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Vinod Krishan Khanna & Ors. v. Amritsar Swadeshi Woollen Mills Private Limited

Civil Appeal · 2021 INSC 110Decided 23 Feb 2021
Civil Appeal No. 5087 of 2019
Justice Rohinton Fali Nariman · Justice B.R. Gavai

Background

Minority shareholders holding 14.62% of a company's paid-up capital had filed an oppression-and-mismanagement petition in 2007 before the Company Law Board, which led to an agreement that they would sell their shares and exit the company. After a valuer fixed the fair price per share, the NCLT in 2018 directed the company/other respondents to buy out the petitioners' shares at that price, with 9% simple interest from April 2007. On appeal, the NCLAT held the company itself could not be made to buy back its own shares (shifting the obligation only to the individual director-respondents) and, without giving reasons, reduced the interest rate from 9% to 6%.

Decision Breakdown

The Supreme Court held that since the director-respondents (Respondent Nos. 2-9) had never appealed the NCLT's order, the NCLAT could not reduce the interest rate in a way that benefitted parties who had accepted the order and not challenged it. The Court restored the 9% simple interest rate, agreeing with the NCLT's reasoning that the company had used the petitioners' money for over a decade and the valuation date had been mutually agreed. It also held the NCLAT should not have gone further and suo motu raised and decided the company-liability point affecting a third set of shareholders without hearing them. Accordingly, three appeals were allowed and the company's appeal (seeking to reduce the interest rate further) was dismissed, with the buy-out consideration plus 9% simple interest from 1 April 2007 directed to be paid within four months.

Lesson Learnt

An appellate tribunal cannot modify an order's terms in a way that benefits parties who themselves never filed an appeal against it, and it should not decide new issues on its own initiative (suo motu) without hearing the parties who would be affected by that decision.

Official source (sci.gov.in)View Judgment (PDF)

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