that no basis has been recorded by the Board for quantifying the amount and limiting it to Rs.One Lakh, that grievance will have to be accepted. The Judgment under appeal does not indicate any tangible reason for quantifying such amount either way. On this finding, Appeal ought to succeed and parties relegated before the Board for reconsideration of issue of compensation for loss of office as Director afresh on its own merits. Since I am inclined to relegate the parties before the Board, the argument canvassed on behalf of the Respondent that in the first place no direction to pay compensation for loss of office can be granted being impermissible on account of express statutory 4 provisions and unknown to the Company Law, that aspect also will have to be considered by the Board on its own merits. 6. Insofar as method of providing compensation to the Original Petitioner, in lieu of value of shares adopted by the Board, I have no hesitation in taking the view that even that approach of the Board is unknown to company law. In that, as a shareholder or the member of the company, one is entitled only to receive dividend from the company and not interest on his investment. In any case, the members as well as Company is bound by the Articles of Association. Clause 14 of the Articles of Association adopted by the company stipulates the methodology of valuation of shares. The Petitioner can be compensated only after following said procedure and not on the assumption that he would be entitled to earn interest at the rate of 12% per annum on his initial investment from the date of his investment. That approach is wholly inappropriate and unknown to Company law. In the circumstances, even direction regarding valuation of shares is concerned, the same will have to be overturned and the parties relegated before the Board for reexamination on the issue as to what should be the proper method of valuation of shares held by the Petitioner-minority shareholders. 5 All question in that behalf will have to be addressed by the Board on its own merits, keeping in mind clause 14 of the Articles of Association, as aforesaid. 7. Accordingly, this Appeal as well as Cross-objections are allowed. The direction given in paragraph 13 of the impugned Judgment and Order is set aside. Instead, the Company Petition No.90 of 2000 is restored to the file to its original number to be proceeded with on its own merits by the Board afresh, keeping in mind the observations made herein before. It is once again reiterated that the "two questions" to be answered by the Board in terms of this remand order will have to be decided afresh on its own merits, uninfluenced by its earlier decision, which has been set aside or for that matter, the present order. The parties shall appear before the Board on 5th January, 2009 on which date the Board may indicate schedule for hearing of the remanded proceedings before it while ensuring that the same is disposed of expeditiously as it pertains to year 1998. No order as to costs. 8. Accordingly, Appeal as well as cross-objection are disposed of. 6 (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J)