Case: Dr. (Mrs.) Renuka Datla Vs. Solvay Pharmaceutical B.V.

have been drafted after obtaining expert legal advice does not even necessarily imply that special weightage in the form of control premium has to be given to these 4.91 per cent shares. If the petitioners had insisted on the incorporation of such a provision, it could very well be that the other party or parties would not have agreed to such stipulation. The Court cannot, therefore, give any direction in regard to control premium. 15. The next objection is directed against the non-inclusion of Vertin and Colopsa brands while valuing the intrinsic worth of the company DIL. In our view, the learned Valuer has given relevant reasons for non-inclusion of the said brand of drugs which stood transferred to Solvay Pharmaceuticals BV from Dupen Laboratories Pvt. Ltd. They are not the existing assets of DIL. In fact, the petitioners have put in issue in one of the suits filed by them the legality of transfer and sought for a declaration that DIL continuous to be the proprietor of the two brands. The petitioners have agreed to withdraw various suits. In any case, the petitioners cannot be permitted to thwart the terms of the settlement by inviting the Valuer or this Court to go into the extraneous issue as regards the validity of the transfer or incidental matters. The assets as per the relevant records have to be taken into account by the Valuer and that has been done. We, therefore, find no apparent error in excluding those brands.16. The other objection is about DCF method of valuation which the Valuer has described as a commonly accepted method in adopting future earning based valuation. This involves discounting the net free cash flow of a business at an appropriate discount rate". We have already adverted to the reasons given by the Valuer for not adopting this method of valuation. Those reasons cannot be said to be irrelevant. It is contended that if the data and projections furnished by the parties is not reliable the Valuer should have secured the relevant data from independent sources or could have called for further particulars. We find no merit in this argument. The DCF method is adopted while resorting to valuation based on future earnings. It is not the case of the petitioners that the future earning based valuation is the only reliable method of earnings based valuation. Moreover, the petitioners have not placed any facts and figures to show that such method of valuation would result in a definite increase in the share value going by independent projections. When there are vast discrepancies between the projection given by the parties and independent projections have not been provided, the Valuer has chosen the best possible method of evaluation by capitalizing the past earnings. In doing so, the future maintainable profits based on past performance is also an element that has gone into the calculation. No prejudice whatsoever is shown to have been caused to the petitioners by the earnings based valuation. 17. The petitioners have relied on the decision of this Court in Commissioner of Gift Tax, Bombay vs. Smt. Kusumben D. Mahadevia (1980) 2 SCC 238 ). After referring to Mahadeo Jalans case (1973) 3 SCC 157 ) wherein certain principles regarding valuation of shares were laid down, it was observed thus: "It is clear from this decision that where the shares in a public limited company are quoted on the stock exchange and there are dealings in them, the price prevailing on the valuation date would represent the value of the shares. But where the shares in a public limited company, are not quoted on the stock exchange or the shares are in a private limited company the proper method of valuation to be adopted would be the profit-earning method. This method may be applied by taking the dividends as reflecting the profit-earning capacity of the company on reasonable commercial basis but if it is fund that the dividends do not correctly reflect the profit-earning capacity because only a small proportion of the profits is distributed by way of dividends and a large amount of profits is systematically accumulated in the form of reserves, the dividend method of valuation may be rejected and the valuation may be made by reference to the profits. The profit earning method takes into account the profits which the company has been making and should be capable of making and the valuation, according to this method is based on the average maintainable profits." 18. We do not think that the valuation in the instant case runs counter to the principles laid down therein. As seen from Enclosures 6.1 and 6.2 to the valuation report, the valuer had arrived at market based valuation in addition to the other modes of valuation and observed that the recommended value is the higher of the intrinsic value or the marked based value. Thus, the petitioners had the benefit of higher valuation. The first principle laid down in the above decision has been kept in view. Moreover, the profit earning method which has been referred to in the above decisions in the context of valuation of shares of a private limited Company has also been applied, though future earnings based valuation has not been done in the absence of reliable figures. As observed by us earlier, the profit earnings capacity of the Company has not been excluded from consideration. Thus, the Valuers mode of valuation does not in anyway infringe the principles laid down in the said decisions to the extant they are applicable.19. In final analysis, we are of the view that the Valuer approached the question of valuation having the regard to the terms of settlement and applying the standard methods of valuation. The valuation has been considered from all appropriate angles. No case has been made out that any irrelevant material has been taken into account or relevant material has been eschewed from consideration by the Valuer. The plea that the valuation is vitiated by fundamental errors cannot but be rejected.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]15. The next objection is directed against theof Vertin and Colopsa brands while valuing the intrinsic worth of the company DIL. In our view, the learned Valuer has given relevant reasons forof the said brand of drugs which stood transferred to Solvay Pharmaceuticals BV from Dupen Laboratories Pvt. Ltd. They are not the existing assets of DIL. In fact, the petitioners have put in issue in one of the suits filed by them the legality of transfer and sought for a declaration that DIL continuous to be the proprietor of the two brands. The petitioners have agreed to withdraw various suits. In any case, the petitioners cannot be permitted to thwart the terms of the settlement by inviting the Valuer or this Court to go into the extraneous issue as regards the validity of the transfer or incidental matters. The assets as per the relevant records have to be taken into account by the Valuer and that has been done. We, therefore, find no apparent error in excluding those brands.16. The other objection is about DCF method of valuation which the Valuer has described as a commonly accepted method in adopting future earning based valuation. This involves discounting the net free cash flow of a business at an appropriate discount rate". We have already adverted to the reasons given by the Valuer for not adopting this method of valuation. Those reasons cannot be said to be irrelevant. It is contended that if the data and projections furnished by the parties is not reliable the Valuer should have secured the relevant data from independent sources or could have called for further particulars. We find no merit in this argument. The DCF method is adopted while resorting to valuation based on future earnings. It is not the case of the petitioners that the future earning based valuation is the only reliable method of earnings based valuation. Moreover, the petitioners have not placed any facts and figures to show that such method of valuation would result in a definite increase in the share value going by independent projections. When there are vast discrepancies between the projection given by the parties and independent projections have not been provided, the Valuer has chosen the best possible method of evaluation by capitalizing the past earnings. In doing so, the future maintainable profits based on past performance is also an element that has gone into the calculation. No prejudice whatsoever is shown to have been caused to the petitioners by the earnings based valuation.We do not think that the valuation in the instant case runs counter to the principles laid down therein. As seen from Enclosures 6.1 and 6.2 to the valuation report, the valuer had arrived at market based valuation in addition to the other modes of valuation and observed that the recommended value is the higher of the intrinsic value or the marked based value. Thus, the petitioners had the benefit of higher valuation. The first principle laid down in the above decision has been kept in view. Moreover, the profit earning method which has been referred to in the above decisions in the context of valuation of shares of a private limited Company has also been applied, though future earnings based valuation has not been done in the absence of reliable figures. As observed by us earlier, the profit earnings capacity of the Company has not been excluded from consideration. Thus, the Valuers mode of valuation does not in anyway infringe the principles laid down in the said decisions to the extant they are applicable.19. In final analysis, we are of the view that the Valuer approached the question of valuation having the regard to the terms of settlement and applying the standard methods of valuation. The valuation has been considered from all appropriate angles. No case has been made out that any irrelevant material has been taken into account or relevant material has been eschewed from consideration by the Valuer. The plea that the valuation is vitiated by fundamental errors cannot but be