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
As we all aware, section 397/398
of the Companies Act, 1956 deals with oppression and mismanagement and the
protection to the minority against the majority. The law makers could not have
expected that a situation will come where a majority are harassed or oppressed
by the minority. Sections 397/398 and other connected provisions of companies
act, 1956 meant to provide relief to the minority shareholders against the
majority when minority are oppressed or the property of the company is
mismanaged. Sections 397/398 of the Companies Act, 1956 deals with very
important issue touching the corporate world. A minority shareholder who has
invested so much in the company can not be ignorant of the acts of the majority
to oppress him or mismanage the company’s property. At the same time, the
promoters or the majority requires protection against the minority when they
resort to illegality and try to oppress the majority.
Firstly, when shareholders
present a petition to the Company Law Board under section 397/398 of the
Companies Act, 1956, it will take so much time to understand the case and that
is why, it is seen very often that a Board passing an interim order giving
liberty to the other party to apply for the order getting vacated when the
Board is satisfied that there exist a prima facie case. Reading hundreds and
thousands of papers will be a difficult job for the Company Law Board unless
there exist two competent counsels who stick to their point and assist the
Board in arriving at a conclusion. The technicalities, the complications, the
attitude, the transfer of presiding officers etc. will contribute for a long
delay in getting petitions under section 397/398 disposed of despite the fact
that the constitution of special tribunal like Company Law Board is expected to
deal with the issues speedily as compared to traditional courts. Some cases
under section 397/398 will be very complicated to deal with and ultimately an
exit option may be provided to a group at the valuation done by the independent
auditors. There is problem with exist option too when the Board found that it
is impossible to ensure that the both groups in a Company go smoothly. Many
applications under section 397/398 are filed in respect of private limited
companies or closely held public companies as listed public companies are well
regulated in view of SEBI regulations, the listing agreement and plethora of
other requirements and shareholding pattern. Many private limited companies
will not even maintain books of account properly and there tend to be under
valuations, overvaluations and concealment of certain transactions in order to
evade tax payments basically. As the true transactions of the Company are not
recorded in many cases, there will be difficult in availing the exist option.
That is why, the petitioners before the Company Law Board under section 397/398
of the Companies Act, 1956 presses for orders and corrective steps in the
Company. Again, we all know the practical difficulties in getting the orders of
the court executed. Even the orders of the High Court are floated at times
leaving only an option to move for contempt and many litigants know the
loopholes in contempt proceedings. Many reforms are actually needed to make the
law really effective.
Apparent Mismanagement:
In another case, a closely held
private company consists of family members as its shareholders. One Mr.A held
some 50% of the shareholding while his brother and his group held the remaining
50% shareholding in the Company. Mr.A was not concentrating on the affairs of
the Company thinking that his rights and interest are secured to mandatory
corporate regulations to be followed. Mr.A was living in abroad and had to
travel abroad very frequently due to health problems. Suddenly, Mr.A has found
that the very valuable property of the Company is sold for a throw away price
to a third party. Mr.A had challenged the sale transaction, but, the third
party who has purchased the property has started even developmental activity as
there was no restraint from the Board or as Mr.A could not convince the Board
for getting a restraint order like injunction. The case is pending before the
Board for years and the majority group engages competent and costly lawyers and
they keep on filing applications and now it is really difficult for the Hon’ble
Company Law Board to read all the papers, find-out all the proceedings and
passing final orders in the matter. Mr.A has a clear case to prove that the
property is sold illegality and in violation of Articles of Association and the
provisions of Law, but, still he could not get his rights secured and hoping
that his rights will be preserved and protected when the Company Petition under
section 397/398 is finally disposed of.
Complications:
1. Nature of remedy under
sections 397/398. Basically, the provisions are meant to prevent the continuing
oppression and mismanagement by the majority against the minority. But, who
remedies the wrong doing and powers of the Company Law under section 397/398
read with section 402 and other provisions are interesting to know and
dealwith.
2. Who all can approach the
Tribunal under section 397/398?
3. Can the majority approach the
Tribunal under sections 397/398?
4. How to entertain the plea
questioning the maintainability of the applications.
5. How to deal with the dispute
with regard to membership?
6. Conditions precedent for
maintaining an application under the sections?
7. How to construe the world
‘oppression’?
8. What usually constitutes
oppression?
9. How to construe the
‘mismanagement’?
10. What usually constitutes
‘mismanagement’?
11. Whether mere irregularity or
non-compliance of the provisions of the Act be taken as oppression and
mismanagement?
12. How to construe ‘public
interest’ under the section?
13. Need of giving full
particulars in an application under sections 397/398.
14. Whether the composite
petition is maintainable under the section?
15. Whether the events subsequent
to filing the application be considered?
16. Principles of Res subjudice
and Res judicata?
17. Whether the rules under the
Code of Civil Procedure applies to an application under section 397/398.
18. Is it correct to say that the
Tribunal can not decide the disputed facts?
19. Construing the issue of
proceeding against the legal representatives or impleading the legal
representatives of the applicant.
20. Whether the affairs of the
subsidiary be questioned by the members of the holding company via a via?
21. Difference between the
proceedings under section 433 and section 397/398?
22. Whether the arbitration
clause can oust the jurisdiction of Tribunal under the section?
23. Application of law of
limitation?
24. The proper approach while
entertaining an application under section.
25. The proper approach under the
section in respect of s.25 companies.
26. Essentials to be looked into
while entertaining the application.
27. The role of precedents while
entertaining an application under section 397/398.
28. Dealing with the issue of
consent under section 399.
29. Dealing with the issue of membership
and prima facie proof.
30. Powers enumerated under
section 402 and need of providing section 402 as section 397/398 itself is
elaborative when it comes to dealing with the powers of Company Law Board.
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
