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, 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 dealtwith
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.
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