Case: Bajaj Auto Limited Vs. Western Maharashtra Development Corporation Limited

2. The arbitral award passed by the Arbitrator was in favour of the Appellant. In a nutshell, the Arbitrator held that the 27% shareholding of the Respondent (30,85,712 equity shares) in a company called Maharashtra Scooters Ltd. (MSL), are to be valued, for the purposes of sale to the Appellant, at the rate of Rs.151.63 per share as on 3rd May, 2003. MSL is jointly promoted by the Appellant and the Respondent and is a public company whose shares are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).3. Being dissatisfied with the arbitral award, the Respondent before us (original Petitioners) challenged the same before the learned Single Judge under the provisions of section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) on various grounds as set out in the Arbitration Petition. After hearing the parties, the learned Single Judge, by an elaborate and reasoned order, negated all the contentions of the Respondent, save and except one, on the basis of which the award was set aside. In a nutshell, the ground on which the award was set aside by the learned Judge was that Clause 7 of the Protocol Agreement entered into between the parties and which gave the right of first refusal to the Appellant to purchase the shareholding of the Respondent, was contrary to section111A of the CompaniesAct, 1956 (the Companies Act). The learned Judge held that the effect of Clause 7 of the said Agreement was to create a right ofbetween the Appellant and the Respondent for the purchase of each others shares in MSL. The learned Judge held that MSL being a public company, the Appellant and the Respondent (being shareholders), could not have ase between themselves as the same was violative of sectionof the Companies Act. On that count alone the learned Judge set aside the arbitral award. Being aggrieved by this portion of the impugned order, the Appellant is in Appeal before us.The brief facts that give rise to the controversy are that the Respondent (original Petitioner before the learned Single Judge) is a State Government Corporation and a wholly owned undertaking of the State of Maharashtra. As stated earlier, MSL is a listed public company incorporated and registered under the provisions of Companies Act, 1956. The equity shares of MSL are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).6. MSL was incorporated pursuant to the Protocol Agreement dated 2nd October, 1974 entered into between the Appellant and the Respondent whichprovided that the Appellant would grant benefit ofand offer its assistance in the manufacture of two wheeler scooters to MSL and would also participate in the equity share capital of MSL on the terms and conditions as set out therein. In accordance with the terms and conditions of the said Agreement, the Respondent as of today continues to hold 27% of the equity shareholding of MSL and the Appellant continues to hold 24% thereof. The balance 49% of the equity shareholding of MSL is held by the public. The controversy in this Appeal No.153 of 2010 revolves around Clause 7 of the Protocol Agreement which inter alia provides that if either party desires to part with or transfer its shareholding or any part thereof, in the equity share capital of MSL, such party shall give first option to the other party for the purchase of such shares at such rate as may be agreed to between the parties or decided upon by arbitration. The procedure to be followed in such a situation is also set out in the said clause.7. It is the case of the Respondent that the Appellant had for the last 20 odd years repeatedly been requesting the Respondent to divest/transfer its 27% shareholding to the Appellant. On 30th June 2002, Mr. Raghuram of CRISIL carried out a valuation of the shareholding of the Respondent in MSL. It is the case of the Respondent that this valuation was done on the joint request of the Appellant and the Respondent. This of course has been disputed by the Appellant. Be that as it may, ultimately, some time in April 2003, the Respondent considered selling and transferring its 27% shareholding to the Appellant and in furtherance thereof, addressed a letter dated 9th April, 2003 offering to sell its 27% shareholding in MSL (30,85,712 shares) to the Appellant at a price of Rs.232.20 per share.8. In reply thereto, by their letter dated 3rd May, 2003, the Appellant, under clause 7 of the Protocol Agreement, confirmed their interest in buying the shareholding of the Respondent. It was however stated that the price at which the shares were offered was not acceptable to the Appellant and therefore, requested that a meeting be called for by a High Level Committee to carry out official negotiations to reach a fair and marketable settlement.9. In response thereto, the Respondent addressed a letter dated 7th May, 2003 calling upon the Appellant to confirm whether their letter dated 3rd May, 2003 was in response to the buy back by the Appellant. By their letter dated 10th May, 2003, the Appellant confirmed that their letter dated 3rd May, 2003 was a response to the offer made by the Respondent under clause 7 of the Protocol Agreement. It was stated that in the letter dated 3rd May, 2003 they had confirmed their intention to purchase the shares but the price offered was not acceptable to the Appellant and therefore, requested that a meeting be called for by the High Level Committee to negotiate the price. Thereafter, by their letter dated 6th June 2003, the Appellant reiterated that they were not agreeable to the price of Rs.232.20 per share as demanded by the Respondent and offered to purchase the 27% shareholding of the Respondent at the rate of Rs.75/per equity share. Again, by their letter dated 31st July, 2003 the Appellant informed the Respondent that if their offer of Rs.75/per share was not acceptable to the Respondent then arbitration be initiated in terms of clause 7 of the Protocol Agreement. It is the case of the Respondent that this correspondence clearly indicates that there was no concluded contract arrived at between the parties in respect of sale of the said shares. We will deal with this argument later in this judgment, when we deal with the Cross Objections.10. Be that as it may, as there was no agreement on the rate at which the shareholding of the Respondent would be sold to the Appellant, in terms of clause 7 of the Protocol Agreement, the Respondent addressed a letter dated 27th October, 2003 to the Arbitrator requesting him to accept his appointment as a Sole Arbitrator for the assignment to determine the value of the shares. Paragraphs 24 of the said letter read asper the Protocol Agreement, the Corporation has to make the first offer to Bajaj Auto Ltd. And in turn Bajaj Auto Ltd. has to accept or reject that offer. This process has been completed and since no agreement has been reached on the value of the share, as per the Agreement, the parties involved have to proceed to appoint a Sole Arbitrator for theare, therefore, requested to be kind enough to kindly forward your acceptance to be appointed as the Sole Arbitrator for this assignment and also communicate thecharges and venue suitable to you for the purpose of Arbitration. The detail Terms of Reference would be communicated to you later.(emphasis supplied)11. Pursuant thereto, on 29th December, 2003 a joint reference was made to the Arbitrator to decide the rate at which the shares of the Respondent would be sold to the Appellant. This joint reference has been signed by the Appellant as well as the Respondent. The said letter reads asSir,We thank you for consenting to be appointed as the Sole Arbitrator in the MSL arbitration assignment. We are outlining below the terms of reference, in this matter.1. The appointment of Sole Arbitrator is made jointly by BAL and WMDC, in terms of the Clause No.7 of the Protocol Agreement dated 2 October 1974, between WMDC and BAL, theof MSL.2. BAL had expressed its willingness to buy the stake held by WMDC in MSL. WMDC had indicated its desire to sell its shareholding in MSL. However, price per share remained in dispute and hence in accordance with clause no.7 of the protocol agreement, the question of rate for the purchase by BAL of equity shares in MSL held by WMDC is hereby referred to the Sole Arbitrator.3. The Arbitrator shall take into account the Protocol Agreement covenants and all other concerned factors which may have impact on the share price of MSL shares, while giving his arbitral award.4. The arbitral award will be final and binding on both parties.5. The Arbitrator is requested to give his award within a period of 3 months from the date of this terms of reference.6. Arbitration proceedings will be held in Mumbai.7. Cost of Arbitration shall be fixed by the Arbitration Tribunal in accordance with Sec. 31(8) of the Arbitration and Conciliation Act 1996. These costs will be shared equally by BAL and WMDC.8. BAL and WMDC will be happy to provide any information as may be required by the Arbitrator.(emphasis supplied)12. Pursuant to the aforesaid joint reference, parties appeared before the Arbitrator and led the necessary evidence. The Respondent had also challenged the jurisdiction of the Arbitrator. The Arbitrator, after considering the challenges and the evidence, by a detailed award, held in favour of the Appellant and declared that the 30,85,712 equity shares of MSL held by the Respondent (its 27% shareholding) and valued as on 3rd May 2003, are to be sold to the Appellant at a price of Rs.151.63 per share.13. Being aggrieved by the aforesaid award, the Respondent challenged the same before this Court under the provisions of section 34 of the Arbitration and Conciliation Act, 1996. As stated earlier, the learned Single Judge negated all the contentions of the Respondent herein save and except one, on the basis of which the award was set aside. Before the learned Single Judge, there was a challenge to the legality of clause 7 of the Protocol Agreement. The submission of the Respondent before the learned Single Judge was that clause 7 created a right ofand MSL being a listed public company, section111A of the CompaniesAct 1956 was thereby violated. It was the submission of the Respondent that sectionprovides that the shares or debentures of a public company and any interest therein shall be freely transferable. It was the further submission of the Respondent that section 9 of the Companies Act further provides that the provisions of the Companies Act shall have effect notwithstanding anything to the contrary contained in the Memorandum and Articles of Association of the company. It was therefore submitted that aright recognised by clause 7 of the Protocol Agreement, and which was then incorporated in the Articles of Association of MSL, must yield to the provisions of section111A of the CompaniesAct. In other words, it was submitted that clause 7 of the Protocol Agreement being contrary to the provisions of the Companies Act, was unenforceable. The learned Single Judge, after hearing the parties, upheld this contention of the Respondent and set aside the arbitral award on this sole ground. Being aggrieved by this part of the impugned order, the Appellant has filed the present Appeal (Appeal No.153 of 2010) before us.

Reasoning:
d with the judgment in Messer Holdings Ltd., Mr. Khambatta, the learned senior counsel appearing on behalf of the Respondent, submitted that whether a particular clause was a restriction on transferability of shares had to be necessarily decided on a case to case basis. He submitted that the facts in the case of Messer Holdings Ltd.(Supra) were materially different than the ones before us. The first distinguishing feature he pointed out was that, under Clause 6.1 in Messer Holdings Ltd., there was no restriction on price whereas Clause 7 of the Protocol Agreement before us compelled the Respondent to sell the shares at a price not determined by the Respondent but determined through the process of arbitration. According to Mr Khambatta, this was a very significant distinguishing feature.We cannot agree. We do not think that this distinguishing feature can make any difference to the ratio laid down in Messer Holdings Ltd. Once it is held that consensual agreements/arrangements entered into by the shareholders of a public company with a third party regarding his own specified shares (either by way of sale,or otherwise), do not impinge on free transferability of shares as contemplated under sectionthis so called distinction pails into insignificance. If the parties are free to enter into a consensual arrangement which does not infract free transferability as contemplated under sectionwe see no reason to hold that merely because the price of the shares is to be determined by the process of arbitration, the same would to be in violation of sectionThe fact that the price of the shares is to be determined by the process of arbitration is also a term of the very same consensual arrangement which is not violative of the provisions of sectionWe, therefore, find no substance in this argument.36.The second distinguishing feature that Mr. Khambatta sought to highlight is that in the facts of our case, this consensual arrangement as set out in clause 7 of the Protocol Agreement was also incorporated in Articles of Association of MSL whereas that was not the case before the Division Bench in the case of Messer Holdings Ltd. In furtherance of this argument, Mr. Khambatta submitted that the Protocol Agreement and more particularly Clause 7 thereof, was incorporated into the Articles of MSL and was therefore subsumed therein and did not independently survive. Once it was subsumed in the Articles and the same could not be incorporated the Articles of a public company, the same could notin a different avatar, was the submission.We cannot agree with this argument. Merely because the Protocol Agreement was incorporated into the Articles of MSL, does not mean that the Protocol Agreement by itself (or clause 7 thereof) ceased to exist. The Protocol Agreement governs the rights and liabilities of the parties thereto and would continue notwithstanding the fact that they were incorporated in the Articles of MSL. Therefore, even if we are to assume that such a clause was not permissible in the Articles of a public company, that would not in any way destroy the rights created under the said Agreementbetween the parties. The rights and liabilities created under the said Protocol Agreement would continue to bind the parties thereto. Even if we are to hold that the company (namely MSL) was not bound by the terms of the Protocol Agreement, it would only mean that if the Respondent sought to sell their shareholding in breach of Clause 7 of the Protocol Agreement, the company (MSL) would not be in a position to refuse such transfer, in the absence of any Court or other judicial authority granting an injunction restraining it from doing so. This does not mean that the parties to the Protocol Agreement cannot, in appropriate proceedings, seek to enforce its terms. It is one thing to say that the said clause will not bind the company and it is wholly another to contend that the said clause would not bind the parties thereto. We are, therefore, of the view that notwithstanding the fact that the Protocol Agreement was incorporated in the Articles of Association of MSL, the same would not change the nature of that agreement namely being a consensual agreement/arrangement entered into between the parties determining the manner in which each party is allowed to dispose of its particular shareholding. At the highest and assuming everything in favour of the Respondent, it could be only be held that such a clause would not bind the company. However, it would certainly bind the parties to the Protocol Agreement. We, therefore, find no substance in this argument.37. Even otherwise, we find force in the argument of Mr. Chinoy that such a clause (clause 7), even if incorporated in the Articles of Association of a public company, would not in any way violate the principles of free transferability of shares as contemplated under section111A of the CompaniesAct. Clause 7 of the Protocol Agreement and which finds place in the Articles of MSL by virtue of incorporation of the Protocol Agreement in its Articles, only sets out how the Respondent and the Appellant are to deal with their respective shareholdings. It is not a blanketclause which binds all the shareholders of MSL to sell their shares only to other members of MSL, which clauses are incorporated in the Articles of Association of a private company.clauses in the Articles of a private company are in the nature of a blanket restriction on all its members, and such clauses if incorporated in the Articles of a public company would certainly amount to a restriction on free transferability of shares as envisaged under sectionHowever, that is not the case before us. Clause 7 of the Protocol Agreement and which has been incorporated in the Articles of Association of MSL, only relates to the shareholding of the Appellant and the Respondent and their rights and liabilities in relation thereto. It does not in any way affect the rights and/or liabilities of the other members of MSL. In this view of the matter, we are of the view that merely because Clause 7 of the Protocol Agreement was incorporated in the Articles of MSL, would not invalidate the same. We are also persuaded to take this view because we find that in todays global reality, joint ventures are extremely common and clauses similar to Clause 7 of the Protocol Agreement may become necessary to ensure that a joint promotor of a company does not sell his shareholding to a competitor who then possibly could get control of his rival. In this view of the matter and looking to the totality of the facts and circumstances of the case, we are clearly of the view that Clause 7 of the Protocol Agreement does not in any way impinge upon the principle of free transferability of shares as contemplated under section111A of the Companiese are unable to uphold the order of the learned Single Judge insofar as it set aside the impugned award on the ground that Clause 7 of the Protocol Agreement imposed a restriction on free transferability of shares as contemplated under section111A of the CompaniesAct, 1956.42. Having held so, we shall now deal with the judgments relied upon by Mr. Khambatta. Thefirst two judgments of the Supreme Court relied upon by Mr. Khambatta are in the case of Needle Industries Ltd (Supra) and Darius Kavasmaneck (Supra).On going through the aforesaid judgments, we do not find anything therein that supports the contentions of the Respondent as raised herein. Neither of these judgments decide the issue that an agreement voluntarily entered into by an individual shareholder giving a right ofto a third person regarding his own shares, constitutes a restriction imposed on the right of a shareholder to transfer his shares and is therefore accordingly impermissible by virtue of section111A of the CompaniesAct. The said two judgments hold that a private company, by virtue of section 3(1)(iii), must contain provisions in its Articles of Association placing a restriction on the right of shareholders to transfer their shares, whilst a public company cannot have such a general restriction on transfer of shares by its members. We do not see how these judgments can be of any assistance in deciding the issue raised before us.Following the letter of 27th October 2003, a joint reference to arbitration was made on 29th December, 2003. The terms of reference contained an express statement of fact that the Appellant had expressed its willingness to buy the stake held by the Respondent in MSL and that the Respondent indicated its desire to sell its stake in MSL. However, what remained in dispute was the price per share to be determined, and hence, in accordance with Clause 7 of the Protocol Agreement, the question of rate at which the Appellant was to purchase the equity shares held by the Respondent in MSL, was being referred. All this material would clearly indicate that there was a concluded contract between the parties as on 3rd May, 2003 and looking at the letter dated 27th October, 2003 as well as the joint reference dated 29th December 2003, clearly establishes that even the parties understood it to be so. If according to the Respondent there was no concluded contract, then there would have been no occasion to either address the letter dated 27th October, 2003 to the Arbitrator or make a joint reference to him under clause 7 of the Protocol Agreement for determining the rate at which the shareholding of the Respondent would be sold to the Appellant. It is only for the first time in the application filed by the Respondent before the Arbitrator on 6th April 2004, that the Respondent sought to question as to whether a concluded contract had been arrived at. This to our mind was obviously anand was a clear deviation from the manner in which the Respondent had understood the course of dealings between the parties. We therefore have no hesitation in holding that on the basis of the correspondence exchanged between the parties and the Arbitrator, there was a concluded contract for sale of the Respondents 27% shareholding in MSL to the Appellant. The only question that the Arbitrator had to decide was the rate at which the said shares were to be sold as contemplated under Clause 7 of the Protocol Agreement and it was on this basis that a joint reference was made to the Arbitrator. We, therefore, are unable to agree with the submission of Mr Samdani that on reading the correspondence between the parties viz. the letters dated 9th April 2003, 3rd May 2003, 10th May, 2003 and 6th June, 2003 it was established that there was no concluded contract as on 3rd May, 2003.59. We are also unable to agree with the submission of Mr Samdani that because the parties were notwith respect to the date on which the valuation was required to be done, there was no concluded contract or that determining the same was outside the scope of the joint reference made to the Arbitrator. It may be noted that the joint reference was made to the Arbitrator on the basis that there was a concluded contract between the parties with reference to the sale of the Respondents 27% shareholding in MSL to the Appellant. The only question that the Arbitrator was required to decide was the rate at which the said shareholding ought to be sold. In deciding this question, necessarily as a matter of fact, the Arbitrator had to ascertain the date on which the shares of the Respondent were to be valued. A decision on the date was an integral part of deciding the rate at which the Respondents 27% shareholding was to be sold to the Appellant.60. To our mind, this is also contemplated in the joint reference dated 29th December, 2003 which specifically states that the Arbitrator shall take into account the Protocol Agreement covenants and all other concerned factors which may have an impact on the share price of MSL shares while giving the arbitral award. It cannot seriously be disputed that the date of valuation would certainly be one of the factors which would have an impact on the share price of MSL shares.61. The Arbitrator held that the relevant date of valuation would be 3rd May 2003, which was the date on which the concluded contract was arrived at between the parties. In our view, in holding so, the Arbitrator had not transgressed and / or exceeded his jurisdiction, and the determination of the date on which the valuation was to be done, was very much within the scope of the joint reference dated 29th December, 2003. We find that the Arbitrator has correctly taken the date as 3rd May, 2003 being the date when a concluded contract was arrived at between the parties for the sale of the Respondents 27% shareholding in MSL to the Appellant. We find that the Arbitrator has dealt with this issue in detail from paragraphs 30 to 36 of the award. We do not find any perversity in the same. Similarly, we find that the learned Single Judge has dealt with this issue in paragraphs 16 to 19 of the impugned order and we are in full agreement with the reasoning contained therein. This contention, therefore, of Mr Samdani will also have to beMSL is a listed Company whose shares are quoted on the Stock Exchange. Despite this, both the valuers viz. Mr Raghuram as well as Mr Bansi Mehta did not adopt this method of valuation because the average quoted price of MSL shares in 2003 was approx Rs.65/per share which did not reflect its true value. It is for this reason that both the valuers adopted the NAV method with one distinction viz. Mr Raghuram valued it on a going concern basis without giving any discounts whereas Mr Bansi Mehta valued it on a liquidation basis and for the purposes of valuation, took into account certain discounts.In the facts of the present case, as stated earlier, Mr Raghuram as well as Mr Bansi Mehta both preferred to adopt the NAV method (which is really speaking thevalue method, or valuation with reference to the assets of the company) subject to one distinction, viz. that Mr Raghuram adopted the NAV method on a going concern basis without taking into account any discounts, whereas Mr Bansi Mehta adopted the NAV method on a liquidation basis and took into account certain discounts for the purposes of valuation. This was done by Mr. Bansi Mehta in view of the peculiar circumstances of MSLs functioning and the fact that its operating segment was not only making repeated losses over the years but that admittedly it was incapable of making any profits. Both the aforesaid reports were considered in detail by thetaking into consideration the totality of the facts of the case and he peculiar circumstances of MSLs functioning and the fact that its operating segment (core business) was not only making repeated losses over the years, but admittedly it was incapable of making any profits, the Arbitrator accepted the valuation of Mr. Bansi Mehta, which valued the shares of MSL on the NAV method on liquidation basis. It has come on record that the net profit of a company of this magnitude for the financial year 2003, was merely Rs. 34 lacs after adjusting the operating loss of Rs.5 Crores against the income received from the investments. As stated earlier, the core business of MSL (assembling scooters) was not only suffering repeated losses over the years but was not even in a position tolet alone make any profits. We, therefore, find that the learned Arbitrator committed no error in accepting Mr. Bansi Mehtas valuation report which values the shares of MSL on the NAV method on a liquidation basis. The Arbitrator has accepted said report of Mr. Bansi Mehta after carefully taking into consideration the evidence of Mr. Bansi Mehta as well as his cross examination. Looking to the reasoning and the analysis of the evidence done by the Arbitrator, we do not think that the arbitral award suffers from any patent illegality or perversity either entitling the learned single judge (under section 34) or us (under section 37) to interfere with the same. We therefore find that the learned Single Judge rightly declined to interfere with the arbitral award on this issue. We must also mention here that the only distinction that was sought to be made by Mr Samdani between the going concern valuation and the liquidation basis valuation was that when the valuation was done on the NAV method on a going concern basis, there was no question of taking into account any discounts, whilst arriving at the valuation. However, Mr Samdani was unable to make good this submission. We fail to see on what basis this submission is made. To our mind discounts are to be applied on the market value of the assets because what has to be worked out is what a shareholder can expect to get after all the assets of the Company are notionally sold and in abstract theory the entire sale proceeds are distributed to the shareholders. Whatever dues the Company would have to pay (statutory or otherwise) whilst selling its assets would have to be taken into account whilst arriving at the market value of the assets being sold. This to our mind, would be the position whether you value the Company on the NAV method on a going concern basis or on the NAV method on a liquidation basis. We therefore fail to see on what basis it is submitted that when a Company is valued on the NAV method on a going concern basis, there is no question of any discounts.In the facts of the present case, we have already found that Mr Bansi Mehta adopted a recognised method of valuation which was accepted by the Arbitrator and did not proceed on a fundamentally erroneous basis so that the said valuation could be assailed. As stated earlier, Mr Bansi Mehta chose to value the shares of MSL by adopting the NAV method on a liquidation basis looking to the peculiar functioning of MSL and the facts and circumstances of the case. Furthermore, it is not as if Mr Bansi Mehtas valuation report was treated as gospel truth and accepted by the Arbitrator. The Arbitrator took into account the first and the second valuation reports of Mr Raghuram as well as the valuation report of Mr Bansi Mehta and after analyzing the detailed evidence led by the parties in relation to the said reports, sought to accept Mr Bansi Mehtas report subject to two changes as indicated earlier. Valuation being a question of fact as laid down by the Supreme Court in G.L. Sultanias case, coupled with the fact that the scope of interference with an arbitral award under section 34 of the Act is in any case only on certain limited parameters, we would be entitled to interfere with the award only if it is demonstrated that by accepting the discounts taken into consideration by Mr. Bansi Mehta in his valuation report, the Arbitrator committed any patent illegality or the award suffered from the vice of perversity.77. Having said this, we shall now deal with each of the discounts independently. The first discount taken into account was an amount of Rs.30 crores towards VRS (Voluntary Retirement Scheme). Before we deal with this discount on merits, we must mention here that as rightly submitted by Mr Chinoy, no such ground is taken in section 34 petition and neither was the said contention urged before the learned Single Judge. In fact the contentions raised before the learned Single Judge have been listed at paragraph 13 of the impugned order and there is no mention of this contention. This is probably why we find no discussion on this issue in the impugned judgment. We would therefore be justified in not allowing Mr Samdani to urge this contention for the first time before us.In addition to the aforesaid, we may also note that Mr Raghuram himself in his first report (as on 30th June 2002), considering the value of MSL shares on the NAV method on a liquidation basis, had also provided for an adjustment of Rs.222.44 million towards VRS costs. This in fact has been taken note of even by the Arbitrator in paragraph 60 of the arbitral award. We therefore do not find any illegality or perversity in the arbitral award when this adjustment towards VRS was taken into account for the purpose of arriving at the valuation of MSL shares. This argument of Mr Samdani will therefore have to bemust note what Mr. Bansi Mehta has stated in his valuation report as well as his evidence before the Arbitrator. Mr Bansi Mehta has pointed out that in valuing the shares of MSL on the basis of thevalue of its assets on a notional liquidation, what has to be worked out is what a shareholder can expect to get if the investee company (in this case, MSL) were to realize its investment, and in abstract theory distribute the entire proceeds of such asset sale to its shareholders.The Arbitrator, after taking note of all the material on record, held that if MSL was to sell the BAL shares held by it, MSL would have to pay 10.5% towards capital gains tax, would have to transfer 10% of the receipt to Reserves and would have to pay 12.5% plus surcharge as the dividend tax. It is on this basis, and after carefully considering the evidence of Mr. Bansi Mehta, that the Arbitrator has discounted sale value of BAL shares by 30%. We also find that if the shares of MSL were required to be valued on the basis of the NAV method on a notional sale / liquidation basis, the value amount realized by a notional sale of its assets, would necessarily have to be discounted/reduced by the costs which would have to be statutorily incurred on such notional sale.Looking to the valuation report and the evidence of Mr. Bansi Mehta, as well as the detailed reasoning of the Arbitrator on this aspect, we are unable to agree with Mr. Samdani that the Arbitrator committed any fundamental error whilst accepting the discount of 30% on the sale value of BAL shares. We do not find any perversity or patent illegality or any error apparent on the face of the award that makes it vulnerable to challenge on this aspect. This argument of Mr. Samdani would therefore also have to be rejected.However, in the facts of the present case, we find the reliance placed on the aforesaid provisions as wholly misplaced. As noted earlier, Mr. Bansi Mehta in his evidence clearly stipulated in paragraph 5.4 of his report that the fair market value of BAL shares must allow for a discount of about 30% and that the BAL shares held by MSL valued at the six monthly average rate set out in Appendix5 of his valuation report should be further discounted by no less than the 30%. It is on the basis of this evidence that the Arbitrator had applied the discount of 30% to the value of BAL shares. This figure of 30% is directly traceable to the evidence of Mr. Bansi Mehta, who has in categorical terms stated that the discount should be no less than the 30%. The observations of the Arbitrator in paragraph 100 of the arbitral award fixing the 30% discount on the ground that it should be just, fair and reasonable and would meet the ends of justice, cannot be read in isolation or be utilized to suggest that the Arbitrator was applying his own notion of what was fair, equitable and just. We, therefore, do not find any substance in this argument.91. However, whilst we are dealing with paragraph 100 of the arbitral award, it would be important to mention that in one area, there is an error of fact on the part of the Arbitrator where he refers to the first report of Raghuram as having indicated a discount of 30% to 40%. Admittedly, the discount that was referred to in the first report of Raghuram dealt with the discount on MSLs shares and not BAL shares. On this aspect, the Arbitrator has clearly made a mistake. However, we do not think that the mistake is such that would vitiate the entire arbitral award. As discussed earlier, there was a wealth of evidence before the Arbitrator and which was accepted by him, to demonstrate that a discount of 30% on the sale value of BAL shares was sustainable, both on a conceptual as well as an empirical basis.Mr. Bansi Mehta, therefore, has stated his reasons for taking the book value of theshares/investments as opposed to their market value. He has further stated that he has adopted this approach since he believed that there may not be any material difference between the market value and the book value of these pure financial assets. He has further stated that prima facie almost the entire appreciation may have arisen on account of MSLs share holding in BAL which were considered separately in the valuation report and have been valued on their market value. In answer to Question No.164 also, Mr. Bansi Mehta has stated that theinvestments can beeasily and his own data indicated that there was not much appreciation in these investments. As there was no material appreciation on these investments, Mr. Bansi Mehta thought that it was a fit case to value theinvestments on their book value as opposed to their market value. Mr. Bansi Mehta, in answer to Question No.173, has explained that if he had valued these investments on the market value basis, he would have had to apply a discount to that value as was done in the case of BAL shares and in such an eventuality the market value of these investments would have been lower than their book value. This is the justification given by Mr. Bansi Mehta for valuing theshares/investments on their book value as opposed to their market value.95. On going through the evidence of Mr. Bansi Mehta as well as the reasoning of the Arbitrator, we do not find any fundamental error in the approach of Mr. Bansi Mehta in valuing theshares/investments on a book value basis as opposed to their market value. There is cogent justification with evidence for valuing theshares/investments on their book value as opposed to their market value. We also find that the learned Single Judge has followed the same reasoning in paragraph 31 of the impugned order and we fully agree with the reasoning contained therein. We, therefore, are unable to agree with the submissions of Mr. Samdani that because theshares/investments were valued at their book value, the same was a fundamental error in the approach of valuation that opened up the arbitral award to challenge. This argument of Mr. Samdani would also therefore have to be rejected.On the aspect of control premium, we note that this issue has been discussed in great detail by the Arbitrator in paragraphs 59, 65, 74 and 75 of the arbitral award. The Arbitrator, in paragraph 59 of the arbitral award has referred to the first valuation report of Mr Raghuram (as on 30th June, 2002) where he himself concluded that though the sale of the Respondents 27% shareholding to the Appellant would give the Appellant 51% shareholding in MSL, the nature of the shareholders agreement between the Appellant and the Respondent had already bestowed effective management control to the Appellant without boardroom control. Mr Raghuram therefore himself concluded that the peculiar nature of the shareholders agreement between the Appellant and the Respondent would imply that the rationale for control premium might not exist. The conclusion of Mr Raghuram in the said first valuation report was that taking into consideration the peculiar nature of the shareholders agreement between the Appellant and the Respondent would result in a market discount being offered to an alternative potential buyer to compensate for the lack of effective control.Having opined in his first valuation report that instead of any control premium being applied, the circumstances called for a discount being given on account of the fact that the Appellant was already having management control, Mr Raghuram in his second report did a complete turn around and concluded that in the same circumstances as stated above, a control premium to the extent of 84.85 % would be applicable and that too on the fair value of share and not the market value thereof, which at that time was approximately Rs.65/per share. The Arbitrator considered all these factors (especially in paragraphs 59, 65, 70, 74 and 75 of the award) and concluded that there was no basis for the inclusion / addition of any control premium. We find that the Arbitrator has considered all the relevant evidence placed before him and then come to the conclusion that the rationale for control premium would, therefore, not exist in the facts of this case. We do not think that the findings of the Arbitrator on this aspect suffer from any perversity or patent illegality, entitling us to interfere with the same under section 34 of the Arbitration and Conciliation Act, 1996.99. For the reasons stated earlier in this judgment, we do not find any merit in the Cross Objections. We must mention here that under the arbitral award, the Arbitrator directed that the 30,85,712 equity shares of MSL held by the Respondent herein, are to be valued for the purpose of sale to the Appellant at Rs.151.63/per share. As per the said direction, the amount that would have to be paid by the Appellant to the Respondent for the purchase of the said 30,85,712 equity shares would come to Rs.46,78,86,510.56. In the peculiar facts and circumstances of the case, and considering the fact that this amount has admittedly not been paid till date by the Appellant to the Respondent herein, we think that the interests of justice would be served, if this amount is paid by the Appellant to the Respondent together with simple interest @ 18% per annum from the date of the Award (14th January, 2006) till payment.