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
It is settled that the Company Law Board can pass any order in the
interest of the Company and in order to put an end to the matters complained
of. It is also settled that sect6ion 402 of the Companies Act, 1956, though
enumerates certain powers of the Company Law Board, the same will not restrain
the general powers of the Company Law Board under section 397/398 of the
Companies Act, 1956. In light of the settled legal position about the powers of
the Company Law Board and if technicalities are ignored, section 403 of the
Companies Act, 1956 was not discussed much.
What happens normally is that the Company Law Board can pass interim
orders in favour of the Petitioners in a proceeding under section 397/398 of
the Companies Act, 1956 pending the main Petition. When an interim order or the
direction is given by the Company Law Board infavour of the Petitioners under
section 397/398 of the Companies Act, 1956, the same can be modified and also
can be vacated. Normally, in reply to the allegations in the petition and the
interim applications, the respondents in a proceeding under section 397/398 of
the Companies Act, 1956, will file their counter statement or the reply. Based
on the pleadings, the Company Law Board passes such orders as it thinks fit and
in order to fulfill the object of section 397/398 of the Companies Act, 1956.
The interim orders or the directions in a proceeding under section 397/398 of
the Companies Act, 1956 are basically to be viewed from the angle of the
Petitioners or the Complainants. Ultimately, the Petitioners under section
397/398 of the Companies Act, 1956 may not succeed and the observations in the
order may go in favour of the Respondents too. But, what happens if the Company
Law Board passes various orders in favour of the Respondents effectively in the
Petition filed under section 397/398 of the Companies Act, 1956? This is an
interesting issue to deal with. From the stage where the courts have laid-down
the basic requirements to maintain a petition under section 397/398 of the Companies
Act, 1956 by defining the acts of ‘oppression’ and ‘mismanagement’, we have now
reached a stage where the Company Law Board can pass orders in a proceeding
under section 397/398 of the Companies Act, 1956 even if the ‘oppression’ and
‘mismanagement’ is not established. The interpretation now sought to be made is
that the Company Law Board can pass various orders even when there is no
‘oppression’ and ‘mismanagement’ and it is now sought to be justified that it
is the responsibility of the Company Law Board to correct the deadlock in the
Company though there is no oppression or mismanagement.
Coming back to the issue of scope of section 403 of the Companies Act,
1956, there is a reference like ‘upon the application of any party to the
proceeding’. Construing the said wording will be very important as a proceeding
under section 397/398 of the Companies Act, 1956 is basically seen as
proceeding between the minority and majority shareholders. There can be
transactions between the Company and a third party and the said transaction may
be questioned by the minority in a proceeding under section 397/398 of the
Companies Act, 1956. Under such circumstances, based on the principles of
natural justice, the third party should be made as a party to the proceeding
for effective adjudication of the dispute under section 397/398 of the
Companies Act, 1956. Again, a person can be impleaded as a party to a
proceeding under section 397/398 of the Companies Act, 1956 if required and
felt necessary by the Company Law Board. In the case I have seen, a person who
is not a shareholder in the Company and been made as party under section
397/398 of the Companies Act, 1956, had filed an application under section 403
and got an effective direction or a declaration in his favour. This is a
strange situation that led me to focus on the scope of section 403 and on the
wording ‘upon the application of any party to the proceeding’.
While there can be complications in giving a restrictive meaning to
section 403, there can also be complications if wide scope is conferred on
section 403. What can not be done under section 397/398 and 402, can be done
using section 403 if the wide scope is conferred on section 403 of the
Companies Act, 1956.
Though, only four sections of Companies Act, 1956 viz., 397, 398. 402 and
403, deal with the issue of providing a relief to the minority shareholders
against the acts of oppression and mismanagement in the Company by the
majority, the subject has drawn so much attention and interpretation of the
provisions is being differed from one case to another based on variety of
situations.
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