It is settled that the Company Law Board, while exercising powers under section 397/398 of the Companies Act, 1956 can pass any order in order to put an end to the matters complained of. The object behind providing a relief to the minority shareholder against the majority is very good despite the complications in dealing with the issue of oppression and mismanagement by any adjudicatory forum. Difficulties tend to come between or among persons in a closely held Private Company and there can be deficiency in the required trust between or among the persons or groups in a Company often.  There is a general feeling that that a proceeding before the Company Law Board under section 397/398 of the Companies Act, 1956 is not proved effective to the shareholders while in some cases the majority feels that they are unnecessarily troubled using section 397/398 of the Companies Act, 1956. Many principles are settled on the law dealing with the oppression and mismanagement. Even the proposed Tribunal may not escape the complications under section 397/398 of the Act. By its nature, a proceeding under section 397/398 of the Companies Act, 1956 is complicated and it is to be dealt with very carefully.

There can be a straight case of irregularity or mismanagement by the majority in a Company and that may not be enough to allow the Company Petition under section 397/398 of the Companies Act, 1956 if the Company is largely held and a going concern. The Board may have to consider the interests of the Company, the business, the creditors, the obligations, the affect of the directions or the order and plethora of other issues while dealing with a petition under section 397/398 of Companies Act, 1956. To many professionals and corporates, it all may appear confusing, but, the complications are inevitable in a proceeding under section 397/398 of the Companies Act, 1956. The Company Law Board regulations deal with the procedure to be followed before the Company Law Board or by the Company Law Board though the Company Law Board substantially rely on section 397/398 of the Companies Act, 1956 when it comes to exercise of powers.

The procedure prescribed in Company Law Board regulations is not too technical like the provisions of Civil Procedure Code, and the procedure is based on the logic and reason.  I did personally feel that even the Company Law Board normally do not rely on technicalities and I personally feel that substance is to be looked into over technicalities by the Company Law Board in a petition under section 397/398 of the Companies Act, 1956. The interesting point I have noticed in the recent past in a proceeding under section 397/398 of the Companies Act, 1956 is about the Amendment procedure. When the majority in a company resorts to some objectionable action pending disposal of Company Petition, as a practice, the Petitioner may tend to question the further action of the majority shareholders by making a challenge by seeking an amendment to the main Company Petition. If there is only one objectionable development, the petitioner before the Board under section 397/398 of the Companies Act, 1956, may choose to ask for amendment of Company Petition.

But, what happens is that the Company Law Board will not pass drastic orders affecting the day-to-day affairs of the Company when the Company is a going concern and it is true when the Company is largely held Public Company. Taking advantage of no restraint on exercise of powers by the majority, the majority in the Company may resort to many actions even during the pendency of the Company Petition affecting the rights of the minority shareholder who has filed a petition under section 397/398 of the Companies Act, 1956. The minority shareholder may not be able to scrupulously follow all the technicalities like getting the Company Petition amended each time and in my opinion, if such a procedure is insisted, then, the Company Petition can be dragged to several years costing the minority a lot. Going by the language used in the Company Law Board regulations, the object of section 397/398 of the Companies Act, 1956, the principles highlighted by the Higher Courts, I believe that substance is to be looked into by the Company Law Board while entertaining a Company Petition under section 397/398 of the Companies Act, 1956 rather technicalities. In my opinion, it is the responsibility of the Company Law Board to ascertain all contentious issues from the pleadings and documents available and Company Law Board can deal with all issues without looking into technicalities while disposing a Company Petition under section 397/398 of the Companies Act, 1956. It is true that the professionals should carefully assist the Board in knowing the contentious issue before the Board and it would be really difficult for the Board to deal with a Company Petition under section 397/398 of the Companies Act, 1956 without the assistance of professionals and the respective parties before it.

There is also another technical issue on the same lines. The minority may approach the Board under section 397/398 of the Companies Act, 1956 and the majority may file a reply with some grievance over the minority too and he may also want a relief. When the majority too wishes a relief or a finding on a particular thing committed by the minority, then, the Company Law Board, in my opinion can grant a relief to the respondent also in a Company Petition under section 397/398 of the Companies Act, 1956. The wording used in section 397/398 while conferring powers subject to express limitation under section 402 and precedents, makes it very clear that the Company Law Board should ascertain the contentious issue before it based on the pleadings and documents and can call for further information for effective disposal of Company Petition.

We tend to see few orders or disposal of petitions under section 397/398 of the Companies Act, 1956 based on technicalities.  I think it is not right considering the object of section 397/398 of the Act. The Company Law Board can look into equity, reason, logic and can ascertain the contentious issues while dealing with a petition under section 397/398 of the Companies Act, 1956.

Note: the views expressed are my personal.

Author:

V.DURGA RAO, Advocate, Madras High Court.

Email: vdrao_attorney@yahoo.co.in

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