Case Note & Summary
The case involves two appeals filed against an order of the Company Law Board (CLB) dated 5.5.2003 in Company Petition No. 12 of 1998. The appellant, Vinod Kumar, holding 40% shares in M/s. Sigmalon Equipment P. Ltd., filed a petition under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement by the majority shareholders. The CLB, by order dated 20.8.1999, gave two options to the petitioner: either to sell his shares at market value to the majority or to purchase the majority's shares at a value determined by the CLB. The petitioner opted to sell his shares. Subsequently, the CLB determined the market value of the shares. Both parties appealed against the CLB's order. The High Court framed two substantial questions of law: (1) whether the market value determined was just and proper, and (2) whether the respondent would continue to exercise rights as a director until the valuation amount is paid. The court held that the market value determined by the CLB was just and proper, and no interference was required. On the second issue, the court held that once the valuation of shares is determined, the shareholder ceases to be a director, and the right to continue as director does not survive until payment. The appeals were disposed of accordingly.
Headnote
A) Company Law - Oppression and Mismanagement - Sections 397, 398 Companies Act, 1956 - Share Valuation - The Company Law Board gave two options to the petitioner: either to sell his shares at market value or to purchase the majority's shares. The petitioner opted to sell his shares. The court held that the market value determined by the Company Law Board was just and proper, and no interference was warranted. (Paras 1-5)
B) Company Law - Director's Rights - Cessation upon Valuation - The court held that once the valuation of shares is determined, the shareholder ceases to be a director of the company, and the right to continue as director does not survive until payment of the valuation amount. The director's rights are extinguished upon valuation, not upon payment. (Paras 2-3)
Issue of Consideration
Whether the market value determined in respect of the shares held by the Respondent can be said to be just and proper; Whether the Respondent would continue to exercise rights as Director of the Appellant Company until the amount towards the valuation of his shares held by the Respondent is paid over to him.
Final Decision
The court answered both questions of law in favor of the company and others. It held that the market value determined by the Company Law Board was just and proper, and that the respondent (Vinod Kumar) ceases to be a director upon valuation of his shares, not upon payment. The appeals were disposed of accordingly.
Law Points
- Market value of shares determined by Company Law Board is just and proper
- Director ceases to be director upon valuation of shares
- not upon payment
- Section 10F Companies Act 1956
- Section 397 and 398 Companies Act 1956
Case Details
Company Appeal No.3 of 2004 and Company Appeal No.6 of 2003 in Company Petition No. 12 of 1998
Vinod Kumar (in Company Appeal No.3 of 2004); M/s. Sigmalon Equipment P.Ltd and Ors. (in Company Appeal No.6 of 2003)
M/s. Sigmalon Equipment P.Ltd and Ors. (in Company Appeal No.3 of 2004); Vinod Kumar (in Company Appeal No.6 of 2003)
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Appeals against order of Company Law Board in a petition under Sections 397 and 398 of the Companies Act, 1956 alleging oppression and mismanagement.
Remedy Sought
The appellant (Vinod Kumar) sought to challenge the market value determined for his shares and to continue as director until payment; the appellants (company and others) sought to uphold the valuation and cessation of directorship.
Filing Reason
The petitioner (Vinod Kumar) alleged oppression and mismanagement by the majority shareholders in the affairs of the first respondent company.
Previous Decisions
The Company Law Board passed an order dated 20.8.1999 giving two options to the petitioner: to sell his shares at market value or to purchase the majority's shares. The petitioner opted to sell. Subsequently, the CLB determined the market value by order dated 5.5.2003.
Issues
Whether the market value determined in respect of the shares held by the Respondent can be said to be just and proper?
Whether the Respondent would continue to exercise rights as Director of the Appellant Company until the amount towards the valuation of his shares held by the Respondent is paid over to him?
Submissions/Arguments
The appellant (Vinod Kumar) argued that the market value determined was not just and proper and that he should continue as director until payment.
The appellants (company and others) argued that the valuation was correct and that the director's rights cease upon valuation.
Ratio Decidendi
The market value of shares determined by the Company Law Board under Sections 397 and 398 of the Companies Act, 1956 is just and proper and not liable to interference unless shown to be perverse. A shareholder who opts to sell his shares under such an order ceases to be a director upon the determination of the valuation, and the right to continue as director does not survive until payment of the valuation amount.
Judgment Excerpts
Both these appeals are filed against the order passed by the Company Law Board on 5.5.2003 in Company Petition NO.12 of 1992.
The present appeal is filed under section 10(f) of the Companies Act, 1956 raising two substantial questions of law...
The petitioner Mr. Vinod Kumar who is holding 40% of the shares in the respondent no.1 company preferred a petition under section 397 and 398 of the Companies Act, 1956 before the Company Law Board.
Procedural History
The Company Law Board passed an order dated 20.8.1999 giving two options to the petitioner. The petitioner opted to sell his shares. The CLB then determined the market value by order dated 5.5.2003. Both parties appealed to the High Court. The High Court framed two substantial questions of law on 15.1.2004 and disposed of the appeals on 16.6.2005.
Acts & Sections
- Companies Act, 1956: 10F, 397, 398
