1999 (11) TMI 795 - HC - Companies Law

Issues Involved:
1. Whether the respondents-company is in the nature of a joint venture partnership between the petitioner and the third respondent.
2. Whether the issue of additional share capital in March 1988 suffers from any illegality and has been done by respondents for their exclusive benefit and is an act of oppression.
3. Whether the company has undertaken construction of residential flats and, if so, is it within the scope and authority conferred by the memorandum of association.
4. Whether the affairs of the company are being conducted in a manner oppressive to the interests of the petitioner for the reasons mentioned in the petition.
5. What relief to be granted in this petition.

Issue-wise Detailed Analysis:

1. Nature of the Company:
The learned Single Judge initially found that the company was in the nature of a joint venture partnership between the petitioner and the third respondent. However, this finding was not fully endorsed by the appellate court. The appellate court noted that while there were equal shareholdings initially and intimate friendship, there was no evidence of an express or implied agreement that the petitioner should actively participate in the business affairs of the company. Thus, the appellate court did not fully agree with the finding that the company was a partnership in substance.

2. Issue of Additional Share Capital:
The appellate court agreed with the learned Single Judge that the issue of additional share capital in March 1988 was done without proper notice to the petitioner and was intended to benefit the respondents exclusively. The court found that the move to raise additional share capital to finance a new line of business (construction of residential flats) was done without informing the petitioner, thereby constituting an act of oppression. The court emphasized that the petitioner was not given due notice of the proposed allotment of additional shares or the change in business activity.

3. Construction of Residential Flats:
The court found that the decision to undertake the construction of residential flats was not within the scope and authority conferred by the memorandum of association of the company. The decision to raise additional share capital for this purpose was made without the petitioner's knowledge, further supporting the finding of oppression.

4. Conduct of Company Affairs:
The court concurred with the learned Single Judge that the affairs of the company were being conducted in a manner oppressive to the petitioner. The court noted that the arbitrary and unfair acts of the respondents, such as issuing shares to family members without the petitioner's knowledge, amounted to acts of oppression within the meaning of section 397 of the Companies Act. The court emphasized that these acts had continuing repercussions and cast a shadow over the affairs of the company.

5. Relief Granted:
The learned Single Judge directed the respondents to pay Rs. 2 lakhs to the petitioner for his 50 shares. The appellate court, however, modified this relief. The court found that the valuation of the shares should be based on the market value of the land, which was the only asset of the non-functioning company. The court fixed the value of the shares at Rs. 4 lakhs instead of Rs. 2 lakhs, considering the time lag and costs incurred by the petitioner in pursuing the litigation. The court directed the respondents to deposit the amount in a bank with instructions to pay the petitioner upon submission of necessary share transfer documents.

Conclusion:
The appellate court dismissed OSA No. 40 of 1999 filed by the respondents in the company petition and allowed OSA No. 5 of 1996 filed by the petitioner to the extent of modifying the relief granted. The respondents were directed to pay Rs. 4 lakhs to the petitioner for his shares, and both parties were given the option to seek further directions from the court if necessary. No order as to costs was made.

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