A 50-Year Dispute Solved by Supreme Court Regarding Undervaluation of Shares by a CA Firm

The Supreme Court of india has recently ended a 50-year-old case regarding the undervaluation of the share in a Chartered Accountancy (CA) firm. The decision taken says that from 1975 onwards, a 6% annual interest must be added to the estimated share price and from the date of the court’s decision until the payment is made, a 9% annual interest must be added. This means the suffered party will receive compensation with interest for the long delay in resolving the case.

The case dates back to 1973 when the Rajasthan government bought shares of Bikaner Gypsums Limited (which later became Rajasthan State Mines and Minerals Limited) from I.K. Merchants Private Limited and other shareholders. The government paid Rs. 11.50 per share, a price determined by a Chartered Accountancy (CA) firm. This valuation later became a matter of legal dispute.

The shareholders argued that the valuation of the share (Rs. 11.50 per share) was not adequate and was unfair. In 1978, a legal case was filed against this in Calcutta High Court to raise objections against the price set by the Rajasthan government. After years of legal battles, in 2012, the high court appointed an independent CA firm, Ray & Ray, to recalculate the share value. The conclusion came that the fair market value of the share in 1973 was Rs. 640, which was 98% higher than the price set, i.e., Rs. 11.50. This led to the financial loss of shareholders.

Bijoy Kumar Jain filed a case in the Supreme Court, saying that the initial undervaluation of shares has disadvantaged their clients of actual compensation for 50 years. The company has said that their valuation of Rs. 11.50 per share does not match their true worth and future growth potential. He also stated that all other issues in the case had been settled, and the only remaining issue was the final compensation amount based on the corrected valuation.

Deepak Goel and Milind Kumar, representing the Respondents, argued that the 1973 share valuation was fair because the company was in financial trouble at that time. They claimed that the company’s later profits could not be used to change the past valuation or adjust the compensation.

Justice R. Mahadevan, a single judge of the court, stated that the Supreme Court has the complete authority to decide the interest rate at this stage. The decision should be based on fairness, business practices, and justice.

Given the long delay in resolving the dispute over share valuation and the large amount of money involved, which was only recently determined, the Supreme Court decided to grant simple interest as 6% per year from July 8, 1975, on the revised share value until the court’s final judgment (decree) and 9% per year from the date of the judgment until the amount is fully paid.

The court ordered the Government to pay the remaining balance for the updated share value, after subtracting the amount already paid, within 2 months from the judgment date.