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CASE NO.:

Appeal (civil) 1672 of 2006

PETITIONER:

G.L. Sultania and another

RESPONDENT:

The Securities and Exchange Board of India and others

DATE OF JUDGMENT: 16/05/2007

BENCH:

B.P. SINGH & ALTAMAS KABIR

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL NO. 1704 OF 2006

H.L. Somany and others \005.Appellants

Versus

The Securities and Exchange

Board of India and others \005.Respondents

AND

CIVIL APPEAL NO. 1740 OF 2006

R.K. Somany and others \005.Appellants

Versus

The Securities and Exchange

Board of India and others \005.Respondents

B.P.SINGH, J.

1. This batch of appeals has been preferred by the

appellants under Section 15Z of the Securities and Exchange Board of

India Act, 1992 (hereinafter referred to as the 'Act') impugning the

common judgment and order of the Securities Appellate Tribunal,

Mumbai dated December 8, 2005 disposing of eleven appeals before

it. While Civil Appeal No.1672/2006 arises out of Appeal Nos. 134

and 138 of 2005; Civil Appeal No.1704/2006 has been filed against

Appeal Nos. 137, 159, 160, 161 and 164 of 2005 and Civil Appeal

No.1740 of 2006 has been filed against Appeal Nos. 158, 162, 163

and 139 of 2005. The Appellate Tribunal by its impugned judgment

and order dismissed all the appeals.

2. The grievance of the appellants before the Securities

Appellate Tribunal was that the Securities and Exchange Board

(hereinafter referred to as the 'Board') as well as the Merchant Banker

had not properly valued the shares of the target company in

accordance with the parameters laid down in Regulation 20(5) of the

Securities and Exchange Board of India (Substantial Acquisition of

Shares and Takeovers) Regulations, 1997 (hereinafter referred to as

the 'Takeover Code'). Respondent No.3, who is the real contesting

respondent, on the other hand contended before the Appellate

Tribunal that the valuation of shares was done having regard to the

parameters laid down under Regulation 20(5) of the Takeover Code

and the Board had taken all necessary precautions to safeguard the

interest of the shareholders so as to ensure payment of best price for

the shares to be sold by them. It was further contended that the shares

were valued by three reputed firms of valuers and the Board

ultimately approved the highest price per share determined by the firm

of valuers appointed by the Board namely, M/s. Patni and Company.

3. Learned counsel for the appellants argued at length in his

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effort to satisfy us that the price approved by the Board for

incorporation in public offer under the provisions of the Takeover

Code was not a fair price and that in reaching that valuation the valuer

had committed mistakes in as much as it had not properly appreciated

the requirements of Regulation 20 (5) of the Takeover Code. On the

other hand counsel for the respondents with equal vehemence

supported the conclusion reached by the Appellate Tribunal and

submitted that the valuers had taken into account the parameters laid

down under Regulation 20(5) of the Takeover Code and a valuation so

arrived at could not be successfully challenged. It was also submitted

that valuation of shares is a technical matter and this job must be

entrusted to the specialists in the field. Interference by the Court must

be limited to those cases where it is shown that while working out the

valuation the valuer completely lost sight of the requirements of

Regulation 20 (5) of the Takeover Code or committed some such

grave error of law or principle which necessitated Court's interference

and resultantly necessitated a fresh valuation in accordance with the

provisions of the Takeover Code. Learned senior counsel submitted

that in the facts of this case there was no justification for not accepting

the valuation suggested by M/s. Patni and Company who had been

appointed for the purpose by the Board.

4. Though the issue involved in the appeals lies within a

narrow compass, in view of the submissions vehemently urged on

either side it becomes necessary to recapitulate the essential facts

which provide the background in which the dispute has arisen. These

facts are more or less admitted by the parties.

5. The acquirers are Respondent Nos. 2 and 3 herein

namely, ACE Glass Containers Ltd., and Shri C.K. Somany

respectively. Respondent No.4 is the target company Hindustan

National Glass and Industries Ltd.

6. It is not in dispute that the Somany family comprising of

four brothers managed several companies including the target

company. All the brothers held equal shares in the target company

and the public share-holding in the target company was negligible,

that is less than 0.30%. The shares of the target company are

infrequently traded. In the year 1994 about 40% of the equity capital

of the target company was transferred to Shri C.K. Somany pursuant

to a family settlement arrived at between the brothers. According to

the appellants on August 5, 1994 there was an agreement between

Shri C.K. Somany, Respondent No.3 and his brothers for the sale of

the entire balance shareholding in the target company held by his

brothers to Respondent No.3, Shri C.K. Somany at the price of

Rs.267/- per share. This, however, is disputed by Respondent No.3,

Shri C.K. Somany. In this background disputes arose between the

parties and the brothers of Respondent No.3, Shri C.K. Somany filed

Civil Suit No.35 of 1997 before the Calcuatta High Court against

Respondent Nos.2 and 3 and others for specific performance of the

agreement dated August 5, 1994. In that suit an ex-parte order of

injunction was passed restraining Respondent No.3 Shri C.K. Somany

from selling the shares obtained from the other brothers in the target

company. In his written statement Respondent No.3 Shri C.K.

Somany made a counter claim and prayed for a mandatory injunction

directing Shri R.K. Somany to sell 3,40,000 shares of the target

company to him @ Rs.15 per share, and the remaining two brothers to

sell their shareholding in the target company @ Rs.40 per share which

was the prevailing price on the date of the filing of the suit.

7. During the pendency of the Suit Shri S.K. Somany one of

the brothers of Respondent No.3 offered to sell 7.30% share held by

him in the target company on the basis of price mutually acceptable to

the parties. In view of the agreement arrived at between the two

brothers, Respondent No.3 Shri C.K. Somany moved the Calcutta

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High Court for modification of the interim order thereby permitting

him to acquire 7.30% shares of Shri S.K. Somany in the target

company. This triggered the provisions of the Takeover Code which

obliged Respondent No.3, Shri C.K. Somany to make a public

announcement to acquire shares in accordance with the Takeover

Code. In accordance with Regulation 16 of the Takeover Code he

was obliged inter-alia to include in the public announcement the

minimum offer price for each fully paid up or partly paid up share.

The application made by Respondent No.3, Shri C.K.Somany for

exemption for making an open offer was rejected by the Board and he

was directed to comply with the requirements of the Takeover Code

particularly those contained in Chapter 3 thereof. A Memorandum of

Understanding had been recorded on October 7, 2002 between

Respondent No.3, Shri C.K. Somany and his brother Shri S.K.

Somany to acquire 7.30% of the shares of the latter in the target

company @ Rs.40 per share. However, in view of the directions of

the Board, Respondent No.3 was required to make an open offer to all

the share-holders of the target company including his brothers.

8. The public announcement was made by respondent Nos.2

and 3 herein to acquire the balance 19.19% share of the target

company held by the minority shareholders on November 30, 2003.

The offer price proposed to be mentioned in the public announcement

was Rs.40 per share as determined by the Merchant Banker namely,

M/s. UTI Bank on the basis of the MOU dated October 7, 2002

between Respondent No.3 Shri C.K. Somany and his brother Shri

S.K. Somany for sale of the shares of the target company @ Rs.40 per

share.

9. The appellants complained to the Board that the price

offered for the shares in the public announcement was very low and

had not been determined in accordance with the parameters laid down

in Regulation 20(5) of the Takeover Code. Since the price offered by

the acquirers respondents 2 and 3 as determined by the Merchant

Banker was not acceptable to the appellants, respondents 2 and 3 in

consultation with the Merchant Banker namely, M/s. UTI Bank

appointed M/s. Deloitte Haskin and Sells, a firm of Chartered

Accountants, to value the shares of the target company. The aforesaid

firm of valuers determined the price of each share of the target

company as Rs.43.02 Ps. The appellants still persisted in their

objection that the value of each share determined by the aforesaid firm

of valuers was not correct.

10. Before approving the draft letter of offer, and having

regard to the objections raised by the appellants, the Board appointed

M/s. Patni & Company to value the shares. The aforesaid valuers

namely, M/s. Patni & Company valued the shares of the target

company at the rate of Rs.63.50 per share by one method and

Rs.64.17 by another method which had the approval of this Court in

Hindustan Lever Employees' Union vs. Hindustan Lever Ltd. and

Others : 1995 Supp. (1) SCC 499.

11. Respondent Nos. 2 and 3 were not satisfied with the

higher valuation of M/s. Patni and Company and, therefore, the

Merchant Banker wrote to the Board objecting to the same on March

9, 2005. The Board permitted the Merchant Banker to get the shares

valued by any other Chartered Accountant. In these circumstances,

the Merchant Bankers in consultation with the Board appointed M/s.

T.R. Chadha and Company to value the shares of the target company.

According to the report of M/s. T.R. Chadha & Company submitted

on April 13, 2005 the fair market value of each share of the target

company was Rs.60.04.

12. From the facts stated above it will appear that the shares

of the target company have been valued by three firms of Chartered

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Accountants, namely, M/s. Deloitte Haskin and Sells who valued the

shares of the target company at Rs.43.02 per share, M/s. Patni and

Company who valued each share of the target company at Rs.64.17

and M/s. Chadha and Company who valued each share of the target

company at Rs.60.04.

13. It may be noticed at this stage that by letters dated March

11, 2004 and June 11, 2004 appellant G.L. Sultania had complained to

the Board against the valuation of shares by the Merchant Banker and

while doing so he had enclosed copies of two valuation reports of

M/s. Anand K. Associates and M/s. Sanjay Bajoria and Associates

valuing the shares of the target company at much higher rates namely,

Rs.408/- and Rs.590/- per share.

14. In the circumstances set forth above the Board accepted

the valuation report of M/s. Patni and Company and by its order of

August 19, 2005 approved the draft letter of offer incorporating the

revised offer including interest. Certain other matters were also

incorporated in the original public announcement as directed and a

corrigendum was issued accordingly. The offer was opened on

August 31, 2005 and closed on September 19, 2005. The appellants

tendered the shares without prejudice to their rights and contentions

but challenged the order of the Board before the Appellate Tribunal.

15. The Appellate Tribunal by its order of December 8, 2005

dismissed the appeals preferred before it. Having noticed the

background facts in which the controversy arose, the appellate

Tribunal observed that the valuation of shares could be impeached on

the ground of fraud, mistake or miscarriage of justice. It could also be

interfered with if there was an apparent or arithmetical error or the

valuers took into account something, which ought not to have been

taken into account or interpreted the regulations wrongly, or

proceeded on some erroneous principles. The interest of the

shareholders had to be protected. The appellate Tribunal could also

be asked to interfere if it was found that the offer price arrived at was

so extravagantly high or so inadequately low that one could infer that

the valuer must have committed an error in working out the offer price

for the public offer. The appellate Tribunal, however, noticed that

there was no allegation of mala fide either against the Board in

approving the public offer or against the three valuers whose reports

were considered by the Board. Since the shares were not traded

frequently the valuers had to keep in mind the principles incorporated

in Regulation 20 (5) of the Takeover Code. It noticed that if only

clauses (a) and (b) of Regulation 20(5) were to be considered, the only

negotiated price under (a) being Rs.40/- per share the minimum offer

price to be incorporated in the public offer could be Rs.40/- per share.

However, the merchant bankers as well as the valuers also considered

the matters which were relevant under Regulation 20(5)(c) of the

Takeover Code. After taking into account all relevant considerations

M/s. Deloitte had valued each share at Rs.43/- while M/s. Patni and

Company valued at Rs.64.17 ps. per share and M/s. Chadha and Co. at

Rs.60.04 per share. There is no dispute that the offer price

incorporated in the public offer is more than what it could be under

Regulation 20(5)(a) and (b) of the Takeover Code. The only question,

therefore, which fell for consideration was whether the shares had

been valued by the valuers keeping in view the other parameters

enumerated in clause (c) of Regulation 20(5).

16. It was argued before the appellate Tribunal that neither

the Board nor the Merchant Banker applied their mind in determining

the fair market value of the shares which resulted in gross under-

valuation of the shares. It was also argued that the principles laid

down in Hindustan Lever Employees' Union vs. Hindustan Lever

Limited and others : 1995 Supp (1) SCC 499 did not apply to the

facts of this case as that was a case of amalgamation whereas in the

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instant case Regulation 20(5) had to be strictly complied with. An

argument was also advanced that since M/s. Ace Glass Containers

Ltd. was a subsidiary of the target company its assets should also have

been taken into account while valuing the shares of the target

company. It was the case of the appellants that the total assets of the

subsidiary company should be added to the total assets of the target

company, which was the holding company, and the value of the shares

of the target company be worked out on that basis. The appellants

also contended that the valuation report of Patni & Co. did not take

into account the return of net worth, the book value of the shares, or

the earning per share. If these factors were considered the value of

each share would have been more than Rs.200/- each.

17. The appellate Tribunal noticed the fact that the Board had

exercised its discretion under the proviso to sub-regulation (5) of

Regulation 20 by requiring the shares to be valued by an independent

merchant banker or an independent Chartered Accountant of

minimum 10 years' standing or a public financial institution. Since

the appellants objected to the valuation report of M/s. Deloitte the

Board exercised its discretion and appointed M/s. Patni & Co. to go

into the matter and submit a valuation report.

18. The appellate Tribunal held that M/s. Ace Glass

Containers Ltd. was a sick company under the BIFR. The valuers had

taken into account the net value of its shares. The submission that the

entire assets of its subsidiary should have been taken into account in

working out the value of the shares of the target company was

untenable. It further held that the said M/s. Ace Glass Containers

Ltd. was not a subsidiary of the Target Company within the meaning

of that term in Section 4(1) of the Companies Act since the target

company did not own more than = in nominal value of the equity

share capital of M/s. Ace Glass Containers Ltd. It also held that the

Target Company did not control the composition of the Board of

Directors of M/s. Ace Glass Containers Ltd.. Moreover even M/s.

Bajoria, whose valuation report had been relied upon by the

appellants, proceeded on the basis that M/s. Ace Glass Containers Ltd.

was not a subsidiary company of the target company. This position

was also accepted by Shri Sultania, one of the appellants before it.

The appellate Tribunal held that there was nothing on record on the

basis of which it could be reasonably concluded that the valuation

reports of the three valuers suffered from the vice of perversity or

gross error.

19. Considering the submission that M/s. Patni & Co. had not

taken into account the net worth of the target company, it held that

return on net worth was only indicative of the profitability of the

company and was not in itself a method of share valuation. It was,

however, one of the factors to be considered in evaluation. M/s. Patni

& Co. applying the ratio in Hindustan Lever Ltd. (supra) had

calculated the yield value and in paragraph 3.2.1 worked out the

return on net worth for the year 2001-2002 to be 5.38 % taking into

account the book value as the basis for valuation.

20. So far as the net asset value was concerned it held that

the accounting law mandated exclusion of revaluation from

computation of net wroth. Therefore, the contention that revaluation

of resources ought to have been added to the net worth was rejected as

untenable. It was held that in the instant case the calculation was done

in accordance with the provisions of the Companies Act; Sick

Industrial Companies (Special Provision) Act, 1956 and the SEBI

(Disclosure and Investor Protection Guidelines), 1999. It also rejected

the contention that the earning per share had not been worked out by

the valuer and in this connection reference was made to paragraph

3.3.2 wherein the earning per share had been calculated. Regarding

adopting 15 % as the capitalization ratio the appellate Tribunal held

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that the CCI Guidelines which were adopted by the Government of

India and the Controller of Capital Issues had been taken into account

and even though the SEBI had abolished the CCI guidelines, the

principles and the norms enunciated therein could be taken into

account.

21. The appellate Tribunal did not accept the valuation

reports of M/s. Agarwal and M/s. Bajoria produced by the appellants

which valued the shares at abnormally high rates of Rs. 408/- and

Rs.590/- per share. Apart from other reasons, the very fact that there

was such a wide disparity in valuation in the aforesaid two reports,

was itself a sufficient ground to reject them.

22. In view of these findings the appellate Tribunal held that

the Board had acted strictly in terms of the Takeover Code and

approved the public offer. There was no ground, therefore, to assail

the approval to the public offer. The valuation of shares by M/s. Patni

& Co. was arrived at after following the norms laid down in

Regulation 20(5) of the Takeover Code and, therefore, it could not be

characterized as either erroneous, arbitrary or unreasonable.

23. Aggrieved by the order of the appellate Tribunal the

appellants have filed the instant appeals under Section 15(Z) of the

Securities and Exchange Board of India Act, 1992. The appeal to this

Court against the decision or the order of the Securities Appellate

Tribunal may be entertained on any question of law arising out of

such order.

24. Counsel for the appellants submitted that questions of

law do arise for consideration of this Court. He referred to several

decisions of this Court and submitted that the Board failed to

appreciate that the valuation report of Patni & Co. failed to take into

account all the relevant factors enumerated in Section 20(5) of the

Take Over Code, in particular he referred to the factors mentioned in

clause ) of sub-regulation (5) of Regulation 20 and submitted that for

failure to properly appreciate those factors the Board ought to have

rejected the report of the aforesaid valuer.

25. It cannot be denied that the Board under the Act is a

regulatory authority charged with the duty to protect the interest of

investors in securities and to promote the development of, and to

regulate the securities market, by such measures as it thinks fit. The

Takeover regulations have been framed with a view to provide

transparency in transfers arising out of substantial acquisition of

shares and takeovers. The object is to bring about fairness in such

transactions as also to protect the interests of the investors in

securities. In the Takeover Code there are provisions which are

intended to protect the interests of small shareholders so that in any

substantial acquisition of shares they get a fair price for the shares

transferred by them. The entire scheme designed for this purpose,

including the making of a public offer as also a counter offer, is to

protect the interests of the investors, particularly the smaller ones who

run the risk of getting an unfair deal in such transactions. Ultimately

the entire exercise is undertaken under the regulatory eye of the Board

with a view to ensure fairness to the shareholders of the company.

Therefore, when a public offer made under the Takeover Code is

challenged on the ground that the shares had not been properly valued

and the price offered in the public offer document does not represent

the fair price of the share in question, the Court must examine whether

the provisions of the Takeover Code have been scrupulously

observed, and whether the Board as the regulatory authority has

exercised its authority and discretion in a proper manner so as to

ensure fairness to the shareholders. At the same time one cannot lose

sight of the fact that a public offer made by a person intending to

acquire substantial shares in a company is a commercial venture of

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acquisition of shares, but the law steps in obliging him to offer a fair

price for the shares which the shareholders may part with in response

to the statutory public offer.

26. We may notice some of the decisions cited at the Bar by

counsel for the parties on the question of scope of interference by this

Court in such appeals.

27. In M/s. S.C. Cambatta and Co. Private Limited, Bombay

vs Commissioner of Excess Profits Tax, Bombay : AIR 1961 SC

1010 = 1961 (2) SCR 805, a question arose in connection with the

valuation of the goodwill. This Court observed that the goodwill of

the business depends on a variety of circumstances or a combination

of them. The location, the service, the standing of the business, the

honesty of those who run it, and the lack of competition and many

other factors go individually or together to make up the goodwill,

though locality always plays a considerable part. At the same time,

locality is not everything. In the case of a theatre or restaurant, what

is catered, how the service is run and what the competition is,

contribute also to the goodwill. In that case a question arose whether

the goodwill of the company in question was calculated in accordance

with law. This, the Court observed was a question of law. It was

found that the Tribunal had taken into account only the value of the

lease hold of the site to the subsidiary company, and rejected the other

considerations which go to make up the goodwill of the business.

This Court concluded that it was manifest that the matter of goodwill

needed to be considered in a much broader way than what the

Tribunal did. A question of law did arise in the case. It will thus

appear that this Court held that a question of law did arise for

consideration if in valuing the goodwill only one factor was

considered and other ignored i.e. all relevant factors were not

considered. The question was whether the goodwill was calculated in

accordance with law.

28. In the case of Commissioner of Gift Tax, Gujarat vs.

Executors and Trustees of the Estate of Late Shri Ambalal Sarabhai,

Ahmedabad : 1988 (Supp) SCC 115 shares in a private limited

company not quoted on the stock exchange were gifted.. In valuing

the shares the High Court adopted the break up value method for

determination of the value of shares. It was contended that the profit

earning method was more appropriate in the facts of the case. In this

context the Court observed :-

"The correct principle of valuation applicable to a given

case is a question of law. The parties can agree upon a

principle permissible under and recognized by law. If

two or more alternative principles are equally valid and

available, it might be permissible for the parties to agree

upon one of the alternative modes of valuation in

preference to another. In this case, the revenue cannot be

said to be precluded from urging the correct legal

position. In the ultimate analysis, it requires to be held

that the view of the High Court as to the principle of

valuation in determining the value of the kind of shares

concerned in this case cannot be held to be correct."

This decision is clearly an authority for the proposition that the correct

principles of valuation applicable to a given case is a question of law.

29. Bharat Hari Singhania and Ors. Vs. Commissioner of

Wealth Tax (Central) and Ors. : 1994 Supp (3) SCC 46 was a case

which arose under the Wealth Tax Rules. The aforesaid rules

provided only one method for assessing market value of unquoted

equity shares namely, the break up method. In this context it was

observed that where a method of valuation is prescribed by the rules,

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then notwithstanding the fact that there may be several methods of

valuing an asset, and even assuming that there was another method

which was more appropriate, still the method chosen by the rules,

which was also one of the recognized methods, must be adopted. This

was a case of determination of market value of unquoted equity

shares.

30. Reliance is placed on the decision of this Court in Dr.

Renuka Datla (Mrs.) Vs. Solvay Pharmaceuticals B.V. and others

(2004) 1 SCC 149 for the proposition that even where finality attaches

to the decision of the valuer, the Court could still intervene if the

valuation was made on a fundamentally erroneous basis, or a patent

mistake had been committed by the valuer, or that the valuation was

vitiated by a demonstrably wrong approach or a fundamental error

going to the root of the valuation. The same decision also lays down

that if the valuer applied the standard methods of valuation,

considered the matter from all appropriate angles without taking into

account any irrelevant material or eschewing from consideration any

relevant material, his valuation could not be challenged on the ground

of its being vitiated by fundamental error.

31. In Duncans Industries Ltd. Vs. State of U.P. and others

(2000) 1 SCC 633 this Court held that the question of valuation is

basically a question of fact and this Court is normally reluctant to

interfere with the finding on such a question of fact if it is based on

relevant material on record. Similarly in Miheer H. Mafatlal Vs.

Mafatlal Industries Ltd. : (1997) 1 SCC 579 this Court sounded a note

of caution observing that valuation of shares is a technical and

complex problem which can be appropriately left to the consideration

of experts in the field of accountancy. So many imponderables enter

the exercise of valuation of shares.

32. These decisions clearly lay down the principle that

valuation of shares is not only a question of fact, but also raised

technical and complex issues which may be appropriately left to the

wisdom of the experts, having regard to the many imponderables

which enter the process of valuation of shares. If the valuer adopts the

method of valuation prescribed, or in the absence of any prescribed

method, adopts any recognized method of valuation, his valuation

cannot be assailed unless it is shown that the valuation was made on a

fundamentally erroneous basis, or that a patent mistake had been

committed, or the valuer adopted a demonstrably wrong approach or a

fundamental error going to the root of the matter. Where a method of

valuation is prescribed the valuation must be made by adopting

scrupulously the method prescribed, taking into account all relevant

factors which may be enumerated as relevant for arriving at the

valuation.

33. Learned counsel for the appellant rightly submitted that

the valuation report of M/s. Patni and Company must be tested on the

touchstone of Regulation 20(5) of the takeover code which provides

as follows:-

"Offer price \026 (1) The offer to acquire shares under

regulation 10, 11 or 12 shall be made at a price not

lower than the price determined as per sub-regulation

(4) and (5).

\005 \005 \005 \005 \005 \005

\005 \005 \005 \005 \005 \005

(5) Where the shares of the target company are

infrequently traded, the offer price shall be

determined by the acquirer and the merchant banker

taking into account the following factors:-

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(a) the negotiated price under the agreement

referred to in sub-regulation (1) of regulation

14;

(b) the highest price paid by the acquirer or

persons acting in concert with him for

acquisitions, if any including by way of

allotment in a public or rights or preferential

issue during the twenty-six week period prior to

the date of public announcement.

(c) other parameters including return on

networth, book value of the shares of the target

company, earning per share, price earning

multimple vis-`-vis the industry average;

Provided that where considered necessary,

the Board may require valuation of such

infrequently traded shares by an independent

merchant banker (other than the manager to the

offer) or an independent chartered accountant

of minimum ten years' standing or a public

financial institution.

Explanation ; (i) For the purpose of sub-

regulation (5), shares shall be deemed to be

infrequently traded if on the stock exchange, the

annualized trading turnover in that share during the

preceding six calendar months prior to the month in

which the public announcement is made is less than

five per cent (by number of shares) of the listed

shares. For this purpose, the weighted average

number of shares listed during the said six months

period may be taken.

(ii) In case of disinvestments of a Public Sector

Undertaking, the shares of such an undertaking shall

be deemed to be infrequently traded, if on the stock

exchange, the annualized trading turnover in the

shares during the preceding six calendar months prior

to the month, in which the Central Government of the

State Government as the case may be opens the

financial bid, is less than five per cent (by the number

of shares) of the listed shares. For this purpose, the

weighted average number of shares listed during the

six months period may be taken.

(iii) In case of shares which have listed within

six months preceding the public announcement, the

trading turnover may be annualized with reference to

the actual number of days for which the shares have

been listed".

34. So far as clauses (a) and (b) are concerned, there can be

no dispute that the highest price offered by the acquirers for the shares

of the target company under the Memorandum of Undertaking dated

7th October, 2002 was Rs.40/- per share and the price to be paid by

C.K. Somany group for purchase of shares permitted by the High

Court of Calcutta was also Rs.40/- per share. Thus the offer price

based on factors under clauses (a) and (b) of Regulation 20(5) works

out to not less than Rs.40/- per share. This cannot be disputed.

35. The thrust of the challenge to the valuation is founded on

non-compliance with clause (c) of Regulation 20(5). It is argued

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before us that either the parameters enumerated therein have not been

considered at all, or if considered there is complete disregard of well

settled principles of valuation of shares depicting clearly a

fundamentally erroneous approach.

36. At this stage we may make a few observations about

Regulation 20(5). This Regulation applies to infrequently traded

shares of a company. It lays down the parameters that must be taken

note of and considered in arriving at the valuation. But it must be

understood that the parameters laid down are by no means exhaustive.

There are many other considerations which may be factored into any

valuation process. What the aforesaid Regulation, however, mandates

is that the parameters expressly laid down therein must in all cases be

considered by the valuer since they are basic and essential to the

valuation of infrequently traded shares of a company. If the valuation

report discloses non consideration of any of the enumerated

parameters, the report shall stand vitiated for that reason. This

however does not prevent the valuer from considering other relevant

factors according to accepted principles of valuation of shares.

37. It may also be observed that not any one of the

parameters is in itself decisive. All the factors have to be considered

and the valuation arrived at. The Regulation itself does not prescribe

the weightage to be assigned to different enumerated parameters. As

noticed earlier, many imponderables enter the exercise of share

valuation. It must therefore follow that the weightage to be given to

the different factors that go into the process of valuation, must be left

to the wisdom, experience and knowledge of the experts in the field of

share valuation. Such being the method of share valuation which

involves subjective and objective considerations, there is considerable

scope for difference of opinion even amongst experts. Even if the

correct principles are applied, different valuers may arrive at different

valuations. Each one of them may be right, yet the valuations may

differ. Mathematical precision and exactitude are not the attributes of

share valuation, for at best the valuation arrived at by an expert is only

his opinion as to what the value of the share should be. No doubt the

variation may not be very wide between two valuations prepared

honestly by two valuers applying the correct approach and the correct

principles, but some variation is unavoidable.

38. There is one other factor which cannot be ignored. The

Regulation seeks to protect the interest of an investor by ensuring that

he gets a fair price for his shares in the target company.

39. For the acquirer the decision to acquire shares is a

commercial decision. The same block of shares may have different

value for different acquirers. An acquirer who intends to control the

management of the target company by acquisition of the shares in

question, without acquiring majority shares, may value the shares

differently from an acquirer who is already in management of the

Company but wishes to acquire the majority of shares to strengthen

his voting rights. A majority shareholder may also wish to acquire

shares so as to hold 75% of the equity capital which will ensure

passage of special resolutions. Such an acquirer may value the shares

differently from his point of view. Similarly a shareholder already

holding 75% shares may acquire more shares only to consolidate his

holding in the target company. It may not suit his objectives to pay a

higher price than the other three categories noticed above.

40. For the purpose of Regulation 20(5) we are not

concerned with the price that a particular acquirer may be willing to

offer on subjective consideration or for his special reasons. The

Regulation is meant to provide guidance to arrive at a fair value of

shares objectively which the acquirer is expected to offer to the

shareholders of the target company.

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41. The question there arises as to who shall determine

whether the valuation of shares is reasonable and acceptable.

Undoubtedly Regulation 20(5) mandates that the offer price shall be

determined by the acquirer and the merchant banker taking into

account the factors mentioned therein. The Board as the regulator is

not bound to accept the offer price which is required to be

incorporated in the public offer, if it suspects that the offer price does

not truly represent the fair value of the shares determined in

accordance with Regulation 20(5). It has therefore been provided that

if considered necessary the Board may require valuation of such

shares by an independent merchant banker. The purpose is only to

ensure that the valuation arrived at is a fair valuation after taking into

consideration all the enumerated factors in Regulation 20(5). In doing

so the Board has to act prudently and within the limits of its

jurisdiction. It cannot object to the price offered by the acquirer

unless it has reasons to suspect that the price offered has not been

determined fairly taking into account the enumerated factors. In case

of doubt, it may require valuation of the shares by an independent

merchant banker or chartered accountant. If the valuation determined

by the acquirer or his merchant banker agrees with the valuation of the

Board's valuer, more or less, then the Board has no option but to

accept the offer price of the acquirer. It may suggest changes in the

draft letter of offer, but it is doubtful if it can compel the acquirer to

improve his offer even if the offer price is found to be fairly arrived at

after due consideration of the matters enumerated in the Regulation.

We do not wish to express any considered opinion in this regard,

because that question does not arise in the facts of this case. The

acquirer in the instant case did not challenge, rather accepted the

suggestion of the Board to incorporate in his offer document the offer

price based on the valuation report of M/s. Patni and Company which

was the highest.

42. Learned counsel for the appellants submitted that the

Board in approving the letter of offer of the acquirers failed in

performance of its duty as required under the Act and Regulations and

consequently failed to pass appropriate directions including, to revise

the offer price in terms of the mandate under the Takeover Code.

According to him, the Board ought to have passed a reasoned order

after giving to the appellants and other complainants an opportunity of

hearing before determining the offer price for the public

announcement. He contended that apart from the report of M/s. Patni

and Company, the Board had before it several communications of the

appellant pointing out the statutory scheme and evidence to support

the contention that the offer price approved by the Board was

substantially lower and ought to be much higher. In particular he

referred to the valuation reports obtained by the appellant from M/s.

Anand K. Associates and M/s. Sanjay Bajoria and Associates which

supported a much higher valuation of the shares in question.

43. On the other hand, counsel for the respondent/acquirers

submitted that under Regulation 20(5) the Board does not exercise

appellate jurisdiction over the valuation but only exercises its powers

akin to judicial review as a regulator to oversee that there is no

palpable illegality. The Board being a regulator is bound to oversee

that substantial acquisition of shares and takeovers occurs in

accordance with the relevant Regulations. It must be satisfied that the

valuation of shares is not arbitrary, perverse, or capricious and that the

expert valuer has taken into account all the factors mentioned in the

relevant Regulation applicable to the acquisition in question. It does

not play the role of a valuer itself, but whenever considered necessary

it may get the shares valued by an expert nominated by it. This is

necessarily so because the valuation of shares lies within the domain

of experts and the Board cannot arrogate to itself the role of an expert

valuer though it cannot be denied that the members of the Board are

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conversant with the working of the securities market and in that sense

they may have considerable experience. Reliance was placed on the

judgment of this Court in Miheer H. Mafatlal (supra) and submitted

that the Court must not sit in appeal over opinion rendered by experts.

44. Learned counsel appearing on behalf of the Board

submitted that the Board had done all that was necessary before

approving the letter of offer. It had considered the letter of offer and

also the complaints received by it from the appellants and others.

Since there was a serious dispute as to the correct valuation of shares,

it appointed M/s. Patni and Company to value the shares

independently. After receiving the valuation report of M/s. Patni and

Company, it also considered the grievance of the acquirers against the

said report and permitted them to get a valuation report from another

expert valuer. That is how the acquirers got a report from M/s. T.R.

Chadha and Company. Having considered the letter of offer, the three

valuation reports before it in the light of the provisions of the

Regulations, the Board was satisfied that the valuation of shares done

by M/s. Patni and Company represented the fair value of the shares. It

was also the highest and therefore favourable to the interest of

shareholders. There is nothing in the scheme of Regulation 20 which

requires the Board to pass a reasoned order while approving the offer

price declared in such public offer document.

45. We are of the considered view that the submission urged

by the appellants is not tenable. There is nothing in the Regulations

which requires the Board to pass a reasoned order for all it does as a

regulator. Being a regulator the Board has to take various steps, issue

directions from time to time and pass appropriate orders. While

considering the offer price to be incorporated in the letter of offer it

must no doubt apply its mind to the offer price proposed to be

incorporated in the letter of offer and the basis thereof. If it finds that

the offer price is reasonable and the valuation report is satisfactory it

may approve the offer price to be incorporated in the letter of offer.

The power of the Board under Regulation 44(f) must be understood in

the context of the scheme of the Regulations. Any price which it

might "determine" under the aforesaid Regulations must also be

determined having regard to the factors enumerated in Regulation

20(5). If it finds that the valuer's report takes into consideration all

the relevant factors and the offer price has been determined applying

the principles applicable to such valuation, it may have no reason to

differ. It may not approve the offer document, if it finds the price

offered to be low and unreasonable, applying the parameters laid

down in Regulation 20(5). It must, therefore, follow that the Board

must approve the price offered unless it is shown that the valuation

arrived at must be faulted for non compliance with the Regulations

which lay down the norms and parameters which must be observed. It

cannot be lost sight of that the scheme of the Regulations is to permit

an intending acquirer to make his offer to the shareholders whose

shares are sought to be acquired. Despite the regulatory powers of the

Board, the offer still remains that of the acquirer and not the Board.

The Board has only to be satisfied that the offer made is reasonable

and fair and in the interest of the shareholders. In case of doubt it may

seek the opinion of another expert valuer which impliedly supports the

contention that it is not expected to act as an expert valuer. If there is

material on record to show that the Board applied its mind to the offer

made and considered it in the light of the relevant provisions of the

Regulations and all factors enumerated therein, its decision to approve

the offer price to be incorporated in the letter of offer cannot be

faulted on the ground that it has not passed a reasoned order. The

facts of this case disclose that the Board not only considered the offer

document submitted by the acquirers along with the report of the

valuer, it took the precaution to seek the opinion of another expert

valuer in view of complaints made by some shareholders. The

appellants cannot therefore make a grievance that their objections

were not given due weight. Thereafter, it also gave an opportunity to

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the acquirers to get the opinion of another expert valuer. Ultimately

the Board reached the conclusion that the share price fixed by the

expert valuer appointed by it represented the true and fair value of the

shares in question and being the highest was also in the interest of the

shareholders. The suggestion of the Board to the acquirers to

incorporate in the public offer, the offer price on the basis of the

valuation report of M/s. Patni and Company was accepted by the

acquirers and the offer price earlier suggested by them was enhanced.

We are, therefore, satisfied that the Board acted in a reasonable

manner and in consonance with the Regulations. Only after

considering all relevant matters it approved the offer price to be

incorporated in the public offer document.

46. We shall deal with the valuation reports of M/s. Anand

K. Associates and M/s. Sanjay Bajoria and Associates later.

47. It was next contended that the appellate authority also

failed to exercise its powers inasmuch as it failed to appreciate that the

Board had clearly failed in discharge of its duty and had further failed

in not exercising powers conferred upon it which were to be exercised

in favour of the investors. We find from the impugned order of the

appellate authority that it has considered all aspects of the matter and

has reached a firm conclusion that the Board had acted in a judicious

manner having regard to all relevant considerations. There were good

reasons to reject the valuation reports of M/s. Sanjay Bajoria and

Associates and M/s. Anand K. Associates submitted by the appellants.

48. We shall now consider the specific points raised by the

appellants to support the contention that the relevant factors were not

considered by M/s. Patni and Company and both the Board as well as

the appellate authority failed to notice non-compliance of the

provisions of Regulation 20(5) which vitiated the report of M/s. Patni

and Company and also the approval of the offer price by the Board.

49. Before we advert to the rival submissions urged on behalf

of the parties pertaining to specific points in the report of M/s. Patni

and Company, it is necessary first to notice the salient features of the

report.

50. M/s. Patni and Company has proceeded on the basis of

financial data made available to it by the target company, which

included inter- alia its audited financial statements for the financial

years ending 31st March, 2002 and 2003, and the unaudited results of

quarter ended June, 2003. It takes note of the three commonly

adopted methods of valuation of shares, namely, the Net Asset

Method, The Profit Earning Capacity Method, and the Market Price

Method. It observes that each method proceeds on different

fundamental assumptions, which have greater or lesser relevance, and

at times there is no relevance of a particular methodology to a given

situation. While the Net Value Method represents the value of the

shares with reference to the value of the assets owned and the liability

as on the valuation date, the Profit Earning Capacity Method (for short

the "PECV") involves determination of the future maintainable

earnings of the Company from its normal operations. The common

method employed to derive the value of the business is to multiply

estimated maintainable earnings with the price earning ratio of

comparable companies in the industry. The report also refers to the

approval of this Court in Hindustan Lever Employees Union (supra) of

the method adopting a combination of all three methods of valuation

after giving appropriate weightage to them.

51. Applying the Profit Earning Capacity Method, it has

calculated the "yield value" by taking the average of 9 years, from

1993-1994 to 2001-2002. The year 2002-2003 was excluded for the

reasons recorded in the report which show that on account of

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abnormal situations the profits of the Company had decreased. In

Hindustan Lever, the principle that for working out the average profit,

profit of only those years which were normal and not affected by

abnormal situations should be considered, was approved. Taking the

capitalization rate as 15% as suggested for manufacturing Companies

in erstwhile Controller of Capital Issues guidelines, the value of

shares has been worked out to Rs.55.06 per share.

52. By adopting the Net Asset Value Method the value of

Rs.77 per share has been worked out by dividing the Share Capital of

the Company plus Reserves and Surplus (excluding Revaluation

Reserve and Contingent Liabilities) by the number of equity shares of

the Company.

53. Applying the Market Value Method, having regard to the

infrequently traded shares of the Company, the average of market

price of six months prior to October 7th , 2002, the reference date as

stated in the letter of offer has been taken resulting in a value of

Rs.66.87 paise per share.

54. Combining all the three values and giving them

appropriate weightage, value of each share has been worked out to

Rs.64.18 paise. In applying the weightage, the precedent in Hindustan

Lever (supra) has been followed.

55. The valuer M/s. Patni and Company has expressly

noticed the provisions of Regulation 20(5). It has concluded that

applying clause (a) and (b) of Regulation 20(5) the offer price of the

shares cannot be less than Rs.40/- per share being the rate at which the

shares were negotiated under the agreement referred to in sub-

regulation (1) of Regulation 14, also being the price at which the

acquirers were permitted to buy the shares of the target company by

the Calcutta High Court.

56. Adverting to the parameters enumerated in clause (c) of

Regulation 20(5), the Book Value has been worked out to Rs.83.02

paise per share.

57. Profit Earning Capacity Value has been worked out to

Rs.34.39 paise per share.

58. The earning per share has been worked out by

multiplying average earning per share by Industry Profit Earning

which is taken as 9.60 for the sector Glass and Glass Products (as per

capital market dated March 1-14, 2004). So calculated the price per

share comes to Rs.67.97 paise.

59. After taking the values worked out by the three methods

PECV, NAV and EPS and giving them weightage, the value per share

comes to Rs.57.55 per share.

60. To arrive at the fair market value, M/s. Patni and

Company after analyzing the financial results of the target company

for the financial years 1993-1994 to 2002-2003, as also the unaudited

results of three quarters of the current year, decided to exclude the

financial year 2002-2003 on account of abnormally low profits in that

year as a result of abnormal circumstances. It also decided to exclude

the current financial year because of abnormally high profits as a

result of general boom in economic scenario and upward trend of

Rupee in comparison to Dollar. Thereafter applying the same

weightage as in Hindustan Lever, (except for the market price) the fair

value per share has been found to be Rs.63.50 paise. The weightage

for market value was reduced from 2 to 1 because in the case of

infrequently traded shares, the market price has less relevance.

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61. We have carefully examined the report submitted by

Patni and Company. It is quite apparent to us that the report cannot be

assailed on the ground that it does not take notice of various factors

mentioned in Regulation 20(5)) of the Takeover Code. The valuer

has in fact referred to the said Regulations and enumerated the factors

to be taken into account. It has thereafter proceeded to make the

necessary calculations after giving due weightage to various factors.

In doing so the valuer has relied upon the principles approved by this

Court in Hindustan Lever Employees Union (supra). Learned counsel

for the appellants submitted that the principles approved in Hindustan

Lever Employees Union (supra) were not relevant and should not

have been applied by the valuer. This was because that was a case of

amalgamation of two companies and it was in that context that the

valuation of the shares had to be determined. It is true that Hindustan

Lever Employees Union (supra) related to a case of amalgamation but

for determining the value of the shares of the companies for the

purpose of equivalence and to determine the ratio in which the shares

were to be allotted, the valuer had to determine the value of the shares

of the amalgamating companies applying the same accounting

principles of valuation which are usually applied by the valuer in

valuation of shares for other purposes as well. We, therefore, find no

substance in the submission of learned counsel for the appellants that

the valuer had committed a mistake in applying the principles

approved by this Court in Hindustan Lever Employees Union (supra).

62. The question then arises as to whether having noticed the

relevant factors the valuer adopted the accepted principles and

practice of valuation.

63. We heard the parties at length on this question only to

find out whether there was any such error committed by the valuer

which vitiated its report. We have found none. In fact the argument

before the Court was that in following a particular practice or giving a

particular weightage or selecting a date for assuming a particular

value, the valuer committed mistakes.

64. On the other hand the respondents have supported the

reasons given by the valuer in its report. The valuer has really

estimated the value of the shares adopting all the three well-known

methods of valuation, namely \026 the net assets value method, the

market value method and the profit earning capacity method.

Thereafter after giving appropriate weightage it has worked out the

value of the shares of the target company.

65. We shall briefly notice some of the objections raised

before us by the appellants and the reply of the respondents to those

objections only to demonstrate that they are really matters within the

realm of the experts to determine and the Court may not be justified in

delving into those matters, which must be left to the wisdom,

expertise and experience of a qualified valuer.

66. According to the appellants while applying the Earning

Per Share method for arriving at an alternate value the valuer took P/E

ratio at 9.6 instead of 20.9. According to the appellants the figure

pertaining to March 1 to 14, 2004 which had been taken into account

by the valuer was not relevant and it should have taken the figures

relevant to the public announcement date 13th November, 2003 and

the letter of offer dated 25th August, 2005 which was represented in

the issues of Capital Market relevant to the period, November 1-2003,

and not March 1-14, 2004. According to him in both the periods there

were only three profit making companies and therefore there was no

reason why the valuer should have taken the industry P/E ratio as

represented during the period March 1-14, 2004.

67. On the other hand the respondents contended that the

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Capital Market which is a fortnightly magazine gives the necessary

data in regard to each industry. The data pertaining to every industry

category reflect the "full year", the "latest quarter" and the "trailing

twelve months" figures. The Capital Market source itself says that the

companies with an earning per share (EPS) of less than (1) are not

considered. According to him the "trailing twelve months" reflects

the most current computation of the price earnings multiple and that

period includes more companies with an EPS of more than (1) and

was, therefore, more representative of the market.

68. The valuer in its report has observed that the Industry P/E

of 20.9 is not the correct indicator of the industry. As the industry

(glass and glass products) covers 12 companies out of which 6

companies are loss making hence having a negative P/E ratio and the

other 3 companies having minimal profit, the Industry Composite P/E

ratio of 20.9 is calculated based on P/E ratio of 3 profit making

companies only, thereby ignoring the performance of other 9

companies. Moreover P/E ratio of glass and glass product industry is

very fluctuating because of infrequent trading of shares of most of the

companies in this sector. It is for these reasons that P/E ratio of 9.6

(Source - Capital Market dated 1-14, 2004 sector glass and glass

product) was considered as the industry P/E ratio.

69. The appellants then submitted that the Net Asset Value

comes to Rs.133.27 if reserves and surplus as per consolidated

accounts of the target company and subsidiaries at book value was

taken. This was not done by the valuer. According to the appellants

the Net Asset Value would have come to Rs.233.04 if 50 % of the net

worth of the controlled associate company, ACE Glass Containers

Ltd. was considered which also the valuer failed to do. The value of

the shareholding of the target company in the subsidiaries and ACE

Glass as reflected in the Balance Sheet of the target company merely

reflected the historical cost of such investments and not the true value

thereof.

70. Learned counsel for the respondents submitted in reply

that ACE Glass was a potentially sick company registered with the

BIFR having carry forward losses of Rs.266 crores as on March 31,

2003 and there is no reasonable prospect of earning any dividend from

ACE Glass in the immediate foreseeable future. There was no

question of consolidating the net worth of ACE glass into the net

worth of the target company or the profit earning capacity of ACE

Glass with the profit earning capacity of the target company. The

valuer was aware of the existence of the accounts of the subsidiaries

and has proceeded to value the shares of the target company in

accordance with the norms for valuation of shares. He further

submitted that cumulative revenue of the two wholly owned

subsidiaries is around 4 % of the revenue of the target company.

Similarly the cumulative assets of the two subsidiaries (on a net block

basis) is also around 2 % of the total net block of the target company.

He submitted that it is well recognized that a shareholder in a

company does not ipso facto have a right in the assets of the company

and that his right is only to receive dividends from the company. The

value of the assets of the target company cannot be included to the

value of the assets of the holding company, more so in the case of an

associate company.

71. The valuer has also recorded reasons to the effect that it

is not mandatory to derive the valuation of shares on the basis of

consolidated Financial Statement. As per normal accounting

practices, for determining the value of shares as a going concern only

individual financial statements are considered because parent

company is entitled to dividend only and has no right whatsoever in

the assets of subsidiary and associate companies.

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72. The appellants made a grievance that the capitalization

ratio of 15 % was taken by Patni & Company whereas the

capitalization ratio should have been 8 %. It was submitted that the

guidelines issued by the CCI had been repealed and, therefore,

reliance could not be placed on the aforesaid guidelines.

73. To this the respondents have replied by saying that the

CCI guidelines have always been and continued to be a material and

significant indicator for purpose of valuation in India. The mere fact

that the CCI as a statutory authority has since been abolished does not

make the CCI guidelines redundant.

74. The report of Patni & Company shows that the CCI

guidelines had been followed which laid down the principles which

are applicable in working out the profit earning capacity which

involve two important factors, namely \026 average profit before tax and

capitalization ratio.

75. Another objection of the appellants is that if revaluation

reserve was considered the Net Asset Value would have come to

Rs.124.82 but this was not done by the valuer.

76. In reply to the said submission, learned counsel for the

respondents submitted that the revaluation reserves are never

considered as part of the net-worth computation. Referring to Section

2(29A) of the Companies Act, which defines "net worth", he

submitted that the definition expressly excludes revaluation reserves.

Moreover the CCI guidelines clearly provided that the revaluation

reserves arising out of revaluation of fixed assets should ordinarily be

ignored. Only after an efflux of 15 years would it be reasonable to

consider non-exclusion of revaluation reserves. Even SEBI guidelines

for initial public offerings of shares expressly exclude capitalization

arising out of revaluation reserves for purposes of determining

"promoter's contribution" to be eligible to make an initial public

offering.

77. In its report the valuer has submitted that while

calculating Return on Networth (5.38 %) of the company for the year

2001 \026 2002 revaluation reserve has been included. As per paragraph

6.2 of CCI guidelines only genuine reserve should be included while

calculating "True Networth" of the company. Therefore, Return on

Net Worth should have been calculated after deducting the revaluation

reserve. The valuer has, however, commented that in the present case

valuation of shares would not be affected by this inclusion of the

valuation of shares while calculating return on Net Worth.

78. Another objection raised by the appellants is that Profit

Earning Capacity Value should not be calculated on the basis of past

earnings alone as done by the valuer, but on future maintainable profit

basis. The fallacy of the valuation lies in the fact that while valuing

the shares in accordance with PECV method, the valuer has arrived at

a figure of 55.06 per share while undertaking the said exercise in

accordance with HLL guidelines and the said value is reduced to

Rs.34.39 while adopting the very same method but while valuing the

shares in terms of Regulation 20(5)).

79. To this the reply of the respondents is that the valuer has

correctly applied the HLL/TOMCO principles for computation of the

"Yield Value". Adopting those principles audited financial statements

of 9 years between 1993-1994 and 2001-2002 were considered. The

financial statement for the year 2002-2003 was excluded since the

profits for that year had fallen by nearly 50 %. Adopting these

principles and taking into account the discounting rate of 15 %

applicable in terms of the CCI guidelines a value of Rs.55.06 per

share was computed by the valuer. The valuer also independently

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applying the yield value and without applying HLL principles

computed the value of the shares as Rs.34.39. After having arrived at

two distinct values as aforesaid, the valuer adopted the higher of the

two values.

80. We have only referred to some of the objections raised

by the appellants and we must observe that several other similar

objections were raised by them. We have also noticed the reply of the

respondents and in most cases the observations of the valuer. It

appears to us that the appellant expects this Court to act as an expert

itself. This, we are forbidden from doing. Unless it is shown that

some well accepted principle of valuation has been departed from

without any reason, or that the approach adopted is patently erroneous

or that relevant factors have not been considered by the valuer or that

the valuation was made on a fundamentally erroneous basis or that the

valuer adopted a demonstrably wrong approach or a fundamental error

going to the root of the matter, this court would not interfere with the

valuation of an expert. As noticed in Miheer H. Mafatlal (supra),

valuation of shares is a technical and complex problem which can be

appropriately left to the consideration of experts in the field of

accountancy. So many imponderables enter the exercise of valuation

of shares.

81. Having considered all aspects of the matter, we are

satisfied that the valuer, Patni & Company have not committed any

such error which may justify our interference. They have considered

all the factors relevant under Regulation 20(5)) of the Takeover Code

and have adopted a reasonable approach which does not call for

interference by us. It may be that views may differ and it is no gain

saying that even experts may differ in their conclusions or even

reasoning. The court must take notice of this fact and must not

interfere unless there are compelling reasons to upset the finding of

the expert valuer on grounds such as those enumerated in the earlier

part of the judgment or other similar grounds.

82. We are then left with the valuation reports of two other

Chartered Accountants submitted by the appellants before the Board,

namely reports of M/s. Sanjay Bajoria & Associates and M/s. Anand

K. Associates. Sanjay Bajoria & Associates valued the shares of the

target company at Rs.590/- per share while the other Chartered

Accountant valued the shares at Rs.408/- per share. The Board, in our

opinion, has given good reasons for rejecting those reports. It is

noticed that the shares were valued at abnormally high rates and as

between the two reports there was a vast different (Rs.182/- per

share). This great disparity itself furnishes a good ground for

rejecting these reports particularly, when the valuation reports of three

other valuers had valued the shares at much lower rates. It is not as if

the regulator, namely, the Board did not take notice of these reports.

On the contrary, having noticed the objections of the appellants it

decided to appoint its own valuer to value the shares of the target

company. Ultimately the report of the valuer appointed by the Board

was accepted by the acquirer and that value was permitted to be

incorporated in the offer document by the Board.

83. We are, therefore, satisfied that the Board committed no

error in accepting the report of Patni & Co. The Board has acted in a

reasonable manner and made its best efforts to secure a reasonable

price for the shares of the shareholders. It has exercised its discretion

wisely and we find no reason to interfere.

84. We, therefore, find no merit in these appeals and they are

accordingly dismissed but without any order as to costs.