Case: Hansa Inds.Pvt.Ltd.  Vs. Kidarsons Inds.P.Ltd

2. To appreciate the background in which the two aforesaid issues arise, it is necessary to refer to the factual background of the case. The relevant facts are really not in dispute. The Respondent No.1 - Company, namely - Kidarsons Industries Pvt. Ltd. is a Private Limited Company closely held by the Nanda family. Except for a few shares held by their relatives and friends the entire shareholding of the Company is that of the members of the Nanda family. Appellant No.2 before us is Shri Narendra Nath Nanda. His three brothers namely, Mohinder Nath, Varinder Nath and Rajinder Nath were the respondents in the High Court alongwith their mother, who is no more.3. The main source of income of Respondent No.1 - Company was the commission earned from the agency business of M/s. Thyssen Sthal Union of Germany (hereinafter referred to as Thyssen). Disputes arose between the brothers, and it appears that appellant No.2 succeeded in getting the agency exclusively in his name. M/s. Thyssen served a notice on Respondent No.1 - Company terminating their agency w.e.f. June 30, 1988 and thereafter the agency was given to appellant No.1, namely Hansa Industries Private Limited, a company controlled by appellant No.2.4. After the termination of the agency of Respondent No.1 - Company, the appellants herein filed a petition for winding up of Respondent No.1 - Company alleging that the agency having been terminated, the main source of income of the Company had vanished and, therefore, it was just and equitable to wind up the Company. On the other hand, the Respondents filed a suit for declaration and for injunction restraining the appellants from carrying on the agency business by holding themselves out as the agent of M/s. Thyssen.5. During the pendency of the proceedings the parties arrived at a compromise whereby appellant No.2 Narendra Nath Nanda and his group agreed to transfer their equity shares in Kidarsons Industries (P) Ltd. Respondent No.1 - Company, constituting 30.14% of the share capital of Respondent No.1 - Company, in favour of the respondents. The price of the shares was to be paid in specie by transferring to the appellants 30.14% of the assets of the Company. The agency of Thyssen was to be retained by Narendra Nath Nanda, appellant No.2 and his group. The relevant terms of the settlement are theThat the price of the aforesaid 5654 (later corrected as 5564) equity shares of Kidarsons Industries (P) Ltd., will be paid to Shri Narendra Nath Nanda, and/or his nominees in specie by Company by transferring to him 30.14% of the assets of the Company. Marginal amount not exceeding 5 lakhs may be paid by the company to Shri Narendra Nath Nanda and/or his nominees as the case may be, in cash if found necessary. Similarly Shri Narendra Nath Nanda may make similar compensatory equilisation payment to the company. Parties by consent can, however, agree to a larger amount.6. That Shri P.N Khanna, Retired Judge is at present acting as a Mediator. He will act as a Commissioner, to separate 30.14% of the assets of the company to be given to Shri Narendra Nath Nanda Group as set out hereinbefore.10. Assets of the company will be valued as on 01.07.1988.14. Shri Narendra Nath Nanda will continue to occupy the portion of the property of the company in which he is at present residing as deemed owner/owner, and the value of such portion will be taken into account for evaluating the assets of the company. The value of such part of the property as is occupied by Shri Narendra Nath Nanda will be adjusted in the value of his share.16. That for the purpose of valuation of share of Shri Narendra Nath Nanda Group, the property No.K-72, Udyog Nagar, Rohtak Road, Delhi will be treated as the property of the company.19. This agreement will be filed in the Suit No.1310 of 1988 and C.P. No.28 of 1988, and appropriate orders will be passed in the suit".Justice P.N. Khanna acting as the Commissioner allotted the Golf Links property to the group of appellant No.2 even though he found that appellant No.2 and his group were entitled to get assets worth Rs.1.10 crores whereas the value of the property was Rs.1.82 crores. However, since further disputes arose between the parties the matter came up before the Court and it was agreed by the parties that the valuation of the shares of Respondent No.1 - Company namely, Kidarsons Industries Private Ltd. and the immovable properties owned by the Company shall be done, and for this purpose the Court by its order of August 30, 1990 appointed M/s. V. Shankar Aiyer and Company as the Chartered Accountants for valuing the assets of the Respondent No.1 - Company. They were required to work out the value of each share after valuing the assets as well as the liabilities of the Company. The Court passed an order to this effect on September 4, 1990.7. The Chartered Accountants gave their report and worked out the net assets of Respondent No.1 - Company at Rs.1,68,95,570/-. On that basis the value of each share was worked out as Rs.916/-. From this the valuers deducted 20% on account of provision restricting transfer of the shares of Respondent No.1 - Company. By this process, the value of each share was worked out to be Rs.733/-.8. Appellant No.2 filed his objections to the report of the Chartered Accountants which was dismissed by a learned Judge of the High Court by his Judgment and order dated February 5, 1993. Objections were raised such as those relating to valuation of goodwill, valuation of tenancy rights, valuation of Udyog Nagar plot, deduction from the value of the assets, provision for capital gains tax liability which may be payable on the hypothetical transfer of property, the deductions made from the value of the shares on account of restriction on transfer of the shares, and the question of allotment of a portion of the Golf Links property in favour of appellant No.2 Shri Narendra Nath Nanda in terms of Clause 14 of the settlement between the parties.

Court's reasoning:
16. It is true that the High Court has taken note of the practicalities of the situation and has proceeded on the basis that the appellants and the respondents cannot peacefully live in the same premises. The High Court has, therefore, not favoured allotment of a portion of the house in favour of appellant No.2 and has approved the allotment of the house to the respondents who owned the majority shares in the respondent No.1 Company. This was done with a view to ensure that the parties live separately but in peace and harmony. We cannot find fault with the concern shown by the High Court, but the problem which arises in the instant case is that the High Court was not considering a matter in which it could have exercised its discretion to make allotment one way or the other as in a case of family partition. The decree of the Court is based upon a settlement reached between the parties. Even at the time when the settlement was reached the parties were well aware of the strained relationship which existed and the unfortunate events that occurred between the branch of appellant No.2 and the remaining members of the family. Despite this, it was agreed by all of them that the portion in occupation of appellant No.2 shall be allotted to him and the value thereof adjusted against his share. The respondents cannot now be heard to say that it would be inconvenient for them to reside with appellant No.2 and his family members in the same house, though in separate portions. The question as to how the parties will manage their affairs is a matter with which they only are primarily concerned and the Court cannot advise them in the matter. It may be that the architects may provide a solution for their problems, or it may be that in view of the circumstances one party may agree to sell its share or buy the share of the other party with a view to purchase peace, if that becomes necessary. These are matters in which the Court may have nothing to say.17. Clause 14 of the settlement being unambiguous, clear and categoric, it must be given effect because one cannot term the said Clause 14 as vitiated by fraud, or illegal being in breach of any statutory provision, or against public policy, or hit by the principle of impossibility of performance. The settlement was made bona fide by the parties to resolve all their disputes and all facts were known to the parties when they reached the settlement. With their eyes open and fully aware of their experiences of the past, they agreed to share the Golf Links property. The relevant clause in the settlement is not vitiated by any consideration which may impel the court not to give effect to that clause in the settlement. The question of practical inconvenience should have concerned the respondents when they entered into the settlement. They cannot at the stage of implementation of the settlement avoid a covenant in the settlement solemnly incorporated with their consent on the pretext of practical inconvenience of living in the same house, albeit in separate portions, in the unfortunate background of bickerings and acrimony. This issue must, therefore, be decided in favour of thefind from the judgment of the High Court that the matter was discussed at length and the Court was of the view, prima facie, that the transfers may attract capital gains tax. There was, therefore, justification for deduction of the anticipated capital gains tax liability from the total value ofcounsel for the appellant made a clear and categoric statement before us that if any liability arises out of the valuation of the assets or capital gains relating to properties covered by the settlement, the appellants shall be liable to discharge that liability. The appellants are willing to execute an undertaking to this effect and to creating a charge on the assets which may fall to their share for discharge of such tax liability, if any,No.1 shall be entitled to challenge the tax demand, if any, for which necessary funds will be made available by the appellants. All this has been stated on the assumption that on a future date there is a demand of capital gains tax by the tax authority on the alleged transfers made under the settlement.20. We are of the view that since no demand of capital gains tax has been made so far, if any such demand is made in future in respect of the transfer of assets under the settlement for which 20% has been deducted by the Chartered Accountants, the respondent - Company shall challenge the demand provided the appellants shall place at its disposal necessary funds for the purpose. In any event the liability under the head "capital gains", if any, shall be that of the appellants who shall furnish an undertaking to this effect accepting their liability, and create a charge over the aforesaid assets to secure payment of capital gains tax, if any, imposed in future. Subject to this being done, there shall be no deduction from the value of the assets of the company of the anticipated liability of capital gains