TMI Blog1999 (11) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... t to buy shares. 3. CP No. 27 of 1988 was filed seeking directions under sections 397 and 398 of the Companies Act to provide relief to the petitioner against the alleged acts of oppression. The petitioner sought an order to invalidate the issuance of additional shares to respondents 2 to 6 on 24-3-1988, to remove the 2nd respondent and respondents 4 to 6 from the posts of managing director and directors, respectively, to direct amendment of articles of association so as to have proportionate representation for the petitioner on the one hand and the respondents No. 2 and 3 on the other hand and lastly, to allow the petitioner to purchase the shares of respondents No. 3 to 6 to the value fixed by this court. Respondent Nos. 3 to 6 are the wife and children of the 2nd respondent. 4. The 1st respondent in the company petition is the company by name Hillock Hotels (P.) Ltd., having its registered office at Vishakapatnam. The main object of the company is to carry on the business of hotel, restaurant, lodging, house keepers and to provide places of amusement, recreation, entertainment, etc. 5. The 1st respondent company was incorporated initially on 13-5-1980 with authorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner was more or less like a partnership venture with the fundamental postulate that there should be equal participation. But when the land value had gone up, the 2nd respondent managed to allot additional shares for himself and his family members to gain control over the company to the detriment of the petitioner. The 2nd respondent, therefore, betrayed the mutual confidence expected to be maintained. It is also contended that the 2nd respondent without starting the hotel project, took steps to embark upon a totally different venture without the knowledge of the petitioner. These acts according to the petitioner, constituted oppression and, therefore, various reliefs as mentioned supra sought for. 8. The stand of the 2nd respondent is that the decision taken by the Board of directors to take up construction of residential complex was bona fide and was in the general interest of the company. The petitioner was not taking any interest in the management of the company and was not even attending the meetings in spite of intimation. As finances were required for taking up the construction work, it was decided to raise additional share capital. The allegations of oppressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in equal measure participate in the business affairs of the company. However, we need not dwell on this aspect at length as we are inclined to concur with the learned Single Judge as regards the finding of oppression. 13. The learned counsel for the appellants in OSA No. 40 of 1999 (respondents in the CP) assailed the observations and finding of the learned Judge that there was no need to issue additional share capital for any purpose connected with the objects of the company and such a move on the part of the appellant and his group amounted to oppression. It is submitted by the learned counsel for the appellants in OSA No. 40 of 1999 that from the mere fact that the activity of building a residential complex did not fall within the scope of the enumerated objects of the company, the decision taken cannot by itself be construed as an act of oppression as it would ultimately benefit the general body of shareholders. It is pointed out that the memorandum of association could always be altered to take care of the legal requirement. It is further submitted that the petitioner took little or no interest till he nurtured the idea of gaining control over the company after its only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was going to be discussed. The irresistible inference that needs to be drawn is that 2nd respondent deliberately kept the petitioner in dark about the proposed raising of share capital, that too, to finance a new line of business. The fact that the 2nd respondent followed up the decision taken on 3-9-1987 by allotting the additional shares to his kith and kin without even apprising the petitioner of the decision, is a further pointer of his design to gain control over the company to the exclusion of the petitioner. The court has to take into account the overall picture emerging from the undisputed facts and the evidence on record. The least that can be said is that the petitioner who was having equal stake in the company and was associated with the company from the beginning was given a raw deal when it came to the question of allotting the additional share capital. He was not put on due notice of the proposed allotment of additional shares, nor about the change of business activity. The arbitrary and unfair acts of the 2nd respondent would undoubtedly tantamount to acts of oppression within the meaning of section 397. The effect of such act is to be felt not just on one day or fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . v. Meyer [1959] 29 Comp. Cas. 1 and the guiding principle laid down in the case of Bird Precision Bellows Ltd., Re (1985) 3 Comp. LJ 429 (Ch. D) took the view that the oppressor should be directed to buy the shares at a fair price and the value of such shares on the date of the petition should be the determining criterion. 18. The learned Judge commented that the normal rule is that the oppressor has to buy the shares of the oppressed shareholders though in exceptional circumstances such as those obtaining CP No. 8 of 1981 (decided by Jeevan Ready, J., on 10-6-1988), the oppressed shareholders could be directed to buy the shares of the oppressor. The view of House of Lords in Scottish Cooperative Society, supra , was followed by a Division Bench of the Calcutta High Court in Ramashankar Prasad v. Sindhri Iron Foundry (P) Ltd. AIR 1966 Cal. 512. In that case, an auditor was appointed to find out the value of shares at the date of the petition and it was further directed that the respondents who were found to be oppressors should buy the shares of the petitioners. The said decision of the Calcutta High Court was cited with approval recently by a Division Bench of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date as the date on which the additional share capital was issued. The relevant date was, therefore, taken as 1-12-1987 for the purpose of estimation of share value. Whether the date 1-12-1987 is taken as the relevant date or the date of filing of the petition, i.e., 18-4-1988, is taken as the relevant date, it does not make much of difference. The time gap is only five months. In fact, the learned Judge actually estimated the share value obtaining during the year 1987-88. 20. The next question is about the valuation of shares. It is not in dispute that having regard to the fact that the only asset of this non-functioning company is that land and there are practically no liabilities, the share value could be related to the land value. The learned Judge rightly observed that notwithstanding the book value of the land being Rs. 91,193 as per the latest balance sheet, it is legitimate to take into account the market value of the land. To avoid further delay in this old matter, the learned Judge did not deem it expedient to have the shares valued by a chartered accountant. The learned Judge is quite right in saying so. The value of the land of 1,361 sq. yds. was fixed at Rs. 8,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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