Judgment:
ORDER
Anil Dev Singh, J
1. The first respondent-Multi Tech Computers Private Limited (for short 'the Indian Company') is a company dealing with modems and other related data communication products. The petitioner-Shri Mihir Chakraborty is a shareholder of the Indian Company and functioned as the Managing Director thereof. Second respondent- Dr. Raghu Sharma, a shareholder of the Indian Company, operates Multi Tech Systems Inc: in U.S.A. (for short 'the foreign company') which manufactures and markets modems. The third respondent-Shri S.P.Sharma, a shareholder of the Indian Company, is also its Joint Managing Director. The first respondent was incorporated in September 1980 with the objects of manufacturing, making, buying, selling, importing, exporting, distributing, introducing or otherwise dealing in computers, data communication equipments and business machines. Originally it was registered at Bombay. Subsequently, the provisions of memorandum of association with respect to the place of registered office were amended and the registered office was changed from the State of Maharashtra to the Union Territory of Delhi. The authorised capital of the company is Rs.6 lakhs divided in 60,000 equity shares of Rs.10/- each. It is also relevant to point out that 2000 equity shares in the first respondent company were subscribed by the petitioner constituting 33.33% of the shareholding. Similarly, 20,000 equity shares were subscribed by the second respondent and the remaining 20,000 were subscribed by the third respondent and his family members, Shri Om Prakash Sharma and Smt Kailash Devi Sharma Collectively. The first respondent commenced commercial production of modems in the year 1987 from its registered office at Anand Niketan, New Delhi. In August 1989, the first respondent company applied for allotment of land in Udyog Vihar, Gurgaon, for setting up of a factory. The land was allotted in the year 1990 over which construction has been carried out. In February 1990 the manufacturing operations were shifted to Gurgaon. But earlier thereto, on January 26, 1988 the Indian company had entered into a technical collaboration agreement with the foreign company and as per the agreement, the foreign company agreed to subscribe 33.33% of the foreign equity participation amounting to Rs.2,00,000/- in the total paid up capital of Rs.6 lakhs of the Indian company. As already seen, the petitioner, the second respondent and the third respondent had subscribed to the share capital of the Indian company to the extent of Rs.2 lakhs each. It seems that the agreement formalised the shareholding held by each of the parties. While the respondents claim that the entire share capital of the Indian company including the share of the petitioner was funded by the foreign company, the petitioner denies the same.
2. On or about February 28, 1989, the petitioner was appointed as the Managing Director of the Indian company for a period of five years w.e.f. October 1, 1988. The Indian company with so little a share capital seems to have done extremely well. The sales of the Indian company grew consistently. This is apparent from the fact that for the years 1988-89, 1989-90, 1990-91, 1991-92, 1992-93, 1993-94 the net sales were Rs. 63 lakhs, Rs.226 lakhs, Rs. 417 lakhs, Rs.435 lakhs, Rs.430 lakhs and Rs.550 lakhs, respectively. It is not in dispute that bonus was paid by the Indian company to the petitioner and the third respondent to the tune of Rs.20 lakhs each for each of the years 1990-91, 1991-92, 1992-93, 1993-94. For each of the earlier years 1988-89 and 1989-90 the petitioner and the third respondent were paid bonus in the sum of Rs.5 lakhs and Rs.2 lakhs each respectively. It seems that though the sales of the company were growing from strength to strength, the relations between the parties soured. The petitioner resigned as the Managing Director of the first respondent company on February 18, 1994, but as per his version the resignation was to take effect from March 31, 1994 but before that date he withdrew the letter of resignation by means of letter dated March 17, 1994. The respondents, however,have taken the position that the resignation of the petitioner had come into force and remained effective. It is the allegation of the petitioner that the second respondent and members of his family with a view to take over the management and control of the affairs of the company started interfering with the day-to-day management and control of the company. It is claimed that in January 1994 the second respondent along with his relatives passed resolutions to reduce the emoluments of the petitioner and his entitlement to share in the profits of the company in contravention of the agreement. It is alleged that the petitioner offered to withdraw from the company provided he was given his share. The petitioner claims that it was agreed between the parties that a sum of Rs.1 crore in full and final settlement of all the claims would be paid by the first respondent to the petitioner and the petitioner would withdraw from the company by the close of March 31, 1994. In view of the agreement, a statement was released to a computer magazine, namely, 'Dataquest', that the petitioner and the respondents have resolved their disputes and the respondents have agreed to take over the share of the petitioner in the Indian company. The petition alludes to the fact that in view of the agreement between the parties the petitioner tendered his resignation on February 18, 1994 to the Board of Directors of the first respondent stating that his resignation shall be effective from March 31, 1994. After tendering the resignation the petitioner found that the second respondent was not serious in implementing the agreement. In view of this position the petitioner by letter dated March 17, 1994 to the Board of Directors of the first respondent withdrew his resignation. But in response, the respondents by letter dated March 18, 1994 addressed to the petitioner claimed that his resignation had already been accepted. According to the petitioner, the respondents wrongfully purported to give effect to his letter of resignation. Though the resignation was to take effect from March 31, 1994 and he had withdrawn the same on March 17, 1994, the respondents even issued a circular dated March 22, 1994 to all its employees stating that the petitioner had resigned from the Directorship/Managing Directorship of the company and that Mr. Girish Krishnamurthy stood appointed as the new Director Managing Director of the Indian company.
3. The relations between the parties came to such a pass that the respondents filed a suit against the petitioner seeking a declaration that the petitioner had ceased to be the Managing Director of the first respondent and he had no authority to visit the office and factory premises of the Indian company. The second respondent had also filed Form No. 32 with the Registrar of Companies stating that the petitioner had ceased to be the Managing Director of the Indian company. The second and the third respondents convened an extraordinary general meeting of the Indian company on August 24, 1994 to consider the following resolutions :-
'1. To increase the present authorised capital of the Company to Rs.600000.00 and to increase the paid up capital of the Company to Rs.3100000.00
2. To remove Shri Girish Krishnamurthy as a Director of the Company.
3. To remove Shri Mihir Chakraborty as a Director of the Company.'
The aforesaid were accompanied by explanatory statement.
5. The petitioner on August 19, 1994 filed the Company Petition No. 148 of 1994 with the allegation inter alias that the second and third respondents were bent upon ousting him from the company and were not permitting him to inspect the books of accounts. The petitioner in the Company Petition claimed the following reliefs :-
'1. Direct that the Respondent No. 1 Company be wound-up.
2. Pending decision in the present Petition or the winding-up of the Respondent No. 1 Company stay the holding of the Extraordinary General Meeting of the Respondent No. 1 Company called by the Respondent No. 3 by notice dated July 28, 1994;
3. pass such other order/orders as this Hon'ble Court may deem fit and proper in the circumstances of the case;
4. grant cost of the present Petition.'
6. During the course of the proceedings of the company petition the parties resolved their disputes and filed a joint application under Order 9 of the Company Court Rules being C.A. No. 804/95, which in the first instance was returned under some objection and subsequently re-filed on October 12, 1995. The above compromise application was taken on record. According to the aforesaid application, the petitioner agreed to transfer his entire shareholding of 33.33% in the Indian company to the respondents. In lieu of the transfer the petitioner agreed to receive value of the shares. For the purposes of valuation and settlement of petitioner's share and stock in the Indian company it was agreed to appoint M/s. Arthur Anderson & Co. In anticipation of the report, the respondents deposited a sum of Rs.10 lakhs with the Registrar of this Court and the petitioner deposited his 20,000 shares and 21 scrips along with 5 blank transfer deeds in accordance with the compromise. The salient features of the compromise are as follows :-
'1. That the petitioner and the respondents as the shareholders of Multi-Tech Computers Pvt. Ltd (MTCPL) agree to the valuation and settlement of the Petitioner's 33-1/3% shares and stake in MTCPL as set out below :-
2. For the purpose of valuation and settlement the petitioner and his accounting representatives will be allowed to inspect the books of account and supporting records for Financial year 1993-94. Acknowledgement of inspection will be given on each day.
3(a) The parties have agreed that the Hon'ble Company Judge may appoint a Valuer for fixing the Valuation of the shares of the Petitioner. The parties have further agreed that M/s. Arthur Anderson & Co., may be appointed by the Hon'ble Company Court as the Valuer.
The Valuer shall hear both the Petitioner and the Respondent and will be free to make such independent enquiries from the parties or otherwise as they deem necessary.
(b) The date to be reckoned for making the Valuation shall be 31.03.1994.
(c) If the Valuer refuses or fails to function or become incapable of functioning or is removed by the Court for sufficient cause, the parties shall forthwith agree upon another Valuer and failing agreement, another Valuer shall be appointed by this Hon'ble Court.
(d) The Valuation shall commence immediately and shall be completed within two months or within such a time as auditors deem necessary to complete this Valuation. Written submissions will be made by the parties within two weeks.
(e) The cost of the valuation will be shared 50% by MTCPL and 50% by Petitioner up to a maximum of Rs.100 lakh. Any amount above Rs.1.00 lakh will be paid and borne exclusively by Multi-Tech Systems Inc.(MTSI).
4(a) The following assets owned by MTCPL being held by the petitioner will be transferred to the petitioner at the book value of MTCPL as on 31.03.1994 and the parties will sign the necessary documents for the transfer of assets. The said value shall be deducted from the amount to be paid to the petitioner for the transfer of his share in MTCPL. Only then the said assets shall transferred to the (the) Petitioner and till such time the said assets will remain the property of the Company.
4(b) The assets referred to the above are as follows :-
i) Maruti 1000 Car.
ii) Contessa Classic Car.
iii) Water purifier.
iv) Water cooler.
v) Airconditioner - 3 nos.
vi) Time Keeping Machine.
vii) Personal Computer PC286 with monitor & Keyboard.
viii) Printer.
ix) Fax Machine.
x) Taxes due on the transfer of assets will be paid for by the Company.
5(a) The petitioner will be paid upon determination of Valuation, salary up to 31/03/1994 and commission/bonus for the year ending 31/03/1994 on the basis of the board resolution passed on 15/01/1994.
5(c) The computation of salary and commission/bonus and tax deductible at source, there from shall immediately be made by the statutory Auditors of MTCPL and shall be paid to the Petitioner upon Valuation of shares.
6. Rent payable to Mr. C.L. Sawani for the residence at C-14, Westend Colony, New Delhi-110021, occupied by the Petitioner will be made and borne by MTCPL up to the date of payment to the Petitioner for the shares and shall be made at such rate as MTCPL settles with Mr. C.L. Sawani. Thereafter the petitioner is liable to pay the rent and all other charges and hereby indemnify the company against any claim or demand by the said Landlord.
7.(a) Payment for the shares of the Petitioner will be made within three weeks of completion of the Valuation by the Valuer and conveyed to the respondents.
7(b) The Valuer shall make his valuation in writing stating the basis on which the (The) Valuation is made and shall distribute its report to the petitioner and the Respondents.
8. That the Petitioner and Respondents on a date fixed by the High Court of Delhi shall appear before the Registrar. The Petitioner shall deposit with the Registrar his share scripts along with Blank Transfer Deed while simultaneously the Respondents will deposit a Demand Draft of Rs.10.00 (Ten) Lacs in the name of the 'Registrar of High Court of Delhi'. Both the share and the Scrips/deeds as well as the Sum of Rs.10.00 lacs will remain with the Registrar till the report of the valuer is received, when the same will be dealt with in the light of this compromise. The said sum of Rs.10 lacs shall be adjusted if a higher Value is fixed by the Valuer and will be refunded to the Respondent if a smaller value is fixed.
9. The present injunction Orders will stand automatically vacated on the decision given by the valuer and the amount in terms of the said decision and clause 5(c) hereof being paid to the Petitioner by Demand Draft in presence of the Registrar of this Hon'ble Court, after deducting the value of cars and other articles as determined and against simultaneous delivery of shares and blank transfer deeds lying deposited with the Registrar to the respondents.
10 MTCPL, Shri Shiv Prakash Sharma, Shri Raghu Nandan Sharma and MTSI shall upon Full Settlement of shares withdraw all proceedings filed/initiated against the petitioner including Suit No. 1149/94 pending before High Court of Delhi, New Delhi, and also the criminal case pending before the Metropolitan Magistrate, Delhi, and the case No. 4-94-660 filed before the United States District Court, District of Minnesota.
11. The Valuer computation of the Petitioner's stake/shares in MTCPL will be undisputed and accepted by the parties concerned.
12. Subject to payment to the Petitioner of price of shares as determined by the valuer as aforesaid :
a) All current claims made by the Petitioner will be waived and the petitioner will have no recourse in filing further claims.
b) The Petitioner will release and refrain from any further claims to the position of Managing Director of Director of MTCPL as of 31/03/1994.
13. On payment of the amount payable to the Petitioner as fixed by the Valuer together with amount payable to him, under clause 5(c) herein before, less the amount to be deducted for the cars and other articles, the winding up petition shall automatically stand dismissed without any further orders and all stay orders passed therein stand vacated. Respondents may, however, if they think necessary, apply for formal orders.
14. Both parties retain the liberty to apply to this Hon'ble Court for appropriate direction to enforce the terms and conditions of this compromise.
15. That this Hon'ble Court on the application of the respondents may vacate or vary the injunction Orders either, either unconditionally or on such terms as it thinks fit, if it considers that same is working oppressively, either on account of delay by the Petitioner in the proceedings relating to valuation or otherwise for any just reason.
16. The Petitioner will not institute any litigation relating to the affairs of the company arising from his association with the Company as shareholder, director or Managing Director.
17. The parties will bear their own cost.
18. During the intervening period the petitioner will not act as a Shareholder nor claim to be Director or Managing Director.'
Subsequently, however, on November 27, 1995 M/s. Coopers & Lybrand Pvt. Ltd. were appointed as valuers in view of the fact that M/s. Arthur Anderson & Co. had declined to act as valuers. Pursuant to the direction of the Company Judge, M/s. Coopers & Lybrand Pvt. Ltd. filed valuation report dated May 20, 1996. As per the report, the petitioner's stake in the company was worked out at Rs.11,39,400. While the respondents moved C.A. No. 474/96 for execution of the valuation report, the petitioner filed C.A. No. 604/96 for setting aside the valuation report dated May 20, 1996.
6. In C.A. No. 474/96 the respondents have taken the stand that the petitioner would be entitled to payment of Rs.7,80,430/- after deduction of Rs.2,19,570/- on account of T.D.S., etc. The respondents have claimed that the valuer has been generous to the petitioner despite the fact that the petitioner had mismanaged the company. The respondents, however, have signified their acceptance of the valuation arrived at by the valuer in order to put an end to the litigation. On the other hand, by means of C.A. No. 604/96 the petitioner has challenged the valuation report on various counts.
7. A preliminary point has been taken on behalf of the respondents to the maintainability of the challenge mounted by the petitioner to the valuation report. Mr. P.C. Khanna, learned senior counsel appearing on behalf of the respondents, submitted that the valuer's report was binding on the parties and the court cannot go behind the same. While computing the stake/share of the petitioner in the company the valuer acted as an expert and not as a quasi arbitrator or an arbitrator. This being so his report cannot be attacked in the instant proceedings. The valuation given by the valuer is final and conclusive between the parties. In case the petitioner is aggrieved of the valuation determined by the valuer, his remedy lies in filing a suit for damages against the valuer for negligence. Mr. Khanna canvassed that initially the view of the English courts was that no action lay against the experts such as valuers, auditors, brokers etc in tort for giving an opinion or making a determination negligently. This was on the ground that they were discharging professional duties of quasi judicial character. Since the experts could not be sued, their determination could be impugned in the litigation between the parties affected by their determination or opinion. Learned counsel further argued that the aforesaid principle has been discarded in England and the position, as made clear by the House of Lords, is that an expert can be sued for damages when he acts negligently in performance of his duties. In support of his submissions, Mr.Khanna relied on the following decisions:-
1. Sutcliffe v.Thackrah and others, [1974] 1 ALL ER 859
2. Burgess and another v.Purchase & Sons (Farms) Ltd and others , [1983] 2 ALL ER 4
3. Jones and other v. Sherwood Computer Services plc [1992] ALL ER 170
Mr. Khanna also submitted that the position in India is no different from the one which is prevailing in England. In this regard he referred to the decision of the Supreme Court in K.K. Modi v. K.N. Modi and others (1998) 92 Comp Case 30,
8. On the other hand, Mr. Sanghi, learned counsel for the petitioner, contended that the court can go behind the valuation report and look at the reasons offered by the valuer in support of the valuation arrived at by him. He contended that since the valuation made by the valuer was based on erroneous principles, the same can be challenged in these proceedings. In aid of his submissions he cited the following decisions:-
1. Dean v.Prince and others [1953] 2 ALL ER 636.
2. Dean v.Prince & others [1954] 24 Comp Cas 198.
3. Jones (M) and another v.Jones (RR) and another, [1971] 2 ALL ER 676.
4. Arenson v.Arenson and another [1973] 2 ALL ER 235.
9. I have considered the submissions of learned counsel for the parties.
10. Till couple of years back there was more or less long unbroken line of decisions rendered in England to the effect that when professional men such as valuers, auditors, brokers and architects acting as experts determine matters or render opinions they were immune from action in tort for negligence. The principle was the extension of the rule based on public policy that a Judge is not liable in damages for negligence while performing his judicial duties. As a corollary, it followed that those employed to perform duties of judicial character are not liable to their employers for negligence. This rule has roots in antiquity and had been applied to arbitrators. Drawing a parallel with an arbitrator, a valuer was extended the same immunity on the ground that he discharges quasi judicial functions while determining the value of a property, an asset, etc. The same principle was applied to other experts as well, e.g. auditors, brokers, and architects. In Pappa v. Rose (1871) LR 7 CO 32, the plaintiff employed the defendant on payment as a selling broker to sell raisins. The sale note recorded various terms including a term providing as follows:-
fair average quality in opinion of selling broker.
The plaintiff claimed that the defendant broker had been negligent and exhibited lack of skill in declaring his opinion that the raisins tendered were not of fair average quality. The plaintiff lost the suit on the ground that the broker was in the position of a quasi-arbitrator who by the agreement between the parties was finally to decide the matter in dispute between them and was not liable for action even if he made a mistake in his determination. In this regard, the observations of the judges may be quoted :-
'Keating J :
'It is true that he was a broker, and that he made the contract. But he was only to decide upon the quality of the raisins, in the event of a dispute arising between the parties, and in that case the functions of arbitrator would not have come into operation at all. If, on the other hand, the fruit tendered was rejected as not complying with the contract, the opinion of the referee either way would be a binding decision on the matter; and for any mistake which he might make he clearly would not be liable.' Brett J :
'The ruling upon that was, not that the defendant was in the strict sense of the term an arbitrator, but that he was a person filling a position which brought him within an exception well known to the law of England, viz., that a person who is appointed and is acting as an arbitrator to determine a matter in difference between two or more persons does not enter into an implied promise to bring to the performance of the duty entrusted to him a due and reasonable amount of skill and knowledge. The question is merely one of implied undertaking; and the law says there is none such. Was, then, the defendant within that exception? I apprehend that every person falls within it who has taken upon himself to determine a disputed matter between two persons who have agreed to be concluded by his opinion. The parties had so agreed here: and that opinion could not be called for until the fact was in dispute.' Bovill CJ : 'It by no means follows that, when two persons submit a matter of difference to the arbitration of a third, they agree to take a person of the greatest amount of skill or intelligence. No matter what may be the degree of skill he possesses the decision of the person selected is final and conclusive and he is not liable to an action if he makes a mistake. Here, it is want of skill only that is suggested. The defendant was in the nature of an arbitrator chosen by the parties, whose decision is final. Upon general principles no action lies against him. There is no implied contract on his part, except that he will act honestly and bona fide.'
This decision was upheld in the Exchequer Chamber (see Papa v. Rose [1872] LR 7 CP 525).
11. To the similar effect are the decisions in Tharsis Sulphur & Copper Co. v. Loftus [1872] LR 8 CP 1; Stevenson v. Watson [1879] 4 CPD 148; Chambers v. Goldthorpe and Restell and others, NYE 1900 3 ALL E.R. 969 : (1901) 1 QB 624]; Finnegan v. Allen, [1943] 1 ALL ER 493.
12. In Tharsis Sulphur & Copper Co. V. Loftus (supra) an Average Adjuster was in contractual relation with shipowner and the owner of the frigate carriage in the ship. The claim against the Average Adjuster was for lack of care which she exhibited in that capacity. The court found the case to be covered by the decision in Pappa v. Rose (supra). While throwing out the claim against the Adjuster, the inconvenience that would arise if some one in an arbitral position was exposed to claims on account of negligence for his acts in that capacity was highlighted.
13. In Stevenson v. Watson (supra), a owner of the building filed a claim for damages against his architect for issuing a certificate negligently to the contractor for an amount which according to the owner was not due to him. The court treated the function of the architect in issuing the certificate to be of an arbitral nature.
14. In chambers v. Goldthorpe (supra) the Court of Appeal inter alias considered the question whether or not in an action against an architect for negligence in performance of his duties undertaken under a clause in a building contract, which provided that the certificate of the architect showing a final balance due or payable to the contractor is to be conclusive evidence of the fact that the works have been duly completed and the contractor is entitled to receive payment of final balance, it was held by a majority of 3:1 that the Architect was not the mere agent of the owner of the building. He was not to look after the owner's interest alone as against that of the contractor's. He owed a duty to both of them. His task was not merely ministerial or clerical or one of arithmetic, but involved technical skill and knowledge; and thereforee his position was that of a quasi-arbitrator between the owner and the contractor who had undertaken to exercise judicial functions impartially between the parties in determining the matters specified in the clause. In this regard the majority observed as follows:-
Per SIR A.L. SMITH, M.R. -
In my judgment, the present case is covered by those words. When acting under cl. 20 of this building contract, the plaintiff was in the position of one who had undertaken to exercise judicial functions with regard to the questions that had arisen between the owner and the builder, and, thereforee, he is not liable to an action for negligence in respect of the way in which he exercised those functions....
Per HENN COLLINS, L.J. -
...The case seems to me to come exactly within the decision of Stevenson v. Watson (1879) 4 C.P.D. 148, which was decided in 1879...LORD COLERIDGE, in delivering the judgment said.... He then continued :
...I think this case is within the authority of the cases cited which decide that where the exercise of judgment or opinion on the part of a third person is necessary between two persons, such as a buyer and seller, and, in the opinion of the seller, that judgment has been exercised wrongly, or improperly, or ignorantly, or negligently, an action will not lie against the person put in that position, when such judgment has been wrongly, or improperly, or ignorantly, or negligently exercised. Is, then, the architect in the two appeals now before us in that position? As the acts of the parties have not brought cl. 22 into operation, it seems to me that the architect is in the position of a quasi-arbitrator - that is to say, his duty is to ascertain impartially the rights and liabilities between the building owner and the builder by the exercise of his skill and judgment....
The majority proceeded on the basis that in giving the certificate the architect had exercised the function of a judicial character and, thereforee, he was not liable for an action for negligence. However, Romer, L.J., dissented and and while doing so opined that the architect was liable to the owner of the building for breach of contractual duty of care in the performance of his duties as letter's agent. According to him, the architect was not entitled to any immunity.
15. In Finnegan v. Allen (supra), which was again a case of a valuer employed a fix a price inter partes, it was held as follows :-
The fundamental difficulty about the whole of the plaintiff's case lies in the circumstance that he is seeking to recover damages from a valuer who was employed to fix a price inter partes, by the use of his skill and knowledge, for not having made his valuation in the way contemplated by his instructions. There is no charge of bad faith. We have, thereforee, to deal with the matter on the footing that the defendant, while honestly intending to carry out his instructions, has made an honest mistake which may have consisted in misunderstanding his instructions or in inadvertently failing to comply with some element in them. Can such an action be maintained? In my opinion it cannot, and this attempt to create a liability on an alleged warranty is really one to evade the well established rule that a person in the position of this defendant cannot be made liable for the sort of thing with which he is charge here.
It appears that up to this time Romer, L.J.'s dissenting judgment in Chambers v. Goldthrope (supra) was probably the only judgment which clearly took the view that the architect was liable to be sued for negligence as he owed a duty of care in the performance of his duties towards the owner of a building while certifying the work done by the contractor in terms of money. Then several decades later came the decision in Arenson v. Arenson and another [1973] 2 ALL ER 235, which was sort of a repeat of the decision in Chambers v. Goldthrope (supra). The question raised before the Court of Appeal was whether an auditor appointed to value shares could be sued for negligence. In this case Lord Denning MR followed the line adopted by Romer, L.J., but it was a voice of dissent as the majority still followed the rule which prevailed in the aforesaid decisions. Before adverting to the principle enunciated by the Court of Appeal in this case it will be necessary to refer to the factual matrix of the case. The first defendant was a furniture maker. He floated a private company in which he employed his nephew and gave him a few shares of the company. The first defendant and his nephew agreed that in case the latter ceased to be employed in the business of the company he would sell the shares back to his uncle at a fair value. The fair value was required to be determined by the auditors. They derived their authority from the following clause of the agreement between the parties :-
''Fair Value' shall mean in relation to the Shares in Arenson Limited the value thereof as determined by the auditors for the time being of the Company whose valuation acting as experts and not as arbitrators shall be final and binding on all parties.'
The employment of the nephew was terminated. Auditors were appointed to value the shares of the nephew. They valued the shares of the nephew. The nephew thereupon transferred his shares to the uncle and received a cheque from him as per the value determined by the auditors. Subsequently, the private company went public. A holding company was thereafter formed. The first defendant transferred all his shares, including those which he had purchased from his nephew, to the holding company. The holding company made overs the shares to the public. It was then that the nephew came to know that the value of the shares which he sold to his uncle as per the valuation worked out by the valuers was much more than what was paid to him. He sued his uncle and the auditors. He inter alias claimed that the valuation was not binding on him and he should be paid the real worth of his shares after their revaluation. In the alternative, he claimed that the auditors were negligent in making the valuation as a result whereof he had suffered damage. Though the trial judge was ready to assume that the claim of the nephew was true yet the claim was thrown out on the ground that short of fraud the auditors were not liable. The trial judge, however, continued the action against the uncle. On appeal by the nephew, Lord Denning MR took the view that the auditors were expressly engaged to act as experts and not as arbitrators. thereforee, they cannot claim the immunity from liability which attaches to arbitrators. While taking this view Lord Denning MR posed a question, namely: 'if a professional man, acting as an expert, is guilty of gross negligence - whereby one of the parties is greatly damnified - why should he not be liable to damages?' It seems that Lord Denning entertained serious doubts about the principle which gave immunity to the experts from being sued when they decide a matter as between two persons fairly and impartially but negligently. However, the other members of the Bench, Buckley LJ and Sir Seymour Karminski took the view that experts cannot be sued in negligence and the claim of the nephew as it stood then disclosed no cause of action against the auditors. While concluding, the two judges held as follows :-
Per Buckley LJ -
'...The position of Caissons in the present case is in my view indistinguishable in essentials from the position of the defendant in Finnegan v. Allen (1943) 1 ALL ER 493. It follows in my judgment that they cannot be sued in negligence and that the statement of claim as it stands discloses no cause of action against them. '
Per SIR SYMOUR KARMINSKY, J -
'The duty of a valuer or arbitrator in a case of this kind is to give an impartial judgment and an honest decision between the parties : see Finnegan v. Allen [1943] 1 ALL ER 403. So far it has not been suggested that the arbitrator here was either partial or dishonest. The allegation against him is that he was negligent in making his valuation of the shares, and in my judgment he cannot be sued for negligence here.'
Thus, the position which prevailed in England according to the aforesaid decisions was that judgment or opinion of an expert such as valuer, auditor, architect, broker, etc., even if given negligently, does not expose him to an action for negligence. This logic is derived from the principle that a judge is not liable for damages for negligence in performing his judicial duties. The same rule has been e x tended to arbitrators as without such immunities the arbitrators would be harassed by legal actions against them. A valuer, surveyor, architect or a broker was also considered to discharge quasi arbitral duties and thereforee it was thought that in deciding certain matters inter parties, the same principle which was applicable in the case of arbitrators should be extended to each one of them. Thus this was the principle behind the aforesaid decisions. But there was a competing principle of general application that an expert employed to perform duties is liable in damages if he causes loss to his employer by failure to take due care or to exercise reasonable professional skill in carrying out his duties, which was not ignored.
16. A real turn around in the view prevailing in England was brought about by the decision of House of Lords in Sutcliffe v. Thackrah and others, [1974] 1 ALL ER 859. In that case the appellant, an owner of a site, wanted to built upon it. In 1963 the Architects prepared the necessary documents for negotiation of tenders by the contractors. The lowest tender of a company David A Walbank (Builders) Ltd. was accepted. Royal Institute of British Architects Form of Contract (for short 'RIBA') was used by the contractors. There was no formal contract between the architects and the appellant. However, it was the understanding between the architects and the appellant that in case of a dispute the RIBA form of contract was to be used. It was also the understanding of the architects that they would carry out the duties of the architects that they would carry out the duties of architects under that form of contract. The house was required to be completed in early 1964 but the same was not so completed because progress of the construction was too slow. The architects had issued number of interim certificates to the contractors in order to enable them to receive payments from the appellant for the work done by them. The case arose because of two certificates issued by the architects dated May 25, 1964 for pound sterling 2620 and July 18, 1964 for pound sterling 1837 in favor of the contractors. On the basis of the certificates the appellant paid the aforesaid amount to the contractors. Shortly thereafter the contract of Walbank was terminated by the appellant on good ground. Later it was discovered that the interim certificates of the Architects even covered the defective work executed by Walbank. The cost incurred by the appellant in removing the defects could not be recovered from Walbank as in the meantime Walbank became insolvent with the result the appellant in 1968 sued the architects for the loss caused to him by their negligence in issuing the certificates. The architects pleaded that while issuing the certificates they were functioning in an arbitral capacity and were not liable to the owner, assuming that they had been negligent. The House of Lords overruled the decision rendered in Chambers v. Goldthorpe (supra) and held that the valuer would be liable in tort for negligence. While holding thus, it observed as follows :-
Per Lord Morris -
...The fact that a building owner and contractor agree that they will treat the certificates of the owner's architect as conclusive evidence that work had been duly completed does not of itself establish that the architect was an arbitrator between them. Neither does the circumstance that by its very nature the architect's function involves that he will act impartially and fairly. He must certainly so act because, there being a contract for work to be done according to the terms of the contract, his function is to see that the contract is carried out. But that does not without m ore make him an arbitrator. His duty is to act fairly when exercising his professional skill in considering whether work done satisfied the contract requirements as to work to be done; if that circumstance constituted him an arbitrator then at almost every stage he would be an arbitrator. His duty to act fairly does not at all conflict with but rather is a part of his duty to safeguard and look after the interests of the building owner who has employed him.
The decision in Chambers v. Goldthorpe [1901] 1 QB 624, has not hitherto come directly before this House for consideration. In Hickman & Co. v. Roberts [1913] AC 229, there are passages in the speeches which indicate that when the architect (pursuant to the clauses of the contract in that case) gave his certificate he was in the quasi-judicial position of an arbitrator and in R.B.Burden Ltd. v. Swansea Corpn, [1937] 3 ALL ER 243, Lord Radcliffe referring to the decision in Chambers v. Goldthorpe said that it was an established principle of law that in granting a final certificate under a building contract the architect acts in an arbitral capacity. But in neither of those two cases was the authority of Chambers v. Goldthorpe directly challenged. Now that it is I consider for the reasons which I have set out that it should be overruled.
In summarizing my conclusions I must preface them by the observation that each case will depend on its own facts and circumstances and on the particular provisions of the relevant contract. But in general any architect or surveyor or valuer will be liable to the person who employs him if he causes loss by reason of his negligence. There will be an exception to this and judicial immunity will be accorded if the architect or surveyor or valuer has by agreement been appointed to act as an arbitrator....
Per Lord Salmon -
'As in the case of the valuer, it is said that the architect is performing much the same functions and must, thereforee, be regarded as being in the same position as a judge or arbitrator and must accordingly be accorded the same immunity. I confess that I can see no more reason for regarding the architect as being in the same position as a judge or arbitrator than there is for so regarding the valuer. No reason has ever been suggested. I suspect that this is because none exists. The descriptions 'quasi-arbitrator' and 'quasi-judicial functions' have been invoked but never defined. They cannot mean more than in much the same position as an arbitrator or judge. In reality, however, there are the most striking differences between the roles of the valuer and architect in the circumstances to which I have referred and the role of a judge or arbitrator. Judges and arbitrators have disputes submitted to them for their examination and consideration. They then give their decision. None of this is true about the valuer or the architect who were merely carrying out their ordinary business activities. Indeed, their functions do not seem to me even remotely to resemble those of a judge or arbitrator. Moreover, in the case of the architect, the contract, provided that the certificate was not binding and that in the event of any dispute arising in relation to it, that dispute could be submitted to arbitration for decision. Like my noble and learned friend, Lord Reid, I suspect that the heresy that such valuers and architects are to be regarded as being in the same position as judges and arbitrators rests on the fallacy that since all judges and arbitrators must be impartial and fair, anyone who has to be impartial and fair must be treated as a judge or an arbitrator.
XX XX XX I recognise that for many years the doctrine which those cases enunciated has been generally accepted. As my noble and learned friend, Lord Reid, has said, it is succinctly expressed by Buckley LJ in Arenson v. Arenson [1973] 2 ALL ER 248 -
'where a third party undertakes the role of deciding as between two other parties a question, the determination of which requires the third party to hold the scales fairly between the opposing interests of the two parties, the third party is immune from an action for negligence in respect of anything done in that role.' My noble and learned friend, Lord Morris of Borth-y-Gest, has cited passages from speeches in your Lordships' House from which it seems that the doctrine, being then unchallenged, was perhaps acceptable even here. This appeal is, however, the first occasion upon which your Lordships' House has had an opportunity of deciding whether or not the doctrine is good law. Clearly it is not a doctrine to be lightly overthrown, however fragile its foundations. Nevertheless. I am convinced that for the reasons I have given, it is contrary alike to principle, sound authority, reason and justice and that thereforee we are obliged to overthrow it.'
A similar question arose in Arenson v. Casson Beckman Rutley & Co. [1975] 3 All ER 901. In that case the House of Lords expressed the view that an auditor of a private company was liable to be sued by the seller or buyer if he made valuation of the shares of the company negligently.
The aforesaid decisions of the House of Lords were applied by the Court of Appeal in Campbell vs. Edwards, [1976] 1 All E.R. 785, and Jones & Others vs. Sherwood Computer Services, [1992] 2 All E.R. 170. In Campbell vs. Edwards (supra), where both parties had agreed that valuer was to fix the price f the property and the valuer accordingly gave his valuation without specifying the reasons for the same, Lord Denning MR, speaking for the Court of Appeal, held that the valuation could not be set aside at the instance of either of them on the ground that the valuer made a mistake. It was further observed that the valuation was binding on the parties in the absence of allegation of fraud and collusion. Again in Jones and Others vs. Sherwood Computer Services (supra), where the parties expressly agreed that certain matters arising in relation to the contract were to be determined by an independent expert whose determination was to be conclusive and final and binding for all purposes, it was held that in absence of fraud or collusion, the expert's determination could only be challenged on the ground of mistake if the same was clear from the evidence.
At this stage it will be convenient to summarise the legal position prevailing in England.
For a long period of time English courts held the view that a valuer while determining the valuation of shares of a company, or property, or an article was not liable to be sued for negligence. What applied to a valuer also applied to an auditor, broker, an architect, a surveyer, etc. In the opinion of the English judges an expert was not liable to an action unless it was shown that he acted in a dishonest and fraudulent manner. The earlier theory of immunity was based on the hypothesis that the task of the said experts was not merely ministerial, clerical or one of arithmetic but involved technical skill and knowledge and their position was comparable to a quasi arbitrator and they while giving their opinion were required to exercise judicial functions impartially between the parties. Subsequently, the House of Lords brought about a change by holding that experts such as valuers, brokers, architects, surveyors, etc., would be liable in tort for their negligence in determining matters between the parties. Consequently, the view that the experts such as valuers, brokers, architects, surveyors, etc., were immune from liability for negligence no longer holds good.
The fact that the House of Lords in the aforesaid decisions, on which Mr. Khanna, learned senior counsel for the respondents, placed great reliance, exploded the immunity theory and specifically held that a valuer will have no immunity from action in tort if he acts negligently in making the valuation between the parties. But that does not mean that the valuation cannot be called in question in legal proceedings between the parties. I regret my inability to subscribe to the view put forth by MR. Khanna, learned counsel for the respondents, that since the valuer can be sued for damages in case it has acted negligently, the petitioner/applicant cannot challenge the valuation report in these proceedings. To my mind if the valuation suffers from a mistake it can be challenged even when an action can be brought against the valuer for acting negligently in forming an opinion with regard to the valuation of an immovable property, movable property, shares, etc. It appears that in the aforesaid decisions of the House of Lords the controversy was whether claim on account of lack of care could be brought against an expert. However, the question was not whether the action of the expert could be challenged in litigation inter parties for the purposes of setting it aside on the ground of the same being wrong on facts or law.
Even in the decision of the Court of Appeal in Campbell vs. Edwards (supra), which was a case of a non-speaking award, Lord Denning MR accepted the position that if a valuer gives a speaking valuation and one can show on the face of it that the reasons were wrong, it was possible to upset the valuation. In this regard it was held as follows:-
'In former times (when it was thought that the valuer was not liable for negligence) the courts used to look for some way of upsetting a valuation which was shown to be wholly erroneous. They used to say that it could be upset, not only for fraud or collusion, but also on the ground of mistake. See for instance what I said in Dean v. Prince [1954] 1 All ER 749. But those cases have to be reconsidered now. I did reconsider them in the Arenson case [1973] 2 All ER 235. I stand by what I there said. It is simply the law of contract. If two persons agree that the price of property should be fixed by a valuer on whom, they agree, and he gives that valuation honestly and in good faith, they are bound by it. Even if he has made a mistake they are still bound by it. The reason is because they have agreed to be bound by it. If there were fraud or collusion , of course, it would be different. Fraud or collusion unravels everything.
It may be that, if a valuer gives a speaking valuation - if he gives his reasons or his calculations - and you can show on the face of them that they are wrong, it might be upset. But this not such a case. Messrs Chesterton simply gave the figure. Having given it honestly, it is binding on the parties. It is no good for either party to say that it is incorrect. But even if the valuation could be upset for mistake, there is no room for it in this case....
Again in the Court of Appeal in Jones & Others vs. Sherwood Computer Services (Supra) it was held that an expert's determination in relation to a matter was to be conclusive and final and binding and in absence of fraud or collusion the determination could only be challenged on the ground of mistake if the same was clear from the evidence. Thus the position is that an expert's opinion does not enjoy immunity if it suffers from mistake, collusion and fraud.
It seems to me that the legal position as enunciated in the decisions of the House of Lords in Sutcliffe v. Thackrah and others (supra) and Arenson v. Casson Beckman Rutley and Co. (supra) does not come in the way of the petitioner to challenge the valuation in these proceedings. Even in Burgess and another v. Purchase & Sons (Farms) Ltd and others (supra) it was observed that a question of what remedy, if any, the plaintiff will have against the valuers has no relevance to the question of what is his remedy against the other party to the contract. In this regard it will be appropriate to quote the observations of Nourse, J. in the said case :-
As for the suggestion that the rule, if otherwise soundly based, ought now to be reconsidered in the light of Arenson v. Arenson and Sutcliffe v Thackrah, I must with the greatest respect to the views of Lord Denning MR and Megaw LJ, if indeed they wen that far, express my own view that, that cannot be correct. Like Buckley LJ and Sir Seymour Karminski in Arenson v. Arenson when dealing with the converse, I do not think that the question of what remedy, if any, the plaintiff may have against the valuers has any relevance to the question of what is his remedy against the other party to the contract. That course is charted between the Scylla of leaving the plaintiff with no remedy at all and the Charybdis of assuming that every valuation made on a fundamentally erroneous basis involves negligence on the part of the valuer, an assumption which no court of justice could make. Take for example the valuer who proceeds on a fundamentally erroneous construction of the agreement which it is not within his professional competence to detect. In such case there could be no invariable rule that the valuer was liable in negligence. Of greater practical significance, take the valuer who only agrees to act on terms that he is not to be liable in negligence, a protection which the law does not deny him. That example seems to me to be the clearest exposure of the plaintiff's plight and the surest ground for saying that the suggestion cannot be correct.
Mr. Khanna, learned counsel for the respondents, contended that the challenge to the valuation report of the valuer should be thrown out in view of the decision of the Supreme Court in K.K. Modi v. K.N. Modi and others, 1998 92 Comp Case 30, since it has taken a view which is in tune with the decisions of the House of Lords in Sutcliffe v. Thackrah and ors. (supra) and Arenson v. Casson Beckman Rutley and Co. (supra).
K.K.Modi v. K.N.Modi and ors (supra) represents a case where disputes arose between members of a family having controlling interest in number of public limited companies. Negotiations took place between two warring groups of the family with the intervention of the financial institutions which had considerable stake in the companies. The memorandum of understanding was reached between the two groups. The memorandum of understanding inter alias provided for division of the companies. For this purpose the shares of the companies were required to be transferred to the respective groups after valuation. Under clause 5 of the memorandum of understanding a scheme of arrangement was to be formulated by M/s. Bansi S. Mehta & Company, Bombay, after taking into consideration the valuation of the shares arrived at by M/s. S.B. Billimoria & Company, Bombay. Under clause 9, the date for carrying out valuation, the date of transfer, the appointment of independent Chairman of the companies, which were to be split, and certain other matters specified int eh memorandum of understanding were left to be determined by the Chairman of Industrial Financial Corporation of India (IFCI). Clause 9 of the memorandum of understanding was to the following effect :-
Implementation will be done in consultation with the financial institutions. For all disputes, clarifications, etc., in respect of implementation of this agreement, the same shall be referred to the chairman, IFCI or his nominees whose decisions will be final and binding on both the groups.
S.B. Billimoria & Co. gave its report of valuation as contemplated by the memorandum of understanding. Bansi S. Mehta & Co. who were required to provide a scheme for splitting up of the companies by taking into account the valuation fixed by S.B. Billimoria & Co. also formulated various reports. The members of both the groups were not satisfied with these reports. They sent various representations to the Chairman & Managing Director of the IFCI under clause 9 of the memorandum of understanding. The Chairman and Managing Director of the IFCI assisted by experts discussed the differences with both the groups. The Chairman, IFCI, gave his decisions on the disputes between the parties in the form of a report. He in the covering letter noted that the memorandum of understanding had already been implemented to a large extent. In order to implement the report, the Chairman, IFCI, issued various directions. It is significant to note that the report was not filed as na award. However, one of the groups being not satisfied with the report and the directions which were issued by the Chairman, IFCI, filed an application under section 33 of the Arbitration Act, 1940, challenging the legality and validity of the decision of the Chairman, IFCI. That apart, a suit was also filed by the same group to challenge the said decision of the Chairman, IFCI. A learned Single Judge of this Court held that the decision of the Chairman, IFCI, could not be considered as an award in arbitration proceedings. According to the learned Single Judge all the disputes were settled through the memorandum of understanding and the only thing which remained was valuation of shares and the division of the companies as agreed to in the memorandum of understanding. As per the learned Single Judge the parties had agreed that the Chairman and Managing Director, IFCI, would issue clarifications and render his decision in relation to the valuation under clause 9 of the memorandum of understanding. The learned Single Judge held that the application was not maintainable as the impugned decision was not an award within the meaning of the Arbitration Act, 1940. He also found that the allegations contained in the arbitration application and the plaint were identical. He was of the view that the filing of the suit was an abuse of the process of the court. In appeal the Supreme Court held that the Chairman, IFCI, acted as an expert and not as an arbitrator and thereforee it upheld the order of the High Court rejecting the aforesaid application under section 33 of the Arbitration Act, 1940. This decision on which strong reliance was placed by the learned counsel for the respondents is also of no avail to him. As already noted, the Supreme Court was confronted with the questions inter alias whether clause 9 of the memorandum of understanding reached by the parties constituted an arbitration agreement and whether decision of the Chairman, IFCI, constituted an award. The Supreme Court was not called upon and did not decide whether the decision f the Chairman, IFCI, in case it was rendered negligently, would make him liable for tort. Again the Supreme Court was not called upon and did not decide that in case the decision of the Chairman, IFCI, was rendered negligently, whether or not the only remedy in tort would be available against him. In Modi's case (supra) the Supreme Court, while deciding the questions which it was called upon to decide, noted the decisions of House of Lords in Sutcliffe v. Thackrah and Arenson v. Casson Beckman Rutley and Co., but did not draw any support from them. The Supreme Court pointed out that these decisions did not assist them directly. It appears to me that the Supreme Court made those observations because the House of Lords in the said cases was concerned with the question whether an expert, viz., a valuer or an architect, would be liable in tort for his negligence in making the valuation of assets of a company or certifying a fee f a building contractor, as the case may be, which was not the question before the Supreme Court. There is another aspect of the decision of the Supreme Court which required to be highlighted. It needs to be remembered that the High Court in Modi's case (supra) had struck out the plaint on the ground that the filing of the suit was an abuse of the process of the court since the allegations in the arbitration petition and in the plaint were identical. The Supreme Court found that some of the reliefs claimed in the suit were materially different from the reliefs claimed in the arbitration petition. The Supreme court noticed that in the suit it was pleaded that if the impugned decision of the Chairman and Managing Director, IFCI, was not to be considered as an award, then in that event that decision as a decision should be set aside in the suit. The Supreme Court, while disagreeing with the decision of the High Court striking out the suit, held as follows :-
'According to the appellants, however, the suit is not confined only to challenging the award or steps taken pursuant to the award by the Chairman, Modipon Ltd. in order to enforce it. According to the appellants, in the suit there is an alternative plea that if the impugned decision of the Chairman and Managing Director, IFCI, is not considered as an award, then that decision as a decision should be set aside. It is contended that the suit, in so far as it challenges the decision of the Chairman and Managing Director, IFCI, as a decision and not as an award is maintainable. In support, the appellants have relied upon the submissions in paragraph 55 of the plaint which we have set out earlier.
The plaint in the suit, to the limited extent that it challenges the decision as a decision, would not amount to abuse of the process of court. We are not called upon to examine whether this alternative submission is supported by proper averments and whether there is a proper cause of action framed in the plaint in support of such an alternative plea. This is a matter which the court hearing the suit will have to examine and decide. But in the suit, the decision cannot be challenged as if it were an award and on the same grounds as if it were an award. The court will also have to consider the binding nature of such a decision particularly when no mala fides have been alleged against the CMD, IFCI. If ultimately, it is found that even on the alternative plea, the claim is not maintainable the court may pass appropriate orders in accordance with law. But to the limited extent that the suit raises an alternative independent plea, it cannot be considered as relitigation of the same issue or an abuse of the process of the court.'
Thus, the Supreme Court set aside the order of the learned Single Judge striking out the plaint and allowed the suit to continue to the extent that it challenged the decision of the Chairman and Managing Director, IFCI, as a decision and not as an award. On the parity of reasoning, I fail to see how the learned counsel for the respondent can ask the court from not looking at the objections raised by the petitioner to the valuation made by the valuer.
Before parting with this point it needs to be noticed that the learned counsel for the petitioner/applicant relied upon the decision of Chancery Division in Dean v. Prince and others, [1953] 2 All.E.R. 636 (Chancery Division), wherein the auditors of a private company were required to value shares of a deceased director at their fair value for purchase by the surviving directors. The auditors had not given any basis of their valuation, but the auditors made over the notes to the plaintiff on the basis of which the valuation was worked out. The Chancery Division held that short of fraud and dishonesty, there was no way for questioning the valuation if the auditors had declined to express their views since the company had committed itself to be bound by the opinion of the valuers. It was further observed that if the valuers had not given reasons for the result arrived at by them and they had maintained silence, no one could question their valuation if the same was honest, but is they gave reasons those reasons could be impeached. Applying this principle it was held that the plaintiff was entitled to bring to the court's notice the reasons which had been given in the notes and the Court was entitled to look at them. In this regard, while holding the valuation to have been made on wrong basis and was not binding on the plaintiff, Lord Denning observed as follows :-
In this case the auditors made their valuation on the basis that the company was to be would-up immediately and that the buyer of the deceased's shares would have no control over the fortunes of the business. In both those matters they were wrong, and, in my judgment, the valuation cannot stand. I propose, thereforee, to declare that the valuation is but binding on the plaintiff, and, if necessary, to restrain the defendant company from acting on the valuation. The plaintiff desires the court to take on itself the burden of ascertaining the value of the shares, i.e., to make a declaration of the basis on which the valuation should be made, and then direct an inquiry on that footing. I decline to do either of those things. I do not see what jurisdiction the court has to put itself in the place of the valuer whom the parties have chosen. I do not propose to do mor eat this stage than to relieve the plaintiff of any obligation that may be on her to accede to the present valuation. Accordingly, I declare that the valuation is not binding and restrain the defendant company from acting on it.
The defendant appealed against that part of the judgment whereby the valuation was held to be not binding on the parties being invalid. Though the court of appeal allowed the appeal and upheld the valuation, it did not differ from the opinion of the Chancery Division that in case valuation is made under a mistake it will not be binding on the parties despite the fact that the valuer acts as an expert and not as an arbitrator (see Dean v. Prince and others, [1954] 24 Comp Case 198). However, the decision in Dean v. Prince and others (supra) was not followed by Court of Appeal in Jones & Ors. vs. Sherwood Computer Services (supra).
Be that as it may, the position in law seems to be that a valuer cannot claim immunity any more if he acts negligently in making his determination and can be sued for tort or negligence but action against the valuer for damages cannot come in the way when the court is considering the validity of the valuation itself. The fact that the parties may have agreed that the valuation arrived at by a valuer would be binding on them, the agreement does not imply that they will be bound even by a valuation which is erroneous. In this country the courts cannot be bound to accept the determination or opinion of an expert which is erroneous as otherwise it would amount to perpetuating the mistake. Mr. Khanna contended that the compromise recorded by the court constitutes a decree and if this is so the valuation arrived at by the valuer cannot be challenged in these proceedings. I regret my inability to accept the submission of the learned senior counsel. While it may be true that the compromise recorded by the court constitutes a decree but that does not mean that the report of the valuer which was directed to be filed under the order of this court cannot be touched in these proceedings. In case the report suffers from mistake or perversity, the same can certainly be set aside in these proceedings and the matter can be referred for fresh valuation by an expert. The court is not bound to accept the report in case the same is erroneous. Mr. Sanghi, learned counsel for the petitioner, claimed that M/s Coopers & Lybrand Pvt. Ltd was actually appointed by the Court under Order 26 Rule 9 C.P.C. as Local Commissioner to determine the valuation. On the other hand, Mr. Khanna, learned senior counsel for the respondents, refuted this position and submitted that the appointment of the valuer was made by by this court order on the basis of the terms of the compromise arrived at between the parties and the same was not made under Order 26 Rule 9 C.P.C. It is not necessary to examine the submissions of the learned counsel for the parties in view of the aforesaid determination.
Keeping in view the aforesaid discussion, I am of the view that a decision of the valuer in arriving at the valuation of the shares of the company can be challenged in these proceedings. thereforee, the preliminary objection of the respondents fails and is hereby rejected.
Learned counsel for the respondents argued that the challenge to the report of the valuers cannot be made in the absence of the valuers, namely, M/s. Coopers & Lybrand Pvt. Ltd who are not party respondents in the case. Elaborating his submission learned counsel contended that it is the valuer who is the best person to explain its decision relating to valuation of various assets of the company. Learned counsel also submitted that the valuer has adopted break up method which is beneficial to the appellant. He, however, stated that he does not wish to challenge the report of the valuer even though it is heavily loaded in favor of the petitioner in order to close the controversy. On the other hand, learned counsel for the petitioner submitted that the valuation report suffers from various infirmities. He in his written submissions dated October 11, 2000, while responding to the contention of the learned counsel for the respondents that the valuer cannot be condemned unheard, has urged that it is highly desirable to examine the expert. At this stage it will be appropriate to extract the relevant portion of the written submissions:-.Under Order 26 Rule 10(2), the Court or, with the permission of the Court any of the parties to the suit may examine the Local Commissioner personally in open Court touching any of the matters referred to him or mentioned in his report or as to is report of as to the manner in which he has made the investigation. In view of the highly questionable report of the expert in the present case, it is highly desirable to examine the report/Local Commissioner for all these aspects before the report can be accepted by the Court. The petitioner craves leave of this Hon'ble Court to summon the valuer to cross examine him on his report in question.
In regard to the aforesaid submission of the parties it needs to be pointed out that the learned counsel in the first instance required the determination on the preliminary question raised by the respondents to the maintainability of the application of the petitioner. thereforee, at this stage I am not going into the question whether the valuer is to be made a party-respondent or is to be called to explain its decision.
Next question which requires determination is whether or not there is any justification to continue the interim orders dated January 30, 1995 and August 8, 1996? Even though the petitioner can challenge the decision of the valuer, I do not find any justification for continuing the interim orders. The compromise has been acted upon to a large extent. The respondents deposited a sum of Rs.10,00,000/- pursuant to the terms of the compromise. The petitioner has also field share scrips and duly signed blank transfer forms. The petitioner was allowed to retain the following items which were given to him by the company in pursuance of clause 4(a) and 4(b) of the compromise:-
i) Maruti 1000 Car.
ii) Contessa Classic Car.
iii) Water purifier.
iv) Water Cooler.
v) Airconditioner - 3 nos.
vi) Time Keeping Machine.
vii) Personal Computer PC286 with Monitor & Keyboard.
viii) Printer.
ix) Fax Machine.
According to the compromise, the petitioner ceases to have any interest in the company. Under the compromise, the respondents have been made entitled to receive shares of the company which were held buy the petitioner. The petition is only entitled to receive the value of the shares. In case the valuation has been made wrongly, the same can be rectified so that the petitioner could be given correct value of the shares which he has agreed to transfer to the respondents. In the circumstances, thereforee, there is no reason to continue the aforesaid interim orders. The interim orders dated January 30, 1995 and August 8, 1996 are hereby vacated, subject to the respondents taking out an FDR in the sum of Rs.fifteen lakhs in the name of the Registrar of this Court and filing the same before the Registrar within seven days. In the first instance the FDR should be taken out for a minimum period of six months. The Registrar shall get the FDR renewed periodically as per need.