C N SHETTY Vs. HILLOCK HOTELS PRIVATE LIMITED

JUDGEMENT

(1.) This is a petition filed by one of the shareholders of the first respondent-company, Hillock Hotels Private Limited, Visakhapatnam, under sections 397 and 398 of the Companies Act, 1956, alleging oppression, exclusion and mismanagement by the managing director, the second respondent, and other director, respondent No. 3. Respondent No. 2 is the managing director of the company, while the third respondent, his wife, is a director and respondent No. 4, their daughter and respondents Nos. 5 and 6, their sons are shareholders.

(2.) The averments in the petition are as follows : The authorised share capital of the company formed on 13/05/1980, was Rs. 10,00,000, divided into 1,000 equity shares of Rs. 1,000 each. The issued, subscribed and paid-up share capital as on 30/09/1985, was Rs. 1,10,000 divided into 110 equity shares of Rs. 1,000 each. The main object of the company, as per exhibit A-1 memorandum of association, is to carry on the business of a hotel. Respondents Nos. 2 and 3 who originally subscribed five shares each at the time of formation of the company were appointed as directors under article 12 of the articles. By virtue of article 19, respondent No. 2 was appointed as the managing director. The petitioner was inducted as a director of the company in its first meeting on 7/06/1980, and five shares were allotted to him (exhibit A-2). Thereafter when the allotment of shares took place on 9/03/1981, he was allotted 45 shares (exhibit A-3). The shareholding of the second and third respondents was 25 each. The company (not petitioner, which is evidently a typographical mistake) purchased a plot of land in Dasapalla Hills, Visakhapatnam, admeasuring 1,300 square yards by sale deed dated 29/07/1980, for Rs. 27,000. The value of the land has appreciated to more than Rs. 10,00,000. Even till 1987 construction of the hotel was not commenced. In the year 1987, the managing director had obtained permission of the municipal corporation of Visakhapatnam, for the construction of a multi-storeyed apartment on the plot of land. At this stage the second respondent entertained the idea of excluding the petitioner from the management of the company and stopped sending notices of the meetings of the board of directors and also of the general body to the petitioner. Respondents Nos. 2 and 3 allotted 150 additional shares, to themselves, their daughter and two sons, who were allotted 30 each. Consequently, the petitioner who, until then was holding shares at par with respondents Nos. 2 and 3, has been reduced to a miserable minority. No shares were offered to the petitioner in accordance with the proportional representation which is the accepted mode in joint ventures. The petitioner goes on to say that he apprehends that respondents Nos. 2 and 3 are entering into agreements with prospective buyers and large amounts of money may pass without being accounted for in the books of the company. The action of the respondents lacks probity and fair conduct and constitutes acts of oppression and mismanagement. As the initial shareholding of the petitioner on the one hand, and that of respondents Nos. 2 and 3 on the other hand were equal and the company is a private limited company, the nature of relationship as between the petitioner and respondents Nos. 2 and 3 must be regarded as that which obtains in a partnership, and, therefore, any breach of faith or trust must automatically entail the winding up of the company by applying the principles of dissolution of a partnership. But as the winding up of the company will be unfair and prejudicial to the interests of the petitioner, the petitioner seeks for the following reliefs : That the additional issue of shares to respondents Nos. 2 to 6 purportedly effected on 24/03/1988, to the extent of 150 shares be set aside as illegal, null and void; that the second respondent be removed from the office of the managing director of the company; that the articles of association of the company be amended to have proportionate representation for the petitioner on the one hand and respondents Nos. 2 and 3 on the other hand, with casting vote for neither group; that the appointment of respondents Nos. 4 to 6 as directors, if any, be set aside; that the petitioner be allowed to purchase the shares of respondents Nos. 2 and 3 at the value to be fixed by this court and grant any relief.

(3.) The company petition was filed on 18/04/1988, and pursuant to the warrant of commission issued by this court, on 29/04/1988, Sri P. Venkateswarlu, advocate, who was appointed as the Commissioner, filed a report along with the inventory showing 16 items which consist of registers, the minutes books of the proceedings of the board of directors and the annual general meetings, etc. Documents however were not directed to be seized.