IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4456 OF 2008 (Arising out of S.L.P.(C) No.2289/2007)

M/s. Premium Exchange & Finance Ltd. & Anr. ...Appellant(s)

Versus

M/s. S.N. Bagla & Co. & Ors. ...Respondent(s)

O R D E R

Leave granted.

The question which falls for determination in the Civil Appeal is: Whether

the Executing Court is competent to set aside, vary or modify the terms or contents

of  the consent  decree passed on 26th April,  2002 in C.S.No.406/2000 by the High

Court of Calcutta?   

Briefly, it may be stated that six suits were filed in which the matter came

to be settled vide consent decree dated 26th April, 2002.  By the said consent decree,

disputes between the parties herein, namely, Birla Group and Bagla Group, which

disputes were subject matter of six suits and one winding-up petition, came to be

settled.  The consent decree was a composite decree for Rs.4,06,93,252/-.  A further

decree for a sum of Rs.13,14,042/- was also passed on the basis of a claim made in the

winding-up  petition.  The  details  of  the  suits  and  the  details  of  the  execution

applications  (six in number)  are  mentioned at page 182 of

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the paper book.  

For deciding this matter, we are required to examine the relevant clause of

the consent decree.  We quote herein-below clause-K of the Scheme, forming part of

the consent decree, which reads as under:

“Both the Bagla Group and Texmaco Ltd. will take steps for successful and quick implementation of the Hydel Power Project. Upon commissioning of the Hydel Power Project scheduled for completion in or  around  September/October-2002,  evaluation  of  the  shares  of  the Neora Hydro Ltd. shall be made by Ernst & Young having its office at New Delhi – Ernst & Young shall be appointed to value the shares of Neora Hydro Ltd.  as on the date of  commissioning or June 30,  2003 whichever is earlier.  The fees of Ernst & Young including all expenses incurred for the purpose of valuation of shares shall be paid by Bagla Group and Birla Group in equal proportion.  The decision of Ernst & Young on the valuation of shares shall be final and binding upon both Birla Group and Bagla Group and none of the parties hereo shall  be entitled to raise any objection in any manner with regard thereto.  The terms of Reference to be made to Ernst & Young for valuation of shares of Neora Hydro Ltd. is set out in a Schedule attached hereto.”

Reading Clause-K quoted above, the position which emerges is that there

was a basic dispute regarding valuation of shares of Neora Hydro Ltd. and, in order

to put an end to the said dispute, the parties agreed that the decision of Ernst &

Young on the valuation of shares shall be final and binding upon Birla Group and

Bagla Group and none of the parties shall be entitled to raise any objection in  any

manner  with regard thereto.  The terms of Reference

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to be made to Ernst & Young for valuation of shares of Neora Hydro Ltd. were also

set out in the Schedule attached thereto.  After the consent decree came to be passed

on  26th April,  2002,  the  appellants-decree  holders  herein  filed  six  Execution

Applications,  one  of  which  was  G.A.No.2036/2005.   In  the  said  Execution

Applications, the respondents herein filed their objections and initiated Section 47

C.P.C. proceedings inter alia claiming that the valuation of shares by Ernst & Young

be set aside.   

To complete the chronology of events, the learned Executing Court came to

the  conclusion  that  since  there  was  lack  of  transparency  in  preparation  of  the

valuation report by Ernst & Young and since the Valuer did not understand the

duty cast upon them pursuant  to the consent decree, the Court directed the said

Valuers to value the shares once again upon taking both the parties to the dispute in

confidence.  The Executing Court further observed, not by way of a finding but by

way of an observation, that it (Ernst & Young) might be acting on behalf  of the

decree holder in different capacity and, under the circumstances, its opinion may not

be independent on the question of valuation.  At this stage, it may be noted that this

finding of the Executing Court has been set aside by the Division Bench.  In the

present matter, Civil Appeal is filed against the judgment of the Division  Bench.

The Division Bench has

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further  compounded  the  issue  by  holding  that  the  method  adopted  by  Ernst  &

Young in the matter of valuation of shares, namely, Discounted Cash Flow (DCF)

method was not the correct method and that the Valuer should have adopted Net

Asset Value method.  It accordingly directed the Valuer to submit another Report

based on the NAV method of valuation.

We are of the view that, in the present case, Section 47 C.P.C. application

made by the respondents herein was totally misconceived.  It was not maintainable.

The  Executing  Court  had  no authority  to  set  aside,  modify  or  vary  the  consent

decree  dated  26th April,  2002.   We have  quoted  above  Clause-K of  the  Scheme

annexed to the consent decree.  Clause-K makes the valuation by Ernst & Young

final and binding on the disputing parties.   If,  according to the respondents, the

opinion of the Valuer was tainted, biased or that they had failed to do their duty as a

Valuer, then, appropriate proceedings ought to have been taken by the respondents

either for setting aside or modifying the consent decree before the Competent Court

but not in the Executing Court which has no power to set aside, modify or vary the

decree.  It was not open to the respondents to move under Section 47 C.P.C. for the

relief,  namely,  to  have  the  valuation  report  set  aside  as  that  would  amount  to

virtually setting  aside  a portion of  the  consent decree  which, as

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stated above, constituted very core and the basis of the consent decree.

In our view, therefore, without going into the merits of the matter, we hold

that Section 47 C.P.C. application made by the respondents was not maintainable

and ought not to have been entertained by the Executing Court.  Consequently, we

set aside the impugned judgment of the Division Bench of the High Court as well as

the Order passed by the Executing Court.

It would be open to the respondents to adopt such remedy, as it may be

advised  and  as  it  may  be  open  to  them  in  law.   Since  we  have  held  that  the

proceedings  adopted  by  the  respondents  were  totally  misconceived  and  not

maintainable, observations made in the impugned judgment by the Division Bench

will not preclude the Competent Court from deciding the matter on its own merits,

uninfluenced by such observations.

Mr.Dutta, learned counsel appearing on behalf of the respondents, states

that the respondents would take appropriate steps within four weeks from today.

We grant the said request and direct that for four weeks the Execution Proceedings

(six in number), particulars of which are given at page 182 of the paper book, shall

not  proceed.    The  appellants  would be at  liberty  to proceed with  the execution

applications on expiry of the period of four weeks.

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Civil Appeal is disposed of accordingly with no order as to costs.  

                         ...................J.               (S.H. KAPADIA)

                  ...................J.                                         (B. SUDERSHAN REDDY) New Delhi, July 16, 2008.