Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
When there exist serious
difference of opinion between or among substantial shareholders in the Company
and when the required trust is lost, then, one group tries to oppress other in
order to take control in the Company. For many reasons, when there is
oppression and mismanagement in the Company, the aggrieved shareholders or the
group may not resort to High Court for winding-up the Company on just and
equitable ground. Instead, the minority or the majority in some cases
approaches the Company Law Board seeking preventive and remedial measures in
order to put an end to the matters complained of. The proceeding before the
Company Law Board under section 397/398 is very complicated and there are many
legal principles laid-down.
If a petition under section
397/398 of the Companies Act, 1956 is based on a Share Purchase Agreements and
its validity, then, despite the pendency of a civil dispute or arbitration
proceeding simultaneously, the proceeding under section 397/398 becomes so
complicated and dealing with issue is really challenging. I would like to
present a case study with typical facts. The analysis and my opinion on the
issue follow the presentation of facts.
Facts of the case:
1. "ABC" is a Private
Limited Company and entire shareholding is held by a family called
"D". The Company is a going concern.
2. The Family "D"
wanted to sell the Company and they were approached by "F" to buy the
entire shareholding in the Company.
3. After thorough discussions,
"D" and "F" agreed to enter into a written agreement
listing out the respective rights and liabilities of Share Transfer.
4. The Written Share Purchase
Agreement between "D" and "F" had a time-limit to complete
the entire transactions.
5. "D" had transferred
all the shares to "F" pursuant to the Share Transfer Agreement and
"F" had taken actual control of the Company.
6. According to "D",
"F" failed to fulfill the obligations in the Share Purchase Agreement
and as such contend that the "Share Transfer" is not valid at all.
7. As the Share Purchase
Agreement contained an Arbitration Clause, the dispute between "D"
and "F" was referred to Arbitrator and the adjudication was going on.
8. "D" now alleges
oppression and mismanagement in the Company and filed a Petition before the
Company Law Board under section 397/398 of the Companies Act, 1956.
9. "F" contends that
the petition filed by "D" under section 397/398 of the Act is not
maintainable in view of the pendency of the dispute before Arbitrator and in
view of the fact that "D" has transferred all their shares and not a
shareholder of the Company at all.
Analysis:
In the case presented above, the
issue was so complicated. "D" can approach the High Court to wind-up the
Company on just and equitable cause, but, they did not want to wind-up the
Company. Apart from "D" and "F", the interests of the
creditors, suppliers and other interested parties to be taken note of. But,
basically, the object of section 397/398 of the Companies Act, 1956 is to
provide protection to the rights of the minority against oppression and
mismanagement by the majority in the Company. There was no substantial
reference to the other interested parties unlike the liquidation proceedings
where the interested parties are taken note of in each and every liquidation
proceeding. Can the Company Law Board favour entertaining the Petition in view
of other interested parties despite the complicated issue of maintainability of
the Petition in view of Arbitration Proceeding? The facts are so complicated
and it would be challenging task for any adjudicatory forum to take a decision
on the issue and to resolve the same. It may be difficult for the Company Law
Board to give an instant finding on the issue if it chooses to entertain the
issue in view of pendency of Arbitration Proceedings on the issue of validity
of Share Purchase Agreement.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com