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
With the experience of looking at
the litigation before the Company Law Board and the Company Court, with the
privilege of looking at various judgments under the provisions of Companies
Act, 1956 while writing a commentary on Company Law.
We all know that the new Company
Bill is still pending and still awaiting to get the required assent and from
the media reports it is very clear that it will take more time to the new
Companies Act in the place of present Companies Act, 1956.
Yes, some of short falls in the
Companies Act, 1956, have been taken care of in the new Companies Bill. For
example, we may not be able to find an express bar on the jurisdiction of other
Civil Courts in the Companies Act, 1956 and there are precedents supporting the
simultaneous proceedings and also precedents like disputed facts can not be
gone into by the Company Law Board which follows summary procedure. There is a
specific provision in the new Companies bill like section 34 of SARFAESI Act
that the Civil Court should not interfere or assume the jurisdiction of
National Company Law Tribunal under the proposed new Act.
In view of the fact that it will
take further more time to see the new act. A dispute in a company can be like:
(a) A dispute between a Company
and an outsider.
(b) A dispute between a Company
and any of its members.
(c) A dispute between majority
and minority in a Company.
Before going to look at the
company disputes and the adjudication mechanism under the provisions of
Companies Act, 1956.
Companies are two kinds broadly
viz., private limited companies and public limited companies. Again there are
closely held public limited companies and the listed public companies. The
difference between private and public limited company is as follows:
(1) Share transfer is restricted
in private limited companies and there can not be any such restriction in
public limited companies.
(2) The provisions of the
companies act and other rules govern the functioning of the public limited
companies and it is not the case in case private limited companies as such.
(3) Private limited companies
enjoy more privileges even under the Act as compared to public limited
companies and the private limited companies can have its own regulations in the
course of its functioning.
(4) Public companies can be
closely held when the entire shareholding is held by the members of the family
and its opposite is listed public companies.
(5) When we look at the issue of
listed public companies, the SEBI will take care of the interests of the
shareholders and the listed public companies should comply with many SEBI and
central government regulations.
One thing is clear that the
interests of the shareholders are more protected in case of listed public
companies and it may not be so in case of private companies and the closely
held public companies.
As such, the issue of
adjudication and mechanism is to be looked into from the point of view of
private companies or the closely held public companies.
Now we look at the issue of
disputes as referred to above and its adjuratory mechanism:
(a) A dispute between a Company
and an outsider:
There can be disputes between a
company and an outsider like creditors. There can be a business agreement
between the Company and an agency or another company. When it is a dispute
between a Company and an outsider, the outsider can approach the traditional
civil courts seeking for enforcement of his/their rights or damages and
simultaneously, they can approach the High Court seeking to wind-up the Company
on the ground that the Company is not in a position to pay its debts or there
exists a reasonable ground to wind-up the Company. There are many principles
and procedure governing the issue of winding-up. The High Court may not
automatically wind-up the Petition on presentment in view of the interests of
other shareholders and stake holders who may not raise their voice before the
Court or who may not even have the knowledge of winding up proceedings. Thus
the High Court will take care of the interests of the other shareholders or
stake holders when a petition is filed by an outsider like creditor seeking
winding-up. Yes, it is true that the realization of money or claims after the
company is liquidated is complicated exercise and it is a big subject to deal with
and the proposed new companies act may deal with it also. When it comes to the
issue of dispute between the Company and an outsider before a traditional civil
court, the proceedings before a civil court may not affect the company as an
entity in most cases and it is like determination of rights and liabilities of
the parties before it. Thus, there may not be any problem when there is a
dispute between the Company and an outsider.
(b) A dispute between a Company
and any of its members:
There can be disputes between the
Company and any of its members who may not qualify to present an application
for winding-up before the High Court and qualify to file an application under
section 397/398 of the Companies Act, 1956. In such a case, the option available
to the member is to approach the traditional civil court or to complaint to the
Registrar of Companies or Central Government or the Company Law Board as the
case may be. There is effective remedy to a member against the Company as I
feel.
(c) A dispute between majority
and minority in a Company:
When there are disputes between
majority and minority in a Company, it becomes very very complicated. These
differences between the majority and minority may lead to presentment of an
application under section 397/298 of the Companies Act, 1956 alleging some
oppression and mismanagement, or presentment of an application under section
234 of the Act seeking an investigation into the affairs of the Company or
presentment of a winding-up petition before the High Court. We will see the
disputes between majority and minority very frequently in family companies,
private companies or even in closely held public companies. Stakes in any
company will be very high and any delay in preventing the illegality in a
Company will cost more to a minority. The majority may be selling all the
properties of the Company undervaluing the same, the majority may dilute the
shareholding pattern and the majority may completely run the company as if it
is a proprietorship concern and anything can happen. The provisions of the
Companies Act, 1956 confers rights on every shareholder and special protection
is given to the minority group in a company. If the minority can not
effectively agitate their grievance or not able to get the remedy even if their
case is established, then, it is certainly a bad thing and against the theme of
company law. There are many issues to discuss in this connection. A minority
shareholder may not have simultaneously knock both the Company Law Board and
also Civil Court at times as there are precedents that disputed facts can not
be gone into by the Company Law Board which follows a summary procedure. For
example, there is some sale transaction between a majority in a company and
outsider wherein the company sells the substantial portion of its assets. If
such a sale transaction is challenged, it is very difficult to get the
preventive orders or getting the sale set-aside speedily on the precedent as
referred to. Apart from this, there are precedents like Company Law Board has
no jurisdiction to punish the contemnors and only the High Court can punish the
persons who have committed contempt of the orders of the Company Law Board and
it all definitely delays the adjudication process. There is need to make the
dispute resolution between the majority and minority more effective than
present and we may need many new principles and also practice.
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
